Agreement
of
Reorganization and Merger
among
MedicaLogic, Inc.,
an Oregon corporation,
Total eMed, Inc.,
a Delaware corporation,
and
AQ Merger Corp.,
a Delaware corporation,
February 21, 2000
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER .........................................................1
1.1 The Merger ..........................................................1
1.2 Effect of Merger ....................................................1
1.3 Merger Consideration ................................................1
1.3.1 Total eMed Stock ............................................2
1.3.2 Merger Corp. Stock ..........................................2
1.3.3 Options .....................................................2
1.3.4 Stock Splits, Etc. ..........................................3
1.4 Surrender and Cancellation of Certificates ..........................3
1.4.1 Surrender of Certificates ...................................3
1.4.2 No Fractional Shares ........................................4
1.4.3 Escheat .....................................................4
1.4.4 Option Agreements ...........................................4
1.4.5 Treasury Shares .............................................5
1.4.6 Withholding Rights ..........................................5
1.4.7 Shares of Dissenting Stockholders ...........................5
1.5 Stock Transfer Books ................................................5
1.6 Closing .............................................................5
1.7 Subsequent Actions ..................................................6
1.8 Certificate of Incorporation; Bylaws; Directors of the Surviving
Corporation .........................................................6
ARTICLE II FURTHER AGREEMENTS ................................................6
2.1 Voting Agreements ...................................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES ...................................7
3.1 Representations and Warranties of Total eMed ........................7
3.1.1 Organization and Status .....................................7
3.1.2 Capitalization ..............................................7
3.1.3 Authority ...................................................8
3.1.4 Subsidiaries and Joint Ventures .............................8
3.1.5 Financial Statements ........................................8
3.1.6 Information Supplied ........................................9
3.1.7 Governmental Filings ........................................9
3.1.8 No Adverse Consequences .....................................9
3.1.9 Undisclosed Liabilities ....................................10
3.1.10 Absence of Certain Changes or Events .......................10
3.1.11 Litigation .................................................10
3.1.12 Employment Matters .........................................10
3.1.12.1 Labor Matters .......................................10
3.1.12.2 Employee Benefits ...................................11
ii
3.1.12.3 Employment Agreements ...............................11
3.1.13 Title to and Condition of Real Property ....................12
3.1.14 Title to and Condition of Fixed Assets .....................12
3.1.15 Intellectual Property ......................................12
3.1.16 Certain Contracts and Arrangements .........................18
3.1.17 Status of Contracts ........................................18
3.1.18 Insurance ..................................................19
3.1.19 Permits and Licenses .......................................19
3.1.20 Taxes ......................................................20
3.1.20.1 Returns .............................................20
3.1.20.2 Taxes Paid or Reserved ..............................20
3.1.20.3 Definitions .........................................21
3.1.21 Related Party Interests ....................................21
3.1.22 No Powers of Attorney or Restrictions ......................21
3.1.23 Environmental Conditions ...................................22
3.1.23.1 Compliance ..........................................22
3.1.23.2 Hazardous Substances ................................22
3.1.23.3 Filings and Notices .................................22
3.1.23.4 Definitions .........................................22
3.1.24 Consents and Approvals .....................................23
3.1.25 Brokers and Finders ........................................23
3.1.26 [Intentionally Omitted] ....................................23
3.1.27 No Other Agreements to Sell Total eMed or Its Assets .......23
3.1.28 Vote Required ..............................................23
3.1.29 Certain Representations and Warranties Regarding Code
Section 368(a)(2)(E) .......................................23
3.2 Representations and Warranties of MDLI .............................25
3.2.1 Organization and Status ....................................25
3.2.2 Corporate Authority ........................................25
3.2.3 Governmental Filings .......................................25
3.2.4 Information Supplied .......................................26
3.2.5 SEC Reports and Financial Statements .......................26
3.2.6 No Adverse Consequences ....................................27
3.2.7 Brokers and Finders ........................................27
3.2.8 Opinion of MDLI Financial Advisor ..........................27
3.2.9 Certain Representations and Warranties Regarding Code
Section 368(a)(2)(E) .......................................27
3.2.10 Litigation .................................................29
3.2.11 Capitalization .............................................29
3.2.12 Undisclosed Liabilities; Returns ...........................29
3.2.13 Absence of Certain Changes or Events .......................29
3.2.14 Taxes ......................................................30
3.2.14.1 Returns .............................................30
3.2.14.2 Taxes Paid or Reserved ..............................30
3.2.15 Related Party Interests ....................................31
iii
3.2.16 No Powers of Attorney or Restrictions ......................31
3.2.17 Consents and Approvals .....................................31
3.3 Representations and Warranties Relating to Merger Corp. ............31
3.3.1 Organization and Status ....................................31
3.3.2 Capitalization .............................................31
3.3.3 Corporate Authority ........................................31
3.3.4 Governmental Filings .......................................31
3.3.5 Certain Representations and Warranties Regarding Code
Section 368(a)(2)(E) ...................................... 32
ARTICLE IV COVENANTS ........................................................32
4.1 Mutual Covenants ...................................................32
4.1.1 Preparation of Registration Statement and the Joint Proxy
Statement ..................................................32
4.1.2 Shareholder Meetings .......................................33
4.1.3 Consents and Approvals .....................................33
4.1.4 Best Efforts ...............................................34
4.1.5 Publicity ..................................................34
4.1.6 Confidentiality ............................................34
4.1.7 [Intentionally Omitted] ....................................34
4.1.8 Antitrust Improvements Act .................................34
4.1.9 Restructuring of Merger ....................................34
4.2 Covenants of Total eMed ............................................35
4.2.1 Conduct of Business ........................................35
4.2.2 Acquisition Proposals ......................................36
4.2.3 Investigations .............................................37
4.3 Covenants of MDLI ..................................................37
4.3.1 Investigations .............................................37
4.3.2 Notification to Optionees ..................................37
4.3.3 MDLI Board .................................................37
4.3.4 [Intentionally Omitted] ....................................37
4.3.5 Nasdaq Listing Application .................................38
4.3.6 Officer and Director Indemnification .......................38
4.3.7 Conduct of Business ........................................38
4.3.8 Break Up Fee ...............................................38
4.4 Covenants of Merger Corp. .......................................38
ARTICLE V CONDITIONS ........................................................38
5.1 Conditions to the Obligations of All Parties .......................38
5.1.1 Regulatory Approvals .......................................38
5.1.2 Litigation ................................................39
5.1.3 Shareholder Approval .......................................39
5.1.4 Registration of Securities; Listing ........................39
5.2 Conditions to the Obligations of Total eMed ........................39
5.2.1 Representations, Warranties and Covenants ..................39
