EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
PMR CORPORATION,
PMR ACQUISITION CORPORATION
AND
PSYCHIATRIC SOLUTIONS, INC.
May 6, 2002
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..............................................................................................2
1.1 The Merger............................................................................................2
1.2 Closing; Effective Time...............................................................................2
1.3 Effect of the Merger..................................................................................2
1.4 Certificate of Incorporation; Bylaws..................................................................3
1.5 Board and Officers of the Surviving Corporation.......................................................3
1.6 Board, Committees and Officers of PMR.................................................................3
1.7 Effect on Capital Stock...............................................................................3
1.8 Surrender of Certificates.............................................................................6
1.9 No Further Ownership Rights in PSI Capital Stock......................................................7
1.10 Lost, Stolen or Destroyed Certificates................................................................8
1.11 Tax Consequences......................................................................................8
1.12 Taking of Necessary Action; Further Action............................................................8
1.13 Withholding...........................................................................................8
1.14 Stock Transfer Books..................................................................................8
1.15 Pre-Closing Distribution to PMR Shareholders..........................................................8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF PSI..................................................................9
2.1 Organization, Standing and Power......................................................................9
2.2 Capital Structure....................................................................................10
2.3 Authority; No Conflict; Required Filings and Consents................................................11
2.4 Financial Statements.................................................................................12
2.5 Absence of Certain Changes...........................................................................12
2.6 Absence of Undisclosed Liabilities...................................................................14
2.7 Litigation...........................................................................................14
2.8 Restrictions on Business Activities..................................................................15
2.9 Governmental Authorization...........................................................................15
2.10 Title to Property....................................................................................15
2.11 Intellectual Property................................................................................15
2.12 Environmental Matters................................................................................17
2.13 Tax Matters..........................................................................................18
2.14 Employee Benefit Plans...............................................................................20
2.15 Certain Agreements Affected by the Merger............................................................23
2.16 Employee Matters.....................................................................................23
2.17 Conflicts of Interest; Related Party Transactions....................................................24
2.18 Insurance............................................................................................24
2.19 Compliance With Laws.................................................................................25
2.20 Accounts Receivable..................................................................................25
2.21 Customers and Suppliers..............................................................................25
2.22 Material Contracts...................................................................................25
2.23 No Breach of PSI Material Contracts..................................................................26
2.24 Third Party Consents.................................................................................25
2.25 Certain Additional Regulatory Matters................................................................26
2.26 Medicare/Medicaid Participation......................................................................27
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2.27 Minute Books.........................................................................................28
2.28 Complete Copies of Materials.........................................................................28
2.29 Brokers' and Finders' Fees...........................................................................28
2.30 Vote Required........................................................................................28
2.31 Board Approval.......................................................................................28
2.32 State Takeover Statutes..............................................................................28
2.33 Programs.............................................................................................29
2.34 Representations Complete.............................................................................29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PMR
AND MERGER SUB...................................................................................................29
3.1 Organization, Standing; and Power....................................................................30
3.2 Capital Structure....................................................................................30
3.3 Authority; No Conflict; Required Filings and Consents................................................31
3.4 SEC Documents; Financial Statements..................................................................31
3.5 Absence of Certain Changes...........................................................................32
3.6 Absence of Undisclosed Liabilities...................................................................34
3.7 Litigation...........................................................................................34
3.8 Restrictions on Business Activities..................................................................34
3.9 Governmental Authorization...........................................................................35
3.10 Title to Property....................................................................................35
3.11 Intellectual Property................................................................................35
3.12 Environmental Matters................................................................................37
3.13 Tax Matters..........................................................................................37
3.14 Employee Benefit Plans...............................................................................39
3.15 Certain Agreements Affected by the Merger............................................................42
3.16 Employee Matters.....................................................................................42
3.17 Conflicts of Interest; Related Party Transactions....................................................43
3.18 Insurance............................................................................................44
3.19 Compliance With Laws.................................................................................44
3.20 Accounts Receivable..................................................................................44
3.21 Customers and Suppliers..............................................................................44
3.22 Material Contracts...................................................................................45
3.23 No Breach of Material Contracts......................................................................45
3.24 Third Party Consents.................................................................................43
3.25 Certain Additional Regulatory Matters................................................................46
3.26 Medicare/Medicaid Participation......................................................................47
3.27 Minute Books.........................................................................................47
3.28 Complete Copies of Materials.........................................................................47
3.29 Brokers' and Finders' Fees...........................................................................47
3.30 Vote Required........................................................................................48
3.31 PMR Board Approval; Merger Sub Approval..............................................................48
3.32 State Takeover Statutes..............................................................................48
3.33 Representations Complete.............................................................................48
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...................................................................48
4.1 Conduct of Business of PSI...........................................................................48
4.2 Restriction on Conduct of Business of PSI............................................................49
4.3 Conduct of Business of PMR...........................................................................52
4.4 Restriction on Conduct of Business of PMR............................................................52
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ARTICLE V ADDITIONAL AGREEMENTS..................................................................................55
5.1 Rule 145 Affiliates..................................................................................55
5.2 Registration Statement; Proxy Statement..............................................................55
5.3 Stockholders' Meetings...............................................................................57
5.4 Access to Information; Confidentiality...............................................................57
5.5 No Solicitation by PSI...............................................................................57
5.6 No Solicitation by PMR...............................................................................59
5.7 Best Efforts.........................................................................................61
5.8 Stock Options and Other Stock Awards; Employee Benefit Plans.........................................63
5.9 Update Disclosure; Breaches..........................................................................65
5.10 Public Announcements.................................................................................65
5.11 Nasdaq Listing.......................................................................................65
5.12 Indemnification of Directors and Officers............................................................65
5.13 Plan of Reorganization...............................................................................67
5.14 Headquarters; Name...................................................................................67
5.15 Obligations of Merger Sub............................................................................67
5.16 Financial Statements.................................................................................67
5.17 Appraisal Rights.....................................................................................67
ARTICLE VI CONDITIONS TO THE MERGER..............................................................................67
6.1 Conditions to Obligations of Each Party to Effect the Merger.........................................67
6.2 Additional Conditions to Obligations of PSI..........................................................69
6.3 Additional Conditions to the Obligations of PMR......................................................71
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER....................................................................72
7.1 Termination..........................................................................................72
7.2 Effect of Termination................................................................................73
7.3 Amendment............................................................................................73
7.4 Waiver...............................................................................................73
7.5 Fees and Expenses....................................................................................74
ARTICLE VIII GENERAL PROVISIONS..................................................................................75
8.1 Non-Survival at Effective Time.......................................................................75
8.2 Notices..............................................................................................75
8.3 Definitions..........................................................................................76
8.4 Interpretation.......................................................................................78
8.5 Counterparts.........................................................................................78
8.6 Entire Agreement; Nonassignability; Parties in Interest..............................................78
8.7 Severability.........................................................................................78
8.8 Remedies Cumulative..................................................................................78
8.9 Governing Law........................................................................................79
8.10 Rules of Construction................................................................................79
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SCHEDULES
Schedule A PSI Stockholders Executing Voting Agreement
Schedule B PMR Stockholders Executing Voting Agreement
Schedule C Directors and Officers of the Surviving Corporation
Following Effective Time
Schedule D Directors and Officers of PMR Following Effective Time
PSI DISCLOSURE SCHEDULE
Schedule 2.1 PSI Subsidiaries
Schedule 2.2 PSI Securityholders
Schedule 2.5 Absence of Certain Changes
Schedule 2.6(a) Absence of Undisclosed Liabilities
Schedule 2.7 PSI Litigation
Schedule 2.8 Restrictions on Business Activities
Schedule 2.10 PSI Real Property
Schedule 2.11 PSI Intellectual Property
Schedule 2.12(b) Environmental Matters
Schedule 2.13(a) Tax Return Matters
Schedule 2.13(c) Tax Liability Matters
Schedule 2.14 PSI Employee Plans
Schedule 2.14(h) PSI Benefit Plans
Schedule 2.16 Employee Matters
Schedule 2.17(b) Related Party Transactions
Schedule 2.22 PSI Material Contracts
Schedule 2.24 Third Party Consents
Schedule 2.29 Brokers' and Finders' Fees
Schedule 4.2(j) Pending Additional Indebtedness
Schedule 5.1 List of PSI Affiliates
Schedule 6.3(h) Employees of PSI Entering into Non-Competition Agreements
with PMR and PSI
PMR DISCLOSURE SCHEDULE
Schedule 3.1 PMR Subsidiaries
Schedule 3.5 Absence of Certain Changes
Schedule 3.6 Absence of Undisclosed Liabilities
Schedule 3.7 PMR Litigation
Schedule 3.8 Restrictions on Business Activities
Schedule 3.10 PMR Real Property
Schedule 3.11 PMR Intellectual Property
Schedule 3.14 PMR Employee Plans
Schedule 3.15 Certain Agreements Affected by the Merger
Schedule 3.16 Employee Matters
Schedule 3.17(b) Related Party Transactions
Schedule 3.22 PMR Material Contracts
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Schedule 3.24 Third Party Consents
Schedule 3.29 Brokers' and Finders' Fees
Schedule 4.4 Restrictions on Conduct of PMR
Schedule 4.4(f) Intellectual Property
Schedule 4.4(n) Employee Benefit Plans; New Hires; Pay Increases
Schedule 6.2(g) Officers and Directors Resigning from PMR
Schedule 6.2(l) Employees of PMR Entering into Non-Competition Agreements
Schedule 6.2(n) PMR Accounts Receivable Credit Balances
Schedule 6.2(o) PMR Contractual Obligations
EXHIBITS
Exhibit A - Voting Agreement (PSI)
Exhibit B - Voting Agreement (PMR)
Exhibit C - Form of Affiliate Letter
Exhibit D - Contingent Value Rights Agreement
Exhibit E - Legal Opinion (PMR)
Exhibit F - Legal Opinion (PSI)
Exhibit G - FIRPTA Notice
Exhibit H - IRS Notice
Exhibit I - Non-Competition Agreement
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INDEX OF DEFINED TERMS
Defined Term Section
------------ -------
Affiliate 5.1
Agreement Introduction
Books and Records 8.3
Canceled Warrants 2.2(a)
Cash Equivalents 8.3
Certificate or Certificates 1.7(b)(iv)
Certificate of Merger 1.2
Closing 1.2
Closing Date 1.2
COBRA 2.14(c)
Code Recital G
Confidential Information 2.11(g)
Confidentiality Agreement 5.4(b)
Contingent Value Rights 4.4(b)
Convertible Notes 2.2(a)
Dissenting Shares 1.7(d)
DGCL Recital A
Effective Time 1.2
Encumbrances 8.3
Environmental and Safety Laws 2.12(a)(i)
ERISA 2.14(a)
Exchange Agent 1.8(a)
Exercised Warrants 2.2(a)
Federal Health Care Program 2.26
Governmental Entity 2.3
Hazardous Materials 2.12(a)(ii)
HSR Act 2.3
Intellectual Property 2.11(a)
Latest Audited PSI Balance Sheet 2.5(b)
Latest PMR Balance Sheet 3.5(b)
Law 2.3
Liability 8.3
Merger Recital A
Merger Consideration 1.7(b)(iv)
Merger Sub Introduction
NASD 3.3
Nasdaq 3.3
Order 5.7(a)(ii)
PMR Introduction
PMR Acquisition Agreement 5.6(b)
PMR Applicable Period 5.6(a)
PMR Authorizations 3.9
PMR Balance Sheet Date 3.5
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PMR Benefit Plans 3.14(h)
PMR Common Stock Recital E
PMR Director Plan 3.2
PMR Disclosure Schedule Article III
PMR Employee Plans 3.14(a) and 5.8(b)
PMR ERISA Affiliate 3.14(a)
PMR Facilities 3.12(a)(ii)
PMR Financial Statements 3.4
PMR Insurance Amount 5.12(d)
PMR Material Adverse Effect Article III
PMR Material Contracts 3.22
PMR Meeting 5.3
PMR Notice 5.6(a)
PMR Option 5.8(a)
PMR Out-of-Pocket Expenses 7.5(b)
PMR Property 3.12(a)(i)
PMR SEC Documents 3.4
PMR Stockholder Approval 6.1(c)
PMR Stock Plan 3.2
PMR Subsidiary or PMR Subsidiaries 3.1
PMR Superior Proposal 5.6(b)
PMR Takeover Proposal 5.6(a)
PMR Tax Affiliate 3.13(a)
PMR Termination Fee 7.5(b)
PMR Third Party Intellectual Property Rights 3.11(b)
PMR Voting Agreements Recital I
Person 8.3
Proceeding 8.3
Proxy Statement 5.2(a)
PSI Introduction
PSI Acquisition Agreement 5.5(b)
PSI Applicable Period 5.5(a)
PSI Authorizations 2.9
PSI Balance Sheet Date 2.5
PSI Benefit Plans 2.14(h)
PSI Capital Stock Recital E
PSI Common Stock 1.7(b)(i) and 2.2(a)
PSI Disclosure Schedule Article II
PSI Employee Plans 2.14(a)
PSI ERISA Affiliate 2.14(a)
PSI Facilities 2.12(a)(iv)
PSI Financial Statements 2.4
PSI Indemnified Parties 5.12(b)
PSI Insurance Amount 5.12(c)
PSI Material Adverse Effect Article II
PSI Material Contracts 2.22
PSI Meeting 5.3
PSI Notice 5.5(a)
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PSI Out-of-Pocket Expenses 7.5(c)
PSI Preferred Stock 1.7(b)(ii)
PSI Property 2.12(a)(iii)
PSI Series A Preferred Stock 1.7(b)(ii) and 2.2(a)
PSI Series B Preferred Stock 1.7(b)(ii) and 2.2(a)
PSI Stockholder Approval 6.1(b)
PSI Stock Plan 1.7(g)
PSI Subsidiary or PSI Subsidiaries 2.1
PSI Superior Proposal 5.5(b)
PSI Takeover Proposal 5.5(a)
PSI Tax Affiliate 2.13(a)
PSI Termination Fee 7.5(c)
PSI Third Party Intellectual Property Rights 2.11(b)
PSI Voting Agreements Recital H
PSI Warrants 1.7(b)(iii)
Registration Statement 5.2(a)
Replacement Plans 5.8(b)
Representatives 5.4(a)
Reverse Stock Split 5.3
Rule 145 5.1
Section 262 1.7(d)
Shareholders' Meetings 5.3
SSA 2.25(a)(v)
State Health Care Program 2.26
Subsidiary 8.3
Surviving Corporation 1.1
Tax, Taxes, Taxable and Tax Authority 8.3
Tax Return 8.3
TRICARE 2.25(a)
viii
AGREEMENT AND PLAN OF MERGER
This
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of May 6, 2002, by and between
PMR Corporation, a
Delaware
corporation ("PMR"), PMR Acquisition Corporation, a
Delaware corporation
("MERGER SUB"), and Psychiatric Solutions, Inc., a
Delaware corporation ("PSI").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the
Delaware General Corporation Law (the "DGCL"), PMR and
PSI will enter into a business combination transaction pursuant to which Merger
Sub will merge with and into PSI (the "MERGER").
B. The Board of Directors of PSI has (i) determined that the Merger is
consistent with and in furtherance of the long-term business strategy of PSI and
is in the best interests of PSI and its stockholders, (ii) approved and adopted
this Agreement, the Merger and the other transactions contemplated by this
Agreement and (iii) determined to recommend that the stockholders of PSI adopt
and approve this Agreement and the Merger.
C. The Board of Directors of PMR has (i) determined that the Merger is
consistent with and in furtherance of the long-term business strategy of PMR and
is in the best interests of PMR and its stockholders, (ii) approved and adopted
this Agreement, the Merger and the other transactions contemplated by this
Agreement and (iii) determined to recommend that the stockholders of PMR adopt
and approve this Agreement and the Merger.
D. The Board of Directors of Merger Sub has determined that the Merger
is in the best interests of Merger Sub and its sole stockholder and has approved
and adopted this Agreement, the Merger and the other transactions contemplated
by this Agreement, and PMR, as the sole stockholder of Merger Sub, has approved
and adopted this Agreement, the Merger and the other transactions contemplated
by this Agreement.
E. Pursuant to the Merger, among other things, each outstanding share
of capital stock of PSI ("PSI CAPITAL STOCK") shall be converted into shares of
common stock of PMR, par value $0.01 per share ("PMR COMMON STOCK"), in the
manner set forth herein.
F. PSI, PMR and Merger Sub desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger as set
forth herein.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 354(a)(1) of the Internal Revenue
Code of 1986, as amended (the "CODE"), and to cause the Merger to qualify as a
reorganization under the provisions of Section 368(a) of the Code.
H. Concurrently with the execution of this Agreement and as a condition
to the willingness of PMR to enter into this Agreement, each of the persons
identified on SCHEDULE A attached hereto have entered into voting agreements
with PMR and PSI (the "PSI VOTING AGREEMENTS"), dated as of the date of this
Agreement, which agreements are in the form of EXHIBIT A attached hereto,
pursuant to which each such person has agreed, among other things, to
vote all shares of PSI Capital Stock held by such person in favor of the
adoption of this Agreement.
I. Concurrently with the execution of this Agreement and as a condition
to the willingness of PSI to enter into this Agreement, each of the persons
identified on SCHEDULE B attached hereto have entered into voting agreements
with PMR and PSI (the "PMR VOTING AGREEMENTS"), dated as of the date of this
Agreement, which agreements are in the form of EXHIBIT B attached hereto,
pursuant to which each such person has agreed, among other things, to vote all
shares of PMR Common Stock held by such person in favor of the adoption of this
Agreement.
NOW, THEREFORE, in consideration of the covenants and representations
set forth herein, and for other good and valuable consideration, the parties
agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms of this Agreement and subject to the
conditions set forth in this Agreement, and in accordance with the DGCL, at the
Effective Time (as defined in Section 1.2), Merger Sub shall be merged with and
into PSI, and as a result of the Merger, the separate corporate existence of
Merger Sub shall cease, and PSI shall continue as the surviving corporation of
the Merger (the "SURVIVING CORPORATION"); provided, however, that at any time
prior to the Effective Time, without any requirement to obtain approval of the
stockholders of any of PMR, Merger Sub or PSI, the parties hereto, by written
instrument executed and delivered by each such party, shall be permitted to
change the direction of the Merger and in such event, as a result of the Merger,
the separate corporate existence of PSI shall cease, and Merger Sub shall
continue as the "Surviving Corporation."
1.2 CLOSING; EFFECTIVE TIME. As promptly as practicable following the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VI (or such other date as may be agreed by each of the parties hereto), the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger (the "CERTIFICATE OF MERGER") with the Secretary of State of the State
of
Delaware in such form as is required by, and executed in accordance with, the
relevant portions of the DGCL. The term "EFFECTIVE TIME" means the date and time
of such filing (or such later time as may be agreed by each of the parties
hereto and specified in the Certificate of Merger). Immediately prior to the
filing of the Certificate of Merger, a closing (the "CLOSING") will be held at
the offices of Xxxxxxx Xxxxxx Xxxx Xxxxxxx & Manner, P.C., 000 Xxxxxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxxxx, Xxxxxxxxx 00000 (or such other place as the parties may
agree). The date on which the Closing shall occur is referred to herein as the
"CLOSING DATE."
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of each of PSI
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of each of PSI
and Merger Sub shall become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
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1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) At the Effective Time, the Certificate of Incorporation of
PSI as the Surviving Corporation shall be amended and restated to read
the same as the Certificate of Incorporation of Merger Sub as in effect
immediately prior to the Effective Time, except that Section 1 of the
amended and restated Certificate of Incorporation of the Surviving
Corporation, instead of reading the same as Section 1 of the
Certificate of Incorporation of Merger Sub, shall read as follows: "The
name of this corporation is Psychiatric Solutions, Inc."
(b) At the Effective Time, the Bylaws of PSI as the Surviving
Corporation shall be amended to read the same as the Bylaws of Merger
Sub as in effect immediately prior to the Effective Time, except that
all references to Merger Sub in the Bylaws of the Surviving Corporation
shall be changed to refer to Psychiatric Solutions, Inc.
1.5 BOARD AND OFFICERS OF THE SURVIVING CORPORATION. Immediately
following the Effective Time, the Board of Directors and officers of the
Surviving Corporation shall be as set forth in SCHEDULE C hereto until the
earlier of the resignation or removal of any individual set forth in SCHEDULE C
or until their respective successors are duly elected and qualified, as the case
may be, it being agreed that if any director shall be unable to serve as a
director at the Effective Time the party which designated such individual as
indicated in SCHEDULE C shall designate another individual to serve in such
individual's place. If any officer set forth in SCHEDULE C ceases to be a
full-time employee of either PMR or PSI at or before the Effective Time, the
parties will agree upon another person to serve in such person's stead.
1.6 BOARD, COMMITTEES AND OFFICERS OF PMR. Immediately following the
Effective Time, the Board of Directors of PMR, committees of the Board of
Directors of PMR, composition of such committees (including chairpersons
thereof) and officers of PMR shall be as set forth in SCHEDULE D hereto until
the earlier of the resignation or removal of any individual set forth in
SCHEDULE D or until their respective successors are duly elected and qualified,
as the case may be, it being agreed that if any director shall be unable to
serve as a director (including as a member or chairperson or any committee) at
the Effective Time the party which designated such individual as indicated in
SCHEDULE D shall designate another individual to serve in such individual's
place. If any officer set forth in SCHEDULE D ceases to be a full-time employee
of either PMR or PSI at or before the Effective Time, the parties will agree
upon another person to serve in such person's stead until the Effective Time.
1.7 EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any
action on the part of PMR, Merger Sub, PSI or the holders of any of PSI's
securities:
(a) Each issued and outstanding share of common stock, par
value $0.01 per share, of Merger Sub shall be converted into and become
one fully paid and nonassessable share of common stock, par value $0.01
per share, of the Surviving Corporation.
(b) CONVERSION OF PSI CAPITAL STOCK.
(i) Subject to Sections 1.7(c), 1.7(d), 1.7(e),
1.7(f) and 1.8(d), each share of common stock, par value
$0.001 per share, of PSI (the "PSI COMMON
3
STOCK") issued and outstanding immediately prior to the
Effective Time (other than shares to be canceled in accordance
with Section 1.7(e)) shall be converted into the right to
receive 0.392263 shares of fully paid and nonassessable shares
of PMR Common Stock; provided however, in the event that PMR
has amended its Certificate of Incorporation prior to the
Effective Time to effectuate the Reverse Stock Split (as
defined in Section 5.3), such number shall be 0.196132.
(ii) Subject to Sections 1.7(c), 1.7(d), 1.7(e),
1.7(f) and 1.8(d), each issued and outstanding share of PSI's
Series A Preferred Stock ("PSI SERIES A PREFERRED STOCK")
shall be converted into the right to receive 0.840693 shares
of fully paid and nonassessable shares of PMR Common Stock;
provided, however, in the event that PMR has amended its
Certificate of Incorporation prior to the Effective Time to
effectuate the Reverse Stock Split, such number shall be
0.420347. Subject to Sections 1.7(c), 1.7(d), 1.7(e), 1.7(f)
and 1.8(d), each issued and outstanding share of PSI's Series
B Preferred Stock ("PSI SERIES B PREFERRED STOCK") shall be
converted into the right to receive 1.064909 shares of fully
paid and nonassessable shares of PMR Common Stock; provided,
however, in the event that PMR has amended its Certificate of
Incorporation prior to the Effective Time to effectuate the
Reverse Stock Split, such number shall be 0.532455. The PSI
Series A Preferred Stock and the PSI Series B Preferred Stock
may be referred to collectively as "PSI PREFERRED STOCK."
(iii) The shares of PMR Common Stock into which the
shares of PSI Capital Stock are converted into the right to
receive pursuant to the Merger are referred to herein
collectively as the "MERGER CONSIDERATION." At the Effective
Time, all such shares of PSI Capital Stock shall no longer be
outstanding and shall automatically be canceled and shall
cease to exist, and each holder of a certificate or
certificates that immediately prior the Effective Time
represented any such shares (a "CERTIFICATE" or
"CERTIFICATES") shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration
with respect thereto and any cash in lieu of fractional shares
of PMR Common Stock to be issued in consideration therefor
upon surrender of such Certificate in accordance with Section
1.8. Each share of PSI Common Stock or PSI Preferred Stock
issued and outstanding immediately prior to the Effective Time
that is restricted or not fully vested shall upon such
conversion and exchange have the same restrictions or vesting
arrangements applicable to such shares prior to the
conversion.
(c) ANTI-DILUTION PROVISIONS. In the event that the
capitalization of PMR (as set forth in Section 3.2) changes prior to
the Effective Time (other than changes resulting from a Reverse Stock
Split) or in the event that the capitalization of PSI (as set forth in
Section 2.2) changes prior to the Effective Time, the exchange ratios
set forth in Sections 1.7(a) and 1.7(b) shall be appropriately adjusted
to reflect such changes in the capitalization of PSI or PMR, or both,
as the case may be; PROVIDED, however, that in the event that (i) there
are no changes to the capitalization of PMR (as set forth in Section
3.2) prior to the Effective Time (other than resulting from any Reverse
Stock Split) and (ii) PSI issues any additional shares of PSI Common
Stock or any option, warrant or other security exercisable for,
exchangeable for or convertible into, directly or indirectly,
4
any shares of PSI Common Stock prior to the Effective Time, then the
exchange ratios set forth in Section 1.7(a) and Section 1.7(b) shall be
adjusted in a manner that provides for (i) the issuance of an aggregate
of 8,678,505 shares of PMR Common Stock to the holders of PSI Preferred
Stock or, if PMR has effectuated the Reverse Stock Split, 4,339,253
shares (allocated between the holders of the PSI Series A Preferred
Stock and PSI Series B Preferred Stock in the same proportions as set
forth in Section 1.7(b)) and (ii) the issuance of an aggregate of
10,243,761 shares of PMR Stock allocated among the holders of shares of
PSI Common Stock, holders of shares of PSI Preferred Stock and the
holders of options, warrants and other securities exercisable for,
exchangeable for or convertible into, directly or indirectly, shares of
PSI Common Stock (other than the Cancelled Warrants and the Convertible
Notes) upon the exercise, exchange or conversion thereof, with such
allocation to be made on a pro rata basis in relation to the fully
diluted capitalization of PSI immediately prior to the Effective Time,
assuming that all shares of PSI Preferred Stock and all options,
warrants and such other securities, other than the Cancelled Warrants
and the Convertible Notes, are exercised, exchanged or converted into
shares of PSI Common Stock immediately prior to the Effective Time.
