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EXHIBIT 2.4
AGREEMENT AND PLAN OF MERGER
DATED AS OF FEBRUARY 18, 1999
AMONG
DIAGNOSTIC HEALTH SERVICES, INC.,
MAI ACQUISITION CORP.,
AND
MEDICAL ALLIANCE, INC.
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TABLE OF CONTENTS
Page
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TABLE OF DEFINITIONS .............................................................................................v
ARTICLE I THE MERGER...................................................................................2
Section 1.01 The Merger...........................................................................2
Section 1.02 Conversion of Shares.................................................................2
Section 1.03 Surrender and Payment................................................................4
Section 1.04 Stock Option Plans...................................................................6
Section 1.05 MAI Warrants.........................................................................7
Section 1.06 Fractional Shares....................................................................7
ARTICLE II THE SURVIVING CORPORATION....................................................................8
Section 2.01 Article of Incorporation.............................................................8
Section 2.02 By-Laws..............................................................................8
ARTICLE III REPRESENTATIONS AND WARRANTEES OF MAI........................................................8
Section 3.01 Organization and Power...............................................................8
Section 3.02 Corporate Authorization..............................................................9
Section 3.03 Governmental Authorization...........................................................9
Section 3.04 Non-Contravention....................................................................9
Section 3.05 Capitalization of MAI...............................................................10
Section 3.06 Capitalization of Subsidiaries......................................................11
Section 3.07 SEC Filings.........................................................................11
Section 3.08 Financial Statements................................................................12
Section 3.09 Information Supplied................................................................12
Section 3.10 Absence of Certain Changes..........................................................13
Section 3.11 No Undisclosed Liabilities..........................................................14
Section 3.12 Litigation..........................................................................14
Section 3.13 Taxes...............................................................................15
Section 3.14 Employee Benefit Plans; ERISA.......................................................17
Section 3.15 Certain Agreements; Compliance with Agreements......................................18
Section 3.16 Compliance with Laws and-Orders.....................................................20
Section 3.17 Environmental Matters...............................................................20
Section 3.18 Assets..............................................................................21
Section 3.19 Intellectual Property Rights........................................................21
Section 3.20 Labor Matters.......................................................................22
Section 3.21 Transactions with Affiliates........................................................22
Section 3.22 Insurance...........................................................................23
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Section 3.23 Takeover Statutes...................................................................23
Section 3.24 Finders' Fees.......................................................................23
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DHS.......................................................23
Section 4.01 Organization and Power..............................................................24
Section 4.02 Corporate Authorization.............................................................24
Section 4.03 Governmental Authorization..........................................................24
Section 4.04 Non-Contravention...................................................................24
Section 4.05 Capitalization of DHS...............................................................25
Section 4.06 Capitalization of Subsidiaries......................................................26
Section 4.07 SEC Filings.........................................................................26
Section 4.08 Financial Statements................................................................27
Section 4.09 Information Supplied................................................................27
Section 4.10 Absence of Certain Changes..........................................................27
Section 4.11 No Undisclosed Liabilities..........................................................29
Section 4.12 Litigation..........................................................................29
Section 4.13 Taxes...............................................................................29
Section 4.14 Employee Benefits; ERISA............................................................31
Section 4.15 Certain Agreements; Compliance with Agreements......................................32
Section 4.16 Compliance with Laws and Orders.....................................................34
Section 4.17 Environmental Matters...............................................................34
Section 4.18 Assets..............................................................................35
Section 4.19 Intellectual Property Rights........................................................35
Section 4.20 Labor Matters.......................................................................36
Section 4.21 Transactions with Affiliates........................................................36
Section 4.22 Insurance...........................................................................36
Section 4.23 Takeover Statutes...................................................................37
Section 4.24 Finders' Fees.......................................................................37
ARTICLE V COVENANTS...................................................................................37
Section 5.01 Conduct of MAI......................................................................37
Section 5.02 Conduct of DHS......................................................................39
Section 5.03 No Solicitation.....................................................................42
Section 5.04 Approval of Stockholders............................................................43
Section 5.05 Preparation of Form S-4 and Proxy Statement.........................................44
Section 5.06 Access to Information...............................................................45
Section 5.07 Notices of Certain Events...........................................................46
Section 5.08 Regulatory and Other Approvals......................................................46
Section 5.09 Public Announcements................................................................47
Section 5.10 Further Assurances..................................................................47
Section 5.11 MAI Affiliates......................................................................47
Section 5.12 Obligations of Merger Subsidiary....................................................48
Section 5.13 Listing of Stock....................................................................48
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Section 5.14 Antitakeover Statutes...............................................................48
Section 5.15 Tax Treatment.......................................................................48
Section 5.16 Appointment of Directors............................................................48
Section 5.17 Director and Officer Indemnification................................................49
Section 5.18 Employee Benefits...................................................................49
Section 5.19 Good Faith Efforts..................................................................49
ARTICLE VI GENERAL CONDITIONS PRECEDENT TO THE MERGER..................................................49
Section 6.01 Stockholder Approval................................................................49
Section 6.02 HSR Act.............................................................................50
Section 6.03 Registration Statements; State Securities Laws......................................50
Section 6.04 Listing.............................................................................50
Section 6.05 Suits or Other Proceedings..........................................................50
Section 6.06 Employment Agreements...............................................................50
Section 6.07 Pooling Letters.....................................................................50
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DHS AND MERGER SUBSIDIARY........................51
Section 7.01 Representations and Warranties......................................................51
Section 7.02 Performance of Obligations..........................................................51
Section 7.03 No Material Adverse Change..........................................................51
Section 7.04 Consents............................................................................51
Section 7.05 Opinion of MAI Counsel..............................................................51
Section 7.06 Proceedings.........................................................................51
Section 7.07 Fairness Opinion....................................................................52
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MAI..............................................52
Section 8.01 Representations and Warranties......................................................52
Section 8.02 Performance of Obligations..........................................................52
Section 8.03 No Material Adverse Change..........................................................52
Section 8.04 Consents............................................................................52
Section 8.05 Opinion of DHS Counsel..............................................................52
Section 8.06 Proceedings.........................................................................53
Section 8.07 Tax Opinion.........................................................................53
Section 8.08 Fairness Opinion at or prior to the Closing.........................................53
Section 8.09 Accounting Matters..................................................................53
Section 8.10 DHS First QuarterResults............................................................53
Section 8.11 Waivers from Lenders................................................................53
ARTICLE IX TERMINATION.................................................................................54
Section 9.01 Termination.........................................................................54
Section 9.02 Effect of Termination...............................................................55
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ARTICLE X MISCELLANEOUS...............................................................................56
Section 10.01 Notices.............................................................................56
Section 10.02 Entire Agreement Non-Survival of Representations and Warranties:
Third Party Beneficiaries...........................................................57
Section 10.03 Amendment...........................................................................57
Section 10.04 Waiver..............................................................................58
Section 10.05 Expenses............................................................................58
Section 10.06 Successors and Assigns..............................................................58
Section 10.07 Governing Law.......................................................................58
Section 10.08 Jurisdiction........................................................................58
Section 10.09 Counterparts: Effectiveness.........................................................58
Section 10.10 Interpretation......................................................................59
Section 10.11 Severability........................................................................59
Section 10.12 Specific Performance................................................................59
Section 10.13 Performance by Merger Subsidiary....................................................59
EXHIBITS
Voting Agreement...............................................................A
Affiliate Letter...............................................................B
Registration Rights Agreement..................................................C
Opinion of MAI Counsel.........................................................D
Opinion of DHS Counsel.........................................................E
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TABLE OF DEFINITIONS
TERM SECTION
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1933 Act 3.03
1934 Act 3.03
Adjusted Option 1.04(a)
Affiliate Letter 5.11
Alternative Proposal 5.03(a)
Antitrust Division 5.08
Closing 1.01(b)
Closing Date 1.01(b)
Code recitals
Confidentiality Agreement 5.06(a)
Delaware Law 4.23
DHS preamble
DHS 10-K 4.08
DHS Agreement 4.04
DHS Balance Sheet 4.08
DHS Balance Sheet Date 4.08
DHS Benefit Plans 4.14(a)
DHS Common Stock 1.02(a)
DHS Disclosure Letter 2.03
DHS ERISA Affiliate 4.14(a)
DHS Financial Statements 4.08
DHS Group 4.13(1)
DHS Holders recitals
DHS Options 4.05(a)
DHS Permits 4.16
DHS Plans 4.05(a)
DHS Preferred Stock 4.05(a)
DHS Proposal 5.03(b)
DHS SEC Documents 4.07(a)
DHS Securities 4.05(a)
DHS Stockholders' Approval 5.03(b)
DHS Stockholders' Meeting(s) 5.03(b)
DHS Subsidiary Securities 4.06
DHS Tax Returns 4.13
Effective Time 1.01(c)
Environmental Laws 3.17(b)
Environmental Liabilities 3.17(b)
ERISA 3.14(a)
Exchange Agent 1.03(a)
Form S-4 3.09
FTC 5.08
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TERM SECTION
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GAAP 3.08
Governmental Authorities 3.03
Hazardous Substance 3.17(b)
HSR Act 3.03
Indemnified Persons 5.17
Intellectual Property 3.19(a)
Laws 3.04
Lien 3.04
MAI preamble
MAI 10-K 3.08
MAI Affiliates 5.11
MAI Agreement 3.04
MAI Balance Sheet Date 3.08
MAI Balance Sheet 3.08
MAI Benefit Plans 3.14(a)
MAI Common Stock 1.02(a)
MAI Disclosure Letter 3.01
MAI ERISA Affiliate 3.14(a)
MAI Financial Statements 3.08
MAI Group 3.13(i)
MAI Holders recitals
MAI Option Plan 1.04(a)
MAI Permits 3.16
MAI SEC Documents 3.07(a)
MAI Securities 3.05(a)
MAI Stock Option 1.04(a)
MAI Stockholders' Approval 5.03(a)
MAI Stockholders' Meeting 5.04(a)
MAI Subsidiary Securities 3.06
MAI Tax Returns 3.13(a)
Material Adverse Effect 3.01
Merger 1.01(a)
Merger Consideration 1.02(c)
Merger Subsidiary preamble
Most Recent DHS Balance Sheet 4.08(b)
Most Recent MAI Balance Sheet 3.08(b)
Name Change 5.04(b)
Notice of Superior Proposal 5.04(a)
Orders 3.04
Person 1.02(d)
Proxy Statement 3.09
Qualified Stock Options 1.04(a)
SEC 3.07(a)
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TERM SECTION
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Service 3.13(h)
Share(s) 1.02(a)
Stockholders recitals
Stockholders' Meetings 5.04(b)
Subsidiary 1.02(d)
Subsidiary of MAI 3.17(b)
Superior Proposal 5.03(a)
Surviving Corporation 1.01(a)
Takeover Statute 3.23
Tax Return 3.13(1)
Taxes 3.13(1)
Taxing Authority 3.13(1)
Texas Law 1.01(a)
Voting Agreement recitals
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of February 18, 1999 among
DIAGNOSTIC HEALTH SERVICES, INC., a Delaware corporation ("DHS"), MAI
ACQUISITION CORP., a Texas corporation and a wholly-owned Subsidiary of DHS
("Merger Subsidiary"), and MEDICAL ALLIANCE, INC., a Texas corporation ("MAI")
W I T N E S S E T H:
WHEREAS, DHS and its Subsidiaries are engaged primarily in the
provision of outsourced medical support services and equipment to hospitals,
physician offices and other health care facilities, and MAI and its
Subsidiaries are engaged primarily in the provision of services used to create
temporary surgical environments in physician offices; and
WHEREAS, the respective Boards of Directors of DHS and MAI have
approved, and deem it advisable and in the best interests of their respective
stockholders to consummate, the acquisition of MAI by DHS by means of a merger
of Merger Subsidiary into MAI, as a result of which MAI will become a
wholly-owned subsidiary of DHS, all on the terms and conditions set forth
herein; and
WHEREAS, for United States federal income tax purposes, it is intended
that the Merger contemplated by this Agreement qualify as a "reorganization"
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder (the "CODE"); and
WHEREAS, as a condition and inducement to DHS entering into this
Agreement and incurring the obligations set forth herein, concurrently with the
execution and delivery of this Agreement, DHS is entering into a Voting
Agreement with Mapleleaf Capital, Ltd., Sunwestern Cayman 1998 Partners,
Sunwestern Investment Fund III, Xxxx X. Xxxxxxxx, Xxxx X. Xxxx, Xxxxx X.
Xxxxxxxxxxxx, Xxxxxx X. Xxxxxxxxxx, Xxxx Xxxxxxxx and Xxxx XxXxxxxxx
(collectively, the "MAI HOLDERS") and Xxx X. Xxxxxx, Xxxx X. Xxxxxx, Xxxxx X.
Xxxxxxxx, Xxxxxx X. Xxxxxx, Xx X. Xxxxx and Xxxxxx X. Xxxxxxxx (collectively,
the "DHS HOLDERS," and collectively with the MAI Holders, the "STOCKHOLDERS"),
in the form of Exhibit A hereto (the "VOTING AGREEMENT") pursuant to which,
among other things, the MAI Holders have agreed to vote the shares of MAI
Common Stock owned by them in favor of this Agreement and the Merger, the Name
Change and other transactions provided for herein, and the DHS Holders have
agreed to vote the shares of DHS Common Stock owned by them in favor of the
issuance of shares of DHS Common Stock pursuant to the Merger, the Name Change
and the other transactions contemplated by the Merger.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein and in
the Voting Agreement, the parties hereto, intending to be legally bound hereby,
agree as follows:
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ARTICLE I
THE MERGER
Section 1.01 The Merger.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time, Merger Subsidiary shall be merged (the
"MERGER") with and into MAI in accordance with the Texas Business Corporation
Act (the "TEXAS LAW"), whereupon the separate existence of Merger Subsidiary
shall cease, and MAI shall continue as the surviving corporation (the
"SURVIVING CORPORATION").
(b) Upon the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "CLOSING") shall take place at 10:00
a.m. on a date to be specified by the parties (the "CLOSING Date"), which shall
be no later than the fifth business day after satisfaction of the conditions
set forth in Article VI, at the offices of Xxxxxxx Xxxxxx L.L.P. in Dallas,
Texas, unless another time, date or place is agreed to in writing by the
parties hereto.
(c) Upon the Closing, MAI and Merger Subsidiary will file
articles of merger with the Secretary of State of the State of Texas and make
all other filings or recordings required by Texas Law in connection with the
Merger. The Merger shall become effective at such time as the articles of
merger are duly filed with the Secretary of State of the State of Texas or at
such later time as is agreed by DHS and MAI and specified in the articles of
merger (the "EFFECTIVE TIME").
(d) The Merger shall have the effects set forth in Section
5.04 of the Texas Law.
(e) Each party hereto will, either prior to or after the
Effective Time, execute such further documents, instruments, deeds, bills of
sale, assignments and assurances and take such further actions as may
reasonably be requested by one or more of the other parties to consummate the
Merger, to vest the Surviving Corporation with full title to all assets,
properties, privileges, rights, approvals, immunities and franchises of Merger
Subsidiary or MAI, or to effect the other purposes of this Agreement.
Section 1.02 Conversion of Shares.
(a) At the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any common stock of MAI or
Merger Subsidiary:
(i) each share of Common Stock, par value $0.002 per share,
of MAI (the "MAI COMMON Stock") held by MAI as treasury stock or owned
by DHS or any Subsidiary of DHS immediately prior to the Effective
Time shall automatically be canceled and retired without any
conversion thereof, and no DHS Common Stock or other consideration
shall be delivered in exchange therefor;
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(ii) each share of common stock, par value $0.01 per share,
of Merger Subsidiary outstanding immediately prior to the Effective
Time shall automatically be converted into and become one share of
common stock of the Surviving Corporation and shall constitute the
only outstanding shares of capital stock of the Surviving Corporation;
and
(iii) each share (each, a "SHARE" and collectively, the
"SHARES") of MAI Common Stock outstanding immediately prior to the
Effective Time shall, except as otherwise provided in Section
1.02(a)(i), automatically be converted into the right to receive 1.57
shares of fully paid and non-assessable Common Stock, par value $0.001
per share of DHS (the "DHS COMMON STOCK"); provided, however, that the
foregoing conversion ratio shall be (A) appropriately adjusted in the
event that there shall occur any stock dividend, stock split,
combination of shares, recapitalization or other such event relating
to the DHS Common Stock or the MAI Common Stock between the date
hereof and the Effective Time, (B) proportionately increased or
decreased (as the case may be) in the event and to the extent that the
number of outstanding shares of DHS Common Stock shall, at the
Effective Time, be greater than or less than the number of outstanding
shares of DHS Common Stock on the date hereof, other than increases
resulting from the exercise of options or warrants that are
outstanding on the date hereof or hereafter issued in accordance with
Section 5.02(f) and from the conversion of any DHS Preferred Stock
(including additional shares of DHS Preferred Stock which may
hereafter accrue as in-kind dividends), such that the MAI stockholders
receive in the Merger the same percentage of the total outstanding DHS
Common Stock (immediately after giving effect to the Merger) as they
would have received had the Merger been consummated on the date of
this Agreement, and (C) shall be increased or decreased (as the case
may be) in the event and to the extent that the number of outstanding
shares of MAI Common Stock shall, at the Effective Time, be less than
or greater than the number of outstanding shares of MAI Common Stock
on the date hereof, other than increases resulting from exercises of
options or warrants outstanding on the date hereof or hereafter issued
in accordance with Section 5.01(f) and any issuance of MAI Common
Stock pursuant to the outstanding Asset Purchase Agreement between MAI
and Xxxxxx Xxxxxxx, such that the MAI stockholders receive in the
Merger the same percentage of the total outstanding DHS Common Stock
(immediately after giving effect to the Merger) as they would have
received had the Merger been consummated on the date of this
Agreement.
(b) From and after the Effective Time, all Shares converted
in accordance with Section 1.02(a)(iii) shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Shares shall cease to have any
rights with respect thereto, except the right to receive the Merger
Consideration. From and after the Effective Time, all certificates representing
the common stock of Merger Subsidiary shall be deemed for all purposes to
represent the number of shares of Common Stock of the Surviving Corporation
into which they were converted in accordance with Section 1.02(a)(ii).
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(c) The DHS Common Stock to be received as consideration
pursuant to the Merger by each holder of Shares (together with any cash which
may be paid in lieu of fractional shares of DHS Common Stock in accordance with
Section 1.06) is referred to herein as the "MERGER CONSIDERATION."
(d) For purposes of this Agreement, the word "SUBSIDIARY"
when used with respect to any Person means any other Person, whether
incorporated or unincorporated, of which at least a majority of the securities
or other interests having by their terms ordinary voting power to elect at
least a majority of the board of directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such Person or by any one or more of its
Subsidiaries. For purposes of this Agreement, "PERSON" means an individual, a
corporation, a limited liability company, a partnership, an association, a
trust or any other entity or organization, including a Governmental Authority.
Section 1.03 Surrender and Payment.
(a) Prior to the Effective Time, DHS shall appoint American
Stock Transfer & Trust Company as agent (the "EXCHANGE AGENT") for the purpose
of exchanging certificates representing Shares for the Merger Consideration.