5.2.2 No Material Adverse Change .................................39
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5.2.3 Legal Opinion ..............................................40
5.3 Conditions to the Obligations of MDLI and Merger Corp. .............40
5.3.1 Representations, Warranties and Covenants ..................40
5.3.2 Lock-up ....................................................40
5.3.3 No Material Adverse Change .................................40
5.3.4 Financial Statements .......................................40
5.3.5 [Intentionally Omitted] ....................................40
5.3.6 Dissenting Shares. .........................................40
5.3.7 Preferred Stock. ...........................................40
5.3.8 Escrow Schedule ............................................41
5.3.9 Legal Opinion ..............................................41
ARTICLE VI TERMINATION 41
6.1 Termination by Mutual Consent ......................................41
6.2 Termination by Either Total eMed or MDLI ...........................41
6.3 Effect of Termination and Abandonment ..............................42
ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW ...............42
7.1 Survival of Representations and Warranties .........................42
7.2 Escrow Arrangements ................................................42
7.2.1 Contract Escrow Fund .......................................42
7.2.1.1 Litigation Escrow Fund ...............................43
7.2.1.2 Distribution from Litigation Escrow Fund .............44
7.2.2 Escrow Period; Distribution upon Termination of Escrow
Periods ....................................................45
7.2.3 Protection of Escrow Fund ..................................46
7.2.4 Claims upon Escrow Fund ....................................46
7.2.5 Objections to Claims .......................................47
7.2.6 Resolution of Conflicts; Arbitration .......................47
7.2.7 Securityholder Agent of the Shareholders; Power of
Attorney ...................................................48
7.2.8 Actions of the Securityholder Agent ........................49
7.2.9 Third-Party Claims .........................................49
7.2.10 Escrow Agent's Duties ......................................50
7.2.11 Fees .......................................................52
7.2.12 Maximum Liability and Remedies .............................53
ARTICLE VIII MISCELLANEOUS AND GENERAL ......................................53
8.1 Payment of Expenses ................................................53
8.2 Entire Agreement ...................................................53
8.3 Assignment .........................................................53
8.4 Binding Effect; No Third Party Benefit .............................53
8.5 Amendment and Modification .........................................53
8.6 Waiver of Conditions ...............................................54
8.7 Counterparts .......................................................54
8.8 Captions ...........................................................54
8.9 Subsidiary .........................................................54
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8.10 Notices ............................................................54
8.11 Choice of Law ......................................................55
8.12 Separability .......................................................56
vi
EXHIBITS
Exhibit A-1 Certificate of Incorporation of the Surviving Corporation
Exhibit A-2 Bylaws of the Surviving Corporation
Exhibit B Form of Voting Agreement
Exhibit C Total eMed Financial Statements
Exhibit D MDLI Fairness Opinion
Exhibit E Form of Legal Opinion of MDLI's Counsel
Exhibit F Form of Legal Opinion of Total eMed's Counsel
vii
SCHEDULES
Schedule 2.1 Individuals Executing Voting Agreements
Schedule 3.1 Total eMed Disclosure Schedule
Schedule 3.1.2 Capitalization
Schedule 3.1.4 Subsidiaries and Joint Ventures
Schedule 3.1.11 Litigation
Schedule 3.1.12.2 Employee Benefits
Schedule 3.1.12.3 Employment Agreements
Schedule 3.1.13 Title to and Condition of Real Property
Schedule 3.1.14 Title to and Condition of Fixed Assets
Schedule 3.1.15 Intellectual Property
Schedule 3.1.16 Certain Contracts and Arrangements
Schedule 3.1.18 Insurance
Schedule 3.1.19 Permits and Licenses
Schedule 3.1.20 Taxes
Schedule 3.1.21 Related Party Interests
Schedule 3.1.27 No Other Agreements to Sell Total eMed or its Assets
Schedule 3.2 MDLI Disclosure Schedule
Schedule 3.2.10 MDLI Litigation
Schedule 3.2.11 MDLI Capitalization
Schedule 3.2.13 Absence of Certain Changes or Events
Schedule 3.2.14 MDLI Taxes
Schedule 3.2.15 MDLI Related Party Interests
viii
INDEX OF TERMS
Term Location of Definition
Acquisition Transaction Section 4.2.2
Agreement Preface
Bylaws Section 3.1.1
Certificate of Incorporation Section 3.1.1
Closing Section 1.6
Closing Date Section 1.6
Code Section 1.3.3
Confidential Information Section 4.1.6
Confidentiality Agreement Section 4.1.6
Condition Completion Date Section 1.6
Contract Escrow Fund Section 7.2.1
Contracts Section 3.1.17
Conversion Ratio Section 1.3
Copyrights Section 3.1.15
Damages Section 7.3.1
DGCL Section 1.2
Dissenting Shares Section 1.4.7
Dissenting Stockholders Section 1.3
Earn-out Claims Section 7.2.1
Effective Time Section 1.1
Employee Benefit Plans Section 3.1.12.2
Environmental Law Section 3.1.23.4
ERISA Section 3.1.12.2
Escrow Agent Section 7.2.1
Escrow Amount Section 7.2.1
Escrow Fund Section 7.2.3.1
Escrow Period Section 7.2.2
Escrow Schedule Section 7.2.1
Exchange Act Section 3.2.5
Expiration Date Section 7.2.1
Form S-4 Section 3.1.6
GAAP Section 3.1.5
HoldCo. Section 4.1.9.1
Governmental Entity Section 3.1.7
HSR Filing Section 4.1.8
Hazardous Substance Section 3.1.23.4
Intellectual Property Rights Section 3.1.15
Leased Real Property Section 3.1.13
Lien Section 3.1.14
ix
INDEX OF TERMS
Term Location of Definition
Litigation Escrow Fund Section 7.2.1.1
Litigation Expenses Section 7.2.1.2.1
Loss Section 7.2.1
Maskworks Section 3.1.15
Material Adverse Change Section 3.1
Material Adverse Effect Section 3.1
MDLI Preface MDLI Common Stock Section 1.1
MDLI Disclosure Schedule Section 3.2
MDLI Financial Statements Section 3.2.5
MDLI Indemnified Parties Section 7.3.1
MDLI Returns Section 3.2.15.1
MDLI SEC Document Section 3.2.5
MDLI Special Meeting Section 4.1.2
Merger Section 1.1
Merger Consideration Section 1.3
Merger Corp. Preface
Most Recent Fiscal Year End Section 3.1.5
New Shares Section 7.2.3
Officer's Certificate Section 7.2.1
Options Section 1.3.3
Patents Section 3.1.15
Permits Section 3.1.19
Policies Section 3.1.18
Previously Leased Real Property Section 3.1.13
Proxy Statement Section 3.1.6
PTO Section 3.1.15
Reorganization Section 4.1.9.1
Registered Intellectual Property Rights Section 3.1.15
Representative Section 4.2.2
Returns Section 3.1.20.1
SEC Section 3.1.6
Securities Act Section 2.3.2
Securityholder Agent Section 7.2.7
Series C Common Equivalents Section 1.3.1
Shareholders Section 7.2.1
Small Business Status Section 3.1.15
Subsidiary Section 8.9
Superior Proposal Section 4.2.2
Total eMed Preface
x
INDEX OF TERMS
Term Location of Definition
Total eMed Common Stock Section 1.1
Total eMed Disclosure Schedule Section 3.1
Total eMed Financial Statements Section 3.1.5
Total eMed Indemnifiable Claim Section 7.3.1
Total eMed Intellectual Property Section 3.1.15
Total eMed Option Grants Section 3.1.2
Total eMed Option Plans Section 3.1.2
Total eMed Registered Intellectual Property Rights Section 3.1.15
Total eMed SEC Document Section 3.1.5
Total eMed Preface
Special Meeting Section 4.1.2
Voting Agreement Section 2.1
xi
Agreement
of
Reorganization and Merger
THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is
entered into as of February 21, 2000 among MedicaLogic, Inc., an Oregon
corporation ("MDLI"), Total eMed, Inc., a Delaware corporation ("Total eMed"),
and AQ Merger Corp., a Delaware corporation ("Merger Corp.").
AGREEMENT
In consideration of the mutual representations, warranties, covenants,
agreements and conditions contained herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Pursuant to the laws of the State of Delaware, and
subject to and in accordance with the terms and conditions of this Agreement,
Merger Corp. shall be merged with and into Total eMed, and each outstanding
share of common stock of Total eMed (the "Total eMed Common Stock") shall be
converted into the right to receive shares of common stock of MDLI (the "MDLI
Common Stock") in accordance with Section 1.3 of this Agreement. Total eMed and
Merger Corp. shall execute a Certificate of Merger, to be filed with the
Secretary of State of Delaware, on the Closing Date, as defined in Section 1.6,
or as soon thereafter as practicable. The merger of Merger Corp. with and into
Total eMed (the "Merger") shall take effect at the time when the Certificate of
Merger is duly filed with the Secretary of State of Delaware, or at such other
time as the parties may agree upon in writing pursuant to applicable law (the
"Effective Time").