(d) DISSENTERS' RIGHTS. Notwithstanding anything in this
Agreement to the contrary, shares (the "DISSENTING SHARES") of PSI
Capital Stock issued and outstanding immediately prior to the Effective
Time that are held by any holder who is entitled to demand and properly
demands appraisal of such Dissenting Shares pursuant to, and who
complies in all respects with, the provisions of Section 262 of the
DGCL ("SECTION 262") shall not be converted into the right to receive
the Merger Consideration as provided in Section 1.7(b), but instead the
holders of Dissenting Shares shall be entitled to payment of the fair
value of such Dissenting Shares in accordance with the provisions of
Section 262; PROVIDED, however, that if any such holder shall fail to
perfect or otherwise shall waive, withdraw or lose the right to
appraisal under Section 262 or a court of competent jurisdiction shall
determine that such holder is not entitled to the relief provided by
Section 262, then the right of such holder to be paid the fair value of
such holder's Dissenting Shares under Section 262 shall cease and such
Dissenting Shares shall be deemed to have been converted at the
Effective Time into, and shall have become, the right to receive the
appropriate portion of the Merger Consideration as provided in Section
1.7(b). At the Effective Time, all Dissenting Shares shall no longer be
outstanding and shall automatically be canceled and shall cease to
exist, and each holder of Dissenting Shares shall cease to have any
rights with respect thereto, except, subject to the immediately
preceding sentence, the right to receive the fair value of such shares
in accordance with the provisions of Section 262. PSI shall serve
prompt notice to PMR of any demands for appraisal of any shares of PSI
Capital Stock, and PMR shall have the right to participate in and
direct all negotiations and proceedings with respect to such demands.
PSI shall not, without the prior written consent of PMR, make any
payment with respect to, or settle or offer to settle, any such
demands, or agree to do any of the foregoing.
5
(e) CANCELLATION OF PSI CAPITAL STOCK OWNED BY PSI. At the
Effective Time, all shares of PSI Capital Stock that are owned by PSI
as treasury stock, and each share of PSI Capital Stock owned by any
direct or indirect wholly owned PSI Subsidiary immediately prior to the
Effective Time shall be canceled and extinguished without any
conversion thereof.
(f) FRACTIONAL SHARES. No fraction of a share of PMR Common
Stock will be issued, but in lieu thereof each holder of shares of PSI
Capital Stock who would otherwise be entitled to a fraction of a share
of PMR Common Stock (after aggregating all fractional shares of PMR
Common Stock to be received by such holder) shall receive from PMR an
amount of cash (rounded to the nearest whole cent) equal to the product
of (i) such fraction, multiplied by (ii) PMR Stock Price.
(g) PSI STOCK OPTION PLANS. At the Effective Time, the
Psychiatric Solutions, Inc. 1997 Incentive and Non-Qualified Stock
Option Plan for Key Personnel (the "PSI STOCK PLAN") and all options to
purchase PSI Common Stock then outstanding under the PSI Stock Plan
shall be assumed by PMR in accordance with Section 5.8.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. PMR's transfer agent shall act as exchange
agent (the "EXCHANGE AGENT") in the Merger.
(b) PMR TO PROVIDE COMMON STOCK AND CASH. Within thirty (30)
business days following the Closing Date, PMR shall make available to
the Exchange Agent for exchange in accordance with this Article I,
through such reasonable procedures as PMR may adopt, (i) the shares of
PMR Common Stock issuable pursuant to Section 1.7(b) in exchange for
shares of PSI Capital Stock outstanding immediately prior to the
Effective Time and (ii) cash in an amount sufficient to permit payment
of cash in lieu of fractional shares pursuant to Section 1.7(f).
(c) EXCHANGE PROCEDURES. Within ten (10) business days after
the date hereof, PMR shall deliver to PSI (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates (as defined below) shall
pass, only upon receipt by the Exchange Agent of a Certificate or
Certificates, which immediately prior to the Effective Time represented
outstanding shares of PSI Capital Stock, whose shares were converted
into the right to receive shares of PMR Common Stock (and cash in lieu
of fractional shares) pursuant to Section 1.7, and shall be in such
form and have such other provisions as PMR may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of PMR
Common Stock (and cash in lieu of fractional shares). PSI shall mail or
provide such letter of transmittal and such instructions to every
holder of record of a Certificate. To the extent at Closing PMR shall
have received Certificates, together with corresponding letters of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, then within thirty (30) business days after the
Closing (i) such holders of record submitting the same shall be
entitled to receive a certificate representing the number of whole
shares of PMR Common Stock and payment in lieu of fractional shares
which such holder has the right to receive pursuant to Section 1.7, and
(ii) such Certificates shall be canceled.
6
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No
dividends or other distributions with respect to PMR Common Stock with
a record date after the Effective Time will be paid to the holder of
any unsurrendered Certificate with respect to the shares of PMR Common
Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable
law, following surrender of any such Certificate, there shall be paid
to the record holder of the certificates representing whole shares of
PMR Common Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of any such dividends or other
distributions with a record date after the Effective Time theretofore
payable (but for the provisions of this Section 1.8(d)) with respect to
such shares of PMR Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of
PMR Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be
a condition of the issuance thereof that the Certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer and
that the person requesting such exchange will have paid to PMR or any
agent designated by it any transfer or other taxes required by reason
of the issuance of a certificate for shares of PMR Common Stock in any
name other than that of the registered holder of the Certificate
surrendered, or established to the satisfaction of PMR or any agent
designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in
this Section 1.8, none of the Exchange Agent, PMR, the Surviving
Corporation or any party hereto shall be liable to any person for any
amount properly paid to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(g) DISSENTING SHARES. The provisions of this Section 1.8
shall also apply to Dissenting Shares that lose their status as such,
except that the obligations of PMR under this Section 1.8 shall
commence on the date of loss of such status and the holder of such
shares shall be entitled to receive in exchange for such shares the
number of shares of PMR Common Stock and cash in lieu of any fractional
shares to which such holder is entitled pursuant to Section 1.7 hereof.
(h) UNCLAIMED SHARES. Any amounts of PMR Common Stock (and
cash in lieu of fractional shares) delivered or made available to the
Exchange Agent pursuant to this Section 1.8 and not exchanged for PSI
Capital Stock within six (6) months after the Effective Time pursuant
to this Section 1.8 shall be returned by the Exchange Agent to PMR,
which thereafter shall act as Exchange Agent subject to the rights of
holders of unsurrendered Certificates under this Article I. Thereafter
such holders shall be entitled to look to the Surviving Corporation
(subject to abandoned property, escheat and other similar laws) only as
general creditors thereof with respect to any PMR Common Stock (and
cash in lieu of fractional shares) that may be payable upon due
surrender of the PSI Capital Stock held by them.
1.9 NO FURTHER OWNERSHIP RIGHTS IN PSI CAPITAL STOCK. All shares of PMR
Common Stock issued upon the surrender for exchange of shares of PSI Capital
Stock in accordance with the terms hereof (including any cash paid in lieu of
fractional shares) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of PSI Capital Stock, and
7
there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of PSI Capital Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of PMR
Common Stock (and cash in lieu of fractional shares) as may be required pursuant
to Section 1.7; provided, however, that PMR may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against PMR,
the Surviving Corporation or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
1.11 TAX CONSEQUENCES. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368(a) of
the Code.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after
the Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of PSI, the officers and directors of PSI and the Surviving
Corporation are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
1.13 WITHHOLDING. PMR or the Exchange Agent shall be entitled to deduct
and withhold from the consideration otherwise payable pursuant to this Agreement
to any holder of PSI Capital Stock such amounts as PMR or the Exchange Agent are
required to deduct and withhold under the Code, or any provision of state, local
or foreign tax law, with respect to the making of such payment. To the extent
that amounts are so withheld by PMR or the Exchange Agent, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of PSI Capital Stock in respect of whom such deduction and withholding
was made by PMR or the Exchange Agent.
1.14 STOCK TRANSFER BOOKS. At the Effective Time, the stock transfer
books of PSI shall be closed and there shall be no further registration of
transfers of shares of PSI Capital Stock thereafter on the records of PSI. From
and after the Effective Time, the holders of Certificates representing shares of
PSI Capital Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to such shares of PSI Capital Stock except
as otherwise provided herein or by Law. On or after the Effective Time, any
Certificates presented to the Exchange Agent or PMR for any reason shall be
converted into the shares of PMR Common Stock, any cash in lieu of fractional
shares of PMR Common Stock to which holders thereof are entitled pursuant to
Section 1.7(g) and any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 1.7(c).
1.15 PRE-CLOSING DISTRIBUTION TO PMR SHAREHOLDERS. Prior to the
Effective Time, PMR shall distribute to holders of PMR Common Stock: PMR Cash
Equivalents in excess of $5.05
8
million pursuant to Section 6.2(k) and Contingent Value Rights pursuant to the
Contingent Value Rights Agreement described in Section 4.4(b).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PSI
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "PSI MATERIAL ADVERSE
EFFECT" means any event, change, condition or effect that is materially adverse
to the condition (financial or otherwise), properties, assets, liabilities,
business, operations or results of operations of PSI and the PSI Subsidiaries
(as defined in Section 2.1), taken as a whole, other than any event, change,
condition or effect relating to (i) this Agreement or the transactions
contemplated hereby or the announcement thereof, (ii) the failure to obtain
applicable regulatory or third party consents that may be required in connection
with this Agreement or the transactions contemplated hereby, (iii) the United
States economy in general, or (iv) the behavioral healthcare industry in
general; PROVIDED, however, that a PSI Material Adverse Effect shall include any
change in or effect on the business of PSI and the PSI Subsidiaries that is, or
is reasonably likely to be, materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations or results of
operations of PSI and the PSI Subsidiaries taken as a whole, if such change or
effect is significantly more adverse to PSI and the PSI Subsidiaries, taken as a
whole, than to the behavioral healthcare industry in general.
In this Agreement, any reference to a party's "knowledge" means actual
knowledge of such party's officers and directors, provided that such persons
shall make due and diligent inquiry of those employees of such party whom such
officers or directors reasonably believe would have actual knowledge of the
matters represented.
Except as disclosed in a document of even date herewith attached as an
exhibit to this Agreement and delivered by PSI to PMR prior to the execution and
delivery of this Agreement and referring to the representations and warranties
in this Agreement (the "PSI DISCLOSURE SCHEDULE"), PSI represents and warrants
to PMR and Merger Sub as follows:
2.1 ORGANIZATION, STANDING AND POWER. Each of PSI and the PSI
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. Each of PSI and the
PSI Subsidiaries has the corporate power to own its properties and to carry on
its business as now being conducted and as currently proposed to be conducted
and is duly qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on PSI. PSI has made available to PMR a true and
correct copy of the Certificate of Incorporation and Bylaws or other charter
documents, as applicable, of PSI and each of the PSI Subsidiaries, each as
amended to date. Neither PSI nor any of the PSI Subsidiaries is in violation of
any of the provisions of its Certificate of Incorporation or Bylaws or
equivalent organizational documents. Set forth in SCHEDULE 2.1 of the PSI
Disclosure Schedule is a complete and accurate list of all Subsidiaries of PSI
(the entities identified in SCHEDULE 2.1 are referred to collectively as the
"PSI SUBSIDIARIES" and individually a "PSI SUBSIDIARY"). PSI is the owner of all
outstanding shares of capital stock of each of the PSI Subsidiaries, and all
such shares are duly
9
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock of each such PSI Subsidiary are owned by PSI free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such PSI Subsidiary, or otherwise obligating PSI or any such PSI
Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any
such securities. Except as set forth in SCHEDULE 2.1 to the PSI Disclosure
Schedule, PSI does not directly or indirectly own any equity or similar interest
in, or any interest convertible or exchangeable or exercisable for, any equity
or similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of PSI immediately prior to
the Effective Time consists of 53,500,000 shares of capital stock,
consisting of (i) 35,000,000 shares of Common Stock, par value $.01 per
share (the "PSI COMMON STOCK"), 7,327,627 shares of which are issued
and outstanding on the date of this Agreement, (ii) 10,500,000 shares
of Series A preferred stock, $.01 par value per share (the "PSI SERIES
A PREFERRED STOCK") of which 10,497,000 shares are issued and
outstanding on the date of this Agreement, and (iii) 8,000,000 shares
of Series B preferred stock $.01 par value per share (the "PSI SERIES B
PREFERRED STOCK") of which 4,975,736 shares are issued and outstanding
on the date of this Agreement. As of the date of this Agreement, there
are outstanding warrants to purchase 1,341,028 shares of PSI Series B
Preferred Stock and 180,379 shares of PSI Common Stock. Warrants to
purchase 928,308 shares of PSI Series B Preferred Stock will be
exercised prior to the Effective Time (the "EXERCISED WARRANTS"). The
remaining warrants to purchase 412,720 shares of PSI Series B Preferred
Stock will be canceled prior to the Effective Time (the "CANCELED
WARRANTS"). There are no other outstanding shares of capital stock or
voting securities and no outstanding commitments to issue any shares of
capital stock or voting securities, other than as set forth in this
Section 2.2. Attached to or as set forth in SCHEDULE 2.2 to the PSI
Disclosure Schedule is a true and correct list of PSI's stockholders
and any persons with rights to acquire PSI securities, which list will
be promptly updated from time to time prior to Closing to reflect any
changes thereto (which changes are in any event subject to the
restrictions imposed under Section 5.9). All outstanding shares of PSI
Capital Stock are duly authorized, validly issued, fully paid and
nonassessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights or rights of first refusal
created by statute, the Certificate of Incorporation or Bylaws of PSI
or any agreement to which PSI is a party or by which it is bound. PSI
has reserved (i) sufficient shares of PSI Common Stock for issuance
upon conversion of the PSI Preferred Stock, and (ii) 3,373,313 shares
of PSI Common Stock for issuance to employees and consultants pursuant
to the PSI Stock Plan, of which 709,886 shares have been issued
pursuant to option exercises or direct stock purchases, 2,205,499
shares are subject to outstanding, unexercised options, and 457,928
shares are available for issuance thereunder. PSI has outstanding
subordinated notes with an aggregate principal amount of $3,564,000.14
which are convertible into PSI Series B Preferred Stock (the
"CONVERTIBLE NOTES"). Except for (i) the rights created pursuant to
this Agreement, (ii) PSI's right to repurchase any unvested shares
under the PSI Stock Plan, (iii) outstanding warrants to purchase
10
1,341,028 shares of PSI Series B Preferred Stock and 180,379 shares of
PSI Common Stock, and (iv) the Convertible Notes, there are no other
options, warrants, calls, rights, commitments or agreements of any
character to which PSI is a party or by which it is bound obligating
PSI to issue, deliver, sell, repurchase or redeem, or cause to be
issued, delivered, sold, repurchased or redeemed, any shares of capital
stock of PSI or obligating PSI to grant, extend, accelerate the vesting
of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. Except for the
agreements contemplated by this Agreement, there are no contracts,
commitments or agreements relating to voting, purchase or sale of PSI's
capital stock (i) between or among PSI and any of its securityholders
and (ii) to PSI's knowledge, between or among any of PSI's
securityholders. The terms of the PSI Stock Plan and the applicable
stock option agreements permit the assumption or substitution of
options to purchase PMR Common Stock as provided in this Agreement,
without the consent or approval of the holders of such securities, the
PSI stockholders, or otherwise. None of the outstanding options permit
any accelerated vesting or exercisability of those options by reason of
the Merger or any other transactions contemplated by this Agreement.
True and complete copies of all agreements and instruments relating to
or issued under the PSI Stock Plan have been provided to PMR and such
agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form
provided to PMR. All outstanding shares of PSI Common Stock and PSI
Preferred Stock were issued in compliance with all applicable federal
and state securities laws.
(b) Each of the PSI stockholders and/or optionholders is the
registered and beneficial owner of that number of shares of PSI Capital
Stock and/or PSI options set forth opposite its name in SCHEDULE 2.2.
The number of shares of PSI Capital Stock and/or PSI options set forth
opposite such person's name in SCHEDULE 2.2 constitutes the entire
interest of such person in the outstanding capital stock or voting
securities of PSI. No other person or entity not disclosed in SCHEDULE
2.2 has a beneficial interest in or a right to acquire any PSI Capital
Stock or PSI options. In addition, the shares of PSI Capital Stock
and/or PSI Options disclosed in SCHEDULE 2.2 are and will, at all times
during the term of this Agreement and through and including the
Closing, be free and clear of any liens, pledges, options, charges,
restrictions or other encumbrances.
(c) Notwithstanding anything in the foregoing to the contrary,
the exercise of options by any PSI option holder between the date of
this Agreement and the Effective Time shall not cause a breach of this
Section 2.2.
2.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS. PSI has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on the part of PSI. This
Agreement has been duly executed and delivered by PSI and constitutes the valid
and binding obligation of PSI enforceable against PSI in accordance with its
terms. The execution and delivery of this Agreement by PSI does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the
11
Certificate of Incorporation or Bylaws of PSI or the Certificate of
Incorporation or Bylaws (or similar instruments) of any of the PSI Subsidiaries,
as amended, (ii) any foreign or domestic law, statute, code ordinance, rule,
regulation, order, judgment, writ, stipulation, award, injunction or decree
("LAW") applicable to PSI or any of the PSI Subsidiaries or any of their
properties or assets or (iii) any material mortgage, indenture, lease, contract
or other agreement or instrument, permit, franchise, or license applicable to
PSI or any of the PSI Subsidiaries or any of their properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality ("GOVERNMENTAL ENTITY") is required by
or with respect to PSI or any of the PSI Subsidiaries in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger as
provided in Section 1.2 ; (ii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (iii) such
filings as may be required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended (the "HSR ACT"); and (iv) such other consents,
authorizations, filings, approvals and registrations which, if not obtained or
made, would not have a PSI Material Adverse Effect and would not prevent, or
materially alter or delay any of the transactions contemplated by this
Agreement.
2.4 FINANCIAL STATEMENTS. PSI has delivered to PMR its audited
consolidated financial statements (including balance sheet, statement of
operations and statement of cash flows) as at and for the twelve-month periods
ended December 31, 1999, 2000 and 2001 (collectively, the "PSI FINANCIAL
STATEMENTS"). The PSI Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated and with each other. The PSI Financial
Statements fairly present the consolidated financial condition and operating
results of PSI as of the dates, and for the periods, indicated therein, subject
to normal year-end audit adjustments. PSI and the PSI Subsidiaries maintain
adequate systems of internal controls established and administered in accordance
with generally accepted accounting principles.
2.5 ABSENCE OF CERTAIN CHANGES. Since December 31, 2001 (the "PSI
BALANCE SHEET DATE"), except as set forth in SCHEDULE 2.5 of the PSI Disclosure
Schedule, and except for changes that are not prohibited by Section 4.2 or
changes as otherwise contemplated by this Agreement, PSI and the PSI
Subsidiaries conducted their respective businesses in the ordinary course
consistent with past practice and there has not occurred:
(a) any change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to
result in, a PSI Material Adverse Effect;
(b) any discharge or satisfaction of any Encumbrance other
than those then required to be discharged or satisfied prior to the
Closing Date pursuant to the existing terms of any agreement between
PSI or any of the PSI Subsidiaries and a party unaffiliated with PSI or
any of the PSI Subsidiaries, or payment of any obligation or Liability,
other than current Liabilities shown on the consolidated balance sheet
of PSI as of December 31, 2001 included in the PSI Financial Statements
(the "LATEST AUDITED PSI BALANCE SHEET") and current Liabilities
incurred in the ordinary course of business consistent with prior
practice, or any cancellation, forgiveness or compromise by PSI or any
of the PSI Subsidiaries of any debts or claims other than in the
ordinary course of
12
business or any waiver or release of any right of substantial value to
PSI and the PSI Subsidiaries;
(c) any declaration, setting aside or payment of any dividend
or other distribution of any assets of any kind whatsoever with respect
to any shares of the capital stock of PSI or the PSI Subsidiaries, or
any direct or indirect redemption, purchase or other acquisition of any
such shares of the capital stock of PSI or the PSI Subsidiaries;
(d) any stock split, reverse stock split, combination,
reclassification or recapitalization of any capital stock of PSI or the
PSI Subsidiaries, or any issuance of any other security in respect of
or in exchange for, any shares of any capital stock of PSI or the PSI
Subsidiaries;
(e) any issuance by PSI or the PSI Subsidiaries of any shares
of their capital stock or any debt security or securities, rights,
options or warrants convertible into or exercisable or exchangeable for
any shares of such capital stock or debt security;
(f) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset of PSI or the PSI
Subsidiaries, except for inventory sold in the ordinary course of
business;
(g) any termination or receipt by PSI or the PSI Subsidiaries
of any notice of termination or non-renewal of any Contract between PSI
or the PSI Subsidiaries and any other Person involving payments by or
to PSI or any of the PSI Subsidiaries in excess of $100,000 in the
aggregate;
(h) any write-down or write-up of the value of any asset of
PSI or the PSI Subsidiaries, or, other than in the ordinary course of
business, any write-off of any accounts receivable or notes receivable
of PSI or the PSI Subsidiaries or any portion thereof in excess of
$50,000 in the aggregate;
(i) any increase in or modification of compensation payable or
to become payable to any officer, employee, consultant or agent of PSI
or the PSI Subsidiaries, other than any such increases in the ordinary
course of business, consistent with past practice, or the entering into
of any employment contract with any officer or employee;
(j) any increase in or modification or acceleration of any
benefits payable or to become payable under any bonus, pension,
severance, insurance or other benefit plan, payment or arrangement
(including, but not limited to, the granting of stock options,
restricted stock awards or stock appreciation rights) made to, for or
with any officer, employee, consultant or agent of PSI or the PSI
Subsidiaries;
(k) the making of any loan, advance or capital contribution to
or investment in any Person or the engagement in any transaction with
any employee, officer, director or stockholder of PSI or the PSI
Subsidiaries, other than advances to employees in the ordinary course
of business for travel and similar business expenses;
13
(l) any change in the accounting methods or practices followed
by PSI or the PSI Subsidiaries or any change in depreciation or
amortization policies or rates theretofore adopted;
(m) any material deterioration in the aging of PSI's or the
PSI Subsidiaries' accounts payable or material acceleration in the
aging of PSI's or the PSI Subsidiaries' accounts receivable or other
change in PSI's or the PSI Subsidiaries' working capital management
practices;
(n) any material change in the manner in which PSI or the PSI
Subsidiaries extend discounts or credit or otherwise deal with third
party payors, patients or other customers;
(o) any termination of employment of any officer or key
employee of PSI or the PSI Subsidiaries;
(p) except as contemplated hereby, any amendments or changes
in PSI's or the PSI Subsidiaries' articles or certificate of
incorporation or bylaws (or other governing documents);
(q) any labor disputes or any union organizing campaigns;
(r) the commencement of any litigation or other action by or
against PSI or the PSI Subsidiaries; or
(s) any agreement, understanding, or authorization, whether in
writing or otherwise, for PSI or the PSI Subsidiaries to take any of
the actions specified in items (a) through (r) above.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE
2.6(a), neither PSI nor any of the PSI Subsidiaries have any Liability, except
for (i) Liabilities reflected or reserved against in the Latest Audited PSI
Balance Sheet, and (ii) Liabilities that have arisen since the date of the
Latest Audited PSI Balance Sheet in the ordinary course of business (none of
which arise from any breach of Contract, breach of warranty, tort, infringement,
violation of Law, or any action, suit or Proceeding (including any Liability
under any Environmental and Safety Laws)). There are no loss contingencies (as
such term is used in Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) that are not adequately
provided for on the Latest Audited PSI Balance Sheet. Except as set forth in
SCHEDULE 2.6(a), neither PSI nor any of the PSI Subsidiaries have, either
expressly or by operation of Law, assumed or undertaken any Liability of any
other Person, including, without limitation, any obligation for corrective or
remedial action relating to or required under any Environmental and Safety Laws.
The reserves reflected on the Latest Audited PSI Balance Sheet for Liabilities
that were incurred but not reported are adequate to cover such Liabilities.
2.7 LITIGATION. Except as set forth in SCHEDULE 2.7 of the PSI
Disclosure Schedule, there is no Proceeding pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of PSI or any of the PSI
Subsidiaries, threatened against PSI or any of the PSI Subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such). There is no judgment, decree or order against PSI or
any of the PSI
14
Subsidiaries, or, to the knowledge of PSI and the PSI Subsidiaries, any of
their respective directors or officers (in their capacities as such), that
could prevent, enjoin, or materially alter or delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to have
a PSI Material Adverse Effect. SCHEDULE 2.7 of the PSI Disclosure Schedule
also lists all litigation that PSI has pending against other parties.
2.8 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth on
SCHEDULE 2.8, there is no agreement, judgment, injunction, order or decree
binding upon PSI or any of the PSI Subsidiaries which has or could reasonably be
expected to have the effect of prohibiting or impairing any current or future
business practice of PSI or any of the PSI Subsidiaries, any acquisition of
property by PSI or any of the PSI Subsidiaries or the conduct of business by PSI
or any of the PSI Subsidiaries as currently conducted or as proposed to be
conducted by PSI or any of the PSI Subsidiaries.
2.9 GOVERNMENTAL AUTHORIZATION. PSI and each of the PSI Subsidiaries
have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which PSI or any of the PSI Subsidiaries currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of PSI's or any of the PSI Subsidiaries' business or the holding of
any such interest ((i) and (ii) herein collectively called "PSI
AUTHORIZATIONS"), and all of such PSI Authorizations are in full force and
effect, except where the failure to obtain or have any such PSI Authorizations
could not reasonably be expected to have a PSI Material Adverse Effect. PSI and
the PSI Subsidiaries are in material compliance with the terms and conditions of
the PSI Authorizations.