Promptly after the Effective Time (but in any event within five (5) business
days thereafter), DHS will send, or will cause the Exchange Agent to send, to
each holder of Shares at the Effective Time (i) a letter of transmittal for use
in such exchange (which shall specify that delivery of the Merger Consideration
shall be effected, and risk of loss and title to the certificates representing
MAI Common Stock shall pass, only upon proper delivery of the certificates
representing Shares to the Exchange Agent), and (ii) instructions for use in
effecting the surrender of the certificates representing Shares in exchange for
the certificates representing DHS Common Stock constituting Merger
Consideration. Notwithstanding the foregoing, neither the Exchange Agent nor
any party hereto shall be liable to a holder of certificates theretofore
representing Shares for any amount which may be required to be paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(b) Each holder of Shares that have been converted into a
right to receive the Merger Consideration, upon surrender to the Exchange Agent
of a certificate or certificates representing such Shares, together with a
properly completed letter of transmittal covering such Shares, will be entitled
to receive the Merger Consideration payable in respect of such Shares and any
dividends payable pursuant to Section 1.03(f). Until so surrendered, each such
certificate shall, after the Effective Time, represent for all purposes only
the right to receive the Merger Consideration and any dividends payable
pursuant to Section 1.03(f).
(c) If any certificate representing Merger Consideration is
to be delivered to a Person other than the registered holder of the Shares
represented by the certificate or certificates surrendered in exchange
therefor, it shall be a condition to the issuance of such certificate
evidencing DHS Common Stock that the certificate or certificates so surrendered
shall be properly endorsed or otherwise be in proper form for transfer and that
the Person requesting such payment shall pay to the Exchange Agent any transfer
or other taxes required by reason of the
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issuance of shares of DHS Common Stock to a Person other than the registered
holder of such Shares represented by the certificate or certificates so
surrendered or establish to the satisfaction of the Exchange Agent that such
tax has been paid or is not applicable.
(d) After the Effective Time, there shall be no further
registration of transfers of Shares on the stock transfer book of MAI. If,
after the Effective Time, certificates representing Shares are presented to the
Surviving Corporation, they shall be canceled and exchanged for the
consideration provided for, and in accordance with the procedures set forth, in
this Article I.
(e) Any portion of the Merger Consideration that remains
unclaimed by the holders of Shares one (1) year after the Effective Time shall
be returned to DHS, upon demand, and any such holder who has not exchanged his
Shares for the Merger Consideration in accordance with this Section 1.03 prior
to that time shall thereafter look only to DHS for payment of the Merger
Consideration. Notwithstanding the foregoing, DHS shall not be liable to any
holder of Shares for any amount paid to a public official pursuant to
applicable abandoned property laws. Any amounts remaining unclaimed by holders
of Shares seven (7) years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Authority) shall, to the extent permitted
by applicable law, become the property of DHS free and clear of any claims or
interest of any Person previously entitled thereto.
(f) No dividends or other distributions with respect to DHS
Common Stock issued in the Merger shall be paid to the holder of any
unsurrendered certificates representing Shares until such certificates are
surrendered as provided in this Section 1.03. Subject to the effect of
applicable laws, following the surrender of such certificates, there shall be
paid, without interest, to the record holder of the DHS Common Stock issued in
exchange therefor at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time payable prior
to or on the date of such surrender with respect to such whole shares of DHS
Common Stock and not previously paid, less the amount of any withholding taxes
which may be required thereon.
(g) In the event that any certificate representing Shares
shall have been lost, stolen or destroyed, upon the making of an affidavit
(containing a standard form of indemnity) of the fact by the person claiming
such certificate to be lost, stolen or destroyed, DHS will, after the Effective
Time, issue in exchange for such lost, stolen or destroyed certificate the
certificate evidencing shares of DHS Common Stock deliverable in respect
thereof, as determined in accordance with this Article I. When authorizing such
issue of the certificate of shares of DHS Common Stock in exchange therefor,
DHS may, in its discretion and as a condition precedent to the issuance
thereof, require (unless such requirement is waived by Xxxx Xxxx or Xxxx
Xxxxxx) the owner of such lost, stolen or destroyed certificate (unless such
owner is an institutional investor) to give DHS a bond in such sum as it may
direct as indemnity against any claim that may be made against DHS with respect
to the certificate alleged to have been lost, stolen or destroyed.
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(h) Approval and adoption of this Agreement by the
stockholders of MAI shall constitute, as an integral part of the Merger,
ratification of the appointment of, and the reappointment of, said Exchange
Agent.
Section 1.04 Stock Option Plans.
(a) At the Effective Time, the terms of each outstanding
option granted by MAI to purchase shares of MAI Common Stock (a "MAI STOCK
OPTION") under the 1994 Amended and Restated Long Term Incentive Plan of MAI
(the "MAI OPTION PLAN"), whether vested or unvested, shall be adjusted as
necessary to provide that at the Effective Time, each MAI Stock Option
outstanding immediately prior to the Effective Time shall be fully vested
pursuant to the terms of the MAI Option Plan and shall be deemed to constitute
and shall become an option to acquire, on the same terms and conditions as were
applicable under such MAI Stock Option, the same number of shares of DHS Common
Stock as the holder of such MAI Stock Option would have been entitled to
receive pursuant to the Merger (including, if applicable, after giving effect
to the adjustments contemplated by the proviso to Section 1.02(a)(iii)) had
such holder exercised such MAI Stock Option in full immediately prior to the
Effective Time, at a price per share of DHS Common Stock equal to (i) the
aggregate exercise price for the shares of MAI Common Stock otherwise
purchasable pursuant to such MAI Stock Option, divided by (ii) the aggregate
number of shares of DHS Common Stock deemed purchasable pursuant to such MAI
Stock Option (each, as so adjusted, an "ADJUSTED OPTION"); provided that, after
aggregating all the Shares of a holder subject to MAI Stock Options, any
fractional share of DHS Common Stock resulting from such calculation for such
holder shall be rounded up to the nearest whole share and provided, further,
that in the case of any option to which Section 421 of the Code applies by
reason of its qualification under any of Sections 422 through 424 of the Code
("QUALIFIED STOCK options"), the option price, the number of shares purchasable
pursuant to such option, and the terms and conditions of exercise of such
option shall be determined in order to comply with Section 424 of the Code.
(b) As soon as practicable after the Effective Time, DHS
shall deliver to the holders of MAI Stock Options appropriate notices setting
forth such holders' rights pursuant to the MAI Option Plan and the agreements
evidencing the grants of such MAI Stock Options and that such MAI Stock Options
and agreements shall be assumed by DHS and shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section 1.04
after giving effect to the Merger).
(c) DHS shall take such actions as are reasonably necessary
for the assumption of the MAI Option Plan pursuant to this Section 1.04,
including the reservation, issuance and listing of DHS Common Stock as is
necessary to effectuate the transactions contemplated by this Section 1.04. DHS
shall prepare and file with the SEC a registration statement on Form S-8 or
other appropriate form with respect to shares of DHS Common Stock subject to
MAI Stock Options issued under the MAI Option Plan (as well as shares of DHS
Common Stock which become subject to the MAI Warrants as provided in Section
1.05) and shall use its reasonable efforts to have such registration statement
declared effective as soon as practicable following the Effective Time and to
maintain the effectiveness of such registration
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statement or registration statements covering such MAI Stock Options (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as such MAI Stock Options remain outstanding.
Section 1.05 MAI Warrants. At the Effective Time, by virtue of the
Merger and without requirement of any action on the part of the holder(s)
thereof (but subject to the consent of such holder(s) with respect to the
adjustments hereunder), the outstanding common stock purchase warrants of MAI
(the "MAI WARRANTS") immediately prior to the Effective Time shall
automatically be converted into and shall become warrants of DHS to acquire, on
the same terms and conditions as were applicable under such MAI Warrant, the
same number of shares of DHS Common Stock as the holder of such MAI Warrant
would have been entitled to receive pursuant to the Merger (including, if
applicable, after giving effect to the adjustments contemplated by the proviso
to Section 1.02(a)(iii)) had such holder exercised such MAI Warrant in full
immediately prior to the Effective Time, at a price per share of DHS Common
Stock equal to (a) the aggregate exercise price for the shares of MAI Common
Stock otherwise purchasable pursuant to such MAI Warrant, divided by (b) the
aggregate number of shares of DHS Common Stock deemed purchasable pursuant to
such MAI Warrant (each, as so adjusted, an "ADJUSTED WARRANT"); provided that,
after aggregating all of the Shares of a holder subject to MAI Warrants, any
fractional share of DHS Common Stock resulting from such calculation for such
holder shall be rounded up to the nearest whole share.
Section 1.06 Fractional Shares. Neither certificates nor scrip for
fractional shares of DHS Common Stock will be issued in the Merger, but in lieu
thereof each holder of MAI Common Stock otherwise entitled to a fraction of a
share of DHS Common Stock (after aggregating all fractional shares of MAI
Common Stock that would otherwise be received by such holder) will be entitled
hereunder to (a) if permitted by the senior and subordinated lenders to DHS, a
cash payment calculated as hereinafter provided, or (b) if such cash payment is
not permitted by DHS' lenders, an additional fractional share in an amount
sufficient to round such stockholder's aggregate holdings of DHS Common Stock
to the next nearest whole share. The amount of any such cash payment shall
equal, in the case of each fractional share, an amount (rounded to the nearest
whole cent), without interest, calculated as the product of (i) such fraction,
multiplied by (ii) the arithmetic mean of the closing sales prices for the DHS
Common Stock reported on the NASDAQ National Market System for each of the five
(5) consecutive trading days on which DHS Common Stock was traded immediately
preceding the Effective Time as quoted in the Wall Street Journal, or other
reliable financial newspaper or publication. For the purposes of the preceding
sentence, a "trading day" means a day on which trading generally takes place on
the NASDAQ National Market System. No such fractional share interest shall
entitle the owner thereof to vote or to any rights of a stockholder of DHS.
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ARTICLE II
THE SURVIVING CORPORATION
Section 2.01 Articles of Incorporation. Subject to the provisions of
Section 5.17, the articles of incorporation of Merger Subsidiary shall be the
articles of incorporation of the Surviving Corporation, except that, at the
Effective Time, the name of the Surviving Corporation shall be changed to "MAI,
Inc." or such other name as DHS may designate on or before the Effective Time,
until thereafter amended in accordance with applicable law and such articles of
incorporation.
Section 2.02 By-Laws. Subject to the provisions of Section 5.17, the
by-laws of Merger Subsidiary in effect at the Effective Time shall be the
by-laws of the Surviving Corporation, until thereafter amended in accordance
with applicable law, the articles of incorporation of the Surviving Corporation
and such by-laws.
Section 2.03 Directors and Officers. From and after the Effective
Time, until successors are duly elected or appointed and qualified in
accordance with the Texas Law and the articles of incorporation and by-laws of
the Surviving Corporation, the directors and the officers of the Surviving
Corporation shall be those persons set forth on Schedule 2.03 to the disclosure
letter delivered by DHS to MAI concurrently with the execution and delivery of
this Agreement (the "DHS DISCLOSURE LETTER").
ARTICLE III
REPRESENTATIONS AND WARRANTEES OF XXX
XXX represents and warrants to DHS that:
Section 3.01 Organization and Power. Each of MAI and its Subsidiaries
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, and has the requisite
corporate power and authority and governmental approvals to own, lease and
operate its properties and to carry on its business as now being conducted.
Each of MAI and its Subsidiaries is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, have a Material Adverse Effect on MAI. For purposes of this
Agreement, a "MATERIAL ADVERSE Effect" with respect to any Person means a
material adverse effect (a) on the condition (financial or otherwise),
business, liabilities, properties, assets, results of operations or prospects
of such Person and its Subsidiaries, taken as a whole, or (b) on the ability of
such Person to perform its obligations under or to consummate the transactions
contemplated by this Agreement. Schedule 3.01 to the disclosure letter
delivered by MAI to DHS concurrently with the execution and delivery of this
Agreement (the "MAI DISCLOSURE LETTER") sets forth (i) the name and
jurisdiction of incorporation of each Subsidiary of MAI, (ii) its authorized
capital stock, (iii) the number of issued and outstanding shares of its capital
stock, and (iv) the record and beneficial owners of such shares. Except as set
forth on Schedule 3.01 to the MAI Disclosure Letter, MAI does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity
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or similar interest in, any Person. MAI has heretofore delivered to DHS true
and complete copies of the certificate or articles of incorporation and by-laws
as currently in effect of MAI and its Subsidiaries.
Section 3.02 Corporate Authorization. The execution, delivery and
performance by MAI of this Agreement and the consummation by MAI of the
transactions contemplated hereby are within MAI's corporate powers and, except
as set forth in the second succeeding sentence of this Section 3.02, have been
duly authorized by all necessary corporate action, including, without
limitation, authorization and approval of its Board of Directors. As of the
date of this Agreement, the Board of Directors of MAI has recommended approval
and adoption of this Agreement by the shareholders of MAI and directed that
this Agreement be submitted to the stockholders of MAI for their approval. The
affirmative vote of the holders of at least two-thirds of the outstanding
Shares is the only vote of any class or series of MAI's capital stock necessary
to approve and adopt this Agreement, the Merger and the transactions
contemplated by this Agreement. This Agreement has been duly executed and
delivered by MAI and, subject to the receipt of the approval described in the
immediately preceding sentence, constitutes a legal, valid and binding
agreement of MAI, enforceable against MAI in accordance with its terms (subject
to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, regardless of whether in
a proceeding in equity or at law).
Section 3.03 Governmental Authorization. The execution, delivery and
performance by MAI of this Agreement, and the consummation by MAI of the
transactions contemplated hereby, require no action by or in respect of, or
filing with or notice to, any United States federal, state or local government,
any foreign country, any foreign state or local government or any court,
administrative agency or commission or other governmental or regulatory agency
or authority of any of the foregoing (collectively "GOVERNMENTAL AUTHORITIES"
and individually a "GOVERNMENTAL AUTHORITY"), other than (a) the filing of
articles of merger with respect to the Merger with the Texas Secretary of State
and appropriate documents with the relevant authorities of other states in
which MAI is qualified to do business; (b) compliance with any applicable
requirements of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as
amended (the "HSR ACT"), provided that nothing contained in this Agreement
shall be deemed to constitute an acknowledgement that any requirements under
the HSR Act are applicable to the transactions contemplated by this Agreement;
(c) compliance with any applicable requirements of the Securities Act of 1933,
as amended, and the rules and regulations promulgated thereunder (the "1933
ACT"); (d) compliance with any applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "1934 ACT"); and (e) compliance with any other applicable
securities laws.
Section 3.04 Non-Contravention. Except as set forth on Schedule 3.04
to the MAI Disclosure Letter, the execution, delivery and performance by MAI of
this Agreement do not, and the consummation by MAI of the transactions
contemplated hereby will not, require the consent of any other Person, or
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
Person any right
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of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien on any of
the assets or properties of MAI or any of its Subsidiaries under, any of the
terms, conditions or provisions of (a) the certificate or articles of
incorporation, by-laws or similar organizational documents of MAI or any of its
Subsidiaries, (b) assuming receipt of the approval of stockholders referred to
in Section 3.02, and compliance with the matters referred to in Section 3.03,
any United States or foreign statute, law, regulation, rule or ordinance
(together "LAWS") or any judgment, injunction, order, writ, license, permit or
decree of any Governmental Authority (together "Orders") binding upon or
applicable to MAI, any Subsidiary of MAI or any of their respective assets or
properties, or (c) any note, bond, mortgage, security agreement, indenture,
lease, contract, instrument or other agreement of any kind to which MAI or any
Subsidiary of MAI is a party or by which MAI or any Subsidiary of MAI or any of
their respective assets or properties is bound (a "MAI AGREEMENT") or any
license, franchise, permit or other similar authorization held by MAI or any
Subsidiary of MAI. For purposes of this Agreement, "LIEN" means, with respect
to any asset, any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset, and, in addition, with
respect to real property, any easement, right of way or other restriction,
limitation or burden of any kind in respect of such real property.
Section 3.05 Capitalization of MAI.
(a) The authorized capital stock of MAI consists solely of
30,000,000 shares of MAI Common Stock and 5,000,000 shares of preferred stock,
par value $.002 per share (the "MAI PREFERRED STOCK"). As of the close of
business on December 31, 1998, (i) 6,117,079 shares of MAI Common Stock were
issued and outstanding, 277,203 shares of MAI Common Stock were issued and held
in the treasury of MAI, and 1,107,607 shares of MAI Common Stock were reserved
for issuance under the MAI Option Plan and the MAI Warrants, (ii) options to
purchase 917,541 shares of MAI Common Stock were outstanding under the MAI
Option Plan and warrants to purchase 15,610 shares of MAI Common Stock were
outstanding under the MAI Warrants, and (iii) no shares of MAI Preferred Stock
are issued, outstanding or held in the treasury of MAI. All of the outstanding
shares of MAI Common Stock are, and all shares reserved for issuance will be,
when issued in accordance with the terms specified in the instruments or
agreements pursuant to which they are issuable, duly authorized, validly
issued, fully paid and non-assessable. Except (A) as set forth in this Section
3.05 or in Schedule 3.05 to the MAI Disclosure Letter, and (B) for Shares that
may be issued as provided in Section 5.01(f), there are outstanding (w) no
shares of capital stock or other voting securities of MAI, (x) no securities of
MAI convertible into or exchangeable for shares of capital stock or voting
securities of MAI, (y) no options, warrants or other rights to acquire from
MAI, and no preemptive or similar rights, subscriptions or other rights,
convertible securities, agreements, arrangements or commitments of any
character, obligating MAI to issue, transfer or sell, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock or
voting securities of MAI or obligating MAI to grant, extend or enter into any
such option, warrant, subscription or other right, convertible security,
agreement, arrangement or commitment, and (z) no restricted stock awards, stock
appreciation rights, performance share agreements or stock unit awards of MAI
(the items in clauses (w), (x), (y) and (z) being referred to collectively as
the "MAI SECURITIES").
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(b) Except as set forth on Schedule 3.05 to the MAI
Disclosure Letter, (i) there are no voting trusts or other agreements or
understandings to which MAI or any Subsidiary of MAI is a party with respect to
the voting of the capital stock of MAI or any Subsidiary of MAI, (ii) no Person
has or is entitled to any registration rights in respect of any MAI Securities,
and (iii) none of MAI or its Subsidiaries has any contractual obligation to
redeem, repurchase or otherwise acquire any MAI Securities or any capital stock
of any Subsidiary of MAI, including as a result of the transactions
contemplated by this Agreement, or to provide funds to, or make any investment
in, any Subsidiary of MAI or any other Person. Except as permitted by this
Agreement, following the Merger, neither MAI nor any of its Subsidiaries will
have any obligation to issue, transfer or sell any shares of its capital stock
pursuant to any employee benefit plan or otherwise.
Section 3.06 Capitalization of Subsidiaries. Except as set forth on
Schedule 3.06 to the MAI Disclosure Letter, all of the outstanding shares of
capital stock of, or other ownership interests in, each Subsidiary of MAI, are
duly authorized, validly issued, fully paid and non-assessable and are owned,
beneficially and of record, by MAI, directly or indirectly, free and clear of
any consensual Lien (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests). There
are no (a) outstanding securities of MAI or any Subsidiary of MAI convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of MAI, or (b) options, warrants or other
rights to acquire from MAI or any Subsidiary of MAI, and no other obligation of
MAI or any Subsidiary of MAI to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or
exchangeable for, any capital stock, voting securities or ownership interests
in, any Subsidiary of MAI (the items in clauses (a) and (b) being referred to
collectively as the "MAI SUBSIDIARY SECURITIES").
Section 3.07 SEC Filings.
(a) MAI has filed all reports, schedules, forms, statements
and other documents with the Securities and Exchange Commission (the "SEC')
required to be filed by MAI since October 11, 1996 (the "MAI SEC DOCUMENTS").
(b) As of its filing date, each MAI SEC Document filed
pursuant to the 1934 Act complied as to form in all material respects with the
requirements of the 1934 Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) Each MAI SEC Document that is a registration statement,
as amended or supplemented, if applicable, filed pursuant to the 1933 Act as of
the date such registration statement or amendment became effective complied as
to form in all material respects with the requirements of the 1933 Act and did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
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Section 3.08 Financial Statements.