1.2 Effect of Merger. At the Effective Time, Merger Corp. shall be
merged with and into Total eMed in the manner and with the effect provided by
the Delaware General Corporation Law (the "DGCL"), the separate corporate
existence of Merger Corp. shall cease and Total eMed shall be the surviving
corporation (the "Surviving Corporation"). The outstanding shares of Total eMed
Common Stock shall be converted into shares of MDLI Common Stock, and the
outstanding shares of capital stock of Merger Corp. shall be converted into
shares of capital stock of the Surviving Corporation, all on the basis, terms
and conditions described in Section 1.3.
1.3 Merger Consideration. The aggregate maximum number of shares of
MDLI Common Stock to be issued in exchange for the acquisition by MDLI of all
outstanding Total
eMed Common Stock and all outstanding convertible securities of Total eMed and
unexpired and unexercised options, warrants and other rights to acquire any
capital stock of Total eMed shall be 8,000,000 (the "Merger Consideration").
1.3.1 Total eMed Stock. Each share of Total eMed Common Stock
outstanding immediately before the Effective Time and each share of Series C
Common Equivalents deemed outstanding immediately before the Effective Time
(other than shares of Total eMed Common Stock or Series C Common Equivalents
held by stockholders exercising appraisal rights under Section 262 of the DGCL
("Dissenting Stockholders")) will cease to exist and will be converted into the
right to receive one share of MDLI Common Stock multiplied by the Conversion
Ratio (as defined below). The "Conversion Ratio" shall mean the fraction, the
numerator of which is the aggregate of 8,000,000 shares of MDLI Common Stock to
be issued as Merger Consideration and the denominator of which is the sum on the
date of this Agreement of (A) the total number of shares of Total eMed Common
Stock issued and outstanding, (B) the total number of shares of Total eMed
Common Stock issuable upon the conversion of all issued and outstanding shares
of Total eMed's Series A Preferred Stock, par value $.001, and Total eMed's
Series B Preferred Stock, par value $.001, and (C) the total number of shares of
Total eMed Common Stock issuable upon the exercise of all options, warrants and
other rights to purchase or acquire shares of Total eMed Common Stock (excluding
the shares issuable pursuant to the Stock Earn-Out, as that term is defined in
the Asset Purchase Agreement, dated April 30, 1999, by and among a subsidiary of
Total eMed, Bruyn Xxxxx Information Services, Inc., and certain other parties
named therein,) and (D) the total number of shares of Series C Common
Equivalents deemed outstanding. For the purposes of this Agreement, a holder of
one share of Total eMed's Series C Preferred Stock, par value $.001, shall be
deemed to hold 25.5407 shares of "Series C Common Equivalents", and such share
of Series C Common Equivalents shall be deemed to be outstanding.
1.3.2 Merger Corp. Stock. Each share of common stock of Merger
Corp. issued and outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
cease to exist and be converted into and become one share of common stock of the
Surviving Corporation. After the Effective Time, MDLI, the sole holder of shares
of Merger Corp. common stock outstanding immediately prior to the Effective
Time, shall, upon surrender for cancellation of a certificate representing such
shares to the Surviving Corporation, be entitled to receive in exchange therefor
a certificate representing the number of shares of common stock of the Surviving
Corporation into which such shares of Merger Corp. common stock have been
converted pursuant to Section 1.3.2. Until so surrendered, the certificates
which prior to the Merger represented shares of Merger Corp. common stock shall
be deemed, for all corporate purposes, including voting entitlement, to evidence
ownership of the shares of the Surviving Corporation common stock into which
such shares of Merger Corp. common stock shall have been converted.
1.3.3 Options. Except as otherwise provided in Section 1.3.3,
the terms and provisions of the stock options held by those Total eMed option
holders under the Total eMed
2
Option Plans and under the Total eMed Option Grants (collectively, the
"Options") will continue in full force and effect following the Merger. By
virtue of the Merger and at the Effective Time, and without any further action
on the part of any holder thereof, each Option will be converted into an option
to purchase the number of shares of MDLI Common Stock equal to the product
(rounded to the nearest whole number) of (x) the number of shares of Total eMed
Common Stock subject to such Option immediately before the Effective Time
multiplied by (y) the Conversion Ratio. The exercise price per share for each
Option after the Effective Time will be determined by dividing the per share
exercise price for such Option immediately before the Effective Time by the
Conversion Ratio. The term, exercisability, vesting schedule, status as an
incentive stock option under Xxxxxxx 000 xx xxx Xxxxxx Xxxxxx Internal Revenue
Code of 1986, as amended (the "Code"), if applicable, and all other terms and
conditions of each Option will, to the extent permitted by the existing terms of
the Options or permitted by law, and otherwise reasonably practicable, be
unchanged. As promptly as practicable after the Effective Time, MDLI shall issue
to each holder of an Option a written instrument informing such holder of the
assumption by MDLI of such Option. Unless all Options are, as of the Effective
Time, issuable pursuant to an effective registration statement on Form S-8 of
MDLI, or in the opinion of counsel of MDLI freely tradable upon issuance
pursuant to Rule 701 under the Securities Act of 1933, as Amended (the
"Securities Act"), as soon as practicable after the Effective Time, MDLI shall
file a registration statement on Form S-8 (or any successor form) with respect
to the Options and shall use its reasonable efforts to maintain such
registration statement (or any successor form), including the current status of
any related prospectus, for so long as the Options remain outstanding. MDLI
shall use its reasonable efforts to cause the MDLI Common Stock subject to the
Options to be quoted on the Nasdaq National Market or such other system or
exchange on which the MDLI Common Stock is then quoted or listed. MDLI shall
take all corporate action necessary to reserve for issuance a sufficient number
of shares of MDLI Common stock for delivery upon exercise of the Options
pursuant to Section 1.3.3
1.3.4 Stock Splits, Etc. If, between the date of this
Agreement and the Effective Time, the outstanding shares of either Total eMed
Common Stock or MDLI Common Stock shall have been changed into a different
number of shares or a different class by reason of any reclassification,
combination, recapitalization, stock split, stock dividend, subdivision,
exchange of shares, or other extraordinary transaction, the Conversion Ratio and
the Merger Consideration shall be adjusted proportionately.
1.4 Surrender and Cancellation of Certificates.
------------------------------------------
1.4.1 Surrender of Certificates. Promptly after the Effective
Time, MDLI will cause its transfer agent (the "Transfer Agent") to send a letter
to each holder of shares of Total eMed Common Stock that have been converted
into MDLI Common Stock advising such holder that upon surrender to the Transfer
Agent of a certificate or certificates representing such shares, along with a
letter of transmittal in the form enclosed therein, stock powers duly endorsed
in blank with respect to shares of MDLI Common Stock escrowed as provided for in
Section 7.2, or other documents as may be reasonably requested by MDLI or its
agent, the
3
holder shall be entitled to receive a certificate representing the number of
shares of MDLI Common Stock into which such shares of Total eMed Common Stock
shall have been converted pursuant to the provisions of Section 1.3. If any
certificate for shares of MDLI Common Stock is to be issued in a name other than
that in which the certificate for Total eMed Common Stock surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the certificate so surrendered shall be properly endorsed and otherwise in
proper form for transfer, and that the person requesting such exchange pay to
MDLI or its agent designated for such purpose any transfer or other taxes
required, or establish to the reasonable satisfaction of MDLI or its agent that
such tax has been paid or is not payable. If any holder of Total eMed Common
Stock canceled and retired in accordance with this Agreement is unable to
deliver a certificate or certificates representing such shares of the holder,
MDLI, in the absence of actual notice that any shares theretofore represented by
any such certificate have been acquired by a bona fide purchaser, shall deliver
to such holder the number of shares of MDLI Common Stock to which such holder is
entitled in accordance with the provisions of this Agreement upon the
presentation of the following: (i) evidence satisfactory to MDLI (a) that such
person is the owner of the shares theretofore represented by each certificate
claimed by him, her or it to be lost, wrongfully taken or destroyed and (b) that
he, she or it is the person who would be entitled to present each such
certificate for conversion pursuant to this Agreement; and (ii) such security or
indemnity as may be reasonably requested by MDLI to indemnify and hold MDLI and
the Transfer Agent harmless.