2.10 TITLE TO PROPERTY. PSI and the PSI Subsidiaries have good and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the PSI Balance Sheet or acquired
after the PSI Balance Sheet Date (except properties, interests in properties and
assets sold or otherwise disposed of since the PSI Balance Sheet Date in the
ordinary course of business), or with respect to leased properties and assets,
valid leasehold interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of current
taxes not yet due and payable, (ii) such imperfections of title, liens and
easements as do not and will not materially detract from or interfere with the
use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the PSI Balance Sheet. The plants, property
and equipment of PSI and the PSI Subsidiaries that are used in the operations of
their businesses are in good operating condition and repair, subject to normal
wear and tear. All properties used in the operations of PSI and the PSI
Subsidiaries are reflected in the PSI Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. SCHEDULE 2.10
identifies each parcel of real property owned or leased by PSI or any of the PSI
Subsidiaries.
2.11 INTELLECTUAL PROPERTY.
(a) PSI and the PSI Subsidiaries own, or are licensed or
otherwise possess legally enforceable rights to use all patents,
trademarks, trade names, service marks, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology,
know-how, trade secrets, inventions, ideas, algorithms, processes,
computer software programs or applications (in source code and/or
object code form), and tangible or intangible proprietary information
or material ("INTELLECTUAL PROPERTY") that are used or
15
proposed to be used in the business of PSI and the PSI Subsidiaries as
currently conducted or as proposed to be conducted by PSI and the PSI
Subsidiaries. PSI has not (i) licensed any of its Intellectual Property
in source code form to any party or (ii) entered into any exclusive
agreements relating to its Intellectual Property with any party.
(b) SCHEDULE 2.11 lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights,
registered domain names, and maskworks, included in the Intellectual
Property, including the jurisdictions in which each such Intellectual
Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all
licenses, sublicenses and other agreements as to which PSI is a party
and pursuant to which any person is authorized to use any Intellectual
Property (other than computer software licenses which are used by PSI
in the ordinary course of business), and (iii) all licenses,
sublicenses and other agreements as to which PSI is a party and
pursuant to which PSI is authorized to use any third party patents,
trademarks or copyrights ("PSI THIRD PARTY INTELLECTUAL PROPERTY
RIGHTS") which are incorporated in, are, or form a part of any PSI
product.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of PSI or any of
the PSI Subsidiaries, or any PSI Third Party Intellectual Property
Rights, by any third party, including any employee or former employee
of PSI or any of the PSI Subsidiaries. Neither PSI nor any of the PSI
Subsidiaries has entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property,
other than indemnification provisions contained in purchase orders or
license agreements arising in the ordinary course of business.
(d) PSI is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
under this Agreement, in material breach of any license, sublicense or
other agreement relating to the Intellectual Property or PSI Third
Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by PSI are valid and subsisting. PSI has not been sued
in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party. The manufacturing, marketing, licensing or sale of PSI's
products do not infringe any patent, trademark, service xxxx,
copyright, trade secret or other proprietary right of any third party.
PSI has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) PSI has secured valid written assignments from all
consultants and employees who contributed to the creation or
development of Intellectual Property of the rights to such
contributions that PSI does not already own by operation of law.
(g) PSI has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property
not otherwise protected by patents, patent applications or copyright
("CONFIDENTIAL INFORMATION"). All use, disclosure or
16
appropriation of Confidential Information owned by PSI by or to a third
party has been pursuant to the terms of a written agreement between PSI
and such third party. All use, disclosure or appropriation of
Confidential Information not owned by PSI has been pursuant to the
terms of a written agreement between PSI and the owner of such
Confidential Information, or is otherwise lawful.
(h) As of the date of this Agreement, there are no actions
that must be taken by PSI or any PSI Subsidiary within sixty (60) days
of the Closing Date that, if not taken, will result in the loss of any
Intellectual Property, including the payment of any registration,
maintenance or renewal fees or the filing of any responses to PTO
office actions, documents, applications or certificates for the
purposes of obtaining, maintaining, perfecting or preserving or
renewing any Intellectual Property.
2.12 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "ENVIRONMENTAL AND SAFETY LAWS" shall mean any
federal, state or local laws, ordinances, codes, regulations,
rules, policies and orders that are intended to assure the
protection of the environment, or that classify, regulate,
call for the remediation of, require reporting with respect
to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants
or contaminants, or which are intended to assure the safety of
employees, workers or other persons, including the public.
(ii) "HAZARDOUS MATERIALS" shall mean any toxic or
hazardous substance, material or waste or any pollutant or
contaminant, or infectious or radioactive substance or
material, including without limitation, those substances,
materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(iii) "PSI PROPERTY" shall mean all real property
leased or owned by PSI or any PSI Subsidiaries either
currently or in the past.
(iv) "PSI FACILITIES" shall mean all buildings and
improvements on PSI Property.
(b) Except as set forth on Schedule 2.12(b), PSI represents
and warrants as follows: (i) no methylene chloride is contained in or
has been used at or released from the PSI Facilities by PSI or PSI
Subsidiaries; (ii) all Hazardous Materials and wastes, if disposed of
by PSI or PSI Subsidiaries, have been disposed of in accordance with
all Environmental and Safety Laws; and (iii) PSI and the PSI
Subsidiaries have received no notice (verbal or written) of any
noncompliance of the PSI Facilities or PSI's past or present operations
with Environmental and Safety Laws; (iv) no notices, administrative
actions or suits are pending or threatened against PSI or PSI
Subsidiaries relating to a violation of any Environmental and Safety
Laws; (v) there are no polychlorinated biphenyls (PCBs) deposited,
stored, disposed of or located on the PSI Property or PSI Facilities or
any equipment on the PSI Property containing PCBs at levels in excess
of 50 parts per million; (vi) PSI's and the PSI Subsidiaries' uses and
activities of the PSI
17
Facilities have at all times complied with all Environmental and Safety
Laws; (vii) PSI and the PSI Subsidiaries have all the permits and
licenses required to be issued under federal, state or local laws
regarding Environmental and Safety Laws and are in full compliance with
the terms and conditions of those permits; neither PSI nor any PSI
Subsidiary are a potentially responsible party under the federal
Comprehensive Environmental Response Compensation and Liability Act
(CERCLA), or state analog statute, arising out of events occurring
prior to the Closing Date; (viii) there have not been in the past,
during the period of time in which PSI or any PSI Subsidiary owned or
controlled the applicable PSI Property or PSI Facilities, and are not
now, any Hazardous Materials on, under or migrating to or from any PSI
Facilities or PSI Property, other than in compliance with Environmental
and Safety Laws; and (ix) there have not been in the past, during the
period of time in which PSI or any PSI Subsidiary owned or controlled
the applicable PSI Property, and are not now, any underground tanks or
underground improvements at, on or under the PSI Property, including
without limitation, treatment or storage tanks, sumps, or water, gas or
oil xxxxx, that are not currently maintained in compliance with
Environmental and Safety Laws.
2.13 TAX MATTERS.
(a) Except as set forth in SCHEDULE 2.13(a), PSI and each
other Person included in any consolidated or combined Tax Return and
part of an affiliated group, within the meaning of Section 1504 of the
Code, of which PSI is or has been a member ("PSI TAX AFFILIATE"), for
the years that it was a PSI Tax Affiliate of PSI:
(i) has timely paid or caused to be paid all Taxes
required to be paid by it through the date hereof and as of
the Closing Date (including any Taxes shown due on any Tax
Return);
(ii) has filed or caused to be filed in a timely and
proper manner (within any applicable extension periods) all
Tax Returns required to be filed by it with the appropriate
Governmental Entities in all jurisdictions in which such Tax
Returns are required to be filed, and all Tax Returns filed on
behalf of PSI and each PSI Tax Affiliate were complete and
correct in all material respects; and
(iii) has not requested or caused to be requested any
extension of time within which to file any Tax Return, which
Tax Return has not since been filed if due.
(b) PSI has previously made available to PMR for review true,
correct and complete copies of all Tax Returns filed by or on behalf of
PSI through the Closing Date for the periods ending after December 31,
1994.
(c) Except as set forth in SCHEDULE 2.13(c):
(i) neither PSI nor any PSI Tax Affiliate (for the
years that it was a PSI Tax Affiliate of PSI) has been
notified by the Internal Revenue Service or any other taxing
authority that any issues have been raised (and no such issues
are currently pending) by the Internal Revenue Service or any
other taxing authority in connection with any Tax Return filed
by or on behalf of PSI or any PSI Tax
18
Affiliate; there are no pending Tax audits and no waivers of
statutes of limitations have been given or requested with
respect to PSI or any PSI Tax Affiliate (for the years that it
was a PSI Tax Affiliate of PSI); no Tax Encumbrances have been
filed against PSI or any PSI Tax Affiliate (for the years that
it was a tax of PSI) except for Encumbrances for current Taxes
not yet due and payable for which adequate reserves have been
provided for in the Latest PSI Balance Sheet or the Latest
Audited PSI Balance Sheet; no unresolved deficiencies or
additions to Taxes have been proposed, asserted, or assessed
against PSI or any PSI Tax Affiliate (for the years that it
was a PSI Tax Affiliate of PSI);
(ii) full and adequate provision (at assumed tax
rates) has been made (A) on the Latest PSI Balance Sheet and
the Latest Audited PSI Balance Sheet, and the Books and
Records of PSI for all deferred Taxes not yet due and payable
by PSI for all periods on or prior to the Closing Date, and
(B) on the Books and Records of PSI for all deferred Taxes
payable by PSI for all periods beginning on or after the
Latest Audited PSI Balance Sheet Date;
(iii) neither PSI nor any PSI Subsidiaries have
incurred any Liability for Taxes from and after the Latest
Audited PSI Balance Sheet Date other than Taxes incurred in
the ordinary course of business and consistent with past
practices;
(iv) PSI has not (A) made an election (or had an
election made on its behalf by another Person) to be treated
as a "consenting corporation" under Section 341(f) of the Code
or (B) been a "personal holding company" within the meaning of
Section 542 of the Code;
(v) PSI and each PSI Tax Affiliate has complied with
all applicable Laws relating to the collection or withholding
of Taxes (such as sales Taxes or withholding of Taxes from the
wages of employees) in all material respects;
(vi) neither PSI nor the PSI Subsidiaries have any
Liability in respect of any Tax sharing agreement with any
Person and all Tax sharing agreements to which either PSI or
the PSI Subsidiaries have been bound have been terminated;
(vii) neither PSI nor the PSI Subsidiaries have
incurred any Liability to make or possibly make any payments
either alone or in conjunction with any other payments that:
(A) shall be non-deductible under, or would
otherwise constitute a "parachute payment" within the
meaning of Section 280G of the Code (or any
corresponding provision of state, local or foreign
income Tax Law); or
(B) are or may be subject to the imposition
of an excise Tax under Section 4999 of the Code;
(viii) neither PSI nor the PSI Subsidiaries have
agreed to (nor has any other Person agreed to on its behalf)
and is not required to make any adjustments
19
or changes either on, before or after the Closing Date, to its
accounting methods pursuant to Section 481 of the Code, and
the Internal Revenue Service has not proposed any such
adjustments or changes in the accounting methods of such
Persons;
(ix) no claim has been made within the last three
years by any taxing authority in a jurisdiction in which PSI
and the PSI Subsidiaries do not file Tax Returns that PSI or
the PSI Subsidiaries are or may be subject to taxation by that
jurisdiction;
(x) the consummation of the transactions hereunder
will not trigger the realization or recognition of
intercompany gain or income to PSI or the PSI Subsidiaries
under the federal consolidated return regulations with respect
to federal, state, or local taxes; and
(xi) PSI is not currently, nor has it been at any
time during the previous five years, a "U.S. real property
holding corporation."
2.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 2.14 lists, with respect to PSI, any PSI
Subsidiary and any trade or business (whether or not incorporated)
which is treated as a single employer with PSI (a "PSI ERISA
AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of
the Code, (i) all material employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), (ii) each loan to a non-officer employee in excess
of $10,000, each loan to any officer or director and any stock option,
stock purchase, phantom stock, stock right, supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability,
employee relocation, cafeteria benefit (Code Section 125) or dependent
care (Code Section 129), life insurance or accident insurance plans,
programs or arrangements, (iii) all bonus, pension, profit sharing,
savings, deferred compensation or incentive plans, programs or
arrangements, (iv) other fringe or employee benefit plans, programs or
arrangements that apply to senior management of PSI and that do not
generally apply to all employees, and (v) any current or former
employment or executive compensation or severance agreements, written
or otherwise, as to which unsatisfied obligations of PSI of greater
than $10,000 remain for the benefit of, or relating to, any present or
former employee, consultant or director of PSI (together, the "PSI
EMPLOYEE PLANS").
(b) PSI has made available to PMR a copy of each of the PSI
Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any material employee
communications relating thereto) and has, with respect to each PSI
Employee Plan which is subject to ERISA reporting requirements,
provided copies of the Form 5500 reports filed for the last three plan
years. Any PSI Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status
under the Code, including all amendments to the Code effected by the
Tax Reform Act of 1986 and subsequent legislation, or has applied (or
has time remaining in which to apply) to the Internal Revenue Service
for such a determination letter prior to the expiration of the
20
requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable
determination or has been established under a standardized prototype
plan for which an Internal Revenue Service opinion letter has been
obtained by the plan sponsor and is valid as to the adopting employer.
PSI has also furnished PMR with the most recent Internal Revenue
Service determination or opinion letter issued with respect to each
such PSI Employee Plan, and nothing has occurred since the issuance of
each such letter which could reasonably be expected to cause the loss
of the tax-qualified status of any PSI Employee Plan subject to Code
Section 401(a). PSI has also furnished PMR with all registration
statements and prospectuses prepared in connection with each PSI
Employee Plan.
(c) (i) None of the PSI Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person other
than as required under the Consolidated Omnibus Budget Reconciliation
Act of 1985 ("COBRA"); (ii) there has been no "prohibited transaction,"
as such term is defined in Section 406 of ERISA and Section 4975 of the
Code, with respect to any PSI Employee Plan, which could reasonably be
expected to have, in the aggregate, a PSI Material Adverse Effect;
(iii) each PSI Employee Plan has been administered in accordance with
its terms and in compliance with the requirements prescribed by any and
all statutes, rules and regulations (including ERISA and the Code),
except as would not have, in the aggregate, a PSI Material Adverse
Effect, and PSI and each PSI Subsidiary or PSI ERISA Affiliate have
performed all obligations required to be performed by them under, are
not in any material respect in default under or violation of, and have
no knowledge of any material default or violation by any other party
to, any of the PSI Employee Plans; (iv) neither PSI nor any PSI
Subsidiary or PSI ERISA Affiliate is subject to any liability or
penalty under Sections 4976 through 4980 of the Code or Title I of
ERISA with respect to any of the PSI Employee Plans; (v) all material
contributions required to be made by PSI or any PSI Subsidiary or PSI
ERISA Affiliate to any PSI Employee Plan have been made on or before
their due dates and a reasonable amount has been accrued for
contributions to each PSI Employee Plan for the current plan years;
(vi) with respect to each PSI Employee Plan, no "reportable event"
within the meaning of Section 4043 of ERISA (excluding any such event
for which the thirty (30) day notice requirement has been waived under
the regulations to Section 4043 of ERISA) nor any event described in
Section 4062, 4063 or 4041 of ERISA has occurred; (vii) no PSI Employee
Plan is covered by, and neither PSI nor any PSI Subsidiary or PSI ERISA
Affiliate has incurred or expects to incur any liability under Title IV
of ERISA or Section 412 of the Code; and (viii) each PSI Employee Plan
can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to PMR
(other than ordinary administrative expenses typically incurred in a
termination event). With respect to each PSI Employee Plan subject to
ERISA as either an employee pension plan within the meaning of Section
3(2) of ERISA or an employee welfare benefit plan within the meaning of
Section 3(1) of ERISA, PSI has prepared in good faith and timely filed
all requisite governmental reports (which were true and correct as of
the date filed) and has properly and timely filed and distributed or
posted all notices and reports to employees required to be filed,
distributed or posted with respect to each such PSI Employee Plan. No
suit, administrative proceeding, action or other litigation has been
brought, or to the knowledge of PSI is threatened, against or with
respect to any such PSI Employee Plan,
21
including any audit or inquiry by the Internal Revenue Service or
United States Department of Labor. No payment or benefit which will or
may be made by PSI to any employee of PSI or any PSI Subsidiary will be
characterized as an "excess parachute payment" within the meaning of
Section 280G(b)(1) of the Code.
(d) With respect to each PSI Employee Plan, PSI and each of
its United States PSI Subsidiaries have complied with (i) the
applicable health care continuation and notice provisions of COBRA and
the regulations (including proposed regulations) thereunder except to
the extent that such failure to comply would not, in the aggregate,
have a PSI Material Adverse Effect, (ii) the applicable requirements of
the Family Medical and Leave Act of 1993 and the regulations
thereunder, except to the extent that such failure to comply would not,
in the aggregate, have a PSI Material Adverse Effect and (iii) the
applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed
regulations) thereunder, except to the extent that such failure to
comply would not, in the aggregate, have a PSI Material Adverse Effect.
(e) There has been no amendment to, written interpretation or
announcement (whether or not written) by PSI, any PSI Subsidiary or
other PSI ERISA Affiliate relating to, or change in participation or
coverage under, any PSI Employee Plan which would materially increase
the expense of maintaining such PSI Employee Plan above the level of
expense incurred with respect to that PSI Employee Plan for the most
recent fiscal year included in PSI's financial statements.
(f) PSI does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code.
(g) Neither PSI nor any PSI Subsidiary or other PSI ERISA
Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in
Section 3(37) of ERISA.
(h) Each compensation and benefit plan required to be
maintained or contributed to by the law or applicable custom or rule of
the relevant jurisdiction outside of the United States (the "PSI
BENEFIT PLANS") is listed in SCHEDULE 2.14(h) of the Disclosure
Schedule. As regards each such PSI Benefit Plan, unless disclosed in
SCHEDULE 2.14(h) of the PSI Disclosure Schedule (i) each of the PSI
Benefit Plans is in material compliance with the provisions of the laws
of each jurisdiction in which each such PSI Benefit Plan is maintained,
to the extent those laws are applicable to the PSI Benefit Plans; (ii)
all material contributions to, and material payments from, the PSI
Benefit Plans which may have been required to be made in accordance
with the terms of any such PSI Benefit Plan, and, when applicable, the
law of the jurisdiction in which such PSI Benefit Plan is maintained,
have been timely made or shall be made by the Closing Date, and all
such contributions to the PSI Benefit Plans, and all payments under the
PSI Benefit Plans, for any period ending before the Closing Date that
are not yet, but will be, required to be made, are reflected as an
accrued liability on the PSI Balance Sheet, or disclosed to PMR within
fifteen (15) days following the date hereof in SCHEDULE 2.14(h) of the
Disclosure Schedule; (iii) PSI and the PSI Subsidiaries and ERISA
Affiliates have
22
materially complied with all applicable reporting and notice
requirements, and all of the PSI Benefit Plans have obtained from the
governmental body having jurisdiction with respect to such plans any
required determinations, if any, that such PSI Benefit Plans are in
compliance with the laws of the relevant jurisdiction if such
determinations are required in order to give effect to the PSI Benefit
Plan; (iv) each of the PSI Benefit Plans has been administered in all
material respects at all times in accordance with its terms and
applicable law and regulations; (v) to the knowledge of PSI, there are
no pending investigations by any governmental body involving the PSI
Benefit Plans, and no pending claims (except for claims for benefits
payable in the normal operation of the PSI Benefit Plans), suits or
proceedings against any PSI Benefit Plan or asserting any rights or
claims to benefits under any PSI Benefit Plan; and (vi) the
consummation of the transactions contemplated by this Agreement will
not by itself create or otherwise result in any liability with respect
to any PSI Benefit Plan other than the triggering of payment to
participants.
2.15 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute, bonus or
otherwise) becoming due to any director, employee or consultant of PSI or any of
the PSI Subsidiaries, (ii) materially increase any benefits otherwise payable by
PSI or (iii) result in the acceleration of the time of payment or vesting of any
such benefits except as required under Code Section 411(d)(3).
2.16 EMPLOYEE MATTERS. PSI and each of the PSI Subsidiaries are in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. PSI has
withheld all amounts required by law or by agreement to be withheld from the
wages, salaries, and other payments to employees and is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing. PSI is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the normal course of
business and consistent with past practice). Except as set forth on SCHEDULE
2.16, there are no pending claims against PSI or any of the PSI Subsidiaries
under any workers compensation plan or policy or for long term disability. There
are no controversies pending or, to the knowledge of PSI or any of the PSI
Subsidiaries, threatened, between PSI or any of the PSI Subsidiaries and any of
their respective employees, which controversies have or could reasonably be
expected to result in an action, suit, proceeding, claim, arbitration or
investigation before any agency, court or tribunal, foreign or domestic. Neither
PSI nor any of the PSI Subsidiaries is a party to any collective bargaining
agreement or other labor union contract nor does PSI nor any of the PSI
Subsidiaries know of any activities or proceedings of any labor union or to
organize any such employees. To PSI's knowledge, no employees of PSI or any of
the PSI Subsidiaries are in violation of any term of any employment contract,
patent disclosure agreement, enforceable noncompetition agreement, or any
enforceable restrictive covenant to a former employer relating to the right of
any such employee to be employed by PSI or any of the PSI Subsidiaries because
of the nature of the business conducted or presently proposed to be conducted by
PSI or to the use of trade secrets or proprietary information of others. No
employees of PSI or any of the PSI Subsidiaries
23
have given notice to PSI or any of the PSI Subsidiaries, nor is PSI otherwise
aware, that any such employee intends to terminate his or her employment with
PSI or any of the PSI Subsidiaries. Except as set forth in SCHEDULE 2.16, the
employment of each of the employees of PSI and each of the PSI Subsidiaries is
"at will" and PSI and each of the PSI Subsidiaries does not have any obligation
to provide any particular form or period of notice prior to terminating the
employment of any of their employees.
2.17 CONFLICTS OF INTEREST; RELATED PARTY TRANSACTIONS.
(a) None of PSI, the PSI Subsidiaries or any officer nor, to
the knowledge of the officers of PSI, any employee, agent or other
Person acting on behalf of PSI or the PSI Subsidiaries has, directly or
indirectly, given or agreed to give any money, gift or similar benefit
(other than legal price concessions to customers in the ordinary course
of business) to any physician, psychologist, counselor, or other direct
or indirect referral source, or any family member or agent of the
foregoing, or official or employee of any Governmental Entity or other
Person who was or is in a position to help or hinder the business of
PSI or the PSI Subsidiaries (or assist in connection with any actual or
proposed transaction) that (i) might subject PSI or the PSI
Subsidiaries to any material damage or material penalty in any
Proceeding before any agency, court or tribunal, foreign or domestic,
(ii) if not given in the past, could have resulted in a PSI Material
Adverse Effect, (iii) if not continued in the future, could result in a
PSI Material Adverse Effect; or (iv) is in material violation of any
Laws, including the federal illegal remuneration statute, 42 U.S.C.
Section 1320a-76.
(b) Except as set forth in SCHEDULE 2.17(b), and except for
compensation to regular employees of PSI or the PSI Subsidiaries, no
current or former Affiliate of PSI, or the PSI Subsidiaries or any
associate of such Person (as defined in Rule 12b-2 promulgated under
the Exchange Act thereof, is now, or has been during the last five
fiscal years, (i) a party to any transaction or agreement with PSI or
any of the PSI Subsidiaries, or (ii) the direct or indirect owner of an
interest in any Person which is a present or potential competitor,
supplier or customer of PSI or the PSI Subsidiaries (other than
non-affiliated holdings in publicly-held companies), nor does any such
Person receive income from any source other than PSI or the PSI
Subsidiaries which should properly accrue to PSI or the PSI
Subsidiaries. Except as set forth in SCHEDULE 2.17, neither PSI nor the
PSI Subsidiaries are a guarantor or otherwise liable for any actual or
potential Liability or obligation, whether direct or indirect, of any
of its Affiliates. Except as set forth in SCHEDULE 2.17, there are no
intercompany loans or open account balances between PSI and the PSI
Subsidiaries.
2.18 INSURANCE. PSI and each of the PSI Subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of PSI and the PSI
Subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and PSI and the PSI Subsidiaries are
otherwise in compliance with the terms of such policies and bonds. PSI has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
24
2.19 COMPLIANCE WITH LAWS. Each of PSI and the PSI Subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any Law with respect to the conduct of the PSI
business, or the ownership or operation of its business, except for such
violations or failures to comply as could not be reasonably expected to have a
PSI Material Adverse Effect.
2.20 ACCOUNTS RECEIVABLE. Subject to any reserves set forth in the PSI
Financial Statements, the accounts receivable shown on the PSI Financial
Statements represent bona fide claims against debtors for services rendered,
sales and other charges, and are not subject to discount except for normal cash
and immaterial trade discounts. The amount carried for doubtful accounts and
allowances disclosed in the PSI Financial Statements was calculated in
accordance with generally accepted accounting principles and in a manner
consistent with prior periods.
2.21 CUSTOMERS AND SUPPLIERS. No third party payor or customer which
individually accounted for more than five percent (5%) of PSI's gross revenues
during the 12-month period preceding the date hereof, and no hospital, health
care provider or supplier of PSI, has canceled or otherwise terminated, or made
any written threat to PSI to cancel or otherwise terminate its relationship with
PSI, or has decreased materially its services or supplies to PSI in the case of
any such hospital, health care provider or supplier, or its usage of the
services or products of PSI in the case of such third party payor or customer,
and to PSI's knowledge, no such hospital, health care provider, supplier, third
party payor or customer intends to cancel or otherwise terminate its
relationship with PSI or to decrease materially its services or supplies to PSI
or its usage of the services or products of PSI, as the case may be. PSI has not
knowingly breached, so as to provide a benefit to PSI that was not intended by
the parties, any agreement with, or engaged in any fraudulent conduct with
respect to, any third party payor, customer, hospital, health care provider or
supplier of PSI.
2.22 MATERIAL CONTRACTS. Except for the contracts and agreements
described in SCHEDULE 2.22 (collectively, the "PSI MATERIAL CONTRACTS"), neither
PSI nor any PSI Subsidiary is a party to or bound by any material contract,
including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such
contract more than $50,000 annually;
(c) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency
exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance with
generally accepted accounting principles;
(d) any contract for capital expenditures in excess of $50,000
in the aggregate;
(e) any contract limiting the freedom of PSI to engage in any
line of business or to compete with any other Person as that term is
defined in the Exchange Act or any confidentiality, secrecy or
non-disclosure contract;
25
(f) any contract with any person with whom PSI does not deal
at arm's length;
(g) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect
to, the obligations, liabilities (whether accrued, absolute, contingent
or otherwise) or indebtedness of any other Person; or
(h) any contracts or commitments providing for payments based
in any manner on the revenues or profits of the business of PSI or the
PSI Subsidiaries;
provided, however that PSI Material Contracts comprised of managed care
contracts, management service/unit management agreements and Medical Director
Agreements are not required to be disclosed on SCHEDULE 2.22.