(a) The audited consolidated financial statements included in
MAI's Annual Report on Form 10-K for the fiscal year ended December 31, 1997
(the "MAI 10-K") and the unaudited consolidated interim financial statements of
MAI included in the MAI SEC Documents filed after such date (collectively, the
"MAI FINANCIAL STATEMENTS") complied, or will comply, as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and fairly present
the consolidated financial position of MAI and its consolidated Subsidiaries as
of the dates thereof and their consolidated results of operations and cash
flows for the periods then ended (subject to footnote disclosures and normal
year-end adjustments in the case of any unaudited interim financial
statements). The MAI Financial Statements have been prepared from and are
consistent with the books and records of MAI, which reflect all material
transactions of MAI and its Subsidiaries. For purposes of this Agreement, "MAI
BALANCE SHEET" means the consolidated balance sheet of MAI as of December 31,
1997 set forth in the MAI 10-K and "MAI BALANCE SHEET DATE" means December 31,
1997. Each Subsidiary of MAI is treated as a consolidated subsidiary of MAI in
the MAI Financial Statements for all periods covered thereby.
(b) Without limitation of Section 3.08(a), (i) MAI or its
Subsidiaries has good and marketable title to all of the assets reflected in
the balance sheet of MAI included in it quarterly report on form 10-Q for the
quarter ended September 30, 1998 (the "MOST RECENT MAI BALANCE SHEET") free and
clear of all liens, security interests, encumbrances or other adverse claims
other than liens of secured lenders disclosed in the footnotes to the Most
Recent MAI Balance Sheet and interests of lessors in respect of capitalized
leases, (ii) the reserve for doubtful accounts reflected in the Most Recent MAI
Balance Sheet is adequate and in accordance with GAAP, (iii) the inventories
reflected in the Most Recent MAI Balance Sheet have been valued at the lower of
cost or market, and are not materially in excess of the normal requirement of
MAI's business, and (iv) all equipment and other fixed assets reflected in the
Most Recent MAI Balance Sheet are in good operating condition (reasonable wear
and tear excepted); all of the representations in this Section 3.08(b) being
subject to the collection of accounts receivable, sale and use of inventory,
and disposition of obsolete equipment, in the ordinary course of business.
Section 3.09 Information Supplied. None of the information supplied or
to be supplied by MAI for inclusion or incorporation by reference in and none
of the statements based on such information contained in (a) the joint proxy
statement to be filed with the SEC relating to the stockholders' meetings of
MAI and DHS to be held in connection with the Merger, as amended or
supplemented from time to time (as so amended or supplemented, the "PROXY
STATEMENT"), will, at the date the Proxy Statement is first mailed to
stockholders and at the time of the meetings of such stockholders in connection
with the Merger, contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or (b)
the registration statement on Form S-4 of DHS to be filed under the 1933 Act
relating to the issuance of DHS Common Stock in the Merger, as amended or
supplemented from time to time (as so amended or supplemented, the "FORM S-4"),
will, at the time the Form S-4 becomes effective under the 1933 Act and at the
Effective Time, contain any untrue statement of a material fact or omit to
state any
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material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Section 3.10 Absence of Certain Changes. Except as disclosed in the
MAI SEC Documents filed prior to the date of this Agreement or as disclosed on
Schedule 3.10 to the MAI Disclosure Letter, since September 30, 1998, MAI and
its Subsidiaries have conducted their respective businesses in the ordinary
course consistent with past practice and there has not been:
(a) Any material transaction of MAI or any of its
Subsidiaries outside of the normal course of business, any damage or
destruction (whether or not covered by insurance) of any material assets of MAI
or any of its Subsidiaries, or any event, occurrence or development which,
individually or in the aggregate, has had or would be reasonably likely to have
a Material Adverse Effect on MAI;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of MAI, any
issuance of MAI Common Stock other than upon exercise of MAI Warrants or MAI
Options outstanding on December 31, 1997, or any repurchase, redemption or
other acquisition by MAI or any Subsidiary of MAI of any amount of outstanding
shares of capital stock or other equity securities of, or other ownership
interests in, MAI or any Subsidiary of MAI;
(c) any amendment of any term of any MAI Securities or MAI
Subsidiary Securities;
(d) (i) any incurrence or assumption by MAI or any Subsidiary
of MAI of any indebtedness for borrowed money other than under existing credit
facilities in the ordinary course of business consistent with past practices,
or (ii) any guarantee, endorsement or other incurrence or assumption of
liability (whether directly, contingently or otherwise) by MAI or any
Subsidiary of MAI for the obligations of any other Person (other than any
wholly-owned Subsidiary of MAI);
(e) any creation or assumption by MAI or any Subsidiary of
MAI of any consensual Lien on any material asset of MAI or any Subsidiary of
MAI;
(f) any making of any loan, advance or capital contribution
to or investment in any Person by MAI or any Subsidiary of MAI other than (i)
loans, advances or capital contributions to or investments in wholly-owned
Subsidiaries of MAI, or (ii) loans or advances to employees of MAI or any
Subsidiary of MAI made in the ordinary course of business consistent with past
practice;
(g) (i) any contract or agreement entered into by MAI or any
Subsidiary of MAI on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business, or (ii) any modification,
amendment, assignment, termination or relinquishment by MAI or any Subsidiary
of MAI of any contract, license, or other right (including any insurance policy
naming it as a beneficiary or a loss payable payee) that would be reasonably
likely to have a Material Adverse Effect on MAI, other than those contemplated
by this Agreement;
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(h) any change in any method of accounting or accounting
principles or practices by MAI or any Subsidiary of MAI, except for any such
change required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any
director, officer or employee of MAI or any of its Subsidiaries, (ii) entering
into of any employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement) with any director, officer or
employee of MAI or any of its Subsidiaries, (iii) increase in benefits payable
under any existing severance or termination pay policies or employment
agreements, or (iv) increase in rates of compensation or bonus in excess of
five (5%) percent or increase in other benefits payable to officers or
employees of MAI or any of its Subsidiaries or increase in compensation, bonus
or other benefits payable to directors of MAI or any of its Subsidiaries.
Section 3.11 No Undisclosed Liabilities. Neither MAI nor any
Subsidiary of MAI has any material liabilities or obligations (whether pursuant
to contracts or otherwise) of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, except:
(a) those liabilities and obligations set forth on the MAI
Balance Sheet and not heretofore paid or discharged;
(b) those liabilities and obligations incurred since
September 30, 1998 in the ordinary course of business consistent with past
practice; and
(c) those liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 3.12 Litigation. Except as disclosed on Schedule 3.12 to the
MAI Disclosure Letter, (a) there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of MAI, threatened against, relating
to or affecting, nor are there are any Governmental Authority investigations or
audits pending or, to the knowledge of MAI, threatened against, relating to or
affecting, MAI or any of its Subsidiaries or any of their respective assets or
properties nor, to the knowledge of MAI, is there any valid basis for any such
action, suit, arbitration, proceeding, investigation or audit which, if
adversely determined, would have a Material Adverse Effect on MAI, and (b)
neither MAI nor any of its Subsidiaries is subject to any order of any
Governmental Authority which adversely affects the ability of MAI to consummate
the transactions contemplated by this Agreement.
Section 3.13 Taxes.
(a) All Tax Returns required to be filed by MAI, any of its
Subsidiaries, or any corporation that was included in the filing of a return
with MAI or its Subsidiaries on a consolidated, combined or unitary basis have
been filed (the "MAI TAX RETURNS") and all Taxes required to be shown on the
MAI Tax Returns, or a subsequent assessment with respect thereto, or otherwise
due or payable (to the extent in excess of $50,000 in the
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aggregate) have been paid and any penalties and interest relating to such Taxes
(to the extent in excess of $50,000 in the aggregate) have been paid. No other
Taxes (to the extent in excess of $50,000 in the aggregate) are payable by the
MAI Group with respect to items or periods covered by such Tax Returns or with
respect to Tax periods prior to the date of this Agreement. None of the MAI Tax
Returns contain, or are required to contain, a disclosure statement under
Section 6662 of the Code, or any similar provision of state, local or foreign
law, with respect to any items that relate to MAI or its Subsidiaries in order
to avoid a penalty for any taxable year. All MAI Tax Returns are true, correct
and complete in all material respects. MAI has made available to DHS correct
and complete copies of all MAI Tax Returns for all periods which are not closed
by the statute of limitations.
(b) No adjustment relating to any MAI Tax Return has been
proposed formally or, to MAI's knowledge, informally by any Governmental
Authority (to the extent in excess of $50,000 in the aggregate), and no basis
exists for any such adjustment that would have a Material Adverse Effect on
MAI. There are no outstanding subpoenas or requests for information with
respect to any MAI Tax Returns or portions thereof. There are no pending or, to
MAI's knowledge, threatened actions or proceedings for the assessment or
collection of Taxes for which MAI or its Subsidiaries may be liable (to the
extent in excess of $50,000 in the aggregate). There are no Tax liens on any
assets of MAI or its Subsidiaries, except with respect to Taxes which are not
yet due and payable.
(c) No consent under Section 341(f) of the Code has been
filed with respect to MAI or any of its Subsidiaries. Neither MAI nor any of
its Subsidiaries is or has been subject to the dual consolidated loss
provisions of Section 1503 of the Code.
(d) MAI and its Subsidiaries are members of an affiliated
group (within the meaning of Section 1504 of the Code) that is eligible to file
a consolidated return. No other entity is or has been eligible to file a
consolidated or combined return with MAI and its Subsidiaries, and neither MAI
nor its Subsidiaries have filed or consented to the filing of any Federal or
state consolidated or combined return with any entity not a member of the MAI
Group. Neither MAI nor any of its Subsidiaries has been at any time a member of
any partnership or joint venture or the holder of a beneficial interest in any
trust for any Person for which the statute of limitations for any Tax
potentially applicable as a result of such membership or holding has not
expired.
(e) MAI and its Subsidiaries have properly accrued all
current or contested Taxes (to the extent in excess of $50,000 in the
aggregate) on their books and records, and their books and records reflect
reserves that are adequate for the payment of all Taxes (to the extent in
excess of $50,000 in the aggregate) not yet due and payable that are properly
accruable thereon through the date of this Agreement (including Taxes being
contested). Neither MAI nor any of its Subsidiaries have any liability for any
Taxes which, in the aggregate, are more than $50,000 in excess of amounts
accrued or the reserves established. All Taxes (to the extent in excess of
$50,000 in the aggregate) required to be withheld, collected or deposited in
connection with the operations and activities of MAI or its Subsidiaries have
been timely withheld, collected or deposited and, to the extent required, have
been paid to the relevant taxing authority.
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(f) MAI does not own nor has it owned during the past five
(5) years any capital stock of DHS. At the Effective Time, the fair market
value of the assets of MAI will exceed the sum of its liabilities, plus the
amount of other liabilities, if any, to which the assets are subject.
(g) There are no requests for rulings, determinations or
information currently outstanding with any Taxing Authority that could
reasonably be expected to affect the Taxes of MAI or any of its Subsidiaries.
(h) The MAI Tax Returns have been audited by the Internal
Revenue Service ("SERVICE") or other governmental agency (or closed by
applicable statutes of limitations) and all Tax liabilities in respect thereof
have been finally determined for all taxable years ending on or before December
31, 1996. There are no outstanding waivers or agreements extending the statute
of limitations for any period with respect to any Tax to which MAI or any of
its Subsidiaries may be liable.
(i) "TAXES" shall mean any and all taxes, charges, fees,
levies or other assessments, including income, gross receipts, excise, real or
personal property, sales, withholding, social security, retirement,
unemployment, occupation, use, goods and services, service use, license, value
added, capital, net worth, payroll, profits, withholding, franchise, transfer
and recording taxes, fees and charges, and any other taxes, assessment or
similar charges imposed by the Service or any taxing authority (whether
domestic or foreign including any state, county, local or foreign government or
any subdivision or taxing agency thereof (including a United States
possession)) (a "TAXING AUTHORITY"), whether computed on a separate,
consolidated, unitary, combined or any other basis, and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "TAX RETURN" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (foreign or domestic) with respect to
Taxes, including information returns, any documents with respect to or
accompanying payments of estimated Taxes, or with respect to or accompanying
requests for the extension of time in which to file any such report, return,
document, declaration or other information. The term "MAI GROUP" shall mean,
individually and collectively, (i) MAI, (ii) its Subsidiaries, and (iii) any
trust, corporation, partnership or any other entity as to which MAI or its
Subsidiaries is liable for Taxes incurred by such entity either as a
transferee, or pursuant to Treasury Regulations Section 1.1502-6, or pursuant
to any other provision of federal, state, local or foreign law or regulations.
(j) MAI has made available to DHS a true and complete copy of
any (i) elections, letter rulings and determination letters relating to Taxes
with respect to MAI or its Subsidiaries which were in effect or affected Taxes
for any periods which are not closed by the statute of limitations, and (ii)
examination reports, closing agreements and statements of deficiencies for
Taxes assessed against or agreed to by MAI or any of its Subsidiaries which
were in effect or affected Taxes for any periods which are not closed by the
statute of limitations.
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Section 3.14 Employee Benefit Plans; ERISA.
(a) Except as set forth on Schedule 3.14 to the MAI
Disclosure Letter, there are no employee benefit plans (including any plans for
the benefit of directors or former directors), contracts or agreements
(including employment agreements and severance agreements, incentive
compensation, bonus, stock option, stock appreciation rights and stock purchase
plans) of any type (including plans described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), maintained by
MAI, any of its Subsidiaries or any trade or business, whether or not
incorporated (a "MAI ERISA AFFILIATE"), that together with MAI would be deemed
a "controlled group" within the meaning of Section 4001(a)(14) of ERISA, or
with respect to which MAI, any of its Subsidiaries, or any MAI ERISA Affiliate,
has or may have a liability (the "MAI BENEFIT PLANS"). Except as disclosed on
Schedule 3.14 to the MAI Disclosure Letter (or as otherwise permitted by this
Agreement), (i) neither MAI nor any ERISA Affiliate has any plan or commitment,
whether legally binding or not, to create any additional MAI Benefit Plan or
modify or change any existing MAI Benefit Plan that would affect any employee
or terminated employee of MAI or any ERISA Affiliate, and (ii) since December
31, 1997, there has been no change, amendment, modification to, or adoption of,
any MAI Benefit Plan.
(b) With respect to each MAI Benefit Plan: (i) if intended to
qualify under Section 401(a), 401(k) or 403(a) of the Code, such plan so
qualifies, and its trust is exempt from taxation under Section 501(a) of the
Code; (ii) no failures to administer such plan in accordance with its terms and
applicable law have occurred that have had or would reasonably be expected to
have a Material Adverse Effect on MAI; (iii) no breaches of fiduciary duty have
occurred; (iv) no prohibited transaction within the meaning of Section 406 of
ERISA has occurred; (v) as of the date of this Agreement, no lien imposed under
the Code or ERISA exists; and (vi) all contributions and premiums due
(including any extensions for such contributions and premiums) have been made
in full or adequate provision has been made therefor in the MAI Financial
Statements.
(c) None of the MAI Benefit Plans has incurred any
"accumulated funding deficiency," as such term is defined in Section 412 of the
Code, whether or not waived.
(d) Neither MAI nor any MAI ERISA Affiliate has incurred any
liability under Title IV of ERISA (including Sections 4063-4064 and 4069 of
ERISA) since the effective date of ERISA that has not been satisfied in full.
(e) With respect to each MAI Benefit Plan that is a "welfare
plan" (as defined in Section 3(l) of ERISA), no such plan provides medical or
death benefits with respect to current or former employees of MAI or any of its
Subsidiaries beyond their termination of employment, other than as required by
law or on an employee-pay-all basis.
(f) Except as set forth on Schedule 3.14 to the MAI
Disclosure Letter, the consummation of the Merger pursuant to this Agreement
will not (i) entitle any individual to severance pay or any tax "gross-up"
payments with respect to the imposition of any tax pursuant to Section 4999 of
the Code or accelerate the time of payment or vesting, or increase the amount,
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of compensation or benefits due to any individual with respect to any MAI
Benefit Plan, or (ii) constitute or result in a prohibited transaction under
Section 4975 of the Code or Section 406 or 407 of ERISA with respect to any MAI
Benefit Plan.
(g) There is no MAI Benefit Plan that is a "multiemployer
plan," as such term is defined in Section 3(37) of ERISA, or which is covered
by Section 4063 or 4064 of ERISA.
Section 3.15 Certain Agreements; Compliance with Agreements.
(a) Except as disclosed on Schedule 3.15 to the MAI
Disclosure Letter or as provided for in this Agreement, neither MAI nor any of
its Subsidiaries is a party to or bound by any oral or written:
(i) consulting agreement not terminable on thirty (30) days'
or less notice;
(ii) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of the transactions contemplated by this
Agreement;
(iii) agreement with respect to any officer providing any
term of employment or compensation guarantee;
(iv) agreement or plan, including any stock option plan,
stock appreciation rights plan, employee stock ownership plan,
restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will
be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(v) agreement containing covenants that limit the ability of
MAI or any of its Subsidiaries to compete in any line of business or
with any Person, or that involve any restriction on the geographic
area in which, or method by which, MAI or any of its Subsidiaries may
carry on its business (other than as may be required by law or any
regulatory agency);
(vi) agreement, contract or understanding, other than this
Agreement and the articles of incorporation and by-laws of MAI,
regarding the capital stock of MAI or committing to dispose of some or
all of the capital stock or all or substantially all of the assets of
MAI;
(vii) partnership, joint venture or profit sharing agreement
of MAI or any of its Subsidiaries with any Person;
(viii) agreement, contract, commitment, indenture or other
instrument of MAI or any of its Subsidiaries relating to the borrowing
of money, or the direct or indirect guarantee of any obligation for,
or an agreement to service the repayment of, borrowed
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money, or any other contingent obligation in respect to indebtedness
of any other Person, including without limitation any agreement or
arrangement relating to the maintenance of compensating balances, any
agreement or arrangement with respect to lines of credit, any
agreement or arrangement to purchase or repurchase obligations of any
other Person, any agreement or arrangement to advance or supply funds
to or to invest in any other Person, any agreement or arrangement to
pay for property, products or services of any other Person even if
such property, products or services are not conveyed, delivered or
rendered, or any guarantee with respect to any lease or other similar
periodic payment to be made by any other Person;
(ix) lease of MAI or any of its Subsidiaries with annual
rental payments aggregating $50,000 or more;
(x) agreement, contract or commitment of MAI or any of its
Subsidiaries relating to the disposition or acquisition of any
investment in any Person if such investment has a book value of, or
the disposition or acquisition price of such investment or interest
is, $50,000 or more;
(xi) agreement, contract or commitment which involves payment
or potential payment, pursuant to the terms of such agreement,
contract or commitment, by or to MAI or any of its Subsidiaries of
$50,000 or more within any twelve (12) month period commencing after
the date hereof;
(xii) severance or similar agreement with any employee which
has been entered into or modified at any time since June 30, 1998; or
(xiii) agreement, contract, commitment or arrangement between
MAI or any of its Subsidiaries and any Affiliate of MAI or any of its
Subsidiaries that is not described in or filed as an exhibit to a MAI
SEC Document.
(b) Neither MAI nor any of its Subsidiaries nor, to the
knowledge of MAI, any other party thereto is in breach or violation of or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with notice or lapse of time or both, is reasonably
expected to result in a default under, (i) the certificates or articles of
incorporation, by-laws or similar organizational documents of MAI or any of its
Subsidiaries, or (ii) any contract, agreement, plan or instrument listed or
required to be listed on Schedule 3.15 to the MAI Disclosure Letter, except in
the case of clause (ii) for breaches, violations or defaults which,
individually or in the aggregate, are not having and are not reasonably
expected to have a Material Adverse Effect on MAI. Except as set forth on
Schedule 3.04 to the MAI Disclosure Letter, no party to any such contract,
agreement, plan or instrument will have the right to terminate any or all of
the provisions of any such contract, agreement, plan or instrument as a result
of the transactions contemplated by this Agreement.