1.4.2 No Fractional Shares. No certificates or scrip
evidencing fractional shares of MDLI Common Stock shall be issued in the Merger.
In lieu of a fractional share, MDLI will pay any holder of shares of Total eMed
Common Stock who would otherwise have been entitled to a fraction of a share of
MDLI Common Stock upon surrender of the certificates therefor an amount of cash
(without interest) determined by multiplying (a) the closing price per share of
MDLI Common Stock on the first trading day immediately preceding the Effective
Time by (b) the fractional share interest in MDLI Common Stock to which such
holder would otherwise be entitled. The provisions of this Section 1.4.2 will
apply to the aggregate number of shares of Total eMed Common Stock held by each
holder thereof and each such holder will be required to simultaneously surrender
all certificates relating to shares of Total eMed Common Stock held by such
holder in accordance with the provisions of Section 1.4 in order to surrender
any such certificate.
1.4.3 Escheat. Neither MDLI nor Merger Corp. shall be liable
to any holder of shares of Total eMed Common Stock for any such shares of MDLI
Common Stock (or dividends or distributions with respect thereto) or cash
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.4.4 Option Agreements. After the Effective Time, each holder
of an Option outstanding immediately before the Effective Time will be deemed to
hold an option exercisable for MDLI Common Stock in accordance with the
provisions of Section 1.3.3.
4
1.4.5 Treasury Shares. At the Effective Time, each share of
Total eMed Common Stock or other Total eMed capital stock held in the treasury
of Total eMed immediately before the Effective Time will be canceled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.
1.4.6 Withholding Rights. MDLI shall be entitled to deduct and
withhold from the Merger Consideration such amounts as MDLI is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by MDLI, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid by the holder of the shares of Total eMed
Common Stock in respect of which such deduction and withholding was made by
MDLI.
1.4.7 Shares of Dissenting Stockholders. Notwithstanding
anything in this Agreement to the contrary, any issued and outstanding Total
eMed Common Stock held by any Dissenting Stockholder who has not voted such
Total eMed Common Stock in favor of or consented to the Merger and who complies
with all the provisions of Section 262 of the DGCL concerning the right of
holders of Total eMed Common Stock to dissent from the Merger and require
appraisal of their Total eMed Common Stock ("Dissenting Shares") will not be
converted as described in Section 1.3 but will become only the right to receive
such consideration as may be determined to be due to such Dissenting Stockholder
pursuant to such provisions of the DGCL. If, after the Effective Time, such
Dissenting Stockholder withdraws the demand for appraisal or fails to perfect or
otherwise loses the right of appraisal, in any case pursuant to the DGCL, such
Dissenting Stockholder's Total eMed Common Stock will be deemed to be converted
as of the Effective Time into the right to receive the Merger Consideration.
Total eMed will give MDLI (i) prompt notice of any demands received by Total
eMed for appraisal of Total eMed Common Stock and (ii) the opportunity to
participate in and direct all negotiations and proceedings with respect to any
such demands. Total eMed will not, without the prior written consent of MDLI,
make any payment with respect to, or settle, offer to settle, or otherwise
negotiate, any such demands.
1.5 Stock Transfer Books. At the Effective Time, the stock transfer
books of Total eMed will be closed and there will be no further registration of
transfers of Total eMed capital stock or other securities thereafter on the
records of Total eMed.
1.6 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Stoel Rives LLP, 000 XX Xxxxx Xxxxxx, Xxxxxxxx, Xxxxxx at
10:00 a.m. local time on the third business day following the Condition
Completion Date (as hereinafter defined), or on such other date and/or at such
other place and time as Total eMed, MDLI and Merger Corp. may agree (the
"Closing Date"). The "Condition Completion Date" shall be the business day on
which the last of the conditions set forth in Article V hereof shall have been
fulfilled or waived (other than those conditions which, by their terms, are to
be satisfied at Closing).
5
1.7 Subsequent Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to, or under any of the rights,
properties or assets of Total eMed or Merger Corp. acquired or to be acquired by
the Surviving Corporation as a result of, or in connection with, the Merger or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation are authorized to execute and deliver, in the name and on
behalf of Total eMed or Merger Corp., or otherwise, all such deeds, bills of
sale, assignments and assurances, and to take and do, in the name and on behalf
of Total eMed or Merger Corp., or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all right,
title and interest in, to and under such rights, properties or assets in the
Surviving Corporation or otherwise to carry out the purposes of this Agreement.
1.8 Certificate of Incorporation; Bylaws; Directors of the Surviving
Corporation.
----------------------------------------------------------------
(a) At the Effective Time, Merger Corp.'s Certificate of
Incorporation, a copy of which is attached to this Agreement as Exhibit A-1,
shall be the certificate of incorporation of the Surviving Corporation at and
after the Effective Time (until amended as provided by law and by that
certificate of incorporation).
(b) At the Effective Time, Merger Corp.'s bylaws, a copy of
which is attached to this Agreement as Exhibit A-2, shall be the bylaws of the
Surviving Corporation at and after the Effective Time (until amended as provided
by law, the certificate of incorporation of the Surviving Corporation and the
bylaws of the Surviving Corporation, as applicable).
(c) The directors of Merger Corp. immediately prior to the
Effective Time shall be the directors of the Surviving Corporation from and
after the Effective Time, until their successors are elected or appointed and
qualified or until their resignation or removal.
ARTICLE II
FURTHER AGREEMENTS
2.1 Voting Agreements. Each of the shareholders of Total eMed and MDLI
listed on Schedule 2.1 will execute and deliver, concurrently with the execution
of this Agreement, a Voting Agreement in the form attached as Exhibit B (the
"Voting Agreement"). Each Voting Agreement provides that the signing holder will
vote all of the shares of Total eMed Common Stock or MDLI Common Stock, as the
case may be, that such holder is entitled to vote in favor of the Merger.
6
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Total eMed . For purposes of this
Agreement, "Material Adverse Effect" or "Material Adverse Change" means any
effect, change, event, circumstance or condition which when considered with all
other effects, changes, events, circumstances or conditions would affect
materially and adversely the business, results of operations or financial
condition of a party, in each case including its Subsidiaries together with it
taken as a whole. In no event shall any of the following constitute a Material
Adverse Effect or a Material Adverse Change: (i) any change in the trading
prices of MDLI Common Stock between the date hereof and the Effective Time, in
and of itself; (ii) effects, changes, events, circumstances or conditions
generally affecting the industry in which either MDLI or Total eMed operates or
arising from changes in general business or economic conditions; (iii) any
effects, changes, events, circumstances or conditions resulting from any change
in law or generally accepted accounting principles, which affect generally
entities such as MDLI and Total eMed; and (iv) any effect resulting from
compliance by MDLI or Total eMed with the terms of this Agreement. Total eMed
hereby represents and warrants to MDLI and Merger Corp. that, except as
specifically set forth in Schedule 3.1 (the "Total eMed Disclosure Schedule") in
a numbered paragraph that corresponds to the section for which disclosure is
made:
3.1.1 Organization and Status. Total eMed and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and is duly
qualified and in good standing as a foreign corporation in each jurisdiction
where its properties (whether owned, leased or operated) or its business
conducted require such qualification, except where failure to be so qualified
would not have a Material Adverse Effect on Total eMed. Total eMed has all
requisite corporate power and authority to own, operate and lease its property
and to carry on its businesses as they are now being conducted. Total eMed has
delivered to MDLI complete and accurate copies of its Certificate of
Incorporation ("Certificate of Incorporation") and Bylaws ("Bylaws"), each as
amended to the date hereof.