2.23 NO BREACH OF PSI MATERIAL CONTRACTS. All PSI Material Contracts
are in written form. PSI has performed all of the obligations required to be
performed by it and is entitled to all benefits under, and is not alleged to be
in default in respect of any PSI Material Contract. Each of the PSI Material
Contracts is in full force and effect, unamended, and there exists no default or
event of default or event, occurrence, condition or act, with respect to PSI or
to PSI's knowledge with respect to the other contracting party, which, with the
giving of notice, the lapse of time or the happening of any other event or
conditions, would become a default or event of default under any PSI Material
Contract. True, correct and complete copies of all PSI Material Contracts have
been made available to PMR.
2.24 THIRD PARTY CONSENTS. Except as set forth in SCHEDULE 2.24, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not require the consent, approval, order
or authorization of any third party under the PSI Material Contracts.
2.25 CERTAIN ADDITIONAL REGULATORY MATTERS.
(a) Except where such activities have not had and will not
have a PSI Material Adverse Effect, neither PSI, the PSI Subsidiaries,
nor any officer, director or managing employee of such Person (within
the meaning of 42 U.S.C. (ss. 1320a-5(b)) has engaged in any activities
which constitute violations of, or are cause for imposition of civil
penalties upon PSI or the PSI Subsidiaries or mandatory or permissive
exclusion of such Persons from Medicare or Medicaid, under xx.xx.
1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States
Code, ss. 3727 et seq. of Title 51 of the United States Code
("TRICARE"), any other state or federal health care program, or the
regulations promulgated pursuant to such statutes or regulations or
related state or local statutes or which constitute violations of or
deficiencies under the standards of any private accrediting
organization from which PSI or any of the PSI Subsidiaries is
accredited or seeks accreditation, including the following activities:
(i) making or causing to be made a false statement
or representation of a material fact in any application for
any benefit or payment;
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(ii) making or causing to be made any false
statement or representation of a material fact for use in
determining rights to any benefit or payment;
(iii) presenting or causing to be presented a claim
for reimbursement under TRICARE, Medicare, Medicaid or any
other State Health Care Program or Federal Health Care Program
(each as defined below) that is (A) for an item or service
that the person presenting or causing to be presented knows or
should know was not provided as claimed, or (B) for an item or
service where the person presenting knows or should know that
the claim is false or fraudulent;
(iv) offering, paying, soliciting or receiving any
remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in
kind (A) in return for referring, or to induce the referral
of, an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment
may be made in whole or in part by TRICARE, Medicare or
Medicaid, or any other State Health Care Program or any
Federal Health Care Program, or (B) in return for, or to
induce, the purchase, lease, or order, or the arranging for or
recommending of the purchase, lease, or order, of any good,
facility, service, or item for which payment may be made in
whole or in part by TRICARE, Medicare or Medicaid or any other
State Health Care Program or any Federal Health Care Program;
(v) making or causing to be made or inducing or
seeking to induce the making of any false statement or
representation (or omitting to state a material fact required
to be stated therein or necessary to make the statements
contained therein not misleading) of a material fact with
respect to (A) the conditions or operations of a facility in
order that the facility may qualify for TRICARE, Medicare,
Medicaid or any other State Health Care Program certification
or any Federal Health Care Program certification, or (B)
information required to be provided under ss. 1124(A) of the
Social Security Act ("SSA") (42 U.S.C. Section 1320a-3); or
(vi) failing substantially to provide medically
necessary items or services, if the failure adversely affects
individuals covered by Medicare or Medicaid.
(b) Each of the facilities operated by PSI and the PSI
Subsidiaries has a Medicaid number and a participating provider
agreement in each state, as applicable, to which it bills directly to
such states' Medicaid agency for services provided by it.
2.26 MEDICARE/MEDICAID PARTICIPATION. Neither PSI, the PSI
Subsidiaries, any officer, director, or managing employee (as defined in SSA
Section 1126(b) or any regulations promulgated thereunder): (x) have had a
civil monetary penalty assessed against him, her or it under Section 1128A of
the SSA or any regulations promulgated thereunder; (y) have been excluded
from participation under the Medicare program or a state health care program
as defined in SSA ss. 1128(h) or any regulations promulgated thereunder
("STATE HEALTH CARE PROGRAM") or a federal health care program as defined in
SSA Section 1128B(f) ("FEDERAL HEALTH CARE PROGRAM"); or (z) have been
convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the
following
27
categories of offenses as described in SSA Sections 1128(a) and (b)(1), (2),
(3) or any regulations promulgated thereunder:
(i) criminal offenses relating to the delivery of an
item or service under Medicare or any State Health Care
Program or any Federal Health Care Program;
(ii) criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the
delivery of a health care item or service;
(iii) criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct in connection
with the delivery of a health care item or service or with
respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local
governmental agency;
(iv) federal or state laws relating to the
interference with or obstruction of any investigation into any
criminal offense; or
(v) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution,
prescription or dispensing of a controlled substance.
2.27 MINUTE BOOKS. The minute books of PSI and the PSI Subsidiaries
made available to PMR contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of PSI and the respective PSI Subsidiaries through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
2.28 COMPLETE COPIES OF MATERIALS. PSI has delivered or made available
true and complete copies of each document which has been requested by PMR or its
counsel in connection with their legal and accounting review of PSI and the PSI
Subsidiaries.
2.29 BROKERS' AND FINDERS' FEES. Except as set forth on SCHEDULE 2.29,
PSI has not incurred, nor will it incur, directly or indirectly, any liability
for brokerage or finders' fees or agents' commissions or investment bankers'
fees or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
2.30 VOTE REQUIRED. The affirmative vote of the holders of greater than
50% of the PSI Common Stock and 50% of the PSI Preferred Stock outstanding on
the record date set for the PSI Meeting is the only vote of the holders of any
of PSI's Capital Stock necessary to approve this Agreement and the transactions
contemplated hereby.
2.31 BOARD APPROVAL. The Board of Directors of PSI has (i) approved
this Agreement and the Merger, (ii) determined that the Merger is in the best
interests of the stockholders of PSI and is on terms that are fair to such
stockholders and (iii) recommended that the stockholders of PSI approve this
Agreement and the Merger.
2.32 STATE TAKEOVER STATUTES. The Board of Directors of PSI has
approved this Agreement, the agreements entered into or proposed to be entered
into as contemplated by this
28
Agreement and the transactions contemplated hereby and thereby (including the
Merger), and such approval is sufficient to render inapplicable to such
agreements and transactions the provisions of any "fair price," "moratorium,"
"control share," "interested shareholders," "affiliated transaction" or other
anti-takeover statute or regulation and any applicable anti-takeover or other
restrictive provisions of PSI's Certificate of Incorporation, Bylaws or other
governing documents.
2.33 PROGRAMS. Each facility where behavioral health, substance abuse,
and human service programs provided by PSI or the PSI Subsidiaries are offered
to Medicare or Medicaid beneficiaries, are eligible to receive payment under
Titles XVIII and XIX of the Social Security Act and are "providers" under
existing provider agreements with the Medicare and Medicaid programs through the
applicable carriers. Each facility is in substantial compliance with the
conditions of participation in the Medicare and Medicaid programs and have
received all approvals or qualifications necessary for reinbursement through the
Medicare and Medicaid programs.
2.34 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by PSI herein or in any Schedule hereto, including the PSI
Disclosure Schedule, or certificate furnished by PSI pursuant to this Agreement,
when all such documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PMR AND MERGER SUB
In this Agreement, any reference to any event, change, condition or
effect being "material" with respect to any entity or group of entities means
any material event, change, condition or effect related to the condition
(financial or otherwise), properties, assets (including intangible assets),
liabilities, business, operations or results of operations of such entity or
group of entities. In this Agreement, any reference to a "PMR MATERIAL ADVERSE
EFFECT" means any event, change, condition or effect that is materially adverse
to the condition (financial or otherwise), properties, assets, liabilities,
business, operations or results of operations of PMR and the PMR Subsidiaries,
taken as a whole, other than any event, change, condition or effect relating to
(i) this Agreement or the transactions contemplated hereby or the announcement
thereof, (ii) the failure to obtain applicable regulatory or third party
consents that may be required in connection with this Agreement or the
transactions contemplated hereby, (iii) the United States economy in general,
(iv) the behavioral healthcare industry in general, or (v) the termination of
employment of any senior management employee of PMR prior to the Effective Time;
PROVIDED, however, that a PMR Material Adverse Effect shall include any change
in or effect on the business of PMR and the PMR Subsidiaries that is, or is
reasonably likely to be, materially adverse to the condition (financial or
otherwise), properties, assets, liabilities, business, operations or results of
operations of PMR and the PMR Subsidiaries, taken as a whole, if such change or
effect is significantly more adverse to PMR and the PMR Subsidiaries, taken as a
whole, than to the human services industry in general.
In this Agreement, any reference to a party's "knowledge" means actual
knowledge of such party's officers or directors, provided that such persons
shall make due and diligent inquiry
29
of those employees of such party whom such officers and directors reasonably
believe would have actual knowledge of the matters represented.
Except as disclosed in a document of even date herewith and delivered
by PMR and Merger Sub to PSI prior to the execution and delivery of this
Agreement and referring to the representations and warranties in this Agreement
(the "PMR DISCLOSURE SCHEDULE"), PMR and Merger Sub represent and warrant to PSI
as follows:
3.1 ORGANIZATION, STANDING; AND POWER. Each of PMR and the PMR
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization. PMR has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a PMR Material Adverse Effect. PMR has
made available to PSI a true and correct copy of the Certificate of
Incorporation and Bylaws or other charter documents, as applicable, of PMR and
each of the PMR Subsidiaries, each as amended to date. Neither PMR nor any of
the PMR Subsidiaries is in violation of any of the provisions of its Certificate
of Incorporation or Bylaws or equivalent organizational documents. PMR is the
owner of all outstanding shares of capital stock of each of the entities set
forth in SCHEDULE 3.1 of the PMR Disclosure Schedule (collectively, the "PMR
SUBSIDIARIES" and each a "PMR SUBSIDIARY") and all such shares are duly
authorized, validly issued, fully paid and nonassessable. SCHEDULE 3.1 is a
complete and accurate list of all subsidiaries of PMR. All of the outstanding
shares of capital stock of each such PMR Subsidiary are owned by PMR free and
clear of all liens, charges, claims or encumbrances or rights of others. There
are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of any
character relating to the issued or unissued capital stock or other securities
of any such PMR Subsidiary, or otherwise obligating PMR or any such PMR
Subsidiary to issue, transfer, sell, purchase, redeem or otherwise acquire any
such securities of any such PMR Subsidiary. Except as set forth in SCHEDULE 3.1
to the PMR Disclosure Schedule, PMR does not directly or indirectly own any
equity or similar interest in, or any interest convertible or exchangeable or
exercisable for, any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity.
3.2 CAPITAL STRUCTURE. The authorized capital stock of PMR consists of
19,000,000 shares of PMR Common Stock, of which there are 7,180,442 shares
issued and outstanding. The shares of PMR Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and
nonassessable. There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of capital stock
or voting securities, other than pursuant to (i) the exercise of outstanding
warrants to purchase shares of PMR Common Stock and (ii) the exercise of options
outstanding as of such date under PMR's 1997 Equity Incentive Plan (the "PMR
STOCK PLAN") and PMR's Outside Directors' Non-Qualified Stock Option Plan of
1992 (the "PMR DIRECTOR PLAN"). All outstanding shares of PMR Common Stock are
duly authorized, validly issued, fully paid and nonassessable and are free of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Certificate of Incorporation or
Bylaws of PMR or any agreement to which PMR is a party or by which it is bound.
PMR has reserved sufficient shares of PMR Common Stock for issuance to employees
and consultants pursuant to the PMR Stock Plan, of which 1,248,651
30
shares have been issued pursuant to option exercises or direct stock purchases,
1,147,401 shares are subject to outstanding, unexercised options, and 1,603,948
shares are available for issuance thereunder. PMR has reserved sufficient shares
of PMR Common Stock for issuance to directors of PMR pursuant to the PMR
Director Plan, of which 219,000 shares have been issued pursuant to option
exercises or direct stock purchases, 287,250 shares are subject to outstanding,
unexercised options, and 518,750 shares are available for issuance thereunder.
Notwithstanding anything in the foregoing to the contrary, the exercise of
options by any PMR option holder between the date of this Agreement and the
Effective Time shall not cause a breach of this Section 3.2.
3.3 AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS. Each of PMR
and Merger Sub has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of PMR and Merger Sub. This Agreement has been duly
executed and delivered by each of PMR and Merger and constitutes the valid and
binding obligation of PMR and Merger Sub enforceable against each of PMR and
Merger Sub in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a benefit
under (i) any provision of the Articles of Incorporation or Bylaws of PMR or
Merger Sub, as amended, (ii) any Law applicable to PMR, Merger Sub or their
respective properties or assets or (iii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, franchise, or license
applicable to PMR, Merger Sub or their respective properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity, is required by or with respect to PMR or
Merger Sub in connection with the execution and delivery of this Agreement by
PMR or Merger Sub or the consummation by PMR or Merger Sub of the transactions
contemplated hereby, except for (i) the filing of the Certificate of Merger,
together with the required officers' certificates, as provided in Section 1.2,
(ii) the filing of a Form 8-K with the SEC and National Association of
Securities Dealers ("NASD") within 15 days after the Closing Date, (iii) the
filing and effectiveness of a registration statement on Form S-4 with the SEC,
(iv) any filings as may be required under applicable state securities laws and
the securities laws of any foreign country, (v) such filings as may be required
under the HSR Act, (vi) the filing with The Nasdaq National Market (the
"NASDAQ") of a Notification Form for Listing of Additional Shares with respect
to the shares of PMR Common Stock issuable upon conversion of the PSI Capital
Stock in the Merger and upon exercise of the options under the PSI Stock Plan
assumed by PMR, (vii) the filing of a registration statement on Form S-8 with
the SEC, or other applicable form covering the shares of PMR Common Stock
issuable pursuant to outstanding options under the PSI Stock Plan assumed by PMR
and (viii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on PMR and would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. PMR has made available to PSI
each statement, report, registration statement (with the prospectus in the form
filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filing filed with the SEC by PMR since April 30, 2001
(collectively, the "PMR SEC DOCUMENTS"). In addition, PMR has
31
made available to PSI all exhibits to the PMR SEC Documents filed prior to the
date hereof, and will promptly make available to PSI all exhibits to any
additional PMR SEC Documents filed prior to the Effective Time. Except as set
forth in any PMR SEC Document, as of their respective filing dates, the PMR SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the PMR SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading, except to
the extent corrected by a subsequently filed PMR SEC Document. Except as set
forth in any PMR SEC Document, the financial statements of PMR, including the
notes thereto, included in the PMR SEC Documents (the "PMR FINANCIAL
STATEMENTS") were complete and correct in all material respects as of their
respective dates, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto as of their respective dates, and have been prepared in
accordance with generally accepted accounting principles applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The PMR Financial Statements fairly present the consolidated
financial condition and operating results of PMR at the dates and during the
periods indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments).
3.5 ABSENCE OF CERTAIN CHANGES. Since April 30, 2001 (the "PMR BALANCE
SHEET DATE"), except as set forth in SCHEDULE 3.5 or as disclosed in the PMR SEC
Documents or as contemplated by this Agreement, PMR and the PMR Subsidiaries
conducted their respective businesses in the ordinary course consistent with
past practice and there has not occurred:
(a) any change, event or condition (whether or not covered by
insurance) that has resulted in, or might reasonably be expected to
result in, a PMR Material Adverse Effect;
(b) any discharge or satisfaction of any Encumbrance other
than those then required to be discharged or satisfied prior to the
Closing Date pursuant to the existing terms of any agreement between
PMR or any of the PMR Subsidiaries and a party unaffiliated with PMR or
any of the PMR Subsidiaries, or payment of any obligation or Liability,
other than current Liabilities shown on the consolidated balance sheet
of PMR as of January 31, 2002 (the "LATEST PMR BALANCE SHEET") included
in the PMR Financial Statements and current Liabilities incurred in the
ordinary course of business consistent with prior practice, or any
cancellation, forgiveness or compromise by PMR or any of the PMR
Subsidiaries of any debts or claims other than in the ordinary course
of business or any waiver or release of any right of substantial value
to PMR and the PMR Subsidiaries;
(c) except as expressly permitted by Section 4.4(b), any
declaration, setting aside or payment of any dividend or other
distribution of any assets of any kind whatsoever with respect to any
shares of the capital stock of PMR or the PMR Subsidiaries, or any
direct or indirect redemption, purchase or other acquisition of any
such shares of the capital stock of PMR or the PMR Subsidiaries;
32
(d) any stock split, reverse stock split, combination,
reclassification or recapitalization of any capital stock of PMR or the
PMR Subsidiaries, or any issuance of any other security in respect of
or in exchange for, any shares of any capital stock of PMR or the PMR
Subsidiaries;
(e) any issuance by PMR or the PMR Subsidiaries of any shares
of their capital stock or any debt security or securities, rights,
options or warrants convertible into or exercisable or exchangeable for
any shares of such capital stock or debt security;
(f) any license, sale, transfer, pledge, mortgage or other
disposition of any tangible or intangible asset of PMR or the PMR
Subsidiaries, except for inventory sold in the ordinary course of
business;
(g) any termination or receipt by PMR or the PMR Subsidiaries
of any notice of termination or non-renewal of any Contract between PMR
or the PMR Subsidiaries and any other Person involving payments by or
to PMR or any of the PMR Subsidiaries in excess of $100,000 in the
aggregate;
(h) any write-down or write-up of the value of any asset of
PMR or the PMR Subsidiaries, or, other than in the ordinary course of
business, any write-off of any accounts receivable or notes receivable
of PMR or the PMR Subsidiaries or any portion thereof in excess of
$50,000 in the aggregate;
(i) any increase in or modification of compensation payable or
to become payable to any officer, employee, consultant or agent of PMR
or the PMR Subsidiaries, (other than (i) increases not more than 5%
different from the aggregate compensation prior to the increase, or
(ii) any severance benefit or bonus which is completely paid prior to
the Effective Time), or the entering into of any employment contract
with any officer or employee;
(j) any increase in or modification or acceleration of any
benefits payable or to become payable under any pension, insurance or
other benefit plan, payment or arrangement (including, but not limited
to, the granting of stock options, restricted stock awards or stock
appreciation rights) made to, for or with any officer, employee,
consultant or agent of PMR or the PMR Subsidiaries;
(k) the making of any loan, advance or capital contribution to
or investment in any Person or the engagement in any transaction with
any employee, officer, director or stockholder of PMR or the PMR
Subsidiaries, other than advances to employees in the ordinary course
of business for travel and similar business expenses;
(l) any change in the accounting methods or practices followed
by PMR or the PMR Subsidiaries or any change in depreciation or
amortization policies or rates theretofore adopted;
(m) any material deterioration in the aging of PMR's or the
PMR Subsidiaries' accounts payable or material acceleration in the
aging of PMR's or the PMR Subsidiaries' accounts receivable or other
change in PMR's or the PMR Subsidiaries' working capital management
practices;
33
(n) any material change in the manner in which PMR or the PMR
Subsidiaries extend discounts or credit to or otherwise deal with third
party payors, patients or other customers;
(o) any termination of employment of any officer or key
employee of PMR or the PMR Subsidiaries;
(p) except as contemplated hereby, any amendments or changes
in PMR's or the PMR Subsidiaries' articles or certificate of
incorporation or bylaws (or other governing documents);
(q) any labor disputes or any union organizing campaigns;
(r) the commencement of any litigation or other action by or
against PMR or the PMR Subsidiaries; or
(s) any agreement, understanding, or authorization, whether in
writing or otherwise, for PMR or the PMR Subsidiaries to take any of
the actions specified in items (a) through (r) above.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in SCHEDULE
3.6, neither PMR nor any of the PMR Subsidiaries have any Liability, except for
(i) Liabilities reflected or reserved against in the consolidated balance sheet
of PMR as of January 31, 2002, and (ii) Liabilities that have arisen since the
date of the Latest PMR Balance Sheet in the ordinary course of business (none of
which arise from any breach of Contract, breach of warranty, tort, infringement,
violation of Law, or any action, suit or Proceeding (including any Liability
under any Environmental and Safety Laws)). There are no loss contingencies (as
such term is used in Statement of Financial Accounting Standards No. 5 issued by
the Financial Accounting Standards Board in March 1975) that are not adequately
provided for on the Latest PMR Balance Sheet. Except as set forth in SCHEDULE
3.6, neither PMR nor any of the PMR Subsidiaries have, either expressly or by
operation of Law, assumed or undertaken any Liability of any other Person,
including, without limitation, any obligation for corrective or remedial action
relating to or required under any Environmental and Safety Laws. The reserves
reflected on the Latest PMR Balance Sheet for Liabilities that were incurred but
not reported are adequate to cover such Liabilities.
3.7 LITIGATION. Except as set forth in SCHEDULE 3.7 of the PMR
Disclosure Schedule, there is no Proceeding pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of PMR or any of the PMR
Subsidiaries, threatened against PMR or any of the PMR Subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such). There is no judgment, decree or order against PMR or
any of the PMR Subsidiaries, or, to the knowledge of PMR and the PMR
Subsidiaries, any of their respective directors or officers (in their capacities
as such), that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a PMR Material Adverse Effect. SCHEDULE 3.7 of the PMR
Disclosure Schedule also lists all litigation that PMR has pending against other
parties.
3.8 RESTRICTIONS ON BUSINESS ACTIVITIES. Except as set forth in
SCHEDULE 3.8, there is no agreement, judgment, injunction, order or decree
binding upon PMR or any of the PMR
34
Subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of PMR or any
of the PMR Subsidiaries, any acquisition of property by PMR or any of the PMR
Subsidiaries or the conduct of business by PMR or any of the PMR Subsidiaries as
currently conducted or as proposed to be conducted by PMR or any of the PMR
Subsidiaries.
3.9 GOVERNMENTAL AUTHORIZATION. PMR and each of the PMR Subsidiaries
have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which PMR or any of the PMR Subsidiaries currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of PMR's or any of the PMR Subsidiaries' business or the holding of
any such interest ((i) and (ii) herein collectively called "PMR
AUTHORIZATIONS"), and all of such PMR Authorizations are in full force and
effect, except where the failure to obtain or have any such PMR Authorizations
could not reasonably be expected to have a PMR Material Adverse Effect.
3.10 TITLE TO PROPERTY. PMR and the PMR Subsidiaries have good and
marketable title to all of their respective properties, interests in properties
and assets, real and personal, reflected in the Latest PMR Balance Sheet or
acquired after the PMR Balance Sheet Date (except properties, interests in
properties and assets sold or otherwise disposed of since the PMR Balance Sheet
Date in the ordinary course of business), or with respect to leased properties
and assets, valid leasehold interests in, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except (i) the
lien of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties and (iii) liens
securing debt which is reflected on the Latest PMR Balance Sheet. The plants,
property and equipment of PMR and the PMR Subsidiaries that are used in the
operations of their businesses are in good operating condition and repair,
subject to normal wear and tear. All properties used in the operations of PMR
and the PMR Subsidiaries are reflected in the Latest PMR Balance Sheet to the
extent generally accepted accounting principles require the same to be
reflected. SCHEDULE 3.10 identifies each parcel of real property owned or leased
by PMR or any of the PMR Subsidiaries.
3.11 INTELLECTUAL PROPERTY.
(a) PMR and the PMR Subsidiaries own, or are licensed or
otherwise possess legally enforceable rights to use all Intellectual
Property that are used or proposed to be used in the business of PMR
and the PMR Subsidiaries as currently conducted or as proposed to be
conducted by PMR and the PMR Subsidiaries. Except as set forth in
SCHEDULE 3.11, PMR has not (i) licensed any of its Intellectual
Property in source code form to any party or (ii) entered into any
exclusive agreements relating to its Intellectual Property with any
party.
(b) SCHEDULE 3.11 lists (i) all patents and patent
applications and all registered and unregistered trademarks, trade
names and service marks, registered and unregistered copyrights,
registered domain names, and maskworks, included in the Intellectual
Property, including the jurisdictions in which each such Intellectual
Property right has been issued or registered or in which any
application for such issuance and registration
35
has been filed, (ii) all licenses, sublicenses and other agreements as
to which PMR is a party and pursuant to which any person is authorized
to use any Intellectual Property (other than computer software licenses
used by PMR in the ordinary course of business), and (iii) all
licenses, sublicenses and other agreements as to which PMR is a party
and pursuant to which PMR is authorized to use any third party patents,
trademarks or copyrights ("PMR THIRD PARTY INTELLECTUAL PROPERTY
RIGHTS") which are incorporated in, are, or form a part of any PMR
product.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of PMR or any of
the PMR Subsidiaries, or any PMR Third Party Intellectual Property
Rights, by any third party, including any employee or former employee
of PMR or any of the PMR Subsidiaries. Neither PMR nor any of the PMR
Subsidiaries has entered into any agreement to indemnify any other
person against any charge of infringement of any Intellectual Property,
other than indemnification provisions contained in purchase orders or
license agreements arising in the ordinary course of business.
(d) PMR is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
under this Agreement, in material breach of any license, sublicense or
other agreement relating to the Intellectual Property or PMR Third
Party Intellectual Property Rights.
(e) All patents, registered trademarks, service marks and
copyrights held by PMR are valid and subsisting. PMR has not been sued
in any suit, action or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party. The manufacturing, marketing, licensing or sale of PMR's
products do not infringe any patent, trademark, service xxxx,
copyright, trade secret or other proprietary right of any third party.
PMR has not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(f) PMR has secured valid written assignments from all
consultants and employees who contributed to the creation or
development of Intellectual Property of the rights to such
contributions that PMR does not already own by operation of law.