(c) No outstanding purchase commitments of MAI or any of its
Subsidiaries is materially in excess of the reasonable requirements of their
respective business.
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(d) Neither MAI or any of its Subsidiaries has received
written notice of any existing, announced or anticipated changes in the
policies of any material clients, customers, referral sources or suppliers
which could reasonably be expected to have a Material Adverse Effect on MAI.
Section 3.16 Compliance with Laws and-Orders.
(a) MAI and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Authorities
necessary for the lawful conduct of their respective businesses (the "MAI
PERMITS"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which, individually or in the aggregate, are
not having and are not reasonably expected to have a Material Adverse Effect on
MAI. MAI and its Subsidiaries are in compliance with. the terms of the MAI
Permits, except failures so to comply which, individually or in the aggregate,
are not having and are not reasonably expected to have a Material Adverse
Effect on MAI. MAI and its Subsidiaries are not in violation of or default
under any Laws or Orders, except for such violations or defaults which,
individually or in the aggregate, are not having and are not reasonably
expected to have a Material Adverse Effect on MAI.
(b) Without limitation of Section 3.16(a), MAI and its
Subsidiaries have at all times operated their businesses in compliance with all
applicable federal, state and other fraud and abuse, anti-kickback ("Xxxxx
laws") and other statutes, rules and regulations governing the provision of
medical or related services and/or payments or reimbursements for such
services.
Section 3.17 Environmental Matters.
(a) No notice, notification, demand, request for information,
citation, summons or order has been received by, no complaint has been filed
against, no penalty has been assessed against, and no investigation, action,
claim, suit, proceeding or review is pending or, to the knowledge of MAI or any
Subsidiary of MAI, is threatened by any Person against, MAI or any Subsidiary
of MAI with respect to any matters relating to or arising out of any
Environmental Law;
(b) No Hazardous Substance has been discharged, disposed of,
dumped, injected, pumped, deposited, spilled, leaked, emitted or released, in
violation of any Environmental Law, at, on, under or adjacent to any property
now or, to the knowledge of MAI, previously owned, leased or operated by MAI or
any Subsidiary of MAI; and
(c) There are no Environmental Liabilities.
(d) For purposes of this Section 3.17, the following terms
shall have the meanings set forth below:
(i) "MAI" and "SUBSIDIARY OF MAI" shall include any entity
which is, in whole or in part, a predecessor of MAI or any of its
Subsidiaries.
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(ii) "ENVIRONMENTAL LAWS" means any and all federal, state,
local and foreign law (including common law), treaty, judicial
decision, regulation, rule, judgment, order, decree, injunction,
permit, or governmental restrictions or any agreement with any
governmental authority or other third party, relating to human health
and safety, the physical condition of any real property now or
formerly owned, leased or operated by MAI of any of its Subsidiaries
or of any improvements thereon, the environment or to pollutants,
contaminants, wastes or chemicals or toxic, radioactive, ignitable,
corrosive, reactive or otherwise hazardous substances, wastes or
materials, including without limitation Hazardous Substances as
defined herein.
(iii) "ENVIRONMENTAL LIABILITIES" means any and all
liabilities of or relating to MAI or any Subsidiary of MAI of any kind
whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, which (A) arise under or relate to matters
covered by Environmental Laws, and (B) arise from actions occurring or
conditions existing on or prior to the Effective Time.
(iv) "HAZARDOUS SUBSTANCES" means any pollutant, contaminant,
waste or chemical or any toxic, radioactive, corrosive, reactive or
otherwise hazardous substance, waste or material, or any substance
having any constituent elements displaying any of the foregoing
characteristics, including, without limitation, petroleum, its
derivatives, by-products and other hydrocarbons, or any substance,
waste or material regulated under any Environmental Laws.
Section 3.18 Assets. The assets, properties, rights and contracts,
including (as applicable) title or leaseholds thereto, of MAI and its
Subsidiaries, taken as a whole, are sufficient to permit MAI and its
Subsidiaries to conduct their respective businesses as currently being
conducted. Neither MAI nor any of its Subsidiaries owns any real property.
Section 3.19 Intellectual Property Rights.
(a) Except as disclosed in Schedule 3.19 to the MAI
Disclosure Letter, MAI and its Subsidiaries own or have the right to use all
Intellectual Property individually or in the aggregate material to the conduct
of the businesses of MAI and its Subsidiaries. To the knowledge of MAI, (i)
neither MAI nor any Subsidiary of MAI is in default (or with the giving of
notice or lapse of time or both would be in default) under any license to use
such Intellectual Property, (ii) such Intellectual Property (other than
patents) is not being infringed by any third party, and (iii) neither MAI nor
any Subsidiary of MAI is infringing any intellectual property of any third
party. For purposes of this Agreement, "INTELLECTUAL PROPERTY" means patents
and patent rights, trademarks and trademark rights, service marks and service
xxxx rights, trade names and trade name rights, copyrights and copyright rights
and other proprietary intellectual property rights and all pending applications
for and registrations of any of the foregoing that MAI or its Subsidiaries own,
license or otherwise have the right to use. An accurate schedule of all
Intellectual Property of MAI or its Subsidiaries consisting of patents,
registered trademarks, registered service marks, registered trade names and
registered copyrights and all pending applications therefor is set forth on
Schedule 3.19 to the MAI Disclosure Letter.
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(b) Either MAI or one of its Subsidiaries is listed in the
records of the appropriate United States, state or foreign agency as the sole
owner of record for each application and registration included in the
Intellectual Property, other than Intellectual Property of which MAI or its
Subsidiaries is a licensee.
(c) MAI and its Subsidiaries, with respect to all
Intellectual Property owned thereby, have taken or caused to be taken all
reasonable steps in the exercise of reasonable business judgment to obtain and
retain valid and enforceable Intellectual Property rights therein, including
the submission of all necessary filings in accordance with the legal and
administrative requirements of the appropriate jurisdictions. No application or
registration listed on Schedule 3.19 to the MAI Disclosure Letter is the
subject of any pending, existing or, to MAI's knowledge, threatened,
opposition, interference, cancellation proceeding or other legal or
governmental proceeding before any registration authority in any jurisdiction.
(d) The consummation of the transactions contemplated hereby
will not result in the loss or impairment of MAI's or any of its Subsidiaries'
right to own or use any of the Intellectual Property nor will it require the
consent of any Governmental Authority or third party.
Section 3.20 Labor Matters. MAI has previously furnished to DHS true
and complete copies of all labor and collective bargaining agreements (if any)
to which MAI or any of its Subsidiaries is a party and that are currently in
effect, together with all amendments thereto (if any). Since January 1, 1996,
there have been no strikes, slowdowns or other work stoppages or lockouts
involving any employees of MAI or any of its Subsidiaries and there are no
disputes by any labor organization in progress or pending or, to the knowledge
of MAI, threatened against MAI or any of its Subsidiaries that would have a
Material Adverse Effect on MAI. Except as disclosed in Schedule 3.20 to the MAI
Disclosure Letter, MAI and its Subsidiaries are in compliance in all material
respects with all applicable laws and regulations in respect of employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety, health or welfare conditions relating to premises
occupied, and civil rights. There are no charges of unfair labor practices
pending before any Governmental Authority involving or affecting MAI or any of
its Subsidiaries. As of the date of this Agreement, there is no representation
claim or petition pending before the National Labor Relations Board and, to the
knowledge of MAI, no question concerning representation exists with respect to
the employees of MAI or any of its Subsidiaries. MAI has not received notice
that any customer or supplier of MAI or any or its Subsidiaries is involved in
or threatened with or affected by any strike or other labor disturbance or
dispute, litigation or administrative proceeding or judgment, order,
injunction, decree or award, the consequences of which would have a Material
Adverse Effect on MAI.
Section 3.21 Transactions with Affiliates. Except to the extent
disclosed in the MAI SEC Documents filed prior to the date of this Agreement,
none of the officers or directors of MAI or any of its Subsidiaries nor any of
its Affiliates, and, to MAI's knowledge, none of its key employees or the key
employees of any of its Subsidiaries, is a party to any transaction with MAI or
any of its Subsidiaries (other than for services as an employee, officer or
director and other than transactions between MAI and one or more of its direct
or indirect wholly-owned
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Subsidiaries or between such Subsidiaries), including, without limitation, any
contract, agreement or other arrangement (a) providing for the furnishing of
services to or by, (b) providing for rental of real or personal property to or
from, or (c) otherwise requiring payments to or from, any such officer,
director, Affiliate or key employee, any member of the family of any such
officer, director or key employee or any corporation, partnership, trust or
other entity in which any such officer, director or key employee has
substantial interest (excluding the ownership of not more than two percent (2%)
of the capital stock of a publicly traded corporation) or which is an Affiliate
of such officer, director or key employee.
Section 3.22 Insurance. Schedule 3.22 to the MAI Disclosure Letter
sets forth a complete and accurate list of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of or providing insurance coverage to MAI or any of its Subsidiaries and
their respective businesses, properties and assets (or its directors, officers,
agents or employees). All such policies are in full force and effect. Neither
MAI nor any of its Subsidiaries has received notice of default under any such
policy, or has received written notice of any pending or threatened termination
or cancellation, coverage limitation or reduction, or material premium increase
with respect to any such policy, the failure of which to maintain has a
Material Adverse Effect on MAI. Schedule 3.22 to the MAI Disclosure Letter sets
forth a complete and accurate summary of all of the self-insurance coverage
provided by MAI or any of its Subsidiaries and no letters of credit have been
posted in respect thereof.
Section 3.23 Takeover Statutes. Except for the Business Combination
Act set forth in Article 13 of the Texas Business Corporation Act, no "fair
price", "moratorium", "control share acquisition" or other similar antitakeover
statute or regulation enacted under state or federal laws in the United States
(each, a "TAKEOVER STATUTE") applicable to MAI or any of its Subsidiaries is
applicable to the Merger or the other transactions contemplated hereby.
Section 3.24 Finders' Fees. Except as disclosed in Schedule 3.24 to
the MAI Disclosure Letter, no investment banker, broker, finder, other
intermediary or other Person is entitled to any fee or commission from MAI or
any Subsidiary of MAI upon consummation of the transactions contemplated by
this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DHS
DHS represents and warrants to MAI that:
Section 4.01 Organization and Power. Each of DHS and its Subsidiaries
is a corporation, partnership or other entity duly organized, validly existing
and, except as disclosed on Schedule 4.01 to the DHS Disclosure Letter, in good
standing under the laws of the jurisdiction of its incorporation or
organization, and has the requisite corporate or other power and authority and
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted. Each of DHS and its Subsidiaries is duly
qualified or licensed to do business and, except as disclosed on Schedule 4.01
to the DHS Disclosure Letter, is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the
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failure to be so duly qualified or licensed and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on DHS.
Schedule 4.01 to the DHS Disclosure Letter sets forth (a) the name and
jurisdiction of incorporation of each Subsidiary of DHS, (b) its authorized
capital stock, (c) the number of issued and outstanding shares of its capital
stock, and (d) the record and beneficial owners of such shares. Except as set
forth on Schedule 4.01 to the DHS Disclosure Letter, DHS does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
Person. DHS has heretofore delivered to MAI true and complete copies of the
certificate or articles of incorporation and by-laws as currently in effect of
DHS and its Subsidiaries.
Section 4.02 Corporate Authorization. The execution, delivery and
performance by DHS and Merger Subsidiary of this Agreement and the consummation
by DHS and Merger Subsidiary of the transactions contemplated hereby are within
the corporate power of DHS and Merger Subsidiary and, except for the required
approval by the stockholders of DHS of the issuance of shares of DHS Common
Stock in connection with the Merger, have been duly authorized by all necessary
corporate action, including, without limitation, authorization and approval of
the Board of Directors of Merger Subsidiary and the Board of Directors of DHS,
in its capacity as the Board of Directors of DHS and in its capacity as the
sole stockholder of Merger Subsidiary. This Agreement has been duly executed
and delivered by each of DHS and Merger Subsidiary and, subject to the approval
of the holders of DHS Common Stock with respect to the issuance of shares of
DHS Common Stock in connection with the Merger (including any shares
contemplated by Sections 1.04 and 1.05), constitutes a legal, valid and binding
agreement of each of DHS and Merger Subsidiary, enforceable against DHS or
Merger Subsidiary, as applicable, in accordance with its terms (subject to
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and other similar laws affecting creditors' rights generally from time
to time in effect and to general principles of equity, regardless of whether in
a proceeding in equity or at law). The shares of DHS Common Stock issued in
connection with the Merger, when issued in accordance with the terms hereof,
will be duly authorized, validly issued, fully paid and nonassessable and not
subject to preemptive rights.
Section 4.03 Governmental Authorization. The execution, delivery and
performance by DHS and Merger Subsidiary of this Agreement, and the
consummation by DHS and Merger Subsidiary of the transactions contemplated
hereby, require no action by or in respect of, or filing with or notice to, any
Governmental Authority, other than (a) the filing of articles of merger with
respect to the Merger with the Texas Secretary of State; (b) compliance with
any applicable requirements of the HSR Act, provided that nothing contained in
this Agreement shall be deemed to constitute an acknowledgment that any
requirements under the HSR Act are applicable to the transactions contemplated
by this Agreement; (c) compliance with any applicable requirements of the 1933
Act; (d) compliance with any applicable requirements of the 1934 Act; and (e)
compliance with any other applicable securities laws.
Section 4.04 Non-Contravention. Except as set forth on Schedule 4.04
to the DHS Disclosure Letter, the execution, delivery and performance by DHS
and Merger Subsidiary of this Agreement do not, and the consummation by DHS and
Merger Subsidiary of the transactions
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contemplated hereby will not, require the consent of any other Person, or
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien on any of the assets or properties of DHS or any of its Subsidiaries
under, any of the terms, conditions or provisions of (a) the certificate or
articles of incorporation, by-laws or similar organizational documents of DHS
or any of its Subsidiaries, (b) assuming receipt of the approval of
stockholders referred to in Section 4.02, and compliance with the matters
referred to in Section 4.03, any Laws or Orders binding upon or applicable to
DHS or any Subsidiary of DHS or any of their respective assets or properties,
or (c) any note, bond, mortgage, security agreement, indenture, lease,
contract, instrument or other agreement of any kind to which DHS or any
Subsidiary of DHS is a party or by which DHS or any Subsidiary of DHS or any of
their respective assets or properties is bound (a "DHS AGREEMENT") or any
license, franchise, permit or other similar authorization held by DHS or any
Subsidiary of DHS.
Section 4.05 Capitalization of DHS.
(a) The authorized capital stock of DHS consists of
50,000,000 shares of DHS Common Stock, par value $0.001 per share, and
10,000,000 share of preferred stock, par value $0.001 per share (the "DHS
PREFERRED STOCK"). As of the close of business on December 31, 1998, (i)
11,480,636 shares of DHS Common Stock were issued and outstanding, 233,259
shares of DHS Common Stock were issued and held in the treasury of DHS, and an
aggregate of 2,321,975 shares of DHS Common Stock were reserved for issuance
under DHS' 1992 Stock Option Plan, 1995 Non-Qualified Stock Option Plan, 1995
Incentive Stock Option Plan and 1997 Non-Qualified Stock Option Plan
(collectively, the "DHS PLANS"); (ii) options to purchase 1,821,051 shares of
DHS Common Stock under the DHS Plans ("DHS OPTIONS") were outstanding; and
(iii) 746,500 shares of DHS Preferred Stock were outstanding. All of the
outstanding shares of DHS Common Stock are, and all shares reserved for
issuance will be, when issued in accordance with the terms specified in the
instruments or agreements pursuant to which they are issuable, duly authorized,
validly issued, fully paid and non-assessable. Except (A) as set forth in this
Section 4.05 or in Schedule 4.05 to the DHS Disclosure Letter, (B) for DHS
Common Stock that may be issued as provided in Section 5.02(f), and (C) for the
transactions contemplated by this Agreement (including those permitted in
Article II), there are outstanding (w) no shares of capital stock or other
voting securities of DHS, (x) no securities of DHS convertible into or
exchangeable for shares of capital stock or voting securities of DHS, (y) no
options, warrants or other rights to acquire from DHS, and no preemptive or
similar rights, subscriptions or other rights, convertible securities,
agreements, arrangements or commitments of any character, obligating DHS to
issue, transfer or sell, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of DHS
or obligating DHS to grant, extend or enter into any such option, warrant,
subscription or other right, convertible security, agreement, arrangement or
commitment, and (z) no restricted stock awards, stock appreciation rights,
performance share agreements or stock unit awards of DHS (the items in clauses
(w), (x), (y) and (z) being referred to collectively as the "DHS SECURITIES").
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(b) Except as set forth on Schedule 4.05 to the DHS
Disclosure Letter, (i) there are no voting trusts or other agreements or
understandings to which DHS or any Subsidiary of DHS is a party with respect to
the voting of the capital stock of DHS or any Subsidiary of DHS, (ii) no Person
has or is entitled to any registration rights in respect of any DHS Securities,
and (iii) none of DHS or its Subsidiaries has any contractual obligation to
redeem, repurchase or otherwise acquire any DHS Securities or any capital stock
of any Subsidiary of DHS, including as a result of the transactions
contemplated by this Agreement, or to provide funds to, or to make any
investment in, any Subsidiary of DHS or any other Person. Except as permitted
by this Agreement, following the Merger, DHS will not have any obligation to
issue, transfer or sell any shares of its capital stock pursuant to any
employee benefit plan or otherwise.
Section 4.06 Capitalization of Subsidiaries. Except as set forth on
Schedule 4.06 to the DHS Disclosure Letter, all of the outstanding shares of
capital stock of, or other ownership interests in, each Subsidiary of DHS, are
duly authorized, validly issued, fully paid and non-assessable and are owned
beneficially, and of record, by DHS, directly or indirectly, free and clear of
any consensual Lien (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests). There
are no (a) outstanding securities of DHS or any Subsidiary of DHS convertible
into or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of DHS, or (b) options, warrants or other
rights to acquire from DHS or any Subsidiary of DHS, and no other obligation of
DHS or any Subsidiary of DHS to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or
exchangeable for, any capital stock, voting securities or ownership interests
in, any Subsidiary of DHS (the items in clauses (a) and (b) being referred to
collectively as the "DHS SUBSIDIARY SECURITIES").
Section 4.07 SEC Filings.
(a) DHS has filed all reports, schedules, forms, statements
and other documents with the SEC required to be filed by DHS since January 1,
1996 (the "DHS SEC DOCUMENTS").
(b) As of its filing date, each DHS SEC Document filed
pursuant to the 1934 Act complied as to form in all material respects with the
1934 Act and did not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
(c) Each DHS SEC Document that is a registration statement,
as amended or supplemented, if applicable, filed pursuant to the 1933 Act as of
the date such registration statement or amendment became effective complied as
to form in all material respects with the requirements of the 1933 Act and did
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
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Section 4.08 Financial Statements.
(a) The audited consolidated financial statements included in
DHS' Annual Report on Form 10-K for the fiscal year ended December 31, 1997
(the "DHS 10-K") and the unaudited consolidated interim financial statements of
DHS included in the DHS SEC Documents filed after such date (collectively, the
"DHS FINANCIAL STATEMENTS") complied, or will comply, as to form in all
material respects with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of DHS
and its consolidated Subsidiaries as of the dates thereof and their
consolidated results of operations and cash flows for the periods then ended
(subject to footnote disclosures and normal year-end adjustments in the case of
any unaudited interim financial statements). The DHS Financial Statements have
been prepared from and are consistent with the books and records of DHS, which
reflect all material transactions of DHS and its Subsidiaries. For purposes of
this Agreement, "DHS BALANCE SHEET" means the consolidated balance sheet of DHS
as of December 31, 1997 set forth in the DHS 10-K and "DHS BALANCE SHEET DATE"
means December 31, 1997.