3.1.2 Capitalization. Total eMed has authorized capital stock
consisting of 20,000,000 shares of Total eMed Common Stock, of which 2,797,790
shares are outstanding; and 461,200 shares of preferred stock (the "Total eMed
Preferred Stock"); of which 435,200 shares are designated as Series A Preferred
Stock, $.001 par value, of which 435,200 shares are outstanding; 14,000 shares
are designated as Series B Preferred Stock, $.001 par value, of which 14,000
shares are outstanding; and 12,000 shares are designated as Series C Preferred
Stock, $.001 par value, of which 12,000 shares are outstanding. The Series A
Preferred Stock will convert into 2,176,000 shares of Total eMed Common Stock.
The Series B Preferred Stock will convert into 3,930,563 shares of Total eMed
Common Stock. The Series C Preferred Stock will be deemed to convert into
306,488 shares of Series C Common Equivalents. Options to purchase 444,380
shares of Total eMed Common Stock are
7
outstanding pursuant to grants made under Total eMed's 1999 Incentive Stock
Option Plan and 1999 Stock Option and Incentive Plan (collectively, the "Total
eMed Option Plans"). Options to purchase 237,500 shares of Total eMed Common
Stock are outstanding pursuant to grants made under individual stock option
agreements with the following (the "Total eMed Option Grants"): Xxxxx Xxx
(12,500 shares); Xxxxx Xxxx (75,000 shares); and Xxxxxxx Xxxx (150,000 shares).
All of the outstanding shares of capital stock of Total eMed have been duly
authorized and are validly issued, fully paid and nonassessable, and no shares
were issued, and no options were granted, in violation of preemptive or similar
rights of any shareholder or in violation of any applicable securities laws.
Except as set forth above, or on Schedule 3.1.2, there are no shares of capital
stock of Total eMed authorized, issued or outstanding, and there are no
preemptive rights or any outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of Total eMed of any
character relating to the issued or unissued capital stock or other securities
of Total eMed. There are no outstanding obligations of Total eMed or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any of the outstanding
shares of capital stock of Total eMed or any of its Subsidiaries.
3.1.3 Authority. Total eMed has the corporate power and
authority and, except for the approval of its stockholders, has taken all
corporate action necessary to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly authorized by the Board of Directors of Total eMed, validly executed
and delivered by Total eMed. This Agreement constitutes the valid and binding
obligation of Total eMed, enforceable against Total eMed in accordance with its
terms, except as enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
3.1.4 Subsidiaries and Joint Ventures. Except as disclosed on
Schedule 3.1.4, Total eMed has no subsidiaries and owns no stock or other
interest in any other corporation or in any partnership or limited liability
company, or other venture or entity. Except as disclosed on Schedule 3.1.4,
Total eMed owns all of the issued and outstanding capital stock and other
ownership interests of each of its Subsidiaries, free and clear of all
encumbrances, and there are no existing options, warrants, calls, subscriptions,
convertible securities or other securities, commitments or obligations of any
character relating to the securities of any such Subsidiary.
3.1.5 Financial Statements. Attached hereto as Exhibit C are
the following consolidated financial statements (collectively the "Total eMed
Financial Statements"): audited consolidated balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1998 and December 31, 1999 (the "Most Recent Fiscal
Year End") for Total eMed. The Total eMed Financial Statements (including the
notes thereto) have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods covered thereby, present fairly in all material respects the
consolidated financial condition of Total eMed as of such dates and the
consolidated results of operations of Total eMed for such
8
periods, are correct and complete, and are consistent with the books and records
of Total eMed (which books and records are correct and complete in all material
respects).
3.1.6 Information Supplied. None of the information supplied
or to be supplied by Total eMed in writing specifically for inclusion or
incorporation by reference in (i) the registration statement on Form S-4 to be
filed with the Securities and Exchange Commission (the "SEC") by MDLI in
connection with the registration of the Merger Consideration, or any of the
amendments or supplements thereto (collectively, the "Form S-4"), will, at the
time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) the joint proxy statement for use relating to obtaining
approval of the shareholders of MDLI and Total eMed of the Merger (the "Proxy
Statement") will, at the time the Proxy Statement is first mailed to Total
eMed's stockholders or MDLI's shareholders or at the time of the MDLI Special
Meeting and Total eMed Special Meeting, 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, in light of the
circumstances under which they are made, not misleading, except that no
representation or warranty is made by Total eMed with respect to statements made
or incorporated by reference therein based on information contained therein
which is supplied by any other party including without limitation, (i)
information supplied by MDLI in writing specifically for inclusion or
incorporation by reference therein or (ii) information relating to MDLI which is
reviewed by MDLI without objection and with the knowledge it will be used in the
Proxy Statement.
3.1.7 Governmental Filings. Other than (a) the filing of the
Certificate of Merger contemplated by Article I, (b) the Proxy Statement
described in Section 3.1.6 and (c) the HSR Filing to be made by Total eMed and
described in Section 4.1.8, no notices, reports or other filings are required to
be made by Total eMed with, nor are any consents, registrations, approvals,
permits or authorizations required to be obtained by Total eMed from, any
domestic or foreign governmental or regulatory authority, agency, court,
commission or other entity ("Governmental Entity") in connection with the
execution and delivery of this Agreement by Total eMed and the consummation by
Total eMed of the transactions contemplated hereby.
3.1.8 No Adverse Consequences. Neither the execution and
delivery of this Agreement by Total eMed nor the consummation of the
transactions contemplated by this Agreement will (a) result in the creation or
imposition of any lien, charge, encumbrance or restriction on any of the assets
or properties of Total eMed, (b) violate any provision of the Certificate of
Incorporation or Bylaws of Total eMed, (c) violate any statute, judgment, order,
injunction, decree, rule, regulation or ruling of any Governmental Entity
applicable to Total eMed, or (d) either alone or with the giving of notice or
the passage of time or both, conflict with, constitute grounds for termination
of, accelerate the performance required by, accelerate the maturity of any
indebtedness or obligation under, result in the breach of the terms,
9
conditions or provisions of or constitute a default under any mortgage, deed of
trust, indenture, note, bond, lease, license, permit or other agreement,
instrument or obligation to which Total eMed is a party or by which any of them
are bound, except, in the case of clause (c) or (d), for violations, conflicts
or breaches that would not have a Material Adverse Effect on Total eMed.
3.1.9 Undisclosed Liabilities. Except for liabilities or
obligations which were incurred after the date of the Total eMed Financial
Statements in the ordinary course of business and of a type and in an amount
consistent with past practices, Total eMed has no material liability or
obligation (whether absolute, accrued, contingent, or otherwise, and whether due
or to become due) which is not accrued, reserved against, or identified on the
Total eMed Financial Statements or included in the notes thereto, except for
liabilities or obligations that would not have a Material Adverse Effect on
Total eMed.
3.1.10 Absence of Certain Changes or Events. Except as set
forth on Schedule 3.1.10, since the date of the Most Recent Fiscal Year End,
there has not been:
(a) Any Material Adverse Change in Total eMed; or
(b) Any change by Total eMed in accounting methods, principles
or practices.
3.1.11 Litigation. Except as listed on Schedule 3.1.11, no
material litigation, proceeding or governmental investigation is pending or, to
Total eMed's knowledge, threatened against or relating to Total eMed, its
officers or directors in their capacities as such, or any of Total eMed's
properties, businesses or Subsidiaries.