(g) PMR has taken all necessary and appropriate steps to
protect and preserve the confidentiality of all Intellectual Property
not otherwise protected by patents, patent applications or copyright
Confidential Information. All use, disclosure or appropriation of
Confidential Information owned by PMR by or to a third party has been
pursuant to the terms of a written agreement between PMR and such third
party. All use, disclosure or appropriation of Confidential Information
not owned by PMR has been pursuant to the terms of a written agreement
between PMR and the owner of such Confidential Information, or is
otherwise lawful.
(h) As of the date of this Agreement, except as set forth in
SCHEDULE 3.11, there are no actions that must be taken by PMR or any
PMR Subsidiary within sixty (60) days of the Closing Date that, if not
taken, will result in the loss of any Intellectual Property, including
the payment of any registration, maintenance or renewal fees or the
36
filing of any responses to PTO office actions, documents, applications
or certificates for the purposes of obtaining, maintaining, perfecting
or preserving or renewing any Intellectual Property.
3.12 ENVIRONMENTAL MATTERS.
(a) The following terms shall be defined as follows:
(i) "PMR PROPERTY" shall mean all real property
leased or owned by PMR or the PMR Subsidiaries either
currently or in the past.
(ii) "PMR FACILITIES" shall mean all buildings and
improvements on PMR Property.
(b) PMR represents and warrants as follows: (i) no methylene
chloride is contained in or has been used at or released from the PMR
Facilities by PMR or PMR Subsidiaries; (ii) all Hazardous Materials and
wastes if disposed of by PSI or PSI Subsidiaries have been disposed of
in accordance with all Environmental and Safety Laws; and (iii) PMR and
the PMR Subsidiaries have received no notice (verbal or written) of any
noncompliance of the PMR Facilities or its past or present operations
with Environmental and Safety Laws; (iv) no notices, administrative
actions or suits are pending or threatened relating to a violation of
any Environmental and Safety Laws; (v) there are no polychlorinated
biphenyls (PCBs) deposited, stored, disposed of or located on the PMR
Property or PMR Facilities or any equipment on the PMR Property
containing PCBs at levels in excess of 50 parts per million; (vi) PMR
and the PMR Subsidiaries' uses and activities of the PMR Facilities
have at all times complied with all Environmental and Safety Laws; and
(vii) PMR and the PMR Subsidiaries have all the permits and licenses
required to be issued under federal, state or local laws regarding
Environmental and Safety Laws and are in full compliance with the terms
and conditions of those permits; neither PMR nor any PMR Subsidiary are
a potentially responsible party under the federal Comprehensive
Environmental Response Compensation and Liability Act (CERCLA), or
state analog statute, arising out of events occurring prior to the
Closing Date.
3.13 TAX MATTERS.
(a) Except as set forth in SCHEDULE 3.13(a), PMR and each
other Person included in any consolidated or combined Tax Return and
part of an affiliated group, within the meaning of Section 1504 of the
Code, of which PMR is or has been a member ("PMR TAX AFFILIATE"), for
the years that it was a PMR TAX AFFILIATE of PMR:
(i) has timely paid or caused to be paid all Taxes
required to be paid by it through the date hereof and as of
the Closing Date (including any Taxes shown due on any Tax
Return) other than as fully reserved for in the PMR Financial
Statements;
(ii) has filed or caused to be filed in a timely and
proper manner (within any applicable extension periods) all
Tax Returns required to be filed by it with the appropriate
Governmental Entities in all jurisdictions in which such Tax
37
Returns are required to be filed, and all Tax Returns filed on
behalf of PMR and each PMR Tax Affiliate were complete and
correct in all material respects; and
(iii) has not requested or caused to be requested any
extension of time within which to file any Tax Return, which
Tax Return has not since been filed if due.
(b) PMR has previously made available to PSI for review true,
correct and complete copies of all Tax Returns filed by or on behalf of
PMR through the Closing Date for the periods ending after December 31,
1994.
(c) Except as set forth in SCHEDULE 3.13(c):
(i) neither PMR nor any PMR Tax Affiliate (for the
years that it was a PMR Tax Affiliate of PMR) has been
notified by the Internal Revenue Service or any other taxing
authority that any issues have been raised (and no such issues
are currently pending) by the Internal Revenue Service or any
other taxing authority in connection with any Tax Return filed
by or on behalf of PMR or any PMR Tax Affiliate; there are no
pending Tax audits and no waivers of statutes of limitations
have been given or requested with respect to PMR or any PMR
Tax Affiliate (for the years that it was a PMR Tax Affiliate
of PMR); no Tax Encumbrances have been filed against PMR or
any PMR Tax Affiliate (for the years that it was a tax of PMR)
except for Encumbrances for current Taxes not yet due and
payable for which adequate reserves have been provided for in
the Latest PMR Balance Sheet or the Latest Audited PMR Balance
Sheet; no unresolved deficiencies or additions to Taxes have
been proposed, asserted, or assessed against PMR or any PMR
Tax Affiliate (for the years that it was a PMR Tax Affiliate
of PMR);
(ii) full and adequate provision (at assumed tax
rates) has been made (A) on the Latest PMR Balance Sheet and
the Latest Audited PMR Balance Sheet, and the Books and
Records of PMR for all deferred Taxes not yet due and payable
by PMR for all periods on or prior to the Closing Date, and
(B) on the Books and Records of PMR for all deferred Taxes
payable by PMR for all periods beginning on or after the
Latest Audited PMR Balance Sheet Date;
(iii) neither PMR nor any PMR Subsidiaries have
incurred any Liability for Taxes from and after the Latest
Audited PMR Balance Sheet Date other than Taxes incurred in
the ordinary course of business and consistent with past
practices;
(iv) PMR has not (A) made an election (or had an
election made on its behalf by another Person) to be treated
as a "consenting corporation" under Section 341(f) of the Code
or (B) been a "personal holding company" within the meaning of
Section 542 of the Code;
(v) PMR and each PMR Tax Affiliate has complied with
all applicable Laws relating to the collection or withholding
of Taxes (such as sales Taxes or withholding of Taxes from the
wages of employees) in all material respects;
38
(vi) neither PMR nor the PMR Subsidiaries have any
Liability in respect of any Tax sharing agreement with any
Person and all Tax sharing agreements to which either PMR or
the PMR Subsidiaries have been bound have been terminated;
(vii) neither PMR nor the PMR Subsidiaries have
incurred any Liability to make or possibly make any payments
either alone or in conjunction with any other payments that:
(A) shall be non-deductible under, or would
otherwise constitute a "parachute payment" within the
meaning of Section 280G of the Code (or any
corresponding provision of state, local or foreign
income Tax Law); or
(B) are or may be subject to the imposition
of an excise Tax under Section 4999 of the Code;
(viii) neither PMR nor the PMR Subsidiaries have
agreed to (nor has any other Person agreed to on its behalf)
and is not required to make any adjustments or changes either
on, before or after the Closing Date, to its accounting
methods pursuant to Section 481 of the Code, and the Internal
Revenue Service has not proposed any such adjustments or
changes in the accounting methods of such Persons;
(ix) no claim has been made within the last three
years by any taxing authority in a jurisdiction in which PMR
and the PMR Subsidiaries do not file Tax Returns that PMR or
the PMR Subsidiaries are or may be subject to taxation by that
jurisdiction;
(x) the consummation of the transactions hereunder
will not trigger the realization or recognition of
intercompany gain or income to PMR or the PMR Subsidiaries
under the federal consolidated return regulations with respect
to federal, state, or local taxes; and
(xi) PMR is not currently, nor has it been at any
time during the previous five years, a "U.S. real property
holding corporation."
3.14 EMPLOYEE BENEFIT PLANS.
(a) SCHEDULE 3.14(a) lists, with respect to PMR, any PMR
Subsidiary and any trade or business (whether or not incorporated)
which is treated as a single employer with PMR (a "PMR ERISA
AFFILIATE") within the meaning of Section 414(b), (c), (m) or (o) of
the Code, (i) all material employee benefit plans (as defined in
Section 3(3) of the ERISA, (ii) each loan to a non-officer employee in
excess of $10,000, each loan to any officer or director and any stock
option, stock purchase, phantom stock, stock right, supplemental
retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125)
or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements, (iii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans,
39
programs or arrangements, (iv) other fringe or employee benefit plans,
programs or arrangements that apply to senior management of PMR and
that do not generally apply to all employees, and (v) any current or
former employment or executive compensation or severance agreements,
written or otherwise, as to which unsatisfied obligations of PMR of
greater than $10,000 remain for the benefit of, or relating to, any
present or former employee, consultant or director of PMR (together,
the "PMR EMPLOYEE PLANS").
(b) PMR has made available to PSI a copy of each of the PMR
Employee Plans and related plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan
descriptions and other authorizing documents, and any material employee
communications relating thereto) and has, with respect to each PMR
Employee Plan which is subject to ERISA reporting requirements,
provided copies of the Form 5500 reports filed for the last three plan
years. Any PMR Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue
Service a favorable determination letter as to its qualified status
under the Code, including all amendments to the Code effected by the
Tax Reform Act of 1986 and subsequent legislation, or has applied (or
has time remaining in which to apply) to the Internal Revenue Service
for such a determination letter prior to the expiration of the
requisite period under applicable Treasury Regulations or Internal
Revenue Service pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable
determination or has been established under a standardized prototype
plan for which an Internal Revenue Service opinion letter has been
obtained by the plan sponsor and is valid as to the adopting employer.
PMR has also furnished PSI with the most recent Internal Revenue
Service determination or opinion letter issued with respect to each
such PMR Employee Plan, and nothing has occurred since the issuance of
each such letter which could reasonably be expected to cause the loss
of the tax-qualified status of any PMR Employee Plan subject to Code
Section 401(a). PMR has also furnished PSI with all registration
statements and prospectuses prepared in connection with each PMR
Employee Plan.
(c) Except as set forth on SCHEDULE 3.14(c), (i) None of the
PMR Employee Plans promises or provides retiree medical or other
retiree welfare benefits to any person other than as required under
COBRA; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with
respect to any PMR Employee Plan, which could reasonably be expected to
have, in the aggregate, a PMR Material Adverse Effect; (iii) each PMR
Employee Plan has been administered in accordance with its terms and in
compliance with the requirements prescribed by any and all statutes,
rules and regulations (including ERISA and the Code), except as would
not have, in the aggregate, a PMR Material Adverse Effect, and PMR and
each PMR Subsidiary or PMR ERISA Affiliate have performed all
obligations required to be performed by them under, are not in any
material respect in default under or violation of, and have no
knowledge of any material default or violation by any other party to,
any of the PMR Employee Plans; (iv) neither PMR nor any PMR Subsidiary
or PMR ERISA Affiliate is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect
to any of the PMR Employee Plans; (v) all material contributions
required to be made by PMR or any PMR Subsidiary or PMR ERISA Affiliate
to any PMR Employee Plan have been made on or before their due dates
and a reasonable amount has been accrued for contributions to each PMR
40
Employee Plan for the current plan years; (vi) with respect to each PMR
Employee Plan, no "reportable event" within the meaning of Section 4043
of ERISA (excluding any such event for which the thirty (30) day notice
requirement has been waived under the regulations to Section 4043 of
ERISA) nor any event described in Section 4062, 4063 or 4041 of ERISA
has occurred; (vii) no PMR Employee Plan is covered by, and neither PMR
nor any PMR Subsidiary or PMR ERISA Affiliate has incurred or expects
to incur any liability under Title IV of ERISA or Section 412 of the
Code; and (viii) each PMR Employee Plan can be amended, terminated or
otherwise discontinued after the Effective Time in accordance with its
terms, without liability to PMR (other than ordinary administrative
expenses typically incurred in a termination event). With respect to
each PMR Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare
benefit plan within the meaning of Section 3(1) of ERISA, PMR has
prepared in good faith and timely filed all requisite governmental
reports (which were true and correct as of the date filed) and has
properly and timely filed and distributed or posted all notices and
reports to employees required to be filed, distributed or posted with
respect to each such PMR Employee Plan. No suit, administrative
proceeding, action or other litigation has been brought, or to the
knowledge of PMR is threatened, against or with respect to any such PMR
Employee Plan, including any audit or inquiry by the Internal Revenue
Service or United States Department of Labor. Except as set forth on
SCHEDULE 3.14(c), no payment or benefit which will or may be made by
PMR to any employee of PMR or any PMR Subsidiary will be characterized
as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code.
(d) With respect to each PMR Employee Plan, PMR and each of
its United States PMR Subsidiaries have complied with (i) the
applicable health care continuation and notice provisions of COBRA and
the regulations (including proposed regulations) thereunder except to
the extent that such failure to comply would not, in the aggregate,
have a PMR Material Adverse Effect, (ii) the applicable requirements of
the Family Medical and Leave Act of 1993 and the regulations
thereunder, except to the extent that such failure to comply would not,
in the aggregate, have a PMR Material Adverse Effect and (iii) the
applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 and the regulations (including proposed
regulations) thereunder, except to the extent that such failure to
comply would not, in the aggregate, have a PMR Material Adverse Effect.
(e) Except as set forth on SCHEDULE 3.14(e), there has been no
amendment to, written interpretation or announcement (whether or not
written) by PMR, any PMR Subsidiary or other PMR ERISA Affiliate
relating to, or change in participation or coverage under, any PMR
Employee Plan which would materially increase the expense of
maintaining such PMR Employee Plan above the level of expense incurred
with respect to that PMR Employee Plan for the most recent fiscal year
included in PMR's financial statements.
(f) PMR does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code.
41
(g) Neither PMR nor any PMR Subsidiary or other PMR ERISA
Affiliate is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as defined in
Section 3(37) of ERISA.
(h) Each compensation and benefit plan required to be
maintained or contributed to by the law or applicable custom or rule of
the relevant jurisdiction outside of the United States (the "PMR
BENEFIT PLANS") is listed in SCHEDULE 3.14(h) of the Disclosure
Schedule. As regards each such PMR Benefit Plan, unless disclosed in
SCHEDULE 3.14(h) of the PMR Disclosure Schedule (i) each of the PMR
Benefit Plans is in material compliance with the provisions of the laws
of each jurisdiction in which each such PMR Benefit Plan is maintained,
to the extent those laws are applicable to the PMR Benefit Plans; (ii)
all material contributions to, and material payments from, the PMR
Benefit Plans which may have been required to be made in accordance
with the terms of any such PMR Benefit Plan, and, when applicable, the
law of the jurisdiction in which such PMR Benefit Plan is maintained,
have been timely made or shall be made by the Closing Date, and all
such contributions to the PMR Benefit Plans, and all payments under the
PMR Benefit Plans, for any period ending before the Closing Date that
are not yet, but will be, required to be made, are reflected as an
accrued liability on the PMR Balance Sheet, or disclosed to PSI within
fifteen (15) days following the date hereof in SCHEDULE 3.14(h) of the
PMR Disclosure Schedule; (iii) PMR and the PMR Subsidiaries and PMR
ERISA Affiliates have materially complied with all applicable reporting
and notice requirements, and all of the PMR Benefit Plans have obtained
from the governmental body having jurisdiction with respect to such
plans any required determinations, if any, that such PMR Benefit Plans
are in compliance with the laws of the relevant jurisdiction if such
determinations are required in order to give effect to the PMR Benefit
Plan; (iv) each of the PMR Benefit Plans has been administered in all
material respects at all times in accordance with its terms and
applicable law and regulations; (v) to the knowledge of PMR, there are
no pending investigations by any governmental body involving the PMR
Benefit Plans, and no pending claims (except for claims for benefits
payable in the normal operation of the PMR Benefit Plans), suits or
proceedings against any PMR Benefit Plan or asserting any rights or
claims to benefits under any PMR Benefit Plan; and (vi) the
consummation of the transactions contemplated by this Agreement will
not by itself create or otherwise result in any liability with respect
to any PMR Benefit Plan other than the triggering of payment to
participants.
3.15 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Except as set forth in
SCHEDULE 3.15, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including, without limitation, severance, unemployment compensation,
golden parachute, bonus or otherwise) becoming due to any director, employee or
consultant of PMR or any of the PMR Subsidiaries, (ii) materially increase any
benefits otherwise payable by PMR or (iii) result in the acceleration of the
time of payment or vesting of any such benefits except as required under Code
Section 411(d)(3).
3.16 EMPLOYEE MATTERS. PMR and each of the PMR Subsidiaries are in
compliance in all material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor
42
practice. PMR has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to employees; and is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing. PMR is not liable for any payment to any trust
or other fund or to any governmental or administrative authority, with respect
to unemployment compensation benefits, social security or other benefits or
obligations for employees (other than routine payments to be made in the normal
course of business and consistent with past practice). Except as set forth on
SCHEDULE 3.16, there are no pending claims against PMR or any of the PMR
Subsidiaries under any workers compensation plan or policy or for long term
disability. There are no controversies pending or, to the knowledge of PMR or
any of the PMR Subsidiaries, threatened, between PMR or any of the PMR
Subsidiaries and any of their respective employees, which controversies have or
could reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal, foreign or
domestic. Neither PMR nor any of the PMR Subsidiaries is a party to any
collective bargaining agreement or other labor union contract nor does PMR nor
any of the PMR Subsidiaries know of any activities or proceedings of any labor
union or to organize any such employees. To PMR's knowledge, no employees of PMR
or any of the PMR Subsidiaries are in violation of any term of any employment
contract, patent disclosure agreement, enforceable noncompetition agreement, or
any enforceable restrictive covenant to a former employer relating to the right
of any such employee to be employed by PMR or any of the PMR Subsidiaries
because of the nature of the business conducted or presently proposed to be
conducted by PMR or to the use of trade secrets or proprietary information of
others. No employees of PMR or any of the PMR Subsidiaries have given notice to
PMR or any of the PMR Subsidiaries, nor is PMR otherwise aware, that any such
employee intends to terminate his or her employment with PMR or any of the PMR
Subsidiaries. Except as set forth in SCHEDULE 3.16, the employment of each of
the employees of PMR and each of the PMR Subsidiaries is "at will" and PMR and
each of the PMR Subsidiaries does not have any obligation to provide any
particular form or period of notice prior to terminating the employment of any
of their employees.
3.17 CONFLICTS OF INTEREST; RELATED PARTY TRANSACTIONS.
(a) None of PMR, the PMR Subsidiaries or any officer,
employee, agent or other Person acting on behalf of PMR or the PMR
Subsidiaries has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to
customers in the ordinary course of business) to any physician,
psychologist, counselor, or other direct or indirect referral source,
or any family member or agent of the foregoing, or official or employee
of any Governmental Entity or other Person who was or is in a position
to help or hinder the business of PMR or the PMR Subsidiaries (or
assist in connection with any actual or proposed transaction) that (i)
might subject PMR or the PMR Subsidiaries to any material damage or
material penalty in any Proceeding before any agency, court or
tribunal, foreign or domestic, (ii) if not given in the past, could
have resulted in a PMR Material Adverse Effect, (iii) if not continued
in the future, could result in a PMR Material Adverse Effect, or (iv)
is in material violation of any Laws, including the federal illegal
remuneration statute, 42 U.S.C. Section 1320a-76.
(b) Except as set forth in SCHEDULE 3.17(b), and except for
compensation to regular employees of PMR or the PMR Subsidiaries, no
current or former Affiliate of PMR, or the PMR Subsidiaries or any
associate of such Person (as defined in Rule 12b-2
43
promulgated under the Exchange Act thereof, is now, or has been during
the last five fiscal years, (i) a party to any transaction or agreement
with PMR or any of the PMR Subsidiaries, or (ii) the direct or indirect
owner of an interest in any Person which is a present or potential
competitor, supplier or customer of PMR or the PMR Subsidiaries (other
than non-affiliated holdings in publicly-held companies), nor does any
such Person receive income from any source other than PMR or the PMR
Subsidiaries which should properly accrue to PMR or the PMR
Subsidiaries. Except as set forth in SCHEDULE 3.17(b), neither PMR nor
the PMR Subsidiaries are a guarantor or otherwise liable for any actual
or potential Liability or obligation, whether direct or indirect, of
any of its Affiliates. Except as set forth in SCHEDULE 3.17(b), there
are no intercompany loans or open account balances between PMR and the
PMR Subsidiaries.
3.18 INSURANCE. PMR and each of the PMR Subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of PMR and the PMR
Subsidiaries. There is no material claim pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and PMR and the PMR Subsidiaries are
otherwise in compliance with the terms of such policies and bonds. PMR has no
knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
3.19 COMPLIANCE WITH LAWS. Each of PMR and the PMR Subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
could not be reasonably expected to have a PMR Material Adverse Effect.
3.20 ACCOUNTS RECEIVABLE. Subject to any reserves set forth in the PMR
Financial Statements, the accounts receivable reflected as current assets on the
PMR Financial Statements represent bona fide claims against debtors for services
rendered, sales and other charges, and are not subject to discount except for
normal cash and immaterial trade discounts. The amount carried for doubtful
accounts and allowances disclosed in the PMR Financial Statements was calculated
in accordance with generally accepted accounting principles and in a manner
consistent with prior periods.
3.21 CUSTOMERS AND SUPPLIERS. No third party payor or customer which
individually accounted for more than 1% of PMR's gross revenues during the
12-month period preceding the date hereof, and no hospital, health care provider
or supplier of PMR, has canceled or otherwise terminated, or made any written
threat to PMR to cancel or otherwise terminate its relationship with PMR, or has
decreased materially its services or supplies to PMR in the case of any such
hospital, health care provider or supplier, or its usage of the services or
products of PMR in the case of such third party payor or customer, and to PMR's
knowledge, no such hospital, health care provider, supplier, third party payor
or customer intends to cancel or otherwise terminate its relationship with PMR
or to decrease materially its services or supplies to PMR or its usage of the
services or products of PMR, as the case may be. PMR has not knowingly breached,
so as to provide a benefit to PMR that was not intended by the parties, any
agreement with, or engaged in any fraudulent conduct with respect to, any third
party payor, customer, hospital, health care provider or supplier of PMR.
44
3.22 MATERIAL CONTRACTS. Except for the contracts and agreements
described in SCHEDULE 3.22 (collectively, the "PMR MATERIAL CONTRACTS"), neither
PMR nor any PMR Subsidiary is a party to or bound by any material contract,
including without limitation:
(a) any distributor, sales, advertising, agency or
manufacturer's representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such
contract more than $50,000 annually;
(c) any trust indenture, mortgage, promissory note, loan
agreement or other contract for the borrowing of money, any currency
exchange, commodities or other hedging arrangement or any leasing
transaction of the type required to be capitalized in accordance with
generally accepted accounting principles;
(d) any contract for capital expenditures in excess of $50,000
in the aggregate;
(e) any contract limiting the freedom of PMR to engage in any
line of business or to compete with any other Person as that term is
defined in the Exchange Act or any confidentiality, secrecy or
non-disclosure contract;
(f) any contract with any person with whom PMR does not deal
at arm's length;
(g) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect
to, the obligations, liabilities (whether accrued, absolute, contingent
or otherwise) or indebtedness of any other Person; provided, however,
that PMR Material Contracts comprised of Management Services Contracts
for which the program under PMR management no longer provides clinical
services to patients and contracts related to Infoscriber are not
required to be disclosed on SCHEDULE 3.22 (provided, however, that PMR
will disclose the Infoscriber License Agreement with Conundrum
Communication, Inc. on such schedule); or
(h) any contracts or commitments providing for payments based
in any manner on the revenues or profits of the business of PMR or the
PMR Subsidiaries.
3.23 NO BREACH OF MATERIAL CONTRACTS. All PMR Material Contracts are in
written form. PMR has performed all of the obligations required to be performed
by it and is entitled to all benefits under, and is not alleged to be in default
in respect of any PMR Material Contract. Each of the PMR Material Contracts is
in full force and effect, unamended, and there exists no default or event of
default or event, occurrence, condition or act, with respect to PMR or to PMR's
knowledge with respect to the other contracting party, which, with the giving of
notice, the lapse of time or the happening of any other event or conditions,
would become a default or event of default under any PMR Material Contract.
True, correct and complete copies of all PMR Material Contracts have been made
available to PMR.
3.24 THIRD PARTY CONSENTS. Except as set forth in SCHEDULE 3.24, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will
45
not require the consent, approval, order
or authorization of any third party under the PMR Material Contracts.
3.25 CERTAIN ADDITIONAL REGULATORY MATTERS.
(a) Except where such activities have not had and will not
have a PMR Material Adverse Effect, neither PMR, the PMR Subsidiaries,
nor any officer, director or managing employee of such Person (within
the meaning of 42 U.S.C. (Section 1320a-5(b)) has engaged in any
activities which constitute violations of, or are cause for imposition
of civil penalties upon PMR or the PMR Subsidiaries or mandatory or
permissive exclusion of such Persons from Medicare or Medicaid, under
Sections 1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the
United States Code, TRICARE, any other state or federal health care
program, or the regulations promulgated pursuant to such statutes or
regulations or related state or local statutes or which constitute
violations of or deficiencies under the standards of any private
accrediting organization from which PMR or any of the PMR Subsidiaries
is accredited or seeks accreditation, including the following
activities:
(i) making or causing to be made a false statement or
representation of a material fact in any application for any
benefit or payment;
(ii) making or causing to be made any false statement
or representation of a material fact for use in determining
rights to any benefit or payment;
(iii) presenting or causing to be presented a claim
for reimbursement under TRICARE, Medicare, Medicaid or any
other State Health Care Program or Federal Health Care Program
that is (A) for an item or service that the person presenting
or causing to be presented knows or should know was not
provided as claimed, or (B) for an item or service where the
person presenting knows or should know that the claim is false
or fraudulent;
(iv) offering, paying, soliciting or receiving any
remuneration (including any kickback, bribe or rebate),
directly or indirectly, overtly or covertly, in cash or in
kind (A) in return for referring, or to induce the referral
of, an individual to a person for the furnishing or arranging
for the furnishing of any item or service for which payment
may be made in whole or in part by TRICARE, Medicare or
Medicaid, or any other State Health Care Program or any
Federal Health Care Program, or (B) in return for, or to
induce, the purchase, lease, or order, or the arranging for or
recommending of the purchase, lease, or order, of any good,
facility, service, or item for which payment may be made in
whole or in part by TRICARE, Medicare or Medicaid or any other
State Health Care Program or any Federal Health Care Program;
(v) making or causing to be made or inducing or
seeking to induce the making of any false statement or
representation (or omitting to state a material fact required
to be stated therein or necessary to make the statements
contained therein not misleading) of a material fact with
respect to (A) the conditions or operations of a facility in
order that the facility may qualify for TRICARE, Medicare,
Medicaid or any other State Health Care Program certification
or any
46
Federal Health Care Program certification, or (B) information
required to be provided under Section 1124(A) of the SSA (42
U.S.C. Section 1320a-3); or
(vi) failing substantially to provide medically
necessary items or services, if the failure adversely affects
individuals covered by Medicare or Medicaid.