(b) Without limitation of Section 4.08(a), (i) DHS or its
Subsidiaries has good and marketable title to all of the assets reflected in
the balance sheet of DHS included in it quarterly report on form 10-Q for the
quarter ended September 30, 1998 (the "MOST RECENT DHS BALANCE SHEET") free and
clear of all liens, security interests, encumbrances or other adverse claims
other than liens of secured lenders disclosed in the footnotes to the Most
Recent DHS Balance Sheet and interests of lessors in respect of capitalized
leases, (ii) the reserve for doubtful accounts reflected in the Most Recent DHS
Balance Sheet is adequate and in accordance with GAAP, (iii) the inventories
reflected in the Most Recent DHS Balance Sheet have been valued at the lower of
cost or market, and are not materially in excess of the normal requirement of
DHS' business, and (iv) all equipment and other fixed assets reflected in the
Most Recent DHS Balance Sheet are in good operating condition (reasonable wear
and tear excepted); all of the representations in this Section 4.08(b) being
subject to the collection of accounts receivable, sale and use of inventory,
and disposition of obsolete equipment, in the ordinary course of business.
Section 4.09 Information Supplied. None of the information supplied or
to be supplied by DHS for inclusion or incorporation by reference in and none
of the statements based on such information contained in (a) the Proxy
Statement will, at the date the Proxy Statement is first mailed to stockholders
and at the time of the meetings of such stockholders in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, or (b) the Form
S-4 will, at the time the Form S-4 becomes effective under the 1933 Act or at
the Effective Time, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Section 4.10 Absence of Certain Changes. Except as disclosed in the
DHS SEC Documents filed prior to the date of this Agreement or as disclosed on
Schedule 4.10 to the DHS Disclosure Letter, since September 30, 1998, DHS and
its Subsidiaries have conducted their respective businesses in the ordinary
course consistent with past practice and there has not been:
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(a) Any material transaction of DHS or any of its
Subsidiaries outside of the normal course of business, any damage or
destruction (whether or not covered by insurance) of any material assets of DHS
or any of its Subsidiaries, or any event, occurrence or development which,
individually or in the aggregate, has had or would be reasonably likely to have
a Material Adverse Effect on DHS;
(b) any declaration, setting aside or payment of any dividend
or other distribution with respect to any shares of capital stock of DHS, any
issuance of DHS Common Stock other than upon exercise of DHS Options, or any
repurchase, redemption or other acquisition by DHS or any Subsidiary of DHS of
any amount of outstanding shares of capital stock or other equity securities
of, or other ownership interests in, DHS or any Subsidiary of DHS;
(c) any amendment of any term of any DHS Securities or any
DHS Subsidiary Securities;
(d) (i) any incurrence or assumption by DHS or any Subsidiary
of DHS of any indebtedness for borrowed money other than under existing credit
facilities in the ordinary course of business consistent with past practices,
or (ii) any guarantee, endorsement or other incurrence or assumption of
liability (whether directly, contingently or otherwise) by DHS or any
Subsidiary of DHS for the obligations of any other Person (other than any
wholly-owned Subsidiary of DHS);
(e) any creation or assumption by DHS or any Subsidiary of
DHS of any consensual Lien on any material asset of DHS or any Subsidiary of
DHS;
(f) any making of any loan, advance or capital contribution
to or investment in any Person by DHS or any Subsidiary of DHS other than (i)
loans, advances or capital contributions to or investments in wholly-owned
Subsidiaries of DHS, or (ii) loans or advances to employees of DHS or any
Subsidiary of DHS made in the ordinary course of business consistent with past
practice;
(g) (i) any contract or agreement entered into by DHS or any
Subsidiary of DHS on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business, or (ii) any modification,
amendment, assignment, termination or relinquishment by DHS or any Subsidiary
of DHS of any contract, license or other right (including any insurance policy
naming it as a beneficiary or a loss payable payee) that would be reasonably
likely to have a Material Adverse Effect on DHS, other than those contemplated
by this Agreement;
(h) any change in any method of accounting or accounting
principles or practices by DHS or any Subsidiary of DHS, except for any such
change required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any
director, officer or employee of DHS or any of its Subsidiaries, (ii) entering
into of any employment, deferred compensation or other similar agreement (or
any amendment to any such existing agreement)
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with any director, officer or employee of DHS or any of its Subsidiaries, (iii)
increase in benefits payable under any existing severance or termination pay
policies or employment agreements, or (iv) increase in rates of compensation or
bonus in excess of five (5%) percent or increase in other benefits payable to
officers or employees of DHS or any of its Subsidiaries or increase in
compensation, bonus or other benefits payable to directors of DHS or any of its
Subsidiaries.
Section 4.11 No Undisclosed Liabilities. Neither DHS nor any
Subsidiary of DHS has any material liabilities or obligations (whether pursuant
to contracts or otherwise) of any kind whatsoever whether, accrued, contingent,
absolute, determined, determinable or otherwise, except:
(a) those liabilities and obligations set forth on the DHS
Balance Sheet and not heretofore paid or discharged;
(b) those liabilities and obligations incurred since
September 30, 1998 in the ordinary course of business consistent with past
practice; and
(c) those liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 4.12 Litigation. Except as disclosed on Schedule 4.12 to the
DHS Disclosure Letter, (a) there are no actions, suits, arbitrations, or
proceedings pending or, to the knowledge of DHS, threatened against, relating
to or affecting, nor are there any Governmental Authority investigations or
audits pending or, to the knowledge of DHS, threatened against, relating to or
affecting, DHS or any of its Subsidiaries or any of their respective assets or
properties nor, to the knowledge of DHS, is there any valid basis for any such
action, suit, arbitration, proceeding, investigation or audit, which if
adversely determined, would have a Material Adverse Effect on DHS, and (b)
neither DHS nor any of its Subsidiaries is subject to any order of any
Governmental Authority which adversely affects the ability of DHS to consummate
the transactions contemplated by this Agreement.
Section 4.13 Taxes.
(a) All Tax Returns required to be filed by DHS, any of its
Subsidiaries, or any corporation that was included in the filing of a return
with DHS or its Subsidiaries on a consolidated, combined or unitary basis have
been filed (the "DHS TAX RETURNS") and all Taxes required to be shown on the
DHS Tax Returns, or a subsequent assessment with respect thereto, or otherwise
due or payable (to the extent in excess of $50,000 in the aggregate) have been
paid and any penalties and interest relating to such Taxes have been paid. No
other Taxes (to the extent in excess of $50,000 in the aggregate) are payable
by the DHS Group with respect to items or periods covered by such Tax Returns
or with respect to Tax periods prior to the date of this Agreement. None of the
DHS Tax Returns contain, or are required to contain, a disclosure statement
under Section 6662 of the Code, or any similar provision of state, local or
foreign law, with respect to any items that relate to DHS or its Subsidiaries
in order to avoid a penalty for any taxable year. All DHS Tax Returns are true,
correct and complete in all material respects. DHS
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has made available to MAI correct and complete copies of all DHS Tax Returns
for all periods which are not closed by the statute of limitations.
(b) No adjustment relating to any DHS Tax Return has been
proposed formally or, to DHS' knowledge, informally by any Governmental
Authority (to the extent in excess of $50,000 in the aggregate), and no basis
exists for any such adjustment that would have a Material Adverse Effect on
DHS. There are no outstanding subpoenas or requests for information with
respect to any DHS Tax Returns or portions thereof. There are no pending or, to
DHS' knowledge, threatened actions or proceedings for the assessment or
collection of Taxes for which DHS or its Subsidiaries may be liable (to the
extent in excess of $50,000 in the aggregate). There are no Tax liens on any
assets of DHS or its Subsidiaries, except with respect to Taxes which are not
yet due and payable.
(c) No consent under Section 341(f) of the Code has been
filed with respect to DHS or any of its Subsidiaries. Neither DHS nor any of
its Subsidiaries is or has been subject to the dual consolidated loss
provisions of Section 1503 of the Code.
(d) DHS and its Subsidiaries are members of an affiliated
group (within the meaning of Section 1504 of the Code) that is eligible to file
a consolidated return. No other entity is or has been eligible to file a
consolidated or combined return with DHS and its Subsidiaries, and neither DHS
nor its Subsidiaries have filed or consented to the filing of any Federal or
state consolidated or combined return with any entity not a member of the DHS
Group. Neither DHS nor any of its Subsidiaries has been at any time a member of
any partnership or joint venture or the holder of a beneficial interest in any
trust for any Person for which the statute of limitations for any Tax
potentially applicable as a result of such membership or holding has not
expired.
(e) DHS and its Subsidiaries have properly accrued all
current or contested Taxes (to the extent in excess of $50,000 in the
aggregate) on their books and records, and their books and records reflect
reserves that are adequate for the payment of all Taxes (to the extent in
excess of $50,000 in the aggregate) not yet due and payable that are properly
accruable thereon through the date of this Agreement (including Taxes being
contested). Neither DHS nor any of its Subsidiaries have any liability for any
Taxes which, in the aggregate, are more than $50,000 in excess of amounts
accrued or the reserves established. All Taxes (to the extent in excess of
$50,000 in the aggregate) required to be withheld, collected or deposited in
connection with the operations and activities of DHS or its Subsidiaries have
been timely withheld, collected or deposited and, to the extent required, have
been paid to the relevant taxing authority.
(f) DHS does not own, nor has it owned during the past five
(5) years, any capital stock of MAI. At the Effective Time, the fair market
value of the assets of DHS will exceed the sum of its liabilities, plus the
amount of other liabilities, if any, to which the assets are subject.
(g) There are no requests for rulings, determinations or
information currently outstanding with any Taxing Authority that could
reasonably be expected to affect the Taxes of DHS or any of its Subsidiaries.
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(h) The DHS Tax Returns have not been audited by the Service.
There are no outstanding waivers or agreements extending the statute of
limitations for any period with respect to any Tax to which DHS or any of its
Subsidiaries may be liable.
(i) The term "DHS GROUP" shall mean, individually and
collectively, (i) DHS, (ii) its Subsidiaries, and (iii) any trust, corporation,
partnership or any other entity as to which DHS or its Subsidiaries is liable
for Taxes incurred by such entity either as a transferee, or pursuant to
Treasury Regulations Section 1.1502-6, or pursuant to any other provision of
federal, state, local or foreign law or regulations.
(j) DHS has made available to MAI a true and complete copy of
any (i) elections, letter rulings and determination letters relating to Taxes
with respect to DHS or its Subsidiaries which were in effect or affected Taxes
for any periods which are not closed by the statute of limitations, and (ii)
examination reports, closing agreements and statements of deficiencies for
Taxes assessed against or agreed to by DHS or any of its Subsidiaries which
were in effect or affected Taxes for any periods which are not closed by the
statute of limitations.
Section 4.14 Employee Benefits; ERISA.
(a) Except as set forth on Schedule 4.14 to the DHS
Disclosure Letter, there are no employee benefit plans (including any plans for
the benefit of directors or former directors), contracts or agreements
(including employment agreements and severance agreements, incentive
compensation, bonus, stock option, stock appreciation rights and stock purchase
plans) of any type (including plans described in Section 3(3) of ERISA),
maintained by DHS, any of its Subsidiaries or any trade or business, whether or
not incorporated (an "DHS ERISA AFFILIATE"), that together with DHS would be
deemed a "controlled group" within the meaning of Section 4001(a)(14) of ERISA,
or with respect to which DHS or any of its Subsidiaries has or may have a
liability (the "DHS BENEFIT PLANS"). Except as disclosed on Schedule 4.14 to
the DHS Disclosure Letter (or as otherwise permitted by this Agreement), (i)
neither DHS nor any ERISA Affiliate has any plan or commitment, whether legally
binding or not, to create any additional DHS Benefit Plan or modify or change
any existing DHS Benefit Plan that would affect any employee or terminated
employee of DHS or any ERISA Affiliate, and (ii) since December 31, 1997, there
has been no change, amendment, modification to, or adoption of, any DHS Benefit
Plan.
(b) With respect to each DHS Benefit Plan: (i) if intended to
qualify under Section 401(a), 401(k) or 403(a) of the Code, each such plan so
qualifies, and its trust is exempt from taxation under Section 501(a) of the
Code; (ii) no failures to administer such plan in accordance with its terms and
applicable law have occurred that have had or would reasonably be expected to
have a Material Adverse Effect on DHS; (iii) no breaches of fiduciary duty have
occurred; (iv) no prohibited transaction within the meaning of Section 406 of
ERISA has occurred; (v) as of the date of this Agreement, no lien imposed under
the Code or ERISA exists; and (vi) all contributions and premiums due
(including any extensions for such contributions and premiums) have been made
in full or adequate provision has been made therefor in the DHS Financial
Statements.
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(c) None of the DHS Benefit Plans has incurred any
"accumulated funding deficiency," as such term is defined in Section 412 of the
Code, whether or not waived.
(d) Neither DHS nor any ERISA Affiliate has incurred any
liability under Title IV of ERISA (including Sections 4063-4064 and 4069 of
ERISA) since the effective date of ERISA that has not been satisfied in full.
(e) With respect to each DHS Benefit Plan that is a "welfare
plan" (as defined in Section 3(l) of ERISA), no such plan provides medical or
death benefits with respect to current or former employees of DHS or any of its
Subsidiaries beyond their termination of employment, other than as required by
law or on an employee-pay-all basis.
(f) The consummation of the Merger pursuant to this Agreement
will not (i) entitle any individual to severance pay or any tax "gross-up"
payments with respect to the imposition of any tax pursuant to Section 4999 of
the Code or accelerate the time of payment or vesting, or increase the amount,
of compensation or benefits due to any individual with respect to any DHS
Benefit Plan, or (ii) constitute or result in a prohibited transaction under
Section 4975 of the Code or Section 406 or 407 of ERISA with respect to any DHS
Benefit Plan.
(g) There is no DHS Benefit Plan that is a "multiemployer
plan," as such term is defined in Section 3(37) of ERISA, or which is covered
by Section 4063 or 4064 of ERISA.
Section 4.15 Certain Agreements; Compliance with Agreements.
(a) Except as disclosed on Schedule 4.15 to the DHS
Disclosure Letter or as provided for in this Agreement, neither DHS nor any of
its Subsidiaries is a party to or bound by any oral or written:
(i) consulting agreement not terminable on thirty (30) days'
or less notice;
(ii) agreement with any officer or other key employee the
benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of the transactions contemplated by this
Agreement;
(iii) agreement with respect to any officer providing any
term of employment or compensation guarantee;
(iv) agreement or plan, including any stock option plan,
stock appreciation rights plan, employee stock ownership plan,
restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will
be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(v) agreement containing covenants that limit the ability of
DHS or any of its Subsidiaries to compete in any line of business or
with any Person, or that involve any
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restriction on the geographic area in which, or method by which, DHS
or any of its Subsidiaries may carry on its business (other than as
may be required by law or any regulatory agency);
(vi) agreement, contract or understanding, other than this
Agreement and the certificate of incorporation and by-laws of DHS,
regarding the capital stock of DHS or committing to dispose of some or
all of the capital stock or all or substantially all of the assets of
DHS;
(vii) partnership, joint venture or profit sharing agreement
of DHS or any of its Subsidiaries with any Person;
(viii) agreement, contract, commitment, indenture or other
instrument of DHS or any of its Subsidiaries relating to the borrowing
of money, or the direct or indirect guarantee of any obligation for,
or an agreement to service the repayment of, borrowed money, or any
other contingent obligation in respect to indebtedness of any other
Person, including without limitation any agreement or arrangement
relating to the maintenance of compensating balances, any agreement or
arrangement with respect to lines of credit, any agreement or
arrangement to purchase or repurchase obligations of any other Person,
any agreement or arrangement to advance or supply funds to or to
invest in any other Person, any agreement or arrangement to pay for
property, products or services of any other Person even if such
property, products or services are not conveyed, delivered or
rendered, or any guarantee with respect to any lease or other similar
periodic payment to be made by any other Person;
(ix) lease of DHS or any of its Subsidiaries with annual
rental payments aggregating $50,000 or more;
(x) agreement, contract or commitment of DHS or any of its
Subsidiaries relating to the disposition or acquisition of any
investment in any Person if such investment has a book value of, or
the disposition or acquisition price of such investment or interest
is, $50,000 or more;
(xi) agreement, contract or commitment which involves payment
or potential payment, pursuant to the terms of such agreement,
contract or commitment, by or to DHS or any of its Subsidiaries of
$50,000 or more within any twelve (12) month period commencing after
the date hereof;
(xii) severance or similar agreement entered into or amended
at any time since June 30, 1998; or
(xiii) agreement, contract, commitment or arrangement between
DHS or any of its Subsidiaries and any Affiliate of DHS or any of its
Subsidiaries that is not described in or filed as an exhibit to a DHS
SEC Document.
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(b) Neither DHS nor any of its Subsidiaries nor, to the
knowledge of DHS, any other party thereto is in breach or violation of or in
default in the performance or observance of any term or provision of, and no
event has occurred which, with notice or lapse of time or both, is reasonably
expected to result in a default under, (i) the certificates or articles of
incorporation, by-laws or similar organizational documents of DHS or any of its
Subsidiaries, or (ii) any contract, agreement, plan or instrument listed or
required to be listed on Schedule 4.15 to the DHS Disclosure Letter, except in
the case of clause (ii) for breaches, violations or defaults which,
individually or in the aggregate, are not having and are not reasonably
expected to have a Material Adverse Effect on DHS. No party to any such
contract, agreement, plan or instrument will have the right to terminate any or
all of the provisions of any such contract, plan or instrument as a result of
the transactions contemplated by this Agreement.
(c) No outstanding purchase commitments of DHS or any of its
Subsidiaries is materially in excess of the reasonable requirements of their
respective business.
(d) Neither DHS or any of its Subsidiaries has received
written notice of any existing, announced or anticipated changes in the
policies of any material clients, customers, referral sources or suppliers
which could reasonably be expected to have a Material Adverse Effect on DHS.
Section 4.16 Compliance with Laws and Orders.
(a) DHS and its Subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals of all Governmental Authorities
necessary for the lawful conduct of their respective businesses (the "DHS
PERMITS"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which, individually or in the aggregate, are
not having and are not reasonably expected to have a Material Adverse Effect on
DHS. DHS and its Subsidiaries are in compliance with the terms of the DHS
Permits, except failures so to comply which, individually or in the aggregate,
are not having and are not reasonably expected to have a Material Adverse
Effect on DHS. DHS and its Subsidiaries are not in violation of or default
under any Laws or Orders, except for such violations or defaults which,
individually or in the aggregate, are not having and are not reasonably
expected to have a Material Adverse Effect on DHS.
(b) Without limitation of Section 4.16(a), DHS and its
Subsidiaries have at all times operated their businesses in compliance with all
applicable federal, state and other fraud and abuse, anti-kickback ("Xxxxx
laws") and other statutes, rules and regulations governing the provision of
medical or related services and/or payments or reimbursements for such
services.
Section 4.17 Environmental Matters.
(a) No notice, notification, demand, request for information,
citation, summons or order has been received by, no complaint has been filed
against, no penalty has been assessed against, and no investigation, action,
claim, suit, proceeding or review is pending or, to the knowledge of DHS or any
Subsidiary of DHS, is threatened by any Person, against DHS or
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any Subsidiary of DHS with respect to any matters relating to or arising out of
any Environmental Law;
(b) No Hazardous Substance has been discharged, disposed of,
dumped, injected, pumped, deposited, spilled, leaked, emitted or released, in
violation of any Environmental Law, at, on, under or adjacent to any property
now or, to the knowledge of DHS, previously owned, leased or operated by DHS or
any Subsidiary of DHS; and
(c) There are no Environmental Liabilities.