3.1.12 Employment Matters.
------------------
3.1.12.1 Labor Matters. Neither Total eMed nor any of
its Subsidiaries is a party to or otherwise subject to any collective bargaining
or other agreement governing the wages, hours or terms of employment of
employees. Total eMed and each of its Subsidiaries is and have been in material
compliance with all applicable laws regarding employment and employment
practices, terms and conditions of employment, wages and hours and is not and
has not been engaged in any unfair labor practice. There is no (a) unfair labor
practice complaint against Total eMed or any of its Subsidiaries pending before
the National Labor Relations Board or any other Governmental Entity, (b) labor
strike, slowdown or work stoppage actually occurring or, to the knowledge of
Total eMed, threatened against Total eMed or any of its Subsidiaries, (c)
representation petition respecting the employees of Total eMed or any of its
Subsidiaries pending before the National Labor Relations Board or similar
agency, or (d) grievance or any arbitration proceeding pending arising out of or
under collective bargaining agreements applicable to Total eMed or any of its
Subsidiaries. Total eMed and its Subsidiaries have not experienced any primary
work stoppage or other organized work stoppage involving their employees in the
past two years. Total eMed is not aware of any labor strike, slowdown, or work
stoppage occurring or, to the knowledge of Total eMed, threatened against any of
Total eMed's principal suppliers that might be expected to have a Material
10
Adverse Effect on Total eMed or its Subsidiaries. All of the employees of Total
eMed and its Subsidiaries working in the United States are citizens or permanent
residents of the United States. No employee of Total eMed or its Subsidiaries is
the beneficiary under an employer-sponsored non-immigrant visa and no approvals,
permits or consents of any governmental entity are required in order for Total
eMed or its Subsidiaries to employ any current employee as a result of or in
connection with such employee's immigration status in the United States. Total
eMed and its Subsidiaries have fully completed and retained a Form I-9 for each
of their employees in accordance with applicable law, and Total eMed and its
Subsidiaries are not its Subsidiaries is subject to examination in connection
with such forms or to any fines or other penalties under laws relating to
employees who are not authorized to work in the United States.
3.1.12.2 Employee Benefits. Schedule 3.1.12.2 lists
all pension, retirement, profit sharing, deferred compensation, bonus,
commission, incentive compensation (including cash, stock and option plans or
arrangements), life insurance, health and disability insurance, hospitalization
and all other employee benefit plans or arrangements (including, without
limitation, any contracts or agreements with trustees, insurance companies or
others relating to any such employee benefit plans or arrangements) established
or maintained by Total eMed or its Subsidiaries, and complete and accurate
copies of all those plans or arrangements have been provided to MDLI (the
"Employee Benefit Plans"). The Employee Benefit Plans are listed separately on
Schedule 3.1.12.2 and comply in all material respects with the requirements of
applicable law. None of the Employee Benefit Plans, their related trusts or any
trustee, investment manager or administrator thereof has engaged in a nonexempt
"prohibited transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code. Total eMed and its Subsidiaries have no obligation of
any kind (whether under the terms of the Employee Benefit Plans or under any
understanding with employees) to make payments under, or to pay contributions
to, any plan, agreement or other arrangement for deferred compensation of
employees, whether or not tax qualified, including, without limitation, a single
employer tax qualified plan, a tax qualified plan of a controlled group of
corporations, a multi-employer pension plan, a "defined benefit" plan, a
nonqualified deferred compensation plan, an individual employment or
compensation agreement or a commitment to provide medical benefits to retirees.
3.1.12.3 Employment Agreements. Except as set forth
on Schedule 3.1.12.3, each employee of Total eMed or its Subsidiaries is an
"at-will" employee and there are no written employment, commission or
compensation agreements of any kind between Total eMed or its Subsidiaries and
any employees. Schedule 3.1.12.3 lists all Total eMed's or its Subsidiaries'
employment or supervisory manuals, employment or supervisory policies, and
written information generally provided to employees (such as applications or
notices), and complete and accurate copies of those manuals, policies and
written information have been provided to MDLI. Total eMed and its Subsidiaries
do not have any agreements or understandings with employees, including without
limitation any agreements or understandings regarding compensation of any
nature, severance payments or retirement benefits, except as reflected in the
items listed in Schedules 3.1.12.2 and 3.1.12.3.
11
3.1.13 Title to and Condition of Real Property. Total eMed
does not own any real property. Schedule 3.1.13 contains a list of all real
property currently leased or occupied by Total eMed or its Subsidiaries (the
"Leased Real Property"), including the dates of and parties to all leases and
any amendments thereof and a list of all real property previously leased or
occupied by Total eMed or its Subsidiaries (the "Previously Leased Real
Property"). All Leased Real Property (including improvements thereon) is in
satisfactory condition and repair consistent with its present use, and is
available for immediate use in the conduct of Total eMed's business. Neither the
operations of Total eMed or its Subsidiaries on any Leased Real Property, nor
any improvements on the Leased Real Property, violates any applicable building
or zoning code or regulation of any governmental authority having jurisdiction,
except where such violation would not have a Material Adverse Effect on Total
eMed. The Leased Real Property includes all real property necessary to conduct
the business of Total eMed and its Subsidiaries as presently conducted. None of
the Leased Real Property has been condemned or otherwise taken by public
authority and no such condemnation is, to the knowledge of Total eMed,
threatened or contemplated.
3.1.14 Title to and Condition of Fixed Assets. Schedule 3.1.14
contains a complete and accurate list of all tangible personal property
(excluding inventory) owned or leased by Total eMed or its Subsidiaries (the
"Tangible Personal Property"), including the dates of and parties to all leases
and any amendments thereof except for items of Tangible Personal Property with a
cost basis of less than $25,000. Except as set forth in Schedule 3.1.14, Total
eMed or its Subsidiaries have good and marketable title to all of the Tangible
Personal Property, free and clear of all liens, mortgages, pledges, leases,
restrictions and other claims and encumbrances of any nature whatsoever (each, a
"Lien"), except for statutory liens and other Liens that would not materially
interfere with the intended use of such Tangible Personal Property. In all
material respects, the Tangible Personal Property is in good operating condition
and repair (ordinary wear and tear excepted), is performing satisfactorily, and
is adequate for the conduct of the business of Total eMed. All Tangible Personal
Property and the state of maintenance thereof are in compliance with all
applicable laws and regulations.
3.1.15 Intellectual Property.
---------------------
3.1.15.1 Definitions. For all purposes of this
Agreement, the following terms shall have the following respective meanings:
(i) "Technology" shall mean any or all of the
following: (A) works of authorship including, without limitation, computer
programs, source code and executable code, whether embodied in software,
firmware or otherwise, documentation, designs, files, net lists, records (not
including medical records), data and mask works; (B) inventions (whether or not
patentable), improvements and technology; (C) proprietary and confidential
information, including technical data and customer and supplier lists, trade
secrets and know how; (D) databases, data compilations and collections and
technical data; (E) logos, trade names, trade dress, trademarks and service
marks; (F) World Wide Web addresses, domain names and
12
sites; (G) tools, methods and processes; and (H) all instances of the foregoing
in any form and embodied in any media.
(ii) "Intellectual Property Rights" shall mean any or
all of the following and all rights in, arising out of, or associated therewith:
(A) all United States and foreign patents and utility models and applications
therefor and all reissues, divisions, re-examinations, renewals, extensions,
provisionals, continuations and continuations-in-part thereof and equivalent or
similar rights anywhere in the world in inventions and discoveries, including,
without limitation, invention disclosures ("Patents"); (B) all trade secrets and
other rights in know-how and confidential or proprietary information; (C) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world ("Copyrights"); (D) all mask
works, mask work registrations and applications therefor, and any equivalent or
similar rights in semiconductor masks, layouts, architectures or topology
("Maskworks"); (E) all industrial designs and any registrations and applications
therefor throughout the world; (F) all rights in World Wide Web addresses and
domain names and applications and registrations therefor; (G) all trade names,
logos, common law trademarks and service marks, trademark and service xxxx
registrations and applications therefor and all goodwill associated therewith
throughout the world ("Trademarks"); and (H) any similar, corresponding or
equivalent rights to any of the foregoing anywhere in the world.