3.26 MEDICARE/MEDICAID PARTICIPATION. Neither PMR, the PMR
Subsidiaries, any officer, director, or managing employee (as defined in SSA
Section 1126(b) or any regulations promulgated thereunder): (x) have had a
civil monetary penalty assessed against him, her or it under Section 1128A of
the SSA or any regulations promulgated thereunder; (y) have been excluded
from participation under the Medicare program or a State Health Care Program
or Federal Health Care Program; or (z) have been convicted (as that term is
defined in 42 C.F.R. Section 1001.2) of any of the following categories of
offenses as described in SSA Sections 1128(a) and (b)(1), (2), (3) or any
regulations promulgated thereunder:
(i) criminal offenses relating to the delivery of an
item or service under Medicare or any State Health Care
Program or any Federal Health Care Program;
(ii) criminal offenses under federal or state law
relating to patient neglect or abuse in connection with the
delivery of a health care item or service;
(iii) criminal offenses under federal or state law
relating to fraud, theft, embezzlement, breach of fiduciary
responsibility, or other financial misconduct in connection
with the delivery of a health care item or service or with
respect to any act or omission in a program operated by or
financed in whole or in part by any federal, state or local
governmental agency;
(iv) federal or state laws relating to the
interference with or obstruction of any investigation into any
criminal offense; or
(v) criminal offenses under federal or state law
relating to the unlawful manufacture, distribution,
prescription or dispensing of a controlled substance.
3.27 MINUTE BOOKS. The minute books of PMR and the PMR Subsidiaries
made available to PMR contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of PMR and the respective PMR Subsidiaries through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
3.28 COMPLETE COPIES OF MATERIALS. PMR has delivered or made available
true and complete copies of each document which has been requested by PMR or its
counsel in connection with their legal and accounting review of PMR and the PMR
Subsidiaries.
3.29 BROKERS' AND FINDERS' FEES. Except as set forth in SCHEDULE 3.29,
PMR has not incurred, nor will it incur, directly or indirectly, any liability
for brokerage or finders' fees or agents' commissions or investment bankers'
fees or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
47
3.30 VOTE REQUIRED. The affirmative vote of the holders of at least a
majority of the PMR Common Stock outstanding on the record date set for the PMR
Meeting is the only vote of the holders of any of PMR's Common Stock necessary
to approve (i) an amendment to PMR's Certificate of Incorporation to increase in
the number of shares of PMR Common Stock authorized to be issued by PMR, (ii) an
amendment to PMR's Certificate of Incorporation to effectuate the Reverse Stock
Split, and (iii) the issuance of PMR Common Stock pursuant to the Merger, and no
other vote of the holders of PMR Common Stock is necessary to approve either
this Agreement or the transactions contemplated hereby.
3.31 PMR BOARD APPROVAL; MERGER SUB APPROVAL. The Board of Directors of
PMR has (i) approved this Agreement and the Merger, (ii) determined that the
Merger is in the best interests of the stockholders of PMR and (iii) recommended
that the stockholders of PMR approve this Agreement and the Merger. The Board of
Directors of Merger Sub has determined that the Merger is in the best interests
of Merger Sub and its sole stockholder and has approved and adopted this
Agreement, the Merger and the other transactions contemplated by this Agreement,
and PMR, as the sole stockholder of Merger Sub, has approved and adopted this
Agreement, the Merger and the other transactions contemplated by this Agreement.
3.32 STATE TAKEOVER STATUTES. The Boards of Directors of PMR and Merger
Sub have approved this Agreement, the agreements entered into or proposed to be
entered into as contemplated by this Agreement and the transactions contemplated
hereby and thereby (including the Merger), and such approvals are sufficient to
render inapplicable to such agreements and transactions the provisions of any
"fair price," "moratorium," "control share," "interested shareholders,"
"affiliated transaction" or other anti-takeover statute or regulation and any
applicable anti-takeover or other restrictive provisions of the Certificate of
Incorporation, Bylaws or other governing documents of each of PMR and Merger
Sub.
3.33 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by PMR herein or in any Schedule hereto, including the PMR
Disclosure Schedule, or certificate furnished by PMR pursuant to this Agreement,
when all such documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF PSI.
(a) During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or
the Effective Time, PSI agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by PMR,
which consent will not unreasonably be withheld or delayed):
(i) to carry on its and the PSI Subsidiaries'
business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
48
(ii) to pay and to cause the PSI Subsidiaries to pay
debts and Taxes when due subject to good faith disputes over
such debts or Taxes;
(iii) to pay or perform other obligations when due;
(iv) to use all reasonable efforts, in good faith,
consistent with past practice and policies to preserve intact
its and the PSI Subsidiaries' present business organizations,
keep available the services of its and the PSI Subsidiaries'
present officers and key employees and preserve its and the
PSI Subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business
dealings with it or the PSI Subsidiaries, to the end that its
and the PSI Subsidiaries' goodwill and ongoing businesses
shall be unimpaired at the Effective Time; and
(v) to give all notices and other information
required to be given to the employees of PSI and any
applicable government authority under the WARN Act, the
National Labor Relations Act, the Code, the Consolidated
Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this
Agreement.
(b) PSI agrees to promptly notify PMR of any event or
occurrence not in the ordinary course of its or the PSI Subsidiaries'
business, and of any event which could reasonably be likely to have a
PSI Material Adverse Effect.
4.2 RESTRICTION ON CONDUCT OF BUSINESS OF PSI. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, except as set forth in the PSI
Disclosure Schedule and as expressly contemplated by this Agreement, PSI shall
not do, cause or permit any of the following, or allow, cause or permit any of
the PSI Subsidiaries to do, cause or permit any of the following, without the
prior written consent of PMR, which consent will not be unreasonably withheld or
delayed:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with written
agreements providing for the repurchase of shares in connection with
any termination of service to it or the PSI Subsidiaries;
(c) STOCK OPTION PLANS, ETC. Accelerate, amend or change the
period of exercisability or vesting of options or other rights granted
under its stock plans or authorize cash payments in exchange for any
options or for other rights granted under any of such plans;
49
(d) MATERIAL CONTRACTS. Enter into any material contract or
commitment, or violate, amend or otherwise modify or waive any of the
terms of any PSI Material Contract; provided specifically that PSI
shall not enter into any agreement or commitment for the purchase of
products or supplies or the provision of services to PSI in an amount
in excess of $50,000 in any one case or $100,000 in the aggregate,
other than in connection with the acquisitions permitted by Section
4.2(e) and the transactions described in SCHEDULE 4.2(j);
(e) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to its and the PSI
Subsidiaries' business taken as a whole, other than acquisitions or
purchases having a purchase price equal or less than five (5) times the
acquiree's trailing twelve (12) months' earnings before interest,
taxes, depreciation and amortization (EBITDA), as adjusted for
nonrecurring items. PSI shall notify PMR of any such permitted
transactions within two (2) business days of any signed letters of
intent.
(f) ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or
propose the purchase of, any shares of its capital stock or securities
convertible into, or subscriptions, rights, warrants or options to
acquire, or other agreements or commitments of any character obligating
it to issue any such shares or other convertible securities, other than
the issuance of shares of its Common Stock pursuant to the exercise of
stock options, warrants or other rights therefor outstanding as of the
date of this Agreement;
(g) INTELLECTUAL PROPERTY. Transfer to any person or entity
any rights to its Intellectual Property other than in the ordinary
course of business consistent with past practice;
(h) EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of its
products or technology;
(i) DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material,
individually or in the aggregate, to its and its Subsidiaries'
businesses, taken as a whole except for sales of products in the
ordinary course;
(j) INDEBTEDNESS. Incur any indebtedness for borrowed money in
excess of $50,000 or guarantee any such indebtedness or issue or sell
any debt securities or guarantee any debt securities of others other
than indebtedness described in SCHEDULE 4.2(j) provided that the
indebtedness is incurred on substantially the same terms;
(k) LEASES. Enter into any operating lease in excess of
$50,000;
(l) PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $50,000 in any one case or $100,000 in the
aggregate, any claim, liability or obligation
50
(absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business other than the
payment, discharge or satisfaction of liabilities reflected or reserved
against in the PSI Financial Statements;
(m) CAPITAL EXPENDITURES. Make any capital expenditures,
capital additions or capital improvements except in the ordinary course
of business and consistent with past practice;
(n) INSURANCE. Materially reduce the amount of any insurance
coverage provided by existing insurance policies;
(o) TERMINATION OR WAIVER. Terminate or waive any right of
substantial value;
(p) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt or
amend any employee benefit or stock purchase or option plan, except as
required under ERISA or except as necessary to maintain the qualified
status of such plan under the Code; hire any new director level or
officer level employee; pay any special bonus or special remuneration
to any employee or director, except payments made pursuant to written
agreements outstanding on the date hereof; or increase the salaries or
wage rates of its employees (other than normal increases based on
continued service consistent with historical practices);
(q) SEVERANCE ARRANGEMENTS. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee except
payments made pursuant to written agreements outstanding on the date
hereof;
(r) LAWSUITS. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it
consults with PMR prior to the filing of such a suit, or (iii) for a
breach of this Agreement;
(s) TAXES. Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, file
any material Tax Return or any amendment to a material Tax Return,
enter into any closing agreement, settle any claim or assessment in
respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of
Taxes;
(t) REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business; or
(u) OTHER. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.4(a) through 4.4(s) above, or
any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
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4.3 CONDUCT OF BUSINESS OF PMR.
(a) During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement or
the Effective Time, PMR agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by PSI,
which consent will not unreasonably be withheld or delayed):
(i) to carry on its and the PMR Subsidiaries'
business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(ii) to pay and to cause the PMR Subsidiaries to pay
debts and Taxes when due subject (A) to good faith disputes
over such debts or Taxes and (B) to PSI's consent to the
filing of material Tax Returns (which consent shall not be
unreasonably withheld or delayed);
(iii) to pay or perform other obligations when due;
(iv) to use all reasonable efforts, in good faith,
consistent with past practice and policies to preserve intact
its and the PMR Subsidiaries' present business organizations,
keep available the services of its and the PMR Subsidiaries'
present officers and key employees and preserve its and the
PMR Subsidiaries' relationships with customers, suppliers,
distributors, licensors, licensees, and others having business
dealings with it or the PMR Subsidiaries, to the end that its
and the PMR Subsidiaries' goodwill and ongoing businesses
shall be unimpaired at the Effective Time;
(v) to give all notices and other information
required to be given to the employees of PMR and any
applicable government authority under the WARN Act, the
National Labor Relations Act, the Code, the Consolidated
Omnibus Budget Reconciliation Act, and other applicable law in
connection with the transactions provided for in this
Agreement; and
(vi) to continue to pay and to cause the PMR
Subsidiaries to pay current liabilities in the ordinary course
of business and consistent with past practices such that the
consolidated current liabilities of PMR and the PMR
Subsidiaries at the Effective Time shall not exceed the total
Current Liabilities reflected on the Latest PMR Balance Sheet
by more than one percent (1%).
(b) PMR agrees to promptly notify PSI of any event or
occurrence not in the ordinary course of its or the PMR Subsidiaries'
business, and of any event which could have a PMR Material Adverse
Effect.
4.4 RESTRICTION ON CONDUCT OF BUSINESS OF PMR. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, except as set forth in the PMR
Disclosure Schedule and as expressly contemplated by this Agreement, PMR shall
not do, cause or permit any of the following, or allow, cause or permit any of
the PMR Subsidiaries to do, cause or permit any of the following,
52
without the prior written consent of PSI, which consent will not unreasonably be
withheld or delayed:
(a) CHARTER DOCUMENTS. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws, except as necessary to (i)
increase the authorized number of shares of PMR Common Stock to
facilitate the issuance of PMR Common Stock pursuant to the Merger, or
(ii) effectuate the Reverse Stock Split;
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash, stock or
property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock, or repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock except from
former employees, directors and consultants in accordance with written
agreements providing for the repurchase of shares in connection with
any termination of service to it or the PMR Subsidiaries; PROVIDED,
however, that notwithstanding the foregoing, (i) PMR shall be entitled
to declare and pay cash dividends in respect of PMR Common Stock, on
one or more occasions, if with respect to any such dividend, after
giving pro forma effect to the declaration and payment of any such
dividend the aggregate amount of Cash Equivalents (as defined in
Section 8.3) of PMR at Closing would not be less than $5.05 million,
and (ii) PMR shall be entitled to declare and make a distribution in
respect of PMR Common Stock of contingent value rights having the term
specified in the form of Contingent Value Rights Agreement attached to
this Agreement as EXHIBIT D (the "CONTINGENT VALUE RIGHTS");
(c) STOCK OPTION PLANS, ETC. Except as set forth in
SCHEDULE 4.4(c), accelerate, amend or change the period of
exercisability or vesting of options or other rights granted under its
stock plans or authorize cash payments in exchange for any options or
other rights granted under any of such plans;
(d) MATERIAL CONTRACTS. Except as set forth on SCHEDULE
4.4(d), enter into any material contract or commitment, or violate,
amend or otherwise modify or waive any of the terms of any of its
material contracts; provided however, that PMR shall not enter into any
agreement or commitment for the purchase of products or supplies or the
provision of services in an amount in excess of $50,000 in any one case
or $100,000 in the aggregate;
(e) ISSUANCE OF SECURITIES. Except as set forth in SCHEDULE
4.4(e), issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares
of its capital stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such shares or
other convertible securities, other than the issuance of shares of its
Common Stock pursuant to the exercise of stock options, warrants or
other rights therefor outstanding as of the date of this Agreement;
(f) INTELLECTUAL PROPERTY. Except as set forth in
SCHEDULE 4.4(f), transfer to any person or entity any rights to its
Intellectual Property other than in the ordinary course of business
consistent with past practice;
53
(g) EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of its
products or technology;
(h) DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material,
individually or in the aggregate, to PMR's and the PMR Subsidiaries'
businesses, taken as a whole except for sales of assets relating to
PMR's management and administration functions at PMR's corporate
headquarters;
(i) INDEBTEDNESS. Incur any indebtedness for borrowed money in
excess of $20,000 or guarantee any such indebtedness or issue or sell
any debt securities or guarantee any debt securities of others;
(j) LEASES. Enter into any operating lease in excess of
$20,000;
(k) CAPITAL EXPENDITURES. Make any capital expenditures,
capital additions or capital improvements having a cost in excess of
$20,000;
(l) INSURANCE. Materially reduce the amount of any insurance
coverage provided by existing insurance policies;
(m) TERMINATION OR WAIVER. Except in connection with the
settlement of the Legacy Receivables (as defined in the Contingent
Value Rights Agreement), terminate or waive any right of substantial
value;
(n) EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Except
as set forth in SCHEDULE 4.4(n), adopt or amend any employee benefit or
stock purchase or option plan, except as required under ERISA or except
as necessary to maintain the qualified status of such plan under the
Code, or hire any new director level or officer level employee, or
increase the salaries or wage rates of its employees, except for any
salary or wage increase made pursuant to PMR's customary practice of
annual review of salary and wage levels provided that any such salary
or wage increases to not increase the aggregate employee compensation
expense, on an annualized basis, by more than 5% from the aggregate
employee compensation expense immediately prior to any such increase;
(o) SEVERANCE ARRANGEMENTS. Grant any severance or termination
pay (i) to any director or officer or (ii) to any other employee
except, in both instances, payments made before the Effective Time;
(p) LAWSUITS. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where it in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it
consults with PSI prior to the filing of such a suit, or (iii) for a
breach of this Agreement;
(q) ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are
material,
54
individually or in the aggregate, to its and the PMR Subsidiaries'
business, taken as a whole;
(r) TAXES. Make or change any material election in respect of
Taxes, adopt or change any accounting method in respect of Taxes, file
any material Tax Return or any amendment to a material Tax Return,
enter into any closing agreement, settle any claim or assessment in
respect of Taxes (except for the settlement of any claim or assessment
in an amount not to exceed the amount reserved for such claim or
assessment in the Latest PMR Balance Sheet), or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(s) REVALUATION. Revalue any of its assets except for any
revaluation relating to writing off notes or accounts receivable
reserved for in the Latest PMR Balance Sheet; or
(t) OTHER. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.4(a) through 4.4(s) above, or
any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent it from
performing or cause it not to perform its covenants hereunder.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 RULE 145 AFFILIATES. SCHEDULE 5.1 sets forth those persons who may
be deemed affiliates ("AFFILIATES") of PSI within the meaning of Rule 145
promulgated under the Securities Act ("RULE 145"). PSI shall provide PMR such
information and documents as PMR shall reasonably request for purposes of
reviewing such list. PSI shall use its best efforts to deliver or cause to be
delivered to PMR on or prior to the Effective Time a duly executed affiliates
letter in the form of EXHIBIT C attached hereto for each such "affiliate" of
PSI. PMR shall be entitled to place appropriate legends on the certificates
evidencing any PMR Common Stock to be received by such affiliates pursuant to
the terms of this Agreement and to issue appropriate stock transfer instructions
to the transfer agent for PMR Common Stock.
5.2 REGISTRATION STATEMENT; PROXY STATEMENT.
(a) As promptly as practicable after the execution of this
Agreement, (i) PMR and PSI shall prepare, and PMR shall file with the
SEC, a joint proxy statement relating to the meeting of PSI's
stockholders and PMR's stockholders to be held in connection with the
Merger (together with any amendments thereof or supplements thereto,
the "PROXY STATEMENT") and (ii) PMR shall prepare and file with the SEC
a registration statement on Form S-4 (together with all amendments
thereto, the "REGISTRATION STATEMENT") in which the Proxy Statement
shall be included as a prospectus in connection with the registration
under the Securities Act of the shares of PMR Common Stock to be issued
to the stockholders of PSI pursuant to the Merger. Each of PMR and PSI
will use all reasonable efforts to cause the Registration Statement to
become effective as promptly as practicable, and, prior to the
effective date of the Registration Statement, PMR shall take all or any
action required under any applicable federal or state securities laws
in connection with the issuance of shares of PMR Common Stock in the
Merger. Each of PMR and PSI shall furnish all information concerning it
and the holders of its
55
capital stock as the other may reasonably request in connection with
such actions and the preparation of the Registration Statement and
Proxy Statement. As promptly as practicable after the Registration
Statement shall have become effective, each of PMR and PSI shall mail
the Proxy Statement to its respective stockholders and, if necessary,
after the Proxy Statement shall have been so mailed, promptly circulate
amended, supplemental or supplemented proxy materials and, if required
in connection therewith, resolicit proxies. The Proxy Statement shall
include the recommendation of the Board of Directors of each of PMR and
PSI in favor of the Merger, except as otherwise provided in Section
5.5(b) or Section 5.7(b).
No amendment or supplement to the Proxy Statement or the
Registration Statement will be made by PMR or PSI without the approval
of the other party (which approval shall not be unreasonably withheld
or delayed). PMR and PSI each will advise the other, promptly after it
receives notice thereof, of the time when the Registration Statement
has become effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the
PMR 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 Registration Statement or comments thereon
and responses thereto or requests by the SEC for additional
information.
(b) The information supplied by PMR for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the
time the Registration Statement is declared effective, (ii) the time
the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of PMR and PSI, (iii) the time of each
of the Stockholders' Meetings (as defined in Section 5.3), and (iv) the
Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. If at any time
prior to the Effective Time any event or circumstance relating to PMR
or any of its Subsidiaries, or their respective officers or directors,
should be discovered by PMR which should be set forth in an amendment
or a supplement to the Registration Statement or Proxy Statement, PMR
shall promptly inform PSI and an appropriate amendment or supplement
describing such information shall be promptly filed with the SEC and,
to the extent required by law or regulation, disseminated to the
stockholders of PMR and PSI. All documents that PMR is responsible for
filing with the SEC in connection with the transactions contemplated
herein will comply as to form and substance in all material respects
with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(c) The information supplied by PSI for inclusion in the
Registration Statement and the Proxy Statement shall not, at (i) the
time the Registration Statement is declared effective, (ii) the time
the Proxy Statement (or any amendment thereof or supplement thereto) is
first mailed to the stockholders of PSI and PMR, (iii) the time of each
of the Stockholders' Meetings, and (iv) the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. If at any time prior to the
Effective Time any event or circumstance relating to PSI or any PSI
Subsidiary, or
56
their respective officers or directors, should be discovered by PSI
which should be set forth in an amendment or a supplement to the
Registration Statement or Proxy Statement, PSI shall promptly inform
PMR and an appropriate amendment or supplement describing such
information shall be promptly filed with the SEC and, to the extent
required by law or regulation, disseminated to the stockholders of PMR
and PSI. All documents that PSI is responsible for providing to PMR for
filing with the SEC in connection with the transactions contemplated
herein will comply as to form and substance in all material respects
with the applicable requirements of the Securities Act and the rules
and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
5.3 STOCKHOLDERS' MEETINGS. PSI shall collect proxies and/or call and
hold a meeting of its stockholders (together, the "PSI MEETING") and PMR shall
call and hold a meeting of its stockholders (the "PMR Meeting" and, together
with PSI Meeting, the "STOCKHOLDERS' MEETINGS") as promptly as practicable for
the purpose of obtaining the PSI Stockholder Approval (as defined in Section
6.1), the PMR Stockholder Approval (as defined in Section 6.1) and approval of
an amendment to PMR's Certificate of Incorporation to provide for a "reverse
stock split" pursuant to which each outstanding share of PMR Common Stock would
be converted into one-half of a share of PMR Common Stock (the "REVERSE STOCK
SPLIT"), and PMR and PSI shall use their best efforts to hold the Stockholders'
Meetings on the same day and as soon as practicable after the date on which the
Registration Statement becomes effective.
5.4 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) Except as required pursuant to any confidentiality
agreement or similar agreement or arrangement to which PSI or PMR or
any of their respective Subsidiaries is a party or pursuant to
applicable Law or the regulations or requirements of any stock exchange
or other regulatory organization with whose rules the parties are
required to comply, from the date of this Agreement to the Effective
Time, PSI and PMR shall (and shall cause their respective Subsidiaries
to): (i) provide to the other party (and the other party's officers,
directors, employees, accountants, consultants, legal counsel, agents
and other representatives, collectively, "REPRESENTATIVES") access, at
reasonable times upon prior notice, to its and its Subsidiaries'
officers, employees, agents, properties, offices, facilities, books and
records and (ii) furnish promptly such information concerning its and
its Subsidiaries' business, properties, contracts, assets, liabilities
and personnel as the other party or its Representatives may reasonably
request. No investigation conducted pursuant to this Section 5.4 shall
affect or be deemed to modify any representation or warranty made in
this Agreement.
(b) The parties shall comply with, and shall cause their
respective Representatives to comply with, all of their respective
obligations under the Confidentiality Agreement dated as of July 26,
2001, between PSI and PMR (the "CONFIDENTIALITY AGREEMENT") with
respect to the information disclosed pursuant to this Section 5.4.
5.5 NO SOLICITATION BY PSI.
(a) PSI shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its
57
Subsidiaries to, directly or indirectly through another person, (i)
solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes any PSI
Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any PSI Takeover Proposal;
PROVIDED, however, that if the Board of Directors of PSI determines in
good faith, after consultation with outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to
PSI's stockholders under applicable law, PSI may, in response to a PSI
Superior Proposal (as defined in Section 5.5(b)) which was not
solicited by it or which did not otherwise result from a breach of this
Section 5.5(a), and subject to providing prior written notice of its
decision to take such action to PMR (the "PSI NOTICE") and compliance
with Section 5.5(c), for a period of five business days following
delivery of the PSI Notice (x) furnish information with respect to PSI
and its Subsidiaries to any person making a PSI Superior Proposal
pursuant to a customary confidentiality agreement (as determined by PSI
after consultation with its outside counsel) and (y) participate in
discussions or negotiations regarding such PSI Superior Proposal. For
purposes of this Agreement, a "PSI TAKEOVER PROPOSAL" means any
inquiry, proposal or offer from any person relating to any direct or
indirect acquisition or purchase of a business that constitutes 15% or
more of the net revenues, net income or the assets of PSI and its
Subsidiaries, taken as a whole, or 15% or more of any class of equity
securities of PSI or any of its Subsidiaries, any tender offer or
exchange offer that if consummated would result in any person
beneficially owning 15% or more of any class of equity securities of
PSI or any of its Subsidiaries, or any merger, consolidation, business
combination, recapitalization, liquidation, dissolution or similar
transaction involving PSI or any of its Subsidiaries, other than the
transactions contemplated by this Agreement.
(b) Except as expressly permitted by this Section 5.5, neither
the Board of Directors of PSI nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to PMR, the approval or recommendation by such Board of
Directors or such committee of the Merger or this Agreement, (ii)
approve or recommend, or propose publicly to approve or recommend, any
PSI Takeover Proposal, or (iii) cause PSI to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "PSI ACQUISITION AGREEMENT") related to any PSI
Takeover Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of PSI determines in good faith that there is a
substantial probability that the adoption of this Agreement by holders
of PSI Capital Stock will not be obtained due to the existence of a PSI
Superior Proposal, the Board of Directors of PSI may (subject to this
and the following sentences) terminate this Agreement (and concurrently
with or after such termination, if it so chooses, cause PSI to enter
into any PSI Acquisition Agreement with respect to any PSI Superior
Proposal), but only at a time that is after the fifth business day
following PMR' receipt of written notice advising PMR that the Board of
Directors of PSI is prepared to accept a PSI Superior Proposal,
specifying the material terms and conditions of such PSI Superior
Proposal and identifying the person making such PSI Superior Proposal.