(d) For purposes of this Section 4.17, capitalized terms used
shall have the meanings assigned to them in Section 3.17(b), except that in all
cases the word "DHS" shall be substituted for the word "MAI".
Section 4.18 Assets. The assets, properties, rights and contracts,
including (as applicable) title or leaseholds thereto, of DHS and its
Subsidiaries, taken as a whole, are sufficient to permit DHS and its
Subsidiaries to conduct their respective businesses as currently being
conducted. Neither DHS nor any of its Subsidiaries owns any real property.
Section 4.19 Intellectual Property Rights.
(a) DHS and its Subsidiaries own or have the right to use all
Intellectual Property individually or in the aggregate material to the conduct
of the businesses of DHS and its Subsidiaries. To the knowledge of DHS, (i)
neither DHS nor any Subsidiary of DHS is in default (or with the giving of
notice or lapse of time or both would be in default) under any license to use
such Intellectual Property, (ii) such Intellectual Property (other than
patents) is not being infringed by any third party, and (iii) neither DHS nor
any Subsidiary of DHS is infringing any intellectual property of any third
party. An accurate schedule of all Intellectual Property of DHS or its
Subsidiaries consisting of patents, registered trademarks, registered service
marks, registered trade names and registered copyrights and all pending
applications therefor is set forth on Schedule 4.19 to the DHS Disclosure
Letter.
(b) Either DHS or one of its Subsidiaries is listed in the
records of the appropriate United States, state or foreign agency as the sole
owner of record for each application and registration included in the
Intellectual Property, other than Intellectual Property of which DHS or its
Subsidiaries is a licensee.
(c) DHS and its Subsidiaries, with respect to all
Intellectual Property owned thereby, have taken or caused to be taken all
reasonable steps in the exercise of reasonable business judgement to obtain and
retain valid and enforceable Intellectual Property rights therein, including
the submission of all necessary filings in accordance with the legal and
administrative requirements of the appropriate jurisdictions. No application or
registration listed on Schedule 4.19 to the DHS Disclosure Letter is the
subject of any pending, existing or, to DHS' knowledge, threatened, opposition,
interference, cancellation proceeding or other legal or governmental proceeding
before any registration authority in any jurisdiction.
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(d) The consummation of the transactions contemplated hereby
will not result in the loss or impairment of DHS' or any of its Subsidiaries'
right to own or use any of the Intellectual Property nor will it require the
consent of any Governmental Authority or third party.
Section 4.20 Labor Matters. DHS has previously furnished to MAI true
and complete copies of all labor and collective bargaining agreements (if any)
to which DHS or any of its Subsidiaries is a party and that are currently in
effect, together with all amendments thereto (if any). Since January 1, 1996,
there have been no strikes, slowdowns or other work stoppages or lockouts
involving any employees of DHS or any of its Subsidiaries and there are no
disputes by any labor organization in progress or pending or, to the knowledge
of DHS, threatened against DHS or any of its Subsidiaries that would have a
Material Adverse Effect on DHS. DHS and its Subsidiaries are in compliance in
all material respects with all applicable laws and regulations in respect of
employment and employment practices, terms and conditions of employment, wages
and hours, occupational safety, health or welfare conditions relating to
premises occupied, and civil rights. There are no charges of unfair labor
practices pending before any Governmental Authority involving or affecting DHS
or any of its Subsidiaries. As of the date of this Agreement, there is no
representation claim or petition pending before the National Labor Relations
Board and, to the knowledge of DHS, no question concerning representation
exists with respect to the employees of DHS or any of its Subsidiaries. DHS has
not received notice that any customer or supplier of DHS or any or its
Subsidiaries is involved in or threatened with or affected by any strike or
other labor disturbance or dispute, litigation or administrative proceeding or
judgment, order, injunction, decree or award, the consequences of which would
have a Material Adverse Effect on DHS.
Section 4.21 Transactions with Affiliates. Except to the extent
disclosed in the DHS SEC Documents filed prior to the date of this Agreement,
none of the officers or directors of DHS or any of its Subsidiaries nor any of
its Affiliates, and, to DHS' knowledge, none of its key employees or the key
employees of any of its Subsidiaries, is a party to any transaction with DHS or
any of its Subsidiaries (other than for services as an employee, officer or
director and other than transactions between DHS and one or more of its direct
or indirect wholly owned Subsidiaries or between such Subsidiaries), including,
without limitation, any contract, agreement or other arrangement (a) providing
for the furnishing of services to or by, (b) providing for rental of real or
personal property to or from, or (c) otherwise requiring payments to or from,
any such officer, director, Affiliate or key employee, any member of the family
of any such officer, director or key employee or any corporation, partnership,
trust or other entity in which any such officer, director or key employee has
substantial interest (excluding the ownership of not more than two percent (2%)
of the capital stock of a publicly traded corporation) or which is an Affiliate
of such officer, director or key employee.
Section 4.22 Insurance. Schedule 4.22 to the DHS Disclosure Letter
sets forth a complete and accurate list of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of or providing insurance coverage to DHS or any of its Subsidiaries and
their respective businesses, properties and assets (or its directors, officers,
agents or employees). All such policies are in full force and effect. Neither
DHS nor any of its Subsidiaries has received notice of default under any such
policy, or has received
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written notice of any pending or threatened termination or cancellation,
coverage limitation or reduction, or material premium increase with respect to
any such policy, the failure of which to maintain has a Material Adverse Effect
on DHS. Schedule 4.22 to the DHS Disclosure Letter sets forth a complete and
accurate summary of all of the self-insurance coverage provided by DHS or any
of its Subsidiaries and no letters of credit have been posted in respect
thereof.
Section 4.23 Takeover Statutes. The Boards of Directors of DHS and
Merger Subsidiary have duly and validly approved the Merger, this Agreement and
the transactions contemplated by this Agreement and such approval is sufficient
to render inapplicable to the Merger, this Agreement, and the transactions
contemplated by this Agreement and the Voting Agreement, the provisions of
Section 203 of the Delaware General Corporation Law (the "Delaware Law"). No
other Takeover Statute applicable to DHS or any of its Subsidiaries is
applicable to the Merger or the other transactions contemplated hereby.
Section 4.24 Finders' Fees. Except for a fee payable to Prudential
Securities Incorporated, a copy of whose engagement agreement has been provided
to MAI, no investment banker, broker, finder, other intermediary or other
Person is entitled to any fee or commission from DHS or any Subsidiary of DHS
upon consummation of the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
Section 5.01 Conduct of MAI. From the date hereof until the Effective
Time, except as otherwise expressly required by this Agreement or with the
prior written consent of DHS, MAI shall conduct, and shall cause its
Subsidiaries to conduct, their respective businesses in the ordinary course
consistent with past practice and shall use commercially reasonable efforts to
preserve intact commercially reasonable organizations and relationships with
customers, suppliers, creditors and business partners and shall use their
reasonable efforts to keep available the services of their present officers and
employees. Without limiting the generality of the foregoing, from the date
hereof until the Effective Time, except as described in Schedule 5.01 to the
MAI Disclosure Letter, without the prior written approval of DHS (which
approval will not be unreasonably withheld or delayed with respect to (c), (d),
(h), (i), (j), (n) or (o), or (k) as it applies to filing any amended Tax
Return):
(a) MAI will not adopt or propose any change in its articles
of incorporation or any change in its by-laws;
(b) MAI will not, and will not permit any Subsidiary of MAI
to, adopt a plan or agreement of complete or partial liquidation, or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of MAI or any of its Subsidiaries (other than a liquidation or dissolution of
any Subsidiary or a merger or consolidation between wholly-owned Subsidiaries);
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(c) MAI will not, and will not permit any Subsidiary of MAI
to, make any investment in or any acquisition of the business of any Person or
any material amount of assets (other than inventory);
(d) MAI will not, and will not permit any Subsidiary of MAI
to, sell or otherwise dispose of any assets (other than inventory) in an amount
that would be material to MAI and its Subsidiaries, taken as a whole, except in
the ordinary course of business consistent with past practice;
(e) MAI will not, and will not permit any Subsidiary of MAI
to, declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock other than dividends
paid by any Subsidiary of MAI to MAI or any other Subsidiary of MAI, or split,
combine, reclassify or take similar action with respect to any of its capital
stock or MAI Securities or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or MAI Securities;
(f) MAI will not, and will not permit any Subsidiary of MAI
to, issue, deliver, sell, transfer, pledge, dispose of or encumber any shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class or series of MAI or its Subsidiaries, or issue or grant any
restricted stock awards, stock appreciation rights, performance share
agreements or stock unit awards, other than (i) the issuance of options with an
exercise price at least equal to the fair market value of the MAI Common Stock
on the date of grant for up to 75,000 shares of MAI Common Stock under the MAI
Option Plan as in effect on the date hereof, and (ii) issuances of MAI Common
Stock pursuant to the exercise of options granted pursuant to the MAI Option
Plan and the exercise of MAI Warrants described in Section 3.05(a) which are
outstanding on the date hereof or are hereafter issued pursuant to the
foregoing clause (i); and MAI will not amend the terms of any option, warrant,
right or other security outstanding on the date hereof;
(g) MAI will not, and will not permit any Subsidiary of MAI
to, redeem, purchase or otherwise acquire directly or indirectly any of MAI's
capital stock or any MAI Securities;
(h) MAI will not, and will not permit any Subsidiary of MAI
to, enter into or amend in any material respect any employment contract with
any of its officers, directors or employees earning annual compensation of more
than $50,000, adopt or amend any MAI Benefit Plan in any material respect or
make any payments, awards or distributions under any MAI Benefit Plan or
otherwise not consistent with past practice or custom except (i) as required by
a contract in existence on the date hereof and listed on Schedule 3.15 to the
MAI Disclosure Letter, or (ii) as necessary to make any MAI Benefit Plan listed
on Schedule 3.14 to the MAI Disclosure Letter meet the requirements of ERISA to
the extent such amendment is described in such Schedule or is approved by DHS;
(i) MAI will not, and will not permit any Subsidiary of MAI
to, (i) enter into (or commit to enter into) any new lease or renew any
existing lease of real property (except
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pursuant to commitments for such lease or lease renewal entered into prior to
the date hereof), or (ii) purchase or acquire or enter into any agreement to
purchase or acquire any real estate;
(j) MAI will not, and will not permit any Subsidiary of MAI
to, make or commit to make any capital expenditures in excess of $500,000 in
the aggregate;
(k) MAI will not, and will not permit any Subsidiary of MAI
to, change any tax election, change any annual tax accounting period, change
any method of tax accounting, file any amended Tax Return, enter into any
closing agreement relating to any Tax, settle any Tax claim or assessment,
surrender any right to claim a Tax refund or consent to any extension or waiver
(other than a reasonable extension or waiver) of the limitations period
applicable to any Tax claim or assessment, if any such action would have the
effect of increasing the aggregate Tax liability or reducing the aggregate tax
assets of MAI and its Subsidiaries, taken as a whole;
(l) MAI will not, and will not permit any Subsidiary of MAI
to, (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness other than in the ordinary course of its business consistent with
past practice, or (ii) voluntarily purchase, cancel, prepay or otherwise
provide for a complete or partial discharge in advance of a scheduled repayment
date with respect to, or waive any right under, any indebtedness for borrowed
money;
(m) MAI will not, and will not permit any Subsidiary of MAI
to, enter into any contract or amend or modify any existing contract, or engage
in any new transaction outside the ordinary course of business consistent with
past practice or not on an arm's length basis, with any Affiliate of such party
or any of its Subsidiaries;
(n) MAI will not, and will not permit any Subsidiary of MAI
to, agree or commit to do any of the foregoing; and
(o) MAI will not, and will not permit any Subsidiary of MAI
to, take or agree or commit to take any action that would make any
representation or warranty of MAI in this Agreement inaccurate at, or as of any
time prior to, the Effective Time.
Section 5.02 Conduct of DHS. From the date hereof until the Effective
Time, except as otherwise expressly required by this Agreement or with the
prior written consent of MAI, DHS shall conduct, and shall cause its
Subsidiaries to conduct, their respective businesses in the ordinary course
consistent with past practice and shall use commercially reasonable efforts to
preserve intact their business organizations and relationships with customers,
suppliers, creditors and business partners and shall use their reasonable
efforts to keep available the services of their present officers and employees.
Without limiting the generality of the foregoing, from the date hereof until
the Effective Time, without the prior written approval of MAI (which approval
will not be unreasonably withheld or delayed with respect to (c), (d), (h),
(i), (j), (n) or (o), or (k) as it applies to filing any amended Tax Return):
(a) DHS will not adopt or propose any change in its
certificate of incorporation or any change in its by-laws, except (i) as and to
the extent required to consummate the Merger, and (ii) for the proposed change
of the corporate name of DHS to "Medical Alliance, Inc." at the Effective Time;
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(b) DHS will not, and will not permit any Subsidiary of DHS
to, adopt a plan or agreement of complete or partial liquidation, or
resolutions providing for or authorizing such liquidation or a dissolution,
merger, consolidation, restructuring, recapitalization or other reorganization
of DHS or any of its Subsidiaries (other dm a liquidation or dissolution of any
Subsidiary or a merger or consolidation between wholly-owned Subsidiaries);
(c) DHS will not, and will not permit any Subsidiary of DHS
to, make any investment in or any acquisition of the business of any Person or
any material amount of assets (other than inventory);
(d) DHS will not, and will not permit any Subsidiary of DHS
to, sell or otherwise dispose of any assets (other than inventory) in an amount
that would be material to DHS and its Subsidiaries, taken as a whole, except in
the ordinary course of business consistent with past practice;
(e) DHS will not, and will not permit any Subsidiary of DHS
to, declare, set aside or pay any dividend or other distribution payable in
cash, stock or property with respect to its capital stock, other than dividends
paid by any Subsidiary of DHS to DHS or any other Subsidiary of DHS, or split,
combine, reclassify or take similar action with respect to any of its capital
stock or DHS Securities or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock of DHS Securities;
(f) DHS will not, and will not permit any Subsidiary of DHS
to, issue, deliver, sell, transfer, pledge, dispose of or encumber any shares
of, or securities convertible into or exchangeable for, or options, warrants,
calls, commitments or rights of any kind to acquire, any shares of capital
stock of any class or series of DHS or its Subsidiaries, or issue or grant any
restricted stock awards, stock appreciation rights, performance share
agreements or stock unit awards, other than (i) the issuance of options with an
exercise price at least equal to the fair market value of the DHS Common Stock
on the date of grant for up to 75,000 shares of DHS Common Stock under the DHS
Plans as in effect on the date hereof, and (ii) issuances pursuant to the
exercise of options granted pursuant to the DHS Plans described in Section
4.05(a) which are outstanding on the date hereof or are hereafter issued
pursuant to the foregoing clause (i); and DHS will not amend the terms of any
option, warrant, right or other security outstanding on the date hereof, except
for the extension of stock options held by outgoing directors of DHS (provided
that such extensions shall not cause the expiration dates of such options to
extend beyond the later of the third anniversary of the Effective Time or the
tenth (10th) anniversary of the date of issuance of the subject options);
(g) DHS will not, and will not permit any Subsidiary of DHS
to, redeem, purchase or otherwise acquire directly or indirectly any of DHS'
capital stock or any DHS Securities;
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(h) DHS will not, and will not permit any Subsidiary of DHS
to, enter into or amend in any material respect any employment contract with
any of its officers, directors or employees earning annual compensation of more
than $50,000 (other than as contemplated by Section 6.06), adopt or amend any
DHS Benefit Plan in any material respect or make any payments, awards or
distributions under any DHS Benefit Plan or otherwise not consistent with past
practice or custom except (i) as required by a contract in existence on the
date hereof and listed on Schedule 4.15 to the DHS Disclosure Letter, or (ii)
as necessary to make any DHS Benefit Plan listed on Schedule 4.14 to the DHS
Disclosure Letter meet the requirements of the Code or ERISA to the extent such
amendment is described in such Schedule or is approved by MAI;
(i) DHS will not, and will not permit any Subsidiary of DHS
to, (i) enter into (or commit to enter into) any new lease or renew any
existing lease of real property (except pursuant to commitments for such lease
or lease renewal entered into prior to the date hereof), or (ii) purchase or
acquire or enter into any agreement to purchase or acquire any real estate;
(j) DHS will not, and will not permit any Subsidiary of DHS
to, make or commit to make any capital expenditures in excess of $750,000 in
the aggregate;
(k) DHS will not, and will not permit any Subsidiary of DHS
to, change any tax election, change any annual tax accounting period, change
any method of tax accounting, file any amended Tax Return, enter into any
closing agreement relating to any Tax, settle any Tax claim or assessment,
surrender any right to claim a Tax refund or consent to any extension or waiver
(other than a reasonable extension or waiver) of the limitations period
applicable to any Tax claim or assessment, if any such action would have the
effect of increasing the aggregate Tax liability or reducing the aggregate tax
assets of MAI and its Subsidiaries, taken as a whole;
(l) DHS will not, and will not permit any Subsidiary of DHS
to, (i) incur any indebtedness for borrowed money or guarantee any such
indebtedness other than in the ordinary course of its business consistent with
past practice or other than in connection with the transactions contemplated by
this Agreement, or (ii) voluntarily purchase, cancel, prepay or otherwise
provide for a complete or partial discharge in advance of a scheduled repayment
date with respect to, or waive any right under, any indebtedness for borrowed
money;
(m) DHS will not, and will not permit any Subsidiary of DHS
to, enter into any contract or amend or modify any existing contract, or engage
in any new transaction outside the ordinary course of business consistent with
past practice or not on an arm's length basis, with any Affiliate of such party
or any of its Subsidiaries;
(n) DHS will not, and will not permit any Subsidiary of DHS
to, agree or commit to do any of the foregoing; and
(o) DHS will not, and will not permit any Subsidiary of DHS
to, take or agree or commit to take any action that would make any
representation or warranty of DHS in this Agreement inaccurate at, or as of any
time prior to, the Effective Time.
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Section 5.03 No Solicitation.
(a) From the date hereof until the earlier of the Effective
Time or the termination of this Agreement, MAI agrees that: (i) it will not,
and will use its best efforts to cause its Subsidiaries and the officers,
directors, employees, investment bankers, consultants and other agents of MAI
and its Subsidiaries and the Affiliates of MAI not to, directly or indirectly,
initiate, solicit, encourage or facilitate or take any action to initiate,
solicit, encourage or facilitate any inquiries or the making or implementation
of any proposal or offer (including, without limitation, any proposal or offer
to its stockholders) with respect to a merger, consolidation or other business
combination including MAI or any of its Subsidiaries or any acquisition or
similar transaction (including, without limitation, a tender or exchange offer)
involving the purchase of (A) all or any significant portion of the assets of
MAI and its Subsidiaries taken as a whole, (B) 20% or more of the outstanding
shares of MAI Common Stock, or (C) 20% of the outstanding shares of the capital
stock of any Subsidiary of MAI (any such proposal or offer being hereinafter
referred to as an "ALTERNATIVE PROPOSAL"), or engage in any discussions or
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any Person or group relating to an Alternative
Proposal (excluding the transactions contemplated by this Agreement) or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (ii) it will immediately cease and cause to be terminated and will
cause its Subsidiaries and the officers, directors, employees, investment
bankers, consultants and other agents of MAI and its Subsidiaries and the
Affiliates of MAI to immediately cease and terminate, any existing activities,
discussions or negotiations with any parties with respect to any of the
foregoing, and it will take the necessary steps to inform such parties of its
obligations under this Section 5.03(a); and (iii) it will notify DHS
immediately (and in no event later than 24 hours after receipt of any
Alternative Proposal) if any such inquiries, proposals or offers are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it or any of such
Persons; provided, however, that nothing contained in this Section 5.03 shall
prohibit the Board of Directors of MAI from (x) furnishing information to (but
only pursuant to a confidentiality agreement in customary form and having terms
and conditions substantially comparable to the Confidentiality Agreement) or
entering into discussions or negotiations with any Person or group that makes
an unsolicited bona fide Alternative Proposal, if, and only to the extent that,
(i) the Board of Directors of MAI, based upon the written opinion of outside
counsel, determines in good faith that such action is required for the Board of
Directors to comply with its fiduciary duties to stockholders imposed by
applicable law, (ii) prior to furnishing such information to, or entering into
discussions or negotiations with, such Person or group, MAI provides written
notice to DHS to the effect that it is furnishing information to, or entering
into discussions or negotiations with such Person or group (without being
required to identify such Person or group), and (iii) MAI keeps DHS informed
(which notice shall be provided orally and in writing) of the status of such
discussions or negotiations (provided that MAI will not be required to inform
DHS of the substantive terms of such discussions or negotiations, other than
the aggregate consideration being offered to MAI and/or its stockholders), and
(y) to the extent required, complying with Rule 14e-2 promulgated under the
1934 Act with regard to an Alternative Proposal. Except for DHS' termination
rights pursuant to Section 9.01, DHS will not utilize any of the information
provided to it by MAI pursuant to this Section 5.03(a) in any manner which
could reasonably be expected to undermine MAI's discussions or negotiations
with any Person or group identified to DHS by MAI hereunder.