(iii) "Total eMed Intellectual Property" shall mean
any Technology and Intellectual Property Rights including Total eMed Registered
Intellectual Property Rights (as defined below) that are owned (in whole or in
part) by Total eMed or any of its Subsidiaries.
(iv) "Registered Intellectual Property Rights" shall
mean all United States, international and foreign: (A) Patents, including
applications therefor; (B) registered Trademarks, applications to register
Trademarks, including intent-to-use applications, or other registrations or
applications related to Trademarks; (C) Copyright registrations and applications
to register Copyrights; (D) Maskwork registrations and applications to register
Maskworks; and (E) any other Technology that is the subject of an application,
certificate, filing, registration or other document issued by, filed with, or
recorded by, any state, government or other public or private legal authority at
any time, which application, certificate, filing, registration or other document
gives the owner thereof rights against a third party.
3.1.15.2 Schedule 3.1.15.2 lists all Registered
Intellectual Property Rights owned by, filed in the name of, or applied for, by
Total eMed or any of its Subsidiaries (the "Total eMed Registered Intellectual
Property Rights") and lists any proceedings or actions currently pending and
which Total eMed or any of its Subsidiaries have initiated or of which Total
eMed or any of its Subsidiaries have requested written notice before any court,
tribunal (including the United States Patent and Trademark Office (the "PTO") or
equivalent authority anywhere in the world) related to any of Total eMed
Registered Intellectual Property Rights or Total eMed Intellectual Property.
13
3.1.15.3 Each registration of Total eMed Registered
Intellectual Property Rights is valid and subsisting or pending, and all
necessary registration, maintenance and renewal fees that have come due in
connection with such Total eMed Registered Intellectual Property Rights have
been paid and all necessary documents and certificates that have come due in
connection with such Total eMed Registered Intellectual Property Rights have
been filed with the relevant patent, copyright, trademark or other authorities
in the United States or foreign jurisdictions, as the case may be, for the
purposes of maintaining such Registered Intellectual Property Rights. Except as
set forth on Schedule 3.1.15.3, there are no actions that must be taken by Total
eMed or any of its Subsidiaries within 120 days of the Closing Date, 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
Total eMed Registered Intellectual Property Rights. In each case in which Total
eMed or any of its Subsidiaries has acquired all rights, title and interest in,
as opposed to the right to use, any Technology or Intellectual Property Right
from any person, Total eMed or its Subsidiaries have obtained a valid and
enforceable assignment sufficient to irrevocably transfer all rights in such
Technology or Intellectual Property Rights to Total eMed or to its Subsidiaries,
except for such assignments that failure of which to obtain will not have a
Material Adverse Effect. Except as set forth on Schedule 3.1.15.3, neither Total
eMed nor its Subsidiaries has claimed a particular status, including "Small
Business Status," in the application for any Total eMed Intellectual Property
Rights, which claim of status was not at the time made, or which has since
become, inaccurate or false or that will no longer be true and accurate as a
result of the Closing.
3.1.15.4 Neither Total eMed nor its Subsidiaries has
knowledge of any facts or circumstances that would render any Total eMed
Intellectual Property invalid or unenforceable. Except as set forth on Schedule
3.1.15.4, Neither Total eMed nor any of its Subsidiaries knows of information,
materials, facts or circumstances, including any information or fact that would
constitute prior art, that would render any of Total eMed Registered
Intellectual Property Rights invalid or unenforceable, or would adversely effect
any pending application for any Total eMed Registered Intellectual Property
Right and neither Total eMed nor any of its Subsidiaries has knowledge of any
misrepresentation or failure to disclose, any fact or circumstances in any
application for any Total eMed Registered Intellectual Property Right that would
constitute fraud or a misrepresentation with respect to such application or that
would otherwise affect the validity or enforceability of any Total eMed
Registered Intellectual Property Right.
3.1.15.5 Each item of Total eMed Intellectual
Property is free and clear of any Liens except for non-exclusive licenses
granted to end-user customers in the ordinary course of business. The Total eMed
Intellectual Property is subject only to non-exclusive licenses granted to
distributors, resellers and end-users. Without limiting the foregoing, to the
knowledge of Total eMed or any of its Subsidiaries: (i) Total eMed and/or its
Subsidiaries is the exclusive owner(s) of all Trademarks used by Total eMed or
any of its Subsidiaries in connection with the operation or conduct of the
business of Total eMed or any
14
of its Subsidiaries, including the sale, licensing, distribution or provision of
any products or services by Total eMed or any of its Subsidiaries; and (ii)
except as set forth on Schedule 3.1.15.5, Total eMed or its Subsidiaries owns
exclusively, and has good title to, all copyrighted works created by Total eMed
or its Subsidiaries or which Total eMed or any of its Subsidiaries otherwise
purports to own.
3.1.15.6 Except as set forth in Schedule 3.1.15.6,
all Total eMed Intellectual Property will be fully transferable, alienable or
licensable by Surviving Corporation and/or MDLI without restriction to the
extent Total eMed or any of its Subsidiaries could do the same and except that
any such transfer, alienation or license shall be subject to non-exclusive
licenses granted to end user customers in the ordinary course of Total eMed's or
its Subsidiaries' business prior to the Merger and without payment of any kind
to any third party other than royalties and fees payable in the ordinary course
of Total eMed's or its Subsidiaries' business prior to the Merger.
3.1.15.7 To the extent that any Technology has been
developed or created by a third party for Total eMed or any of its Subsidiaries,
Total eMed or its Subsidiaries have a written agreement with such third party
with respect thereto and Total eMed or its Subsidiaries thereby either (i) have
obtained ownership of, and is the exclusive owner of, or (ii) have obtained a
license, in each case, sufficient for the conduct of its business as currently
conducted, to such third party's Intellectual Property Rights in such Technology
by operation of law or by valid assignment or license.
3.1.15.8 Except as set forth on Schedule 3.1.15.8 and
with the exception of "shrink-wrap" or similar widely-available commercial
end-user licenses, all Technology used in or to Total eMed's knowledge necessary
to the conduct of Total eMed's or any of its Subsidiaries' business as presently
conducted by Total eMed or its Subsidiaries was written and created solely by
either (i) employees of Total eMed or its Subsidiaries acting within the scope
of their employment or (ii) by third parties who have validly licensed rights to
Total eMed or its Subsidiaries or who have validly and irrevocably assigned all
of their rights, including Intellectual Property Rights therein, to Total eMed
or its Subsidiaries, and no third party owns or has any rights to any of Total
eMed or its Subsidiaries Intellectual Property.
3.1.15.9 The employees of Total eMed or any of its
Subsidiaries listed on Schedule 3.1.15.9 have entered into a valid and binding
written agreement with Total eMed or its Subsidiaries sufficient to vest title
in Total eMed or its Subsidiaries to all Technology, including without
limitation all Total eMed Intellectual Property, created by such employee in the
scope of his or her employment with Total eMed or its Subsidiaries.
3.1.15.10 Except as set forth on Schedule 3.1.15.10,
no person who has licensed Technology or Intellectual Property Rights to Total
eMed or any of its Subsidiaries has ownership rights or license rights to
improvements made by Total eMed or its Subsidiaries in such Technology or
Intellectual Property Rights.
15
3.1.15.11 Neither Total eMed nor any of its
Subsidiaries has transferred ownership of, or granted any exclusive license of
or right to use, or authorized the retention of any exclusive rights to use or
joint ownership of, any Technology or Intellectual Property Right that is
Intellectual Property, to any other person.
3.1.15.12 Schedule 3.1.15.12 lists material
contracts, licenses and agreements to which Total eMed or any of its
Subsidiaries is a party with respect to any Technology or Intellectual Property
Rights. Neither Total eMed nor any of its Subsidiaries are in breach of or have
failed to perform under, any of the foregoing contracts, licenses or agreements
and, to Total eMed's or its Subsidiaries' knowledge, no other party to any such
contract, license or agreement is in breach thereof or has failed to perform
thereunder, except for breaches or failures to perform that would not have a
Material Adverse Effect on Total eMed or any of its Subsidiaries.