For purposes of this Agreement, a "PSI SUPERIOR PROPOSAL" means any
proposal made by a third party (i) to acquire, directly or indirectly,
including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction, for consideration consisting of
cash and/or securities, more than 50%
58
of the combined voting power of the shares of PSI Capital Stock then
outstanding or all or substantially all the assets of PSI, (ii) that is
otherwise on terms which the Board of Directors of PSI determines in
its good faith judgment (based on the advice of a financial advisor of
nationally recognized reputation) to be more favorable to PSI's
stockholders than the Merger, (iii) for which financing, to the extent
required, is then committed or which, in the good faith judgment of the
Board of Directors of PSI, is reasonably capable of being obtained by
such third party and (iv) for which, in the good faith judgment of the
Board of Directors of PSI, no regulatory approvals are required,
including antitrust approvals, that could not reasonably be expected to
be obtained.
(c) In addition to the obligations of PSI set forth in
paragraphs (a) and (b) of this Section 5.5, PSI shall immediately
advise PMR orally and in writing of any request for nonpublic
information or of any PSI Takeover Proposal, including the material
terms and conditions of such request or PSI Takeover Proposal and the
identity of the person making such request or PSI Takeover Proposal.
PSI will keep PMR reasonably informed on as prompt a basis as is
practicable of the status and details of any such PSI Takeover Proposal
or request and any related discussions or negotiations, including by
forwarding copies of any material written communications relating
thereto. PSI agrees not to release any third party from, or waive any
provisions of, any confidentiality or standstill agreement to which it
(or its Subsidiaries) is a party. PSI shall use commercially reasonable
efforts to ensure that the officers, directors and employees of PSI and
its Subsidiaries and any investment banking firm or other advisor or
representative retained by such party are aware of and instructed to
comply with the restrictions described in this Section 5.5.
(d) Nothing contained in this Section 5.5 shall prohibit PSI
from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to PSI's stockholders if, in the good faith judgment of the
Board of Directors of PSI, after consultation with outside counsel,
failure so to disclose would be inconsistent with its obligations under
applicable law.
(e) PSI will immediately cease and cause its Subsidiaries, and
its and their officers, directors, agents, representatives and
advisors, to cease any and all existing activities, discussions or
negotiations with any parties conducted prior to the date of this
Agreement with respect to any PSI Takeover Proposal, provided, however,
that nothing in this Section 5.5(e) shall limit or restrict PSI's
ability to take any actions otherwise permitted by subparagraphs (a)
through (d) of Section 5.5.
5.6 NO SOLICITATION BY PMR.
(a) PMR shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any of its directors, officers or
employees or any investment banker, financial advisor, attorney,
accountant or other representative retained by it or any of its
Subsidiaries to, directly or indirectly through another person, (i)
solicit, initiate or encourage (including by way of furnishing
information), or take any other action designed to facilitate, any
inquiries or the making of any proposal which constitutes any PMR
Takeover Proposal (as defined below) or (ii) participate in any
discussions or negotiations regarding any PMR Takeover Proposal;
PROVIDED, however, that if the Board
59
of Directors of PMR determines in good faith, after consultation with
outside counsel, that it is necessary to do so in order to comply with
its fiduciary duties to PMR' stockholders under applicable law, PMR
may, in response to a PMR Superior Proposal (as defined in Section
5.6(b)) which was not solicited by it or which did not otherwise result
from a breach of this Section 5.6(a), and subject to providing prior
written notice of its decision to take such action to PSI (the "PMR
NOTICE") and compliance with Section 5.6(c), for a period of five
business days following delivery of the PMR Notice (x) furnish
information with respect to PMR and its Subsidiaries to any person
making a PMR Superior Proposal pursuant to a customary confidentiality
agreement (as determined by PMR after consultation with its outside
counsel) and (y) participate in discussions or negotiations regarding
such PMR Superior Proposal. For purposes of this Agreement, "PMR
TAKEOVER PROPOSAL" means any inquiry, proposal or offer from any person
relating to any direct or indirect acquisition or purchase of a
business that constitutes 15% or more of the net revenues, net income
or the assets of PMR and its Subsidiaries, taken as a whole, or 15% or
more of any class of equity securities of PMR or any of its
Subsidiaries, any tender offer or exchange offer that if consummated
would result in any person beneficially owning 15% or more of any class
of equity securities of PMR or any of its Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving PMR or any of its
Subsidiaries, other than the transactions contemplated by this
Agreement.
(b) Except as expressly permitted by this Section 5.6, neither
the Board of Directors of PMR nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a
manner adverse to PSI, the approval or recommendation by such Board of
Directors or such committee of the Merger, this Agreement or the
issuance of PMR Common Stock in connection with the Merger, (ii)
approve or recommend, or propose publicly to approve or recommend, any
PMR Takeover Proposal, or (iii) cause PMR to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar
agreement (each, a "PMR ACQUISITION AGREEMENT") related to any PMR
Takeover Proposal. Notwithstanding the foregoing, in the event that the
Board of Directors of PMR determines in good faith that there is a
substantial probability that the PMR Stockholder Approval will not be
obtained due to the existence of a PMR Superior Proposal, the Board of
Directors of PMR may (subject to this and the following sentences)
terminate this Agreement (and concurrently with or after such
termination, if it so chooses, cause PMR to enter into any PMR
Acquisition Agreement with respect to any PMR Superior Proposal), but
only at a time that is after the fifth business day following PSI's
receipt of written notice advising PSI that the Board of Directors of
PMR is prepared to accept a PMR Superior Proposal, specifying the
material terms and conditions of such PMR Superior Proposal and
identifying the person making such PMR Superior Proposal. For purposes
of this Agreement, a "PMR SUPERIOR PROPOSAL" means any proposal made by
a third party (i) to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation,
business combination, recapitalization, liquidation, dissolution or
similar transaction, for consideration consisting of cash and/or
securities, more than 50% of the combined voting power of the shares of
PMR Common Stock then outstanding or all or substantially all of the
assets of PMR, (ii) that is otherwise on terms which the Board of
Directors of PMR determines in its good faith judgment (based on the
advice of a financial advisor of nationally recognized reputation) to
be more favorable to PMR' stockholders than the
60
Merger, (iii) for which financing, to the extent required, is then
committed or which, in the good faith judgment of the Board of
Directors of PMR, is reasonably capable of being obtained by such third
party and (iv) for which, in the good faith judgment of the Board of
Directors of PMR, no regulatory approvals are required, including
antitrust approvals, that could not reasonably be expected to be
obtained.
(c) In addition to the obligations of PMR set forth in
paragraphs (a) and (b) of this Section 5.6, PMR shall immediately
advise PSI orally and in writing of any request for nonpublic
information or of any PMR Takeover Proposal, the material terms and
conditions of such request or PMR Takeover Proposal and the identity of
the person making such request or PMR Takeover Proposal, forwarding a
copy of any written communications relating thereto. PMR will keep PSI
reasonably informed on as prompt a basis as is practicable of the
status and details of any such PMR Takeover Proposal or request and any
related discussions or negotiations, including by forwarding copies of
any material written communications relating thereto. PMR agrees not to
release any third party from, or waive any provisions of, any
confidentiality or standstill agreement to which it (or its
Subsidiaries) is a party. PMR shall use commercially reasonable efforts
to ensure that the officers, directors and employees of PMR and its
Subsidiaries and any investment banking firm or other advisor or
representative retained by such party are aware of and instructed to
comply with the restrictions described in this Section 5.6.
(d) Nothing contained in this Section 5.6 shall prohibit PMR
from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to PMR' stockholders if, in the good faith judgment of the
Board of Directors of PMR, after consultation with outside counsel,
failure so to disclose would be inconsistent with its obligations under
applicable law.
(e) PMR will immediately cease and cause its Subsidiaries, and
its and their officers, directors, agents, representatives and
advisors, to cease any and all existing activities, discussions or
negotiations with any parties conducted prior to the date of this
Agreement with respect to any PMR Takeover Proposal, provided, however,
that nothing in this Section 5.6(e) shall limit or restrict PMR's
ability to take any action otherwise permitted by subparagraphs (a)
through (d) of Section 5.6.
5.7 BEST EFFORTS.
(a) APPROPRIATE ACTIONS.
(i) Subject to the provisions of Sections 5.5 and 5.6
regarding superior proposals, PSI and PMR shall use their
reasonable best efforts to (A) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or
otherwise to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable, (B)
obtain from any Governmental Entities any consents, licenses,
permits, waivers, approvals, authorizations or orders required
to be obtained or made by PMR or PSI or any of their
Subsidiaries, or to avoid any action or proceeding by any
Governmental Entity (including, without limitation, those in
connection with the HSR Act), in connection with the
authorization, execution
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and delivery of this Agreement and the consummation of the
transactions contemplated herein, including, without
limitation, the Merger, and (iii) make all necessary filings,
and thereafter make any other required submissions, with
respect to this Agreement and the Merger required under (x)
the Securities Act and the Exchange Act, and any other
applicable federal or state securities Laws, (y) the HSR Act
and (z) any other applicable Law; PROVIDED that PMR and PSI
shall cooperate with each other in connection with the making
of all such filings, including providing copies of all such
documents to the non-filing party and its advisors prior to
filing and, if requested, to accept all reasonable additions,
deletions or changes suggested in connection therewith. PSI
and PMR shall furnish to each other all information required
for any application or other filing to be made pursuant to the
rules and regulations of any applicable Law (including all
information required to be included in the Proxy Statement and
the Registration Statement) in connection with the
transactions contemplated by this Agreement. PSI and PMR shall
not take any action, or refrain from taking any action, the
effect of which would be to delay or impede the ability of PSI
and PMR to consummate the transactions contemplated by this
Agreement.
(ii) Each of the parties hereto agrees, and shall
cause each of its respective Subsidiaries to cooperate and to
use their respective reasonable best efforts to obtain any
government clearances required for completion of the
transactions (including compliance with the HSR Act), to
respond to any government requests for information, and to
contest and resist any action, including any legislative,
administrative or judicial action, and to have vacated,
lifted, reversed or overturned any decree, judgment,
injunction or other order (whether temporary, preliminary or
permanent) (an "ORDER") that restricts, prevents or prohibits
the consummation of the Merger or any other transactions
contemplated by this Agreement. Each of the parties hereto
also agrees to take any and all of the following actions to
the extent necessary to obtain the approval of any
Governmental Entity with jurisdiction over the enforcement of
any applicable laws regarding the Merger: entering into
negotiations; providing information; substantially complying
with any second request for information pursuant to the HSR
Act; making proposals; and entering into and performing
agreements or submitting to judicial or administrative orders.
The parties hereto will consult and cooperate with one
another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection
with proceedings under or relating to the HSR Act or any other
federal, state or foreign antitrust or fair trade law. Each
party shall promptly notify the other party of any
communication to that party from any Governmental Entity in
connection with any required filing with, or approval or
review by, such Governmental Entity in connection with the
Merger and permit the other party to review in advance any
such proposed communication to any Governmental Entity.
Neither party shall agree to participate in any meeting with
any Governmental Entity in respect of any such filings,
investigation or other inquiry unless it consults with the
other party in advance and, to the extent permitted by such
Governmental Entity, gives the other party the opportunity to
attend and participate thereat.
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(b) THIRD PARTY CONSENTS; MINIMIZE ADVERSE EFFECTS.
(i) PSI and PMR shall give (or shall cause their
respective Subsidiaries to give) any notices to third parties,
and use, and cause their respective Subsidiaries to use, all
reasonable efforts to obtain any third party consents, (A)
necessary, proper or advisable to consummate the transactions
contemplated in this Agreement, (B) disclosed or required to
be disclosed in the PSI Disclosure Schedule or the PMR
Disclosure Schedule, as the case may be, or (C) required to
prevent a PSI Material Adverse Effect or a PMR Material
Adverse Effect from occurring prior to or after the Effective
Time.
(ii) In the event that either party shall fail to
obtain any third party consent described in subsection (b)(i)
above, such party shall use all reasonable efforts, and shall
take any such actions reasonably requested by the other party
hereto, to minimize any adverse effect upon PSI and PMR, their
respective Subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such
consent.
(c) NOTICES. From the date of this Agreement until the
Effective Time, PSI and PMR shall each promptly notify the other in
writing of any pending or, to the knowledge of such party, threatened
action, proceeding or investigation by any Governmental Entity or any
other person (i) challenging or seeking material damages in connection
with the Merger or the conversion of PSI Capital Stock into PMR Common
Stock, or the issuance of PMR stock to PSI's Stockholders, pursuant to
the Merger or (ii) seeking to restrain or prohibit the consummation of
the Merger or otherwise limit the right of PMR or the PMR Subsidiaries
to own or operate all or any portion of the businesses or assets of PSI
or the PSI Subsidiaries, which in either case is reasonably likely to
have a PSI Material Adverse Effect prior to or after the Effective
Time, or a PMR Material Adverse Effect after the Effective Time.
5.8 STOCK OPTIONS AND OTHER STOCK AWARDS; EMPLOYEE BENEFIT PLANS.
(a) Prior to the Effective Time, PSI and PMR shall take such
action as may be necessary to cause each PSI Option under the PSI Stock
Plan, copies of which (as amended through the date hereof) have
heretofore been made available to PMR by PSI, to be automatically
converted at the Effective Time into an option (a "PMR OPTION") to
purchase a number of shares of PMR Common Stock equal to the number of
shares of PSI Common Stock that could have been purchased under such
PSI Option multiplied by the common stock exchange ratio in Section
1.7(b)(i) (rounded to the nearest whole number of shares of PMR Common
Stock), at a price per share of PMR Common Stock equal to the per-share
option exercise price specified in such PSI Option divided by the
common stock exchange ratio in Section 1.7(b)(i) (rounded down to the
nearest whole cent); PROVIDED, however, that with respect to any
options which are "incentive stock options" (as defined in Section 422
of the Code) or which are described in Section 423 of the Code shall be
affected in a manner that is consistent with the requirements of
Section 424(a) of the Code. Pursuant to the terms of the PSI Stock
Plan, each such option shall be subject to the same terms and
conditions as the related PSI Option. The date of grant of the
substituted PMR Option shall be the date on which the corresponding PSI
Option
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was granted. As promptly as practicable after the Effective Time, PMR
shall issue to each holder of an outstanding PSI Option a document
evidencing the foregoing assumption by PMR. In addition, PMR shall take
all necessary actions to amend the PMR Stock Plan to authorize the
issuance of a sufficient number of shares of PMR Common Stock to cover
the PMR Options to be granted pursuant to the Merger. As soon as
practicable after the Effective Time, to the extent necessary to
provide for registration of shares of PMR Common Stock subject to such
substituted PMR Options, PMR shall file a registration statement on
Form S-8 (or any successor form) with respect to such shares of PMR
Common Stock and shall use its best efforts to maintain such
registration statement (or any successor form), including the current
status of any related prospectus or prospectuses, for so long as such
options remain outstanding. The conversion feature contained in the
Convertible Notes shall be adjusted to account for the Merger based
upon the provisions contained in the Convertible Notes.
(b) From and after the Effective Time, all employee benefit
plans of PMR (the "PMR EMPLOYEE PLANS") and the PSI Employee Plans in
effect as of the Effective Time shall, subject to applicable law, the
terms of this Agreement and the terms of such plans, remain in effect
with respect to the employees of PMR or PSI (or their respective
Subsidiaries), as the case may be, until such time as PMR shall amend
its, or adopt new, employee benefit plans and arrangements with respect
to employees of the Surviving Corporation and its Subsidiaries (the
"REPLACEMENT PLANS"). From and after the Effective Time, subject to the
terms and conditions of the Replacement Plans PMR shall, and shall
cause its Subsidiaries to, honor in accordance with their terms all PMR
Employee Plans and PSI Employee Plans, respectively, as amended as
permitted hereunder, and all other contracts, arrangements and
commitments that apply to current or former employees or directors of
PMR, PSI or their respective Subsidiaries.
(c) Prior to the Effective Time, a committee (consisting of
the Chief Executive Officer of PSI and the Chief Executive Officer of
PMR and an equal number of representatives from PSI and PMR as they
shall appoint) shall be formed to conduct a review of PMR's and PSI's
respective employee benefit and compensation plans and programs in
order to coordinate the provision of benefits and compensation to the
employees of PMR and its Subsidiaries after the Effective Time and to
eliminate duplicative benefits, including, without limitation, through
the establishment of the Replacement Plans. The Replacement Plans
shall, in all material respects, (i) treat similarly situated employees
of PMR and PSI and their respective Subsidiaries on a substantially
equivalent basis, taking into account all relevant factors, including,
without limitation, duties, geographic location, tenure, qualifications
and abilities, and (ii) not discriminate between employees who were
covered by the PMR Employee Plans, on the one hand, and those covered
by the PSI Employee Plans, on the other, at the Effective Time.
Notwithstanding the foregoing, the employee benefit plans and
arrangements maintained for current and former employees of PMR, PSI
and their respective Subsidiaries following the Effective Time shall
provide, until any applicable Replacement Plan has been implemented
(or, if earlier, through the first anniversary of the Effective Time),
a level of compensation and benefits that is substantially comparable
in the aggregate to that provided under the PMR Employee Plans or the
PSI Employee Plans, as the case may be, as in effect immediately prior
to the date of this Agreement;
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PROVIDED, however, that changes may be made to such plans to the extent
necessary to comply with applicable law.
(d) Employees of PMR, PSI and their respective Subsidiaries
shall receive credit for purposes of eligibility to participate,
vesting, benefit accrual and eligibility to receive benefits under any
employee benefit plan, program or arrangement established or maintained
by the Surviving Corporation or any of its Subsidiaries for service
accrued or deemed accrued prior to the Effective Time with PMR, PSI or
any of their respective Subsidiaries, as the case may be; PROVIDED,
however, that such crediting of service shall not operate to duplicate
any benefit or the funding of any such benefit.
5.9 UPDATE DISCLOSURE; BREACHES. From and after the date of this
Agreement until the Effective Time, each party hereto shall promptly notify the
other party hereto by written update to its Disclosure Schedule of (i) the
occurrence, or non-occurrence, of any event that would be likely to cause any
condition to the obligations of any party to effect the Merger and the other
transactions contemplated by this Agreement not to be satisfied, or (ii) the
failure of PSI or PMR, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it pursuant
to this Agreement which would be likely to result in any condition to the
obligations of any party to effect the Merger and the other transactions
contemplated by this Agreement not to be satisfied; provided, however, that the
delivery of any notice pursuant to this Section 5.9 shall not cure any breach of
any representation or warranty requiring disclosure of such matter prior to the
date of this Agreement or otherwise limit or affect the remedies available
hereunder to the party receiving such notice.
5.10 PUBLIC ANNOUNCEMENTS. PMR and PSI shall consult with each other
before issuing any press release or otherwise making any public statements with
respect to the Merger and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
Law or any listing agreement with the Nasdaq.
5.11 NASDAQ LISTING. PMR shall promptly prepare and submit to the
Nasdaq a listing application covering the shares of PMR Common Stock to be
issued in the Merger, and shall use all reasonable efforts to cause such shares
to be approved for listing on the Nasdaq, subject to official notice of
issuance, prior to the Effective Time.
5.12 INDEMNIFICATION OF PSI AND PMR DIRECTORS AND OFFICERS.
(a) PMR and the Surviving Corporation agree that the
indemnification obligations set forth in PSI's Certificate of
Incorporation and PSI's Bylaws, in each case as of the date of this
Agreement, shall survive the Merger (and, prior to the Effective Time,
PMR shall cause the Certificate of Incorporation and Bylaws of Merger
Sub to reflect such provisions) and shall not be amended, repealed or
otherwise modified for a period of six years after the Effective Time
in any manner that would adversely affect the rights thereunder of the
individuals who on or prior to the Effective Time were directors,
officers, employees or agents of PSI or its Subsidiaries.
(b) PSI shall, to the fullest extent permitted under
applicable Law and regardless of whether the Merger becomes effective,
indemnify and hold harmless, and, after the Effective Time, PMR and the
Surviving Corporation shall, to the fullest extent permitted under
applicable Law, indemnify and hold harmless, each present and former
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director, officer, trustee, fiduciary, employee or agent of PSI and
each PSI Subsidiary and each such person who served at the request of
PSI or any PSI Subsidiary as a director, officer, trustee, partner,
fiduciary, employee or agent of another corporation, partnership, joint
venture, trust, pension or other employee benefit plan or enterprise
(collectively, the "PSI INDEMNIFIED PARTIES") against all costs and
expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), whether civil,
administrative or investigative, arising out of or pertaining to any
action or omission in their capacity as an officer or director, in each
case occurring before the Effective Time (including the transactions
contemplated by this Agreement). Without limiting the foregoing, in the
event of any such claim, action, suit, proceeding or investigation, (i)
PSI or PMR and the Surviving Corporation, as the case may be, shall pay
the fees and expenses of counsel selected by any PSI Indemnified Party,
which counsel shall be reasonably satisfactory to PSI or to PMR and the
Surviving Corporation, as the case may be, promptly after statements
therefor are received (unless the Surviving Corporation shall elect to
defend such action) and (ii) PSI and PMR and the Surviving Corporation
shall cooperate in the defense of any such matter.
(c) For six years from the Effective Time, the Surviving
Corporation shall use its best efforts to provide to PSI's current
directors and officers liability insurance protection of the same kind
and scope as that provided by PSI's directors' and officers' liability
insurance policies (copies of which have been made available to PMR)
immediately prior to the Effective Time; PROVIDED, however, that in no
event shall the Surviving Corporation be required to expend more than
200% of the current amount expended by PSI (the "PSI INSURANCE AMOUNT")
to maintain or procure insurance coverage pursuant hereto and further
provided that if PMR is unable to maintain or obtain the insurance
called for by this Section 5.12(c), PMR shall use its best efforts to
obtain as much comparable insurance as available for the PSI Insurance
Amount.
(d) For six years from the Effective Time, the Surviving
Corporation shall use its best efforts to provide to PMR's current
directors and officers liability insurance protection of the same kind
and scope as that provided by PMR's directors' and officers' liability
insurance policies (copies of which have been made available to PSI)
immediately prior to the Effective Time; PROVIDED, however, that in no
event shall the Surviving Corporation be required to expend more than
200% of the current amount expended by PMR (the "PMR INSURANCE AMOUNT")
to maintain or procure insurance coverage pursuant hereto and further
provided that if the Surviving Corporation is unable to maintain or
obtain the insurance called for by this Section 5.12(c), the Surviving
Corporation shall use its best efforts to obtain as much comparable
insurance as available for the PMR Insurance Amount.
(e) In the event PMR or any of their respective successors or
assigns (i) consolidates with or merges into any other person or shall
not be the continuing or surviving corporation or entity in such
consolidation or merger or (ii) transfers all or substantially all its
properties and assets to any person, then, and in each case, proper
provision shall be made so that the successors and assigns of PMR, as
the case may be, honor the indemnification obligations set forth in
this Section 5.12.
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(f) The obligations of PSI, PMR and the Surviving Corporation
under this Section 5.12 shall not be terminated or modified in such a
manner as to adversely affect any director, officer, employee, agent or
other person to whom this Section 5.12 applies without the consent of
such affected director, officer, employees, agents or other persons (it
being expressly agreed that each such director, officer, employee,
agent or other person to whom this Section 5.12 applies shall be third
party beneficiaries of this Section 5.12).
5.13 PLAN OF REORGANIZATION. The Agreement is intended to constitute a
"plan of reorganization" within the meaning of section 1.368-2(g) of the income
tax regulations promulgated under the Code. From and after the date hereof and
until the Effective Time, each party hereto shall use its reasonable best
efforts to cause the Merger to qualify, and will not knowingly take any actions
or cause any actions to be taken which could prevent the Merger from qualifying,
as a reorganization under the provisions of section 368(a) of the Code.
Following the Effective Time, neither the Surviving Corporation, PMR nor any of
their affiliates shall knowingly take any action or knowingly cause any action
to be taken which would cause the Merger to fail to qualify as a reorganization
under section 368(a) of the Code.
5.14 HEADQUARTERS; NAME. As promptly as reasonably practicable after
the Effective Time, PMR and PSI shall take all action necessary such that their
combined headquarters shall be located at Nashville, Tennessee. Effective as of
the Effective Time, PMR shall amend its Certificate of Incorporation such that
its name shall be changed to Psychiatric Solutions, Inc.
5.15 OBLIGATIONS OF MERGER SUB. PMR shall take all action necessary to
cause Merger Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement.
5.16 FINANCIAL STATEMENTS. PSI shall use its best efforts to cause to
be prepared all financial statement information relating to PSI and the PSI
Subsidiaries (including their predecessors) as is required to be included in the
Registration Statement pursuant to Article 3-05 of Regulation S-X promulgated
under the Securities Act.
5.17 APPRAISAL RIGHTS. PSI shall use its reasonable best efforts to
ensure that the condition set forth in Section 6.3(j) is satisfied. If (i) a PSI
Takeover Proposal shall have been announced or otherwise publicly disclosed (or
disclosed to the PSI stockholders generally) and (ii) the Merger is not
consummated because of a failure of the condition set forth in Section 6.3(j) to
be satisfied, then PSI shall pay PMR the PMR Termination Fee and the PMR
Out-of-Pocket Expenses in immediately available funds promptly upon PSI's
receipt of a written demand therefor from PMR.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
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(a) EFFECTIVENESS OF THE REGISTRATION STATEMENT. The
Registration Statement shall have been declared effective by the SEC
under the Securities Act. No stop order suspending the effectiveness of
the Registration Statement shall have been issued by the SEC and no
proceedings for that purpose shall have been initiated or, to the
knowledge of PMR or PSI, threatened by the SEC.
(b) PSI STOCKHOLDER APPROVAL. This Agreement and the Merger
shall have been approved and adopted by the requisite vote of the PSI
stockholders ("PSI STOCKHOLDER APPROVAL"). Any agreements or
arrangements that may result in the payment of any amount that would
not be deductible by reason of Section 2806 of the Code shall have been
approved by such number of stockholders of PSI as is required by the
terms of Section 280G(b)(5)(B) and shall be obtained in a manner which
satisfies all applicable requirements of such Code Section 280(G)(b)(5)
(B) and the proposed Treasury Regulations thereunder, including
(without limitation) Q-7 of Section 1.280G-1 of such proposed
regulations.
(c) PMR STOCKHOLDER APPROVAL. This Agreement, the Merger and
an amendment to PMR's Certificate of Incorporation authorizing a
sufficient number of additional shares of PMR Common Stock to provide
for the issuance of the Merger Consideration shall have been approved
and adopted by the requisite vote of the PMR stockholders ("PMR
STOCKHOLDER APPROVAL").