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(b) From the date hereof until the earlier of the Effective
Time or the termination of this Agreement, DHS agrees that: (i) it will not,
and will use its best efforts to cause its Subsidiaries and the officers,
directors, employees, investment bankers, consultants and other agents of DHS
and its Subsidiaries and Affiliates of DHS not to, directly or indirectly,
initiate, solicit, encourage or facilitate or take any action to initiate,
solicit, encourage or facilitate any inquiries or the making or implementation
of any proposal or offer with respect to any transaction such as would cause
ownership or voting control of DHS to be vested in any Person or group, or with
respect to a material acquisition in any line of business not substantially
related to the existing line of business of DHS and its Subsidiaries (a "DHS
PROPOSAL"); (ii) it will immediately cease and cause to be terminated and will
cause its Subsidiaries and the officers, directors, employees, investment
bankers, consultants and other agents of DHS and its Subsidiaries and the
Affiliates of DHS to immediately cease and terminate, any existing activities,
discussions or negotiations with any parties with respect to any of the
foregoing, and it will take the necessary steps to inform such parties of its
obligations under this Section 5.03(b); and (iii) it will notify MAI
immediately (and in no event later than 24 hours after receipt of any proposal
with respect to any such transaction) if any inquiries, proposals, or offers
are received by, or any information is requested in respect of, any transaction
of the type described in this Section 5.03(b). DHS shall be permitted to
conduct unsolicited negotiations and discussions with respect to any such
transaction, and shall be required to report thereon to MAI, in the same manner
and to the same extent as is applicable under Section 5.03(a) with respect to
any Alternative Proposal as described therein. Except for MAI's termination
rights pursuant to Section 9.01, MAI will not utilize any information provided
to it by DHS pursuant to this Section 5.03(b) in any manner which could
reasonably be expected to undermine DHS' discussions or negotiations with any
Person or group identified to MAI by DHS hereunder.
Section 5.04 Approval of Stockholders.
(a) MAI shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders (the "MAI
STOCKHOLDERS' MEETING") for the purpose of voting on the approval and adoption
of this Agreement and the Merger (the "MAI STOCKHOLDERS' APPROVAL") as soon as
reasonably practicable after the date hereof. Except as provided in the next
sentence, the Board of Directors of MAI shall recommend approval and adoption
of this Agreement and the Merger by the holders of MAI Common Stock and shall
use all commercially reasonable efforts to obtain such approval and adoption.
The Board of Directors of MAI shall be permitted to (i) not recommend to the
holders of MAI Common Stock that they give the MAI Stockholders' Approval, or
(ii) withdraw or modify in a manner adverse to DHS its recommendation to the
holders of MAI Common Stock that they give the MAI Stockholders' Approval, but
in each of cases (i) and (ii) only if and to the extent that a Superior
Proposal is pending at the time the MAI Board of Directors determines to take
any such action or inaction; provided, however, that no such failure to
recommend, withdrawal or modification shall be made unless MAI shall have
delivered to DHS a written notice (a "NOTICE OF SUPERIOR PROPOSAL") advising
DHS that the Board of Directors of MAI has received a Superior Proposal and
identifying the Person or group making such Superior Proposal; and further
provided, that
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nothing contained in this Agreement shall prevent the Board of Directors of MAI
from complying with Rule 14e-2 under the 1934 Act with regard to an Alternative
Proposal. For purposes of this Agreement, "SUPERIOR PROPOSAL" means any bona
fide Alternative Proposal for at least a majority of the outstanding Shares on
terms that the Board of Directors of MAI determines in its good faith judgment
(based on the advice of an independent reputable financial advisor, taking into
account all the terms and conditions of the Alternative Proposal, including any
break-up fees, expense reimbursement provisions and conditions to consummation)
are more favorable and provide greater value to all holders of MAI Common Stock
than this Agreement and the Merger taken as a whole.
(b) DHS shall, through its Board of Directors, duly call,
give notice of, convene and hold a meeting of its stockholders (the "DHS
STOCKHOLDERS' MEETING" and, together with the MAI Stockholders' Meeting, the
"STOCKHOLDERS' MEETINGS") for the purpose of voting on (i) the issuance of DHS
Common Stock in the Merger (the "DHS STOCKHOLDERS' APPROVAL"), and (ii) the
name change of DHS described in Section 5.02(a) (the "Name Change") as soon as
reasonably practicable after the date hereof. The Board of Directors of DHS
shall recommend that the stockholders of DHS approve such issuances of DHS
Common Stock, and the Name Change, and shall use its best efforts to obtain
such approval.
(c) DHS and MAI shall coordinate and cooperate with respect
to the timing of the Stockholders' Meetings and shall use their best efforts to
cause the Stockholders' Meetings to be held on the same day and as soon as
practicable after the date hereof.
Section 5.05 Preparation of Form S-4 and Proxy Statement.
(a) MAI and DHS shall prepare and file with the SEC as soon
as reasonably practicable after the date hereof, the Proxy Statement, and DHS
shall prepare and file with the SEC as soon as reasonably practicable after
such date, a registration statement on Form S-4 with respect to the DHS Common
Stock issuable in the Merger, and in which the Proxy Statement will be included
within the prospectus. DHS and MAI shall use all reasonable efforts to have the
Form S-4 declared effective by the SEC as promptly as practicable after such
filing. Prior to the Effective Date, DHS shall also take any action (other than
qualifying as a foreign corporation or taking any action which would subject it
to service of process in any jurisdiction where DHS is not now so qualified or
subject) required to be taken under applicable state blue sky or securities
laws in connection with the issuance of DHS Common Stock in connection with the
Merger and will pay all expenses incident thereto. If at any time prior to the
Effective Time any event shall occur that should be set forth in an amendment
of or a supplement to the Form S-4, DHS shall prepare and file with the SEC
such amendment or supplement as soon thereafter as is reasonably practicable.
DHS, Merger Subsidiary and MAI shall cooperate with each other in the
preparation of the Form S-4 and the Proxy Statement and any amendment or
supplement thereto, and each shall notify the other of the receipt of any
comments of the SEC with respect to the Form S-4 and any amendment or
supplement thereto or for additional information, and shall provide to the
other promptly copies of all correspondence between DHS or MAI, as the case may
be, and the SEC with respect to the Form S-4 or the Proxy Statement. DHS shall
give MAI and its counsel the opportunity to review and comment on the Form S-4
and all responses to requests for
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additional information by and replies to comments of the SEC before their being
filed with, or sent to, the SEC. Each of MAI, DHS, and Merger Subsidiary agrees
to use its best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC and to cause
(i) the Form S-4 to be declared effective by the SEC at the earliest
practicable time and to be kept effective as long as is necessary to consummate
the Merger, and (ii) the Proxy Statement to be mailed to the holders of DHS
Common Stock and MAI Common Stock entitled to vote at the meetings of the
stockholders of DHS and MAI at the earliest practicable time.
(b) DHS agrees that the Form S-4, when declared effective by
the SEC, will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing shall not apply to the
extent that any such untrue statement of a material fact or omission to state a
material fact was made by DHS in reliance upon and in conformity with written
information concerning MAI or any of its Affiliates furnished to DHS by MAI or
any of its Affiliates. MAI agrees that the information provided by it for
inclusion in the Proxy Statement, when the Proxy Statement is mailed to
stockholders, will not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No amendment or supplement to the Form S-4 will be made by DHS
until it has consulted with MAI and its counsel. DHS will advise MAI, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order, or the suspension of the qualification of DHS Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction or any
request by the SEC for amendment of the Proxy Statement or the Form S-4 or
comments thereon and responses thereto or requests for additional information.
Section 5.06 Access to Information.
(a) To the extent permitted by applicable law, from the date
hereof until the Effective Time, MAI will give DHS, its counsel, financial
advisors, auditors and other authorized representatives reasonable access
during normal business hours to the offices, properties, books and records of
MAI and its Subsidiaries, will furnish to DHS, its counsel, financial advisors,
auditors and other authorized representatives such financial and operating data
and other information as such Persons may reasonably request and will instruct
MAI's employees, auditors, counsel and financial advisors to cooperate with DHS
in its investigation of the business of MAI and its Subsidiaries; provided,
however, that no investigation pursuant to this Section 5.06(a) shall affect
any representation or warranty made by MAI to DHS hereunder. The foregoing
information shall be held in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement between DHS
and MAI (the "CONFIDENTIALITY AGREEMENT").
(b) To the extent permitted by applicable law, from the date
hereof until the Effective Time, DHS will give MAI, its counsel, financial
advisors, auditors and other authorized
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representatives reasonable access during normal business hours to the offices,
properties, books and records of DHS and its Subsidiaries, will furnish to MAI,
its counsel, financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such Persons may
reasonably request and will instruct DHS' employees, auditors, counsel and
financial advisors to cooperate with MAI in its investigation of the business
of DHS and its Subsidiaries; provided, however, that no investigation pursuant
to this Section 5.06(b) shall affect any representation or warranty made by DHS
to MAI hereunder. Such information shall be held in confidence to the extent
required by, and in accordance with, the Confidentiality Agreement.
Section 5.07 Notices of Certain Events.
(a) MAI and DHS shall promptly notify each other of:
(i) any notice or other communication from any Person
alleging that the consent of such Person is or may be required in
connection with the transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement.
(b) MAI shall promptly notify DHS of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting MAI or any
Subsidiary of MAI which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 3.12 or Section 3.17
or which relate to the consummation of the transactions contemplated by this
Agreement.
(c) DHS shall promptly notify MAI of any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting DHS or any
Subsidiary of DHS which, if pending on the date of this Agreement, would have
been required to have been disclosed pursuant to Section 4.12 or Section 4.17
or which relate to the consummation of the transactions contemplated by this
Agreement.
Section 5.08 Regulatory and Other Approvals. Subject to the terms and
conditions of this Agreement, each of MAI and DHS will proceed diligently and
in good faith to, as promptly as practicable, (a) obtain all consents,
approvals or actions of, make all filings with and give all notices to
Governmental Authorities or any other public or private third parties required
of DHS, MAI or any of their Subsidiaries to consummate the Merger and the other
transactions contemplated hereby, and (b) provide such other information and
communications to such Governmental Authorities or other public or private
third parties as the other party or such Governmental Authorities or other
public or private third parties may reasonably request in connection therewith.
In addition to and not in limitation of the foregoing, each of the parties will
(i) take promptly all actions necessary to make any filings (if any) legally
required of DHS and MAI or their respective Affiliates under the HSR Act as
soon as practicable but in no event
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later than thirty (30) days after the date hereof, (ii) comply at the earliest
practicable date with any request for additional information received by such
party or its Affiliates from the Federal Trade Commission (the "FTC") or the
Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION")
pursuant to the HSR Act, and (iii) cooperate with the other party in connection
with such party's filings (if any) under the HSR Act and in connection with
resolving any investigation or other inquiry concerning the Merger or the other
transactions contemplated by this Agreement commenced by either the FTC or the
Antitrust Division or state attorneys general. Without limiting the generality
of the foregoing, DHS and MAI shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and cooperate in
determining whether any action by or in respect of, or filing with, any
Governmental Authorities is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any contracts, in
connection with the consummation of the transactions contemplated by this
Agreement, and in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents, approvals or
waivers.
Section 5.09 Public Announcements. So long as this Agreement is in
effect, DHS and MAI will consult with each other before issuing any press
release or making any SEC filing or other public statement with respect to this
Agreement or the Voting Agreement or the transactions contemplated hereby or
thereby and, except as may be required by applicable law, court process or any
listing agreement with any national securities exchange or with NASDAQ, will
not issue any such press release or make any such SEC filing or other public
statement prior to such consultation and providing the other party with a
reasonable opportunity to comment thereon and approve the same (such approval
not to be unreasonably withheld or delayed). Simultaneously with the
announcement regarding the execution and delivery of this Agreement, DHS shall
announce its fourth quarter 1998 earnings results and its change in contract
accounting methods and its proposed write-offs for impairment of goodwill and
other assets, which announcement shall be substantially in the form of Schedule
5.09 to the DHS Disclosure Letter.
Section 5.10 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of MAI or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of MAI or Merger Subsidiary, any other actions and things to
vest, perfect or confirm of record or otherwise in the Surviving Corporation
any and all right, title and interest in, to and under any of the rights,
properties or assets of MAI acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
Section 5.11 MAI Affiliates. At least thirty (30) days prior to the
Effective Time, MAI shall deliver a letter to DHS identifying all persons who,
at the time of the MAI Stockholders' Meeting, may, in MAI's reasonable
judgment, be deemed to be "affiliates" (as such term is used in Rule 145 under
the 0000 Xxx) of MAI ("MAI AFFILIATES"). MAI shall use its reasonable efforts
to cause each MAI Affiliate to deliver to DHS at or prior to the Effective Time
a letter substantially in the form and to the effect of Exhibit B hereto (an
"AFFILIATE LETTER"). DHS shall be entitled to issue appropriate stop transfer
instructions to the transfer agent for the DHS Common Stock to be issued to MAI
Affiliates pursuant to the Merger, consistent with the terms
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of such Affiliate Letters. At the Closing, unless the shares of DHS Common
Stock issuable to the MAI Affiliates are included for resale in the Form S-4
registration statement contemplated by Section 5.05 and are freely tradeable
upon the effectiveness of such Form S-4, DHS and the MAI Affiliates will enter
into a Registration Rights Agreement in substantially the form attached hereto
as Exhibit C; and, in the event that the shares of DHS Common Stock issuable to
the MAI Affiliates are included for resale in the Form S-4 and are freely
tradeable upon the effectiveness of such Form S-4, DHS shall file such
amendments to such Form S-4 as may be required to keep such registration
statement and the resale prospectus therein current and effective for a period
of two years following the effective date thereof (or, if sooner, until such
date as all such DHS Common Stock has been disposed of by the MAI Affiliates).
Section 5.12 Obligations of Merger Subsidiary. DHS will take all
action necessary to cause Merger Subsidiary to perform its obligations under
this Agreement and to consummate the Merger on the terms and conditions set
forth in this Agreement.
Section 5.13 Listing of Stock. DHS shall use its best efforts to cause
the shares of DHS Common Stock to be issued in connection with the Merger to be
approved for listing on the NASDAQ National Market System at or prior to the
Effective Time, subject to official notice of issuance.
Section 5.14 Antitakeover Statutes. If any Takeover Statute is or may
become applicable to the Merger, each of DHS and MAI shall take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
the Merger.
Section 5.15 Tax Treatment. Each of DHS and MAI shall not take any
action and shall not fail to take any action which action or failure to act
would cause, or would be reasonably likely to cause, DHS, MAI or their
respective stockholders to recognize gain or loss for federal income tax
purposes (other than in respect of any cash paid in lieu of fractional shares)
as a result of the issuance of DHS Common Stock in the Merger, and MAI shall
use its reasonable efforts to obtain the opinion of counsel referred to in
Section 8.07.
Section 5.16 Appointment of Directors. Immediately following the
Closing, DHS shall cause Xxxx Xxxxxxxx, Xxx Xxxxxxxxxx and Xxx Xxxxxxx to
become members of the Board of Directors of DHS immediately following the
Effective Time, and shall increase the size of the Board of Directors of DHS to
seven (7) members consisting of the aforesaid three (3) persons, and Xxxx X.
Xxxxxx, Xxx X. Xxxxxx and two independent directors selected by the existing
Board of Directors of DHS. To the extent that any of such individuals is not
already designated within a class of directors of DHS, such individuals shall
be allocated as nearly equally as possible among the three classes of DHS
directors. DHS covenants that any existing directors of DHS who do not continue
as directors from and after the Closing will resign at the time of Closing so
as to avoid any optional reductions of exercise price under outstanding DHS
Options. If, from and after the Effective Time, any director shall die, resign
or agree not to be nominated
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for reelection to the Board of Directors of DHS, then DHS shall invite Xxxx
Xxxx to become a member of the Board of Directors of DHS to fill the vacancy
thereby created.
Section 5.17 Director and Officer Indemnification. DHS agrees that all
rights to indemnification and advancement of expenses existing in favor of the
current and former directors and officers of MAI (the "Indemnified Persons")
under the provisions existing on the date hereof of the articles of
incorporation and by-laws of MAI shall survive the Effective Time for six (6)
years thereafter, and DHS agrees to indemnify and advance expenses to the
Indemnified Persons to the same extent as would be required or permitted by MAI
under the provisions existing on the date hereof of the articles of
incorporation, by-laws and indemnification agreements of MAI. Until the sixth
(6th) anniversary of the Effective Time, DHS shall cause the Surviving
Corporation to maintain in effect with respect to matters occurring prior to
the Effective Time, to the extent available, the policies of directors' and
officers' liability insurance currently maintained by MAI (or may cause similar
coverage to be included in DHS' directors' and officers' liability coverage).
Section 5.18 Employee Benefits.
(a) DHS hereby agrees to cause the Surviving Corporation to
(i) pay, in accordance with their terms as in effect on the date hereof, all
amounts due and payable under the terms of all written employment, severance
and termination contracts, agreements, plans, policies and commitments of MAI
and its Subsidiaries with or with respect to its current or former employees,
officers and directors as set forth in the MAI Disclosure Letter to the extent
vested on or prior to the date of this Agreement or which become vested as a
result of the transactions contemplated hereby, and (ii) assume and continue to
honor the terms of such agreements and commitments.
(b) DHS hereby acknowledges that the consummation of the
Merger will constitute a "friendly" change of control of MAI (to the extent
relevant) for all benefit plans, employee agreements, stock option plans and
other compensation arrangements of MAI.
Section 5.19 Good Faith Efforts. Each party will use its good faith
efforts to satisfy or cause to be satisfied the conditions precedent to the
parties' performance hereunder as set forth in Articles VI, VII and VIII,
subject to applicable legal requirements and limitations.
ARTICLE VI
GENERAL CONDITIONS PRECEDENT TO THE MERGER
The obligations of MAI, DHS and Merger Subsidiary to consummate the
Merger pursuant to this Agreement and the other transactions required to be
consummated by such date by this Agreement are subject to the satisfaction (or
waiver by the party for whose benefit the applicable condition exists) of each
of the following conditions:
Section 6.01 Stockholder Approval. This Agreement and the transactions
contemplated hereby shall have been approved and adopted by the stockholders of
MAI in accordance with Texas Law. The stockholders of DHS shall have approved
the issuance of DHS Common Stock
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in the Merger by the requisite vote under applicable law and under the
applicable rules of the NASDAQ National Market System, as the case may be.