3.1.15.13 Schedule 3.1.15.13 lists all material
contracts, licenses and agreements between Total eMed or any of its Subsidiaries
and any other person wherein or whereby Total eMed or its Subsidiaries have
agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse,
hold harmless, guaranty or otherwise assume or incur any obligation or liability
or provide a right of rescission with respect to the infringement or
misappropriation by Total eMed or its Subsidiaries or such other person of the
Intellectual Property Rights of any person other than Total eMed or its
Subsidiaries.
3.1.15.14 To the knowledge of Total eMed or any of
its Subsidiaries, there are no contracts, licenses or agreements between Total
eMed or its Subsidiaries and any other person with respect to Total eMed
Intellectual Property under which there is any dispute regarding the scope of
such agreement, or performance under such agreement, including with respect to
any payments to be made or received by Total eMed or any of its Subsidiaries
thereunder.
3.1.15.15 To the knowledge of Total eMed and any of
its Subsidiaries, the operation of the business of Total eMed and its
Subsidiaries as it currently is conducted, including but not limited to the
design, development, use, import, branding, advertising, promotion, marketing,
manufacture and sale of the products, technology or services (including
products, technology or services currently under development) of Total eMed and
its Subsidiaries does not and will not and will not when conducted by MDLI
and/or Surviving Corporation in the same manner following the Closing, infringe
or misappropriate any Intellectual Property Right of any person or constitute
unfair competition or trade practices under the laws of any jurisdiction, and
Total eMed and its Subsidiaries have not received written notice from any person
claiming, or has any reason to believe, that such operation or any act, product,
technology or service (including products, technology or services currently
under development) of Total eMed or any of its Subsidiaries infringes or
misappropriates any Intellectual Property Right of any person or constitutes
unfair competition or trade practices under the laws of any jurisdiction.
16
3.1.15.16 To Total eMed's or any of its Subsidiaries'
knowledge, no person is infringing or misappropriating any Total eMed
Intellectual Property.
3.1.15.17 No Total eMed Intellectual Property or
service of Total eMed or any of its Subsidiaries is subject to any proceeding of
which Total eMed or any of its Subsidiaries has received written notice or
outstanding decree, order, judgment or settlement agreement or stipulation that
restricts in any manner the use, transfer or licensing thereof by Total eMed or
any of its Subsidiaries or may affect the validity, use or enforceability of
such Total eMed Intellectual Property.
3.1.15.18 No (i) product, technology, service or
publication of Total eMed or any of its Subsidiaries, (ii) material published or
distributed by Total eMed or any of its Subsidiaries or (iii) conduct or
statement of Total eMed or any of its Subsidiaries constitutes obscene material,
a defamatory statement or material, false advertising or, to Total eMed's or any
of its Subsidiaries' knowledge, otherwise violates in any material respect any
law or regulation.
3.1.15.19 To Total eMed's or any of its Subsidiaries'
knowledge, except as set forth on Schedule 3.1.15.19, and except for Technology
or Intellectual Property subject to "shrink wrap" or similar widely available
commercial end user licenses, Total eMed Intellectual Property constitutes all
the Technology and Intellectual Property Rights used in and/or to our knowledge
necessary to the conduct of the business of Total eMed or its Subsidiaries as it
currently is conducted, including, without limitation, the design, development,
manufacture, use, import and sale of products, technology and performance of
services.
3.1.15.20 Except to the extent resulting from the
continuation of contracts and licenses of Total eMed or any of its Subsidiaries
following the Closing on the terms applicable prior to the Closing, and except
for the contracts identified in Schedule 3.1.15.20, neither this Agreement nor
the transactions contemplated by this Agreement by operation of law or
otherwise, of any contracts or agreements to which Total eMed or any of its
Subsidiaries is a party, will result in (i) the Surviving Corporation's granting
to any third party any right to or with respect to any Technology or
Intellectual Property Right owned by, or licensed to, either of them, (ii)
either MDLI's or the Surviving Corporation's being obligated to pay any
royalties or other amounts to any third party in excess of those payable by
Total eMed or any of its Subsidiaries, MDLI or Surviving Corporation,
respectively, prior to the Closing.
3.1.15.21 All Technology used in Total eMed's
products and services, and all Technology used in the operation of Total eMed's
or any of its Subsidiaries' business is Year 2000 compliant, except where the
failure to be Year 2000 compliant will not have a Material Adverse Effect. As
used in this agreement, "Year 2000 compliant" means that the Technology is
designed to be used prior to, during and after the calendar year 2000, and the
technology will accurately receive, provide and process date and time data
(including, but
17
not limited to, calculating, comparing and sequencing) from, into and between
the 20th and 21st centuries, including the years 1999 and 2000, and leap-year
calculations and will not malfunction, cease to function, or provide invalid or
incorrect results as a result of date and time data, to the extent that other
Technology used in combination with the Technology that is the subject of this
representation, properly exchanges date and time data with it.
3.1.16 Certain Contracts and Arrangements. Schedule 3.1.16,
which is organized by type of agreement, contains a complete and accurate list
of each of the following types of agreements or arrangements, including any
amendments thereto, to which Total eMed or any of its Subsidiaries is a party or
by which it is bound:
(a) any mortgage, note or other instrument or agreement
relating to the borrowing of money or the incurrence of indebtedness or the
guaranty of any obligation for the borrowing of money;
(b) any contract, agreement, purchase order or acknowledgment
form for the purchase, sale, lease or other disposition of equipment, products,
materials or capital assets, or for the performance of services (including
without limitation consulting services), with respect to which the annual
aggregate dollar amount either due to or payable by Total eMed or its
Subsidiaries exceeds $50,000;
(c) contracts or agreements for the joint performance of work
or services, and all other joint venture agreements;
(d) written contracts or agreements with agents, brokers,
consignees, sales representatives or distributors relating to the sale of
products or services in excess of $50,000;
(e) confidentiality or inventions assignment agreements with
parties other than employees of Total eMed; and
(f) any other contract, instrument, agreement or obligation
not described in any other Schedule which contains unfulfilled obligations, is
not terminable without payment of premium or penalty upon 30 days' notice or
less and the annual amount either due to or payable by Total eMed or its
Subsidiaries exceeds $50,000 for any single contract or $100,000 in the
aggregate.
3.1.17 Status of Contracts. Each of the contracts, agreements,
commitments and instruments listed on Schedules 3.1.13, 3.1.14, 3.1.15, and
3.1.16 (collectively, the "Contracts") is in full force and effect and is valid,
binding and enforceable by or its Subsidiaries in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought. There is no existing
default or violation by Total eMed or its Subsidiaries under any Contract and no
event has occurred which (whether with or without
18
notice, lapse of time or both) would constitute a default of Total eMed or its
Subsidiaries under any Contract, except for such defaults as would not in the
aggregate have a Material Adverse Effect. There is no pending or threatened
proceeding which would interfere with the quiet enjoyment of any leasehold of
which Total eMed or any of its Subsidiaries is lessee or sublessee. Complete and
accurate copies of all Contracts have been delivered to MDLI. Total eMed is not
aware of any default by any other party to any Contract or of any event which
(whether with or without notice, lapse of time or both) would constitute a
material default by any other party with respect to obligations of that party
under any Contract, and, to the knowledge of Total eMed, there are no facts that
exist indicating that any of the Contracts may be totally or partially
terminated or suspended by the other parties, except for defaults that would not
have a Material Adverse Effect on Total eMed or its Subsidiaries. Total eMed has
not granted any waiver or forbearance with respect to any of the Contracts.
3.1.18 Insurance. Schedule 3.1.18 contains a complete and
accurate list of all policies of fire, liability, worker