(d) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the
Merger shall be in effect, nor shall any proceeding brought by an
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be
pending; nor shall there be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal. In the
event an injunction or other order shall have been issued, each party
agrees to use its reasonable efforts to have such injunction or other
order lifted.
(e) BLUE SKY FILINGS. There shall have been obtained any and
all material permits, approvals and consents of securities or "blue
sky" authorities of any jurisdiction that are necessary so that the
consummation of the Merger and the transactions contemplated thereby
will be in compliance with applicable laws, the failure to comply with
which would be reasonably likely to have, individually or in the
aggregate, a PMR Material Adverse Effect or a PSI Material Adverse
Effect.
(f) NASDAQ. The shares of PMR Common Stock issuable to PSI's
shareholders pursuant to the Merger shall have been approved for
trading on either the Nasdaq National Market or Nasdaq SmallCap Market,
subject to official notice of issuance.
(g) ADDITIONAL GOVERNMENTAL APPROVALS. PMR and PSI and their
respective Subsidiaries shall have timely obtained from each
Governmental Entity all approvals, waivers and consents, if any,
necessary for consummation of or in connection with the Merger and the
several transactions contemplated hereby, including such additional
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approvals, waivers and consents as may be required under the Securities
Act, under state Blue Sky laws, and under the HSR Act.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PSI. The obligations of PSI
to consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by PSI:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the PMR Disclosure Schedule dated the date of this
Agreement, (i) the representations and warranties of PMR in this
Agreement shall be true and correct in all material respects (except
for such representations and warranties that are qualified by their
terms by a reference to materiality which representations and
warranties as so qualified shall be true in all respects) on and as of
the date of this Agreement and on and as of the Effective Time as
though such representations and warranties were made on and as of such
time and (ii) PMR shall have performed and complied in all material
respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the
Effective Time.
(b) CERTIFICATE OF PMR. PSI shall have been provided with a
certificate executed on behalf of PMR by an executive officer of PMR to
the effect set forth in Section 6.2(a).
(c) THIRD PARTY CONSENTS. PSI shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the
Merger under the PMR Material Contracts set forth in SCHEDULE 3.24
hereto.
(d) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No
temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other
legal or regulatory restraint provision limiting or restricting PMR's
conduct or operation of the business of PSI and its Subsidiaries,
following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental
Entity, domestic or foreign, seeking the foregoing be pending.
(e) LEGAL OPINION. PSI shall have received a legal opinion
from PMR's legal counsel in substantially the form of EXHIBIT E.
(f) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
any PMR Material Adverse Effect; PMR shall not have received any notice
of termination or non-renewal with respect to any contract accounting
for ten percent (10%) or more of PMR's annual revenues.
(g) RESIGNATION OF DIRECTORS AND OFFICERS. The directors and
officers of PMR set forth in SCHEDULE 6.2(g) shall have resigned as
directors and officers, as applicable, of PMR effective as of the
Effective Time.
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(h) TAX OPINION. PSI shall have received the written opinion
of independent accountants in form and substance reasonably
satisfactory to it, and dated on or about the Closing Date to the
effect that (i) the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code, (ii) each of PMR and PSI are
parties to the reorganization within the meaning of Section 368(b) of
the Code, and (iii) no gain or loss will be recognized by PMR, PSI or
PSI shareholders (except to the extent of any cash received) as a
result of the Merger, and such opinions shall not have been withdrawn.
In rendering such opinion, the opining party shall be entitled to rely
upon, among other things, reasonable assumptions as well as
representations of PMR and PSI.
(i) CERTIFICATE OF GOOD STANDING. PMR shall have provided PSI
a certificate from the Secretary of State of
Delaware (or other state
of formation, as applicable), dated as of a date within ten (10) days
prior to the Closing Date, as to the good standing of and payment of
all applicable taxes by PMR and each of the PMR Subsidiaries.
(j) CONSENT OF SENIOR LENDER. PSI shall have received, in form
and substance reasonably satisfactory to PSI, the consent of PSI's
senior lender with regard to the Merger and the transactions
contemplated by this Agreement, which consent shall contain either
amendments to covenants in PSI's credit agreement with such lender or
waivers thereof to enable PSI not to be in default under such covenants
at the Effective Time.
(k) PARENT CASH EQUIVALENTS. PMR will have on hand at the
Effective Time no less than $5.05 million in Cash Equivalents, and PSI
shall be reasonably satisfied that payments of all severance resulting
from the Merger, PMR's transaction costs shall have been made, or
provided for, without any effect on such $5.05 million in Cash
Equivalents.
(l) PARENT EMPLOYEE NON-COMPETITION AGREEMENTS. The employees
of PMR set forth in Schedule 6.2(l) shall have entered into a
Non-Competition Agreement in the form attached as EXHIBIT I.
(m) FAIRNESS OPINION. PSI shall have received a written
opinion from its financial advisor, in form and substance reasonably
satisfactory to it, that subject to factors and assumptions set forth
in such opinion, the consideration and exchange ratio to be paid in the
Merger is fair from a financial point of view to the holders of PSI
Capital Stock.
(n) ACCOUNTS RECEIVABLE CREDIT BALANCES. PMR shall have
settled the accounts receivable credit balances set forth on SCHEDULE
6.2(n).
(o) SATISFACTION OF CERTAIN PMR CONTRACTUAL OBLIGATIONS. PMR
shall have satisfied, or made financial arrangements for the
satisfaction of, certain contractual obligations to third parties
described on SCHEDULE 6.2(o).
(p) XXXXX XXXXXX NON-COMPETE. Xxxxx Xxxxxx shall have entered
into a non-competition agreement with PMR restricting his ability to
compete with the Tennessee Mental Health Cooperative for a period of
one year following the Effective Time.
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6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PMR. The obligations of
PMR to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in writing, by
PMR:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. Except as
disclosed in the PSI Disclosure Schedule dated the date of this
Agreement (i) the representations and warranties of PSI in this
Agreement shall be true and correct in all material respects (except
for such representations and warranties that are qualified by their
terms by a reference to materiality which representations and
warranties as so qualified shall be true in all respects) on and as of
the date of this Agreement and on and as of the Effective Time as
though such representations and warranties were made on and as of such
time and (ii) PSI shall have performed and complied in all material
respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by it as of the
Effective Time.
(b) CERTIFICATE OF PSI. PMR shall have been provided with a
certificate executed on behalf of PSI by its President to the effect
set forth in Section 6.3(a).
(c) THIRD PARTY CONSENTS. PMR shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the
Merger under the PSI Material Contracts set forth in SCHEDULE 2.24
hereto.
(d) INJUNCTIONS OR RESTRAINTS ON CONDUCT OF BUSINESS. No
temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other
legal or regulatory restraint provision limiting or restricting PMR's
conduct or operation of the business of PSI and its Subsidiaries,
following the Merger shall be in effect, nor shall any proceeding
brought by an administrative agency or commission or other Governmental
Entity, domestic or foreign, seeking the foregoing be pending.
(e) LEGAL OPINION. PMR shall have received a legal opinion
(pursuant to the American Bar Association Legal Opinion Accord) from
PSI's legal counsel in substantially the form of EXHIBIT F.
(f) NO MATERIAL ADVERSE EFFECT. There shall not have occurred
any PSI Material Adverse Effect; PSI shall not have received any notice
of termination or non-renewal with respect to any contract accounting
for ten percent (10%) or more of PSI's annual revenues.
(g) TAX CERTIFICATES. PSI shall, prior to the Closing Date,
provide PMR with a properly executed FIRPTA Notification Letter,
substantially in the form of EXHIBIT G attached hereto, which states
that shares of capital stock of PSI do not constitute "United States
real property interests" under Section 897(c) of the Code, for purposes
of satisfying PMR's obligations under Treasury Regulation Section
1.1445-2(c)(3). In addition, simultaneously with delivery of such
Notification Letter, PSI shall have provided to PMR, as agent for PSI,
a form of notice to the Internal Revenue Service in accordance with the
requirements of Treasury Regulation Section 1.897-2(h)(2) and
71
substantially in the form of EXHIBIT H attached hereto along with
written authorization for PMR to deliver such notice form to the
Internal Revenue Service on behalf of PSI upon the Closing of the
Merger.
(h) PSI EMPLOYEE NON-COMPETITION AGREEMENTS. The employees of
PSI set forth in SCHEDULE 6.3(h) shall have accepted employment with
PMR and shall have entered into a Non-Competition Agreement in the form
attached hereto as EXHIBIT I.
(i) DISTRIBUTION OF CONTINGENT VALUE RIGHTS. There shall not
exist any legal or regulatory constraint or prohibition that would
prevent PMR from making the distribution of Contingent Value Rights to
its stockholders.
(j) DISSENTERS' RIGHTS. Not more than 10% of the shares of
PSI Capital Stock outstanding immediately prior to the Effective Time
shall be Dissenting Shares.
(k) CERTIFICATES OF GOOD STANDING. PSI shall have provided PMR
a certificate from the Secretary of State of
Delaware, dated as of a
date within 10 days prior to the Closing Date, as to PSI's good
standing and payment of all applicable taxes.
(l) WARRANTS EXERCISED/CANCELED PRIOR TO CLOSING. PSI shall
have provided evidence of the exercise of the Exercised Warrants and
the cancellation of the Canceled Warrants.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 TERMINATION This Agreement may be terminated at any time prior to
the Effective Time, whether before or after the PSI Stockholder Approval or the
PMR Stockholder Approval:
(a) by mutual written consent of PMR, Merger Sub and PSI;
(b) by either PMR or PSI:
(i) if the Merger shall not have been consummated by
December 31, 2002; PROVIDED, however, that the right to
terminate this Agreement pursuant to this Section 7.1(b)(i)
shall not be available to any party whose failure to perform
any of its obligations under this Agreement results in the
failure of the Merger to be consummated by such time;
(ii) if the approval of the PSI Stockholder Approval
shall not have been obtained at the PSI Meeting duly convened
therefor or at any adjournment or postponement thereof;
(iii) if the PMR Stockholder Approval shall not have
been obtained at the PMR Meeting duly convened therefor or at
any adjournment or postponement thereof; or
(iv) if any court of competent jurisdiction or any
governmental entity shall have issued an order, decree or
ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger.
72
(c) by PMR, if PSI shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants
or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition
set forth in Section 6.3(a) or (b), and (B) is incapable of being cured
by PSI or is not cured within 30 days of notice of such breach or
failure;
(d) by PMR in accordance with Section 5.6(b); PROVIDED that,
in order for the termination of this Agreement pursuant to this
paragraph (d) to be deemed effective, PMR shall have complied with all
provisions contained in Section 5.6, including the notice provisions
therein, and with applicable requirements, including the payment of the
Termination Fee and PSI Out-of Pocket Expenses, of Section 7.5;
(e) by PSI, if PMR shall have breached or failed to perform in
any material respect any of its representations, warranties, covenants
or other agreements contained in this Agreement, which breach or
failure to perform (A) would give rise to the failure of a condition
set forth in Section 6.2(a) or (b), and (B) is incapable of being cured
by PMR or is not cured within 30 days of notice of such breach or
failure; or
(f) by PSI in accordance with Section 5.5(b); PROVIDED that,
in order for the termination of this Agreement pursuant to this
paragraph (f) to be deemed effective, PSI shall have complied with all
provisions of Section 5.5, including the notice provisions therein, and
with applicable requirements, including the payment of the Termination
Fee and PMR Out-of-Pocket Expenses, of Section 7.5.
7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either PSI or PMR as provided in Section 7.1, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of PMR, Merger Sub or PSI, other than the provisions of Section 2.29,
Section 3.29, Section 5.4(b), this Section 7.2, Section 7.5 and Article VIII,
which provisions will survive such termination. Any termination of this
Agreement pursuant to Section 7.1 hereof shall not relieve any party hereto for
liabilities related to any breach of any of its representations, warranties,
covenants or agreements in this Agreement, which right to recover damages shall
be in addition to (and not exclusive of) any other remedy at law or in equity
available to any party.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, (i) after the PSI
Stockholder Approval is obtained, no amendment may be made which would reduce
the amount or change the type of consideration into which each share of PSI
Common Stock shall be converted pursuant to this Agreement upon consummation of
the Merger; and (ii) after the PMR Stockholder Approval is obtained, no
amendment may be made which would increase the amount or change the type of
consideration into which each share of PSI Common Stock shall be converted
pursuant to this Agreement upon consummation of the Merger. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto.
7.4 EXTENSIONS; WAIVER. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the
73
other party with any of the agreements or conditions contained herein; provided,
however, that (i) after the PSI Stockholder Approval is obtained, there may not
be, without further approval of such stockholders, any extension or waiver of
this Agreement or any portion thereof which reduces the amount or changes the
form of the consideration to be delivered to the holders of PSI Common Stock
hereunder other than as contemplated by this Agreement and (ii) after the PMR
Stockholder Approval is obtained, there may not be, without further approval of
such stockholders, any extension or waiver of this Agreement or any portion
thereof which increases the amount or changes the form of the consideration to
be delivered to the holders of PSI Common Stock hereunder other than as
contemplated by this Agreement. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
7.5 FEES AND EXPENSES; TERMINATION FEES.
(a) Except as provided in this Section 7.5, all fees and
expenses incurred in connection with the Merger, this Agreement, and
the transactions contemplated by this Agreement shall be paid by the
party incurring such fees or expenses, whether or not the Merger is
consummated; provided, however, that (i) each of PMR and PSI shall bear
50% of the costs and expenses (other than fees and expenses of
attorneys) incurred in connection with the preparation, filing,
printing and mailing of the Registration Statement and the Proxy
Statement, including SEC filing fees and fees and expenses of
accountants, and (ii) PMR's portion of such costs and expenses, whether
paid before or after the Effective Time, shall not reduce the $5.05
million of Cash Equivalents PMR is required to have on hand at the
Effective Time pursuant to Sections 4.4(b) and 6.2(k).
(b) In the event that (i) a PSI Takeover Proposal shall have
been made known to PSI or any of the PSI Subsidiaries or has been made
directly to its stockholders generally or any person shall have
publicly announced an intention (whether or not conditional) to make a
PSI Takeover Proposal and thereafter this Agreement is terminated by
either PMR or PSI pursuant to Section 7.1(b)(i) or (ii), or (ii) this
Agreement is terminated by PSI pursuant to Sections 7.1(f) and 5.5(b)
based on a PSI Superior Proposal, then PSI shall promptly, but in no
event later than five (5) days after the date of such termination, pay
PMR a fee equal to the sum of $750,000 (the "PMR TERMINATION FEE") and
the PMR Out-of-Pocket Expenses payable by wire transfer of same day
funds. "PMR OUT-OF-POCKET EXPENSES" means the lesser of (A) all
documented out-of-pocket expenses and fees incurred by PMR (including,
without limitation, fees and expenses payable to all legal, accounting,
financial, public relations and other professional advisers and
expenses related to printing and mailing the Proxy Statement) arising
out of, in connection with or related to this Agreement and the
transactions contemplated herein and (B) $250,000. PSI acknowledges
that the agreements contained in this Section 7.5(b) are an integral
part of the transactions contemplated by this Agreement, and that,
without these agreements, PMR would not enter into this Agreement;
accordingly, if PSI fails promptly to pay the amount due pursuant to
this Section 7.5(b), and, in order to obtain such payment, PMR
commences a suit which results in a judgment against PSI for the fee
set forth in this Section 7.5(b), PSI shall pay to PMR its costs and
expenses (including attorneys' fees and expenses) in
74
connection with such suit, together with interest on the amount of the
fee at the prime rate of Citibank N.A. in effect on the date such
payment was required to be made.
(c) In the event that (i) a PMR Takeover Proposal shall have
been made known to PMR or any of the PMR Subsidiaries or has been made
directly to its stockholders generally or any person shall have
publicly announced an intention (whether or not conditional) to make a
PMR Takeover Proposal and thereafter this Agreement is terminated by
either PMR or PSI pursuant to Section 7.1(b)(i) or (iii), or (ii) this
Agreement is terminated by PMR pursuant to Sections 7.1(d) and 5.6(b)
based on a PMR Superior Proposal then PMR shall promptly, but in no
event later than five (5) days after the date of such termination, pay
PSI the sum of $750,000 (the "PSI TERMINATION FEE") and the PSI
Out-of-Pocket Expenses, payable by wire transfer of same day funds.
"PSI OUT-OF-POCKET EXPENSES" means the lesser of (A) all documented
out-of-pocket expenses and fees incurred by PSI (including, without
limitation, fees and expenses payable to all legal, accounting,
financial, public relations and other professional advisers and
expenses relating to printing and mailing the Proxy Statement) arising
out of, in connection with or related to this Agreement and the
transactions contemplated herein and (B) $250,000. PMR acknowledges
that the agreements contained in this Section 7.5(c) are an integral
part of the transactions contemplated by this Agreement, and that,
without these agreements, PSI would not enter into this Agreement;
accordingly, if PMR fails promptly to pay the amount due pursuant to
this Section 7.5(c), and, in order to obtain such payment, PSI
commences a suit which results in a judgment against PMR for the fee
set forth in this Section 7.5(c), PMR shall pay to PSI its costs and
expenses (including attorneys' fees and expenses) in connection with
such suit, together with interest on the amount of the fee at the prime
rate of Citibank N. A. in effect on the date such payment was required
to be made.
ARTICLE VIII
GENERAL PROVISIONS
8.1 NON-SURVIVAL AT EFFECTIVE TIME. The representations and warranties
set forth in Article III shall not survive the Effective Time. The agreements
set forth in this Agreement shall terminate at the Effective Time, except that
the agreements set forth in Article I, Section 5.4 (Access to Information;
Confidentiality), Section 5.8 (Stock Options and Other Stock Awards; Employee
Benefit Plans), Section 5.10 (Public Announcements), Section 5.12
(Indemnification of Directors and Officers), Section 7.3 (Amendment), Section
7.4 (Waiver), Section 7.5 (Fees and Expenses) and this Article VIII shall
survive the Effective Time and the Closing. The exhibits to this Agreement shall
survive the Effective Time and the Closing.
8.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
75
(a) if to PMR, to:
PMR Corporation
0000 Xxxxx Xxxxxx Xxxxx, 0xx Xxxxx
Xxx Xxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxxx L.L.P.
One American Center
000 Xxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
(Effective 5/27/02, the address will be:
The Terrace 7
0000 Xxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000)
(b) if to PSI, to:
Psychiatric Solutions, Inc.
000 Xxxxxxxx Xxxx, Xxxxx X-000
Xxxxxxxx, XX 00000
Attention: Chief Executive Officer
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
with a copy to:
Xxxxxxx Xxxxxx Xxxx Xxxxxxx & Manner, P.C.
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
Telephone No.: (000) 000-0000
8.3 DEFINITIONS. For purposes of this Agreement:
"BOOKS AND RECORDS" shall mean all books of account, tax records, sales
and purchase records, customer and supplier lists, computer software, formulae,
business reports, plans and projections and all other documents, files,
correspondence and other information (whether in written, printed, electronic or
computer printout form).
76
"CASH EQUIVALENTS" means (i) United States dollars, (ii) securities
issued or directly and fully guaranteed or insured by the full faith and credit
of the United States government or any agency or instrumentality thereof having
maturities of not more than one year from the date of acquisition, (iii) demand
or time deposits, certificates of deposit and eurodollar time deposits with
maturities of one year or less from the date of acquisition, bankers'
acceptances with maturities not exceeding one year and overnight bank deposits,
in each case with any domestic commercial bank having capital and surplus in
excess of $500 million and a Xxxxx Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any financial institution meeting the qualifications specified in clause
(iii) above, (v) commercial paper having the highest rating obtainable from
Xxxxx'x Investors Service, Inc. or Standard & Poor's Corporation and in each
case maturing within one year after the date of acquisition, and (vi)
investments in money market or other mutual funds at least 95% of whose assets
comprise securities described in clauses (ii) through (v) above.
"ENCUMBRANCES" shall mean security interests, mortgages, liens,
pledges, charges, easements, reservations, restrictions, rights of way, options,
rights of first refusal and all other encumbrances of record or contract,
whether or not relating to the extension of credit or the borrowing of money.
"LIABILITY" shall mean any liability or obligation (including as
related to Taxes), whether known or unknown, asserted or unasserted, absolute or
contingent, accrued or unaccrued, liquidated or unliquidated and whether due or
to become due, regardless of when asserted.
"PERSON" shall be construed broadly and shall include any individual, a
partnership, a corporation, a limited liability company, an association, a joint
stock company, a trust, a joint venture, an unincorporated organization or a
governmental entity (or any department, agency or political subdivision
thereof).
"PROCEEDING" shall mean a private or governmental action, suit,
proceeding, claim, arbitration or investigation.
"SUBSIDIARY" shall mean any corporation, partnership, joint venture or
other legal entity of which such person (either alone or through or together
with any other subsidiary) owns, directly or indirectly, more than 50% of the
stock or other equity interests, the holders of which are generally entitled to
vote for the election of the board of directors or other governing body of such
corporation or other legal entity.
"TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") shall mean
(i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any governmental entity (a "TAX AUTHORITY") responsible for the
imposition of any such tax (domestic or foreign), (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined, unitary or aggregate group for
any Taxable period, and (iii) any liability for the payment of any amounts of
the type described in (i) or (ii) as
77
a result of being a transferee of or successor to any person or as a result of
any express or implied obligation to indemnify any other person.
"TAX RETURN" shall mean any return, statement, report or form
(including, without limitation, estimated tax returns and reports, withholding
tax returns and reports and information returns and reports) required to be
filed with respect to Taxes.
8.4 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The phrase "made available" in this Agreement shall mean that the
information referred to has been made available if requested by the party to
whom such information is to be made available. 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 May 6, 2002. 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.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN INTEREST. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the PSI Disclosure Schedule and the PMR Disclosure Schedule
(a) constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, except for the Confidentiality Agreement, which shall continue in full
force and effect, and shall survive any termination of this Agreement or the
Closing, in accordance with its terms; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.7(b), 1.7(c), 1.7(d), 1.7(e), 1.7(g), 1.8 and 5.8; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.7 SEVERABILITY. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.8 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or equity
upon such party, and the exercise by a party of any one remedy will not preclude
the exercise of any other remedy.
78
8.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of
Delaware without reference to such state's
principles of conflicts of law. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction of any court located within the State of
Delaware,
in connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of
Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
8.10 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement or
other document will be construed against the party drafting such agreement or
document.
79
IN WITNESS WHEREOF, PMR, Merger Sub and PSI have caused this Agreement
to be executed and delivered by their respective officers thereunto duly
authorized, all as of the date first written above.
PMR:
PMR CORPORATION
By: /s/ Xxxx Xxxxx
---------------------------------------
Name: Xxxx Xxxxx
-------------------------------------
Title: Chief Executive Officer
------------------------------------
MERGER SUB:
PMR ACQUISITION CORPORATION
By: /s/ Xxxx Xxxxx
---------------------------------------
Name: Xxxx Xxxxx
-------------------------------------
Title: Chief Executive Officer
------------------------------------
PSI:
PSYCHIATRIC SOLUTIONS, INC.
By: /s/ Xxxx X. Xxxxxx
---------------------------------------
Name: Xxxx X. Xxxxxx
Title: President & Chief Executive Officer
[Signature page to
Agreement and Plan of Merger]
80
SCHEDULE A
TO
AGREEMENT AND PLAN OF MERGER
PSI STOCKHOLDERS EXECUTING VOTING AGREEMENT
Acacia Venture Partners, L.P.
South Park Venture Partners, L.P.
South Pointe Venture Partners, L.P.
CGJF Health Care Services Private Equities, L.P.
CGJR II, L.P.
CGJR/MF III, L.P.
Oak Investment Partners VII Limited Partnership
Oak Investment Partners VII Affiliates Fund, Limited Partnership
Oak VII Affiliates Fund, Limited Partnership
Xxxxxxx Associates, LLC
FCA Venture Partners I, L.P.
FCA Venture Partners II, L.P.
Xxxx Xxxxxx
Xxxxxxx X.X. Xxxxxxxx, M.D.
K. Xxxxx XxXxxxx
Xxxxxxx X. Xxxxx
81
SCHEDULE B
TO
AGREEMENT AND PLAN OF MERGER
PMR STOCKHOLDERS EXECUTING VOTING AGREEMENT
Proactive Investment Managers
Xxx X. Xxxxxx
X. Xxxxxxxxx XxXxxxx
Xxxxx Xxxx
Xxxxx Xxxxxx
Xxxxxxx XxXxxxxxxx
Xxxx Xxxxx
82
SCHEDULE C
TO
AGREEMENT AND PLAN OF MERGER
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION FOLLOWING EFFECTIVE TIME
BOARD OF DIRECTORS
Xxxx X. Xxxxxx
Xxxxxx X. Xxxxxxxx
OFFICERS
Xxxx X. Xxxxxx, Chief Executive Officer and President
Xxxxxx X. Xxxxxxxx, Chief Development Officer and Secretary
Xxxx X. Xxxxxxx, Chief Operating Officer
Xxxx Xxxxxx, Controller
83
SCHEDULE D
TO
AGREEMENT AND PLAN OF MERGER
DIRECTORS AND OFFICERS OF PMR FOLLOWING EFFECTIVE TIME
BOARD OF DIRECTORS
CLASS ONE (1-YEAR INITIAL TERM):
Xxxxxxxxxxx Xxxxx, Jr.
Xxxxxxx XxXxxxxxxx
CLASS TWO (2-YEAR INITIAL TERM):
[REPRESENTATIVE OF PSI SUBORDINATED NOTEHOLDERS]
Xxxx Xxxxx
CLASS THREE (3-YEAR INITIAL TERM):
Xxxx X. Xxxxxx, Chairman of the Board
Xxxxxx X. Xxxxxxx
Xxxxx X. Xxxx
OFFICERS
Xxxx X. Xxxxxx, Chief Executive Officer and President
Xxxxxx X. Xxxxxxxx, Chief Development Officer and Secretary
Xxxx X. Xxxxxxx, Chief Operating Officer
Xxxx Xxxxxx, Controller
AUDIT COMMITTEE
Xxxxxxxxxxx Xxxxx, Jr.
Xxxxxx X. Xxxxxxx
Xxxxxxx XxXxxxxxxx
COMPENSATION COMMITTEE
Xxxxxxxxxxx Xxxxx, Jr.
Xxxxx X. Xxxx
Xxxx X. Xxxxxx