Approval of the Name Change shall not constitute a condition precedent
hereunder.
Section 6.02 HSR Act. Any applicable waiting period under the HSR Act
relating to the transactions contemplated by this Agreement shall have expired
or been terminated.
Section 6.03 Registration Statements; State Securities Laws. The Form
S-4 shall have become effective in accordance with the provisions of the 1933
Act, and no stop order suspending such effectiveness shall have been issued and
remain in effect and no proceeding seeking such an order shall be pending or
threatened. DHS shall have received all state securities or blue sky permits
and other authorizations necessary to issue the DHS Common Stock pursuant to
this Agreement.
Section 6.04 Listing. The shares of DHS Common Stock to be issued in
the Merger shall have been approved for listing on the NASDAQ National Market
System, subject to official notice of issuance.
Section 6.05 Suits or Other Proceedings. There shall not be pending or
threatened in writing (on any basis which DHS or MAI may reasonably deem
credible and not of mere nuisance value) any suit, action or proceeding by any
Governmental Authority or other Person, (a) seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by
this Agreement, or seeking to obtain from DHS or MAI any damages the amount of
which would be reasonably likely to have a Material Adverse Effect on MAI or
DHS, or (b) seeking to prohibit or limit the ownership or operation by DHS, MAI
or any of their respective Subsidiaries of, or to compel DHS, MAI or any of
their respective Subsidiaries to dispose of or hold separate, any material
portion of the business or assets of DHS, MAI or any of their respective
Subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement.
Section 6.06 Employment Agreements. DHS shall have assumed the current
employment agreement between MAI and Xxxx Xxxx, or entered into a new
employment agreement with Xxxx Xxxx on terms and conditions mutually agreeable
to DHS and Xxxx Xxxx.
Section 6.07 Pooling Letters. To the extent required by either of the
investment bankers rendering the fairness opinions contemplated by Sections
7.07 and 8.08 in order to confirm, or avert the withdrawal of, such fairness
opinions, MAI's independent public accountants shall have delivered to DHS and
MAI an opinion letter confirming that MAI is an entity which does not preclude
the Merger from being treated as a pooling of interests for accounting
purposes, and DHS' independent public accountants shall have delivered to DHS
and MAI an opinion letter confirming that the Merger will qualify for a pooling
of interest accounting treatment; and if requested by either of such investment
bankers, such opinion letters shall be confirmed on and as of the date of
mailing of the Proxy Statement to stockholders.
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ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF DHS AND MERGER SUBSIDIARY
The obligations of DHS and Merger Subsidiary to consummate the
Merger pursuant to this Agreement and the other transactions required to be
consummated by such date by this Agreement are further subject to the
satisfaction, at or prior to the Effective Time, of each of the following
conditions (all or any of which may be waived in whole or in part by DHS and
Merger Subsidiary in their sole discretion):
Section 7.01 Representations and Warranties. The representations and
warranties made by MAI in this Agreement shall be true and correct in all
material respects correct as of the Closing Date as though made on and as of
the Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and MAI shall have delivered to DHS a certificate, dated the Closing Date and
executed by its President to such effect.
Section 7.02 Performance of Obligations. MAI shall have performed and
complied with each agreement, covenant and obligation required by this
Agreement to be so performed or complied with by MAI at or prior to the
Closing, and MAI shall have delivered to DHS a certificate, dated the Closing
Date and executed by its President to such effect.
Section 7.03 No Material Adverse Change. Except as otherwise disclosed
in this Agreement or the MAI Disclosure Letter, there shall not have been any
change in the consolidated business, results of operations, financial condition
or prospects of MAI and its Subsidiaries, taken as a whole, between September
30, 1998 and the Closing Date which would have a Material Adverse Effect on
MAI.
Section 7.04 Consents. DHS shall have received consents or waivers
from such Persons as are necessary for DHS to consummate the transactions
contemplated by this Agreement, and from the holder(s) of the MAI Warrants with
respect to the adjustments pursuant to Section 1.05. In connection with the
foregoing, if and to the extent required by any of DHS' lenders, MAI shall have
caused Xxxxxx Xxxxxxxxxx and/or his Affiliates to provide to Chase Bank of
Texas, National Association, a replacement undertaking for the agreement of MAI
described in Item 1 of Schedule 3.05 to the MAI Disclosure Letter.
Section 7.05 Opinion of MAI Counsel. At the Closing, DHS shall have
received from Xxxxxxx Xxxxxx L.L.P., counsel to MAI, a written opinion
reasonably satisfactory to DHS, dated as of the Closing Date, substantially to
the effect as set forth in Exhibit D hereto.
Section 7.06 Proceedings. All proceedings to be taken on the part of
MAI in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to DHS, and DHS shall have received copies of all such documents and
other evidences as DHS may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
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Section 7.07 Fairness Opinion.DHS shall have received a written
opinion of Prudential Securities Incorporated, dated as of a date reasonably
prior to the date of mailing of the Proxy Statement to DHS' stockholders, to
the effect that the exchange ratio set forth in Section 1.02(a)(iii) is fair to
DHS from a financial point of view, such fairness opinion to be in form and
substance reasonably acceptable to DHS and its Board of Directors; and, at the
date of such mailing of the Proxy Statement, no event or circumstance shall
exist such as has caused Prudential Securities Incorporated to withdraw or
materially adversely modify such fairness opinion.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MAI
The obligations of MAI to consummate the Merger pursuant to
this Agreement and the other transactions required to be consummated by such
date by this Agreement are further subject to the satisfaction, at or prior to
the Effective Time, of each of the following conditions (all or any of which
may be waived in whole or in part by MAI in its sole discretion):
Section 8.01 Representations and Warranties. The representations and
warranties made by DHS and Merger Subsidiary in this Agreement shall be true
and correct in all material respects as of the Closing Date as though made on
and as of the Closing Date or, in the case of representations and warranties
made as of a specified date earlier than the Closing Date, on and as of such
earlier date, and DHS and Merger Subsidiary shall each have delivered to MAI a
certificate, dated the Closing Date and executed by DHS' President and by
Merger Subsidiary's President to such effect.
Section 8.02 Performance of Obligations. DHS and Merger Subsidiary
shall each have performed and complied with each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
DHS or Merger Subsidiary at or prior to Closing, and DHS and Merger Subsidiary
shall each have delivered to MAI a certificate, dated the Closing Date and
executed by DHS' President and by Merger Subsidiary's President to such effect.
Section 8.03 No Material Adverse Change. Except as otherwise disclosed
in this Agreement or the DHS Disclosure Letter, there shall not have been any
change in the consolidated business, results of operations, financial condition
or prospects of DHS and its Subsidiaries, taken as a whole, between September
30, 1998 and the Closing Date which would have a Material Adverse Effect on
DHS.
Section 8.04 Consents. MAI shall have received consents or waivers
from such Persons as are necessary for MAI to consummate the transactions
contemplated by this Agreement.
Section 8.05 Opinion of DHS Counsel. At the Closing, MAI shall have
received from Xxxxxxxxx Traurig, counsel to DHS, a written opinion reasonably
satisfactory to MAI, dated as of the Closing Date, substantially to the effect
as set forth in Exhibit E hereto.
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Section 8.06 Proceedings. All proceedings to be taken on the part of
DHS in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to MAI, and MAI shall have received copies of all such documents and
other evidences as MAI may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
Section 8.07 Tax Opinion. MAI shall have received an opinion of
Xxxxxxx Xxxxxx L.L.P., in form and substance reasonably satisfactory to MAI, on
the basis of certain facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the Effective
Time, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that neither MAI nor any of its stockholders shall recognize gain or loss
for U.S. federal income tax purposes as a result of the Merger (other than in
respect of any cash paid in lieu of fractional shares). In rendering the
opinions described in the preceding sentence, such counsel may rely upon the
opinions described in Sections 7.07 and 8.08 and may require and rely upon
representations contained in this Agreement and in certificates of officers and
principal stockholders of MAI, DHS and their respective Subsidiaries.
Section 8.08 Fairness Opinion at or prior to the Closing. MAI shall
have received a written opinion of Xxxxxxx & Company, Inc., dated as of a date
reasonably prior to the date of mailing of the Proxy Statement to MAI's
stockholders, to the effect that the Merger Consideration to be received by the
holders of Shares in the Merger is fair to MAI from a financial point of view,
such fairness opinion to be in form and substance reasonably acceptable to MAI
and its Board of Directors; and, at the date of such mailing of the Proxy
Statement, no event or circumstance shall exist such as has caused Xxxxxxx &
Company, Inc. to withdraw or materially adversely modify such fairness opinion.
Section 8.09 Accounting Matters. There shall not be pending any
unresolved dispute or objection by the SEC with respect to the implementation
of the accounting changes and write-offs described in the last sentence of
Section 5.09; and to the extent that the SEC shall have requested any material
modification to such changes or write-offs, such changes or modifications shall
be reasonably satisfactory to MAI.
Section 8.10 DHS First Quarter Results. The results of operations of
DHS and its Subsidiaries for the quarter ending March 31, 1999 shall not, taken
as a whole, be materially adversely different than the most recent projections
of such results of operations provided by DHS to MAI.
Section 8.11 Waivers from Lenders. DHS shall have received from Chase
Bank of Texas, National Association ("CHASE") and The Prudential Insurance
Company of America ("PRUDENTIAL") the consents of such lenders to, or waivers
by such lenders of any defaults with respect to, (a) the charges and write-offs
taken by DHS pertaining to the change in contract accounting and write-offs for
impairment of goodwill and other assets (as described in Section 5.09), and (b)
charges (to the extent identifiable and quantifiable) resulting from the
consummation of the Merger, such consents or waivers to be in form and
substance reasonably satisfactory to MAI.
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ARTICLE IX
TERMINATION
Section 9.01 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time whether prior to or after Stockholders' Approval:
(a) By mutual written agreement of MAI and DHS duly
authorized by action taken by or on behalf of their respective Boards of
Directors;
(b) By either MAI or DHS upon notification to the
non-terminating party by the terminating party;
(i) at any time after May 31, 1999 if the Merger shall not
have been consummated on or prior to such date and such failure to
consummate the Merger is not caused by or substantially attributable
to a breach of this Agreement by the terminating party;
(ii) if (A) MAI Stockholders' Approval (under Texas Law), or
(B) DHS Stockholders' Approval (under Delaware Law and under the
applicable regulations of NASDAQ National Market System), as the case
may be, shall not be obtained by reason of the failure to obtain the
requisite vote upon a vote held at a meeting of stockholders, or any
adjournment thereof, called therefor;
(iii) if (A) there has been a material breach of any
representation, warranty, covenant or agreement on the part of the
non-terminating party set forth in this Agreement, which breach is not
curable or, if curable, has not been cured within thirty (30) days
following receipt by the non-terminating party of notice of such
breach from the terminating party (or, if sooner and the terminating
party has not delayed giving notice of such breach, May 31, 1999), or
(B) any condition precedent to the terminating party's obligations set
forth in Article VII, with respect to DHS, or Article VIII, with
respect to MAI, of this Agreement has not been met or waived by such
party by May 31, 1999; or
(iv) if any court of competent jurisdiction or other
competent Governmental Authority shall have issued an order making
illegal or otherwise restricting, preventing or prohibiting the Merger
and such order shall have become final and nonappealable;
(c) By MAI if: (i) the Board of Directors of MAI determines
in good faith to accept a Superior Proposal; or (ii) the Board of Directors of
DHS shall have withdrawn or modified in a manner materially adverse to MAI its
approval or recommendation of this Agreement or the Merger;
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(d) By DHS if the Board of Directors of MAI (i) shall have
withdrawn or modified in a manner materially adverse to DHS its approval or
recommendation of this Agreement or the Merger, or (ii) shall have recommended
a Superior Proposal to the stockholders of MAI or shall have entered into a
definitive agreement providing for a Superior Proposal with a Person other than
DHS; or
(e) By MAI if DHS is engaged in ongoing active negotiations
for, or has accepted and there remains in effect, a DHS Proposal.
Section 9.02 Effect of Termination.
(a) If this Agreement is validly terminated by either MAI or
DHS pursuant to Section 9.01, this Agreement will forthwith become null and
void and there will be no liability or obligation on the part of either MAI or
DHS (or any of their respective representatives or Affiliates), except that (i)
the provisions of Sections 10.05 and 10.08, this Section 9.02 and the
Confidentiality Agreement will continue to apply following any such
termination, and (ii) nothing contained herein shall relieve any party hereto
from liability for willful breach of its representations, warranties, covenants
or agreements contained in this Agreement.
(b) (i) If this Agreement is terminated by (A) MAI pursuant
to Section 9.01(c)(i), or (B) by DHS pursuant to Section 9.01(d)(i) (unless any
of the conditions precedent set forth in Articles VI and/or VIII above (other
than Sections 6.01, 8.05, 8.07 or 8.08, or Section 8.04 to the extent that any
consent is contingent only upon stockholder approval or the Closing, or Section
8.06 to the extent that the DHS Stockholders' Meeting is held subsequent to the
MAI Stockholders' Meeting) shall not have been satisfied, after due notice and
opportunity to cure, at the time of the MAI Stockholders' Meeting held to
consider approval of the transactions contemplated herein) or Section
9.01(d)(ii), then MAI shall pay or cause to be paid to DHS, by wire transfer of
same day funds on the day of such termination, a termination fee of $1,000,000.
(ii) If this Agreement is terminated by MAI pursuant to
Section 9.01(e), then DHS shall pay or cause to be paid to MAI, by
wire transfer of same day funds on the day of such termination, a
termination fee of $1,000,000.
(iii) In the event that either DHS or MAI shall fail or
refuse to consummate the transactions contemplated by this Agreement
for no reason, or for any reason which would not give such party the
right to terminate this Agreement in accordance with this Article IX,
then the party which is prepared to consummate the transactions
hereunder may, so long as it is not in material breach of any
representation, warranty, covenant or agreement on its part hereunder,
terminate this Agreement by written notice to the non-performing
party, whereupon the non-performing party shall pay or cause to be
paid to the terminating party, by wire transfer of same day funds on
the day of such termination, a termination fee of $375,000; and the
payment of such termination fee shall relieve the party making payment
from any liability under Section 9.02(a)(ii) above.
(c) The parties acknowledge that the agreements contained in
this Section 9.02 are an integral part of the transactions contemplated by this
Agreement, and that, without
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these agreements, the parties hereto would not enter into this Agreement;
accordingly, if either party fails promptly to pay any amount due pursuant to
this Section 9.02, and in order to obtain such payment, either party commences
a suit which results in a judgment against the non-paying party for any fee or
expense reimbursement set forth in this Section 9.02, the non-paying party
shall pay to the other party its costs and expenses (including reasonable
attorneys' fees and expenses) in connection with such suit, together with
interest on the amount of the fee at the publicly announced prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
ARTICLE X
MISCELLANEOUS
Section 10.01 Notices. All notices, requests and other communications
to any party hereunder shall be in writing and will be deemed to have been duly
given only if delivered personally or by facsimile transmission or mailed
(first class mail postage prepaid), or by overnight express courier (charges
prepaid or billed to the account of the sender) to the parties at the following
addresses or facsimile numbers:
If to DHS or Merger Subsidiary, to:
Diagnostic Health Services, Inc.
0000 Xxxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx
with a copy to:
Xxxxxxxxx Traurig
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxxxx, Esq.
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If to MAI, to:
Medical Alliance, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxxxxx
with a copy to:
Xxxxxxx Xxxxxx L.L.P.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if delivered personally,
upon delivery, (b) if given by facsimile, when such facsimile is transmitted to
the facsimile number specified in this Section 10.01 and the appropriate
facsimile confirmation is received, (c) if given by mail in the manner
described above, on the third business day after mailing, or (d) if delivered
by overnight express courier, on the next business day.
Section 10.02 Entire Agreement Non-Survival of Representations and
Warranties: Third Party Beneficiaries.
(a) This Agreement (including any exhibits hereto), the other
agreements referred to in this Agreement and the Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings
and negotiations, both written and oral, between the parties with respect to
such subject matter. None of this Agreement, the Confidentiality Agreement or
any other agreement contemplated hereby or thereby (or any provision hereof or
thereof) is intended to confer on any Person other than the parties hereto or
thereto any rights or remedies (except that Article I is intended to confer
rights and remedies on the Persons specified therein).
(b) The MAI Disclosure Letter, the DHS Disclosure Letter and
any Exhibits attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
(c) The representations and warranties contained herein or in
any schedule, instrument or other writing delivered pursuant hereto shall not
survive the Effective Time.
Section 10.03 Amendment. This Agreement may be amended, supplemented
or modified by action taken by or on behalf of the respective Boards of
Directors of the parties hereto at any time prior to the Effective Time,
whether prior to or after the Stockholders'
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Approvals shall have been obtained, but after such adoption and approval only
to the extent permitted by applicable law. No such amendment, supplement or
modification shall be effective unless set forth in a written instrument duly
executed by or on behalf of each party hereto.
Section 10.04 Waiver. At any time prior to the Effective Time, any
party hereto may, to the extent permitted by applicable law (i) extend the time
for the performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other parties hereto contained herein or in any document
delivered pursuant hereto, or (iii) waive compliance with any of the covenants,
agreements or conditions of the other parties hereto contained herein. No such
extension or waiver shall be effective unless set forth in a written instrument
duly executed by or on behalf of the party extending the time of performance or
waiving any such inaccuracy or non-compliance. No waiver by any party of any
term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any fixture occasion.
Section 10.05 Expenses. Except as otherwise specified in Section 9.02
or agreed in writing by the parties, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement, whether or not the Merger is consummated, shall be paid by the party
incurring such cost or expense.
Section 10.06 Successors and Assigns. The provisions of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and assigns; provided, however,
that no party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto except that Merger Subsidiary may (subject to Section 5.15)
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly-owned Subsidiary of DHS,
it being understood that no such assignment shall relieve Merger Subsidiary
from any of its obligations hereunder.
Section 10.07 Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Texas (without regard
to principles of conflict of laws).
Section 10.08 Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated by this
Agreement may be brought against any of the parties in any state or federal
court sitting in Dallas County, Texas, and each of the parties hereto hereby
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and waives
any objection to venue laid therein. Each party hereto agrees that service of
process upon such party at the address referred to in Section 10.01, together
with written notice of such service to such party, shall be deemed effective
service of process upon such party.
Section 10.09 Counterparts: Effectiveness. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement shall become
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effective when each party hereto shall have received counterparts hereof signed
by all of the other parties hereto.
Section 10.10 Interpretation When a reference is made in this
Agreement to a Section or Schedule, such reference shall be to a Section of
this Agreement or a Schedule to the subject Disclosure Letter unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement they shall be deemed to be followed by
the words "without limitation." The phrases "the date of this Agreement," "the
date hereof," and terms of similar import, unless the context otherwise
requires, shall be deemed to refer to February 18, 1999.
Section 10.11 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against public policy,
the remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. Upon such determination that any term,
provision, covenant or restriction of this Agreement is invalid, void,
unenforceable or against public policy, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
Section 10.12 Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement, in
addition to any other remedy to which they are entitled at law or in equity.
Section 10.13 Performance by Merger Subsidiary. DHS shall cause Merger
Subsidiary to perform each of Merger Subsidiary's duties and obligations under
this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
date first set forth above.
DIAGNOSTIC HEALTH SERVICES, INC.
By: /s/ XXXX X. XXXXXX
---------------------------------
Name: Xxxx X. Xxxxxx
Title: President
MAI ACQUISITION CORP.
By: /s/ XXXX X. XXXXXX
---------------------------------
Name: Xxxx X. Xxxxxx
Title: President
MEDICAL ALLIANCE, INC.
By: /s/ XXXX XXXXXXXX
---------------------------------
Name: Xxxx Xxxxxxxx
Title: Chief Executive Officer
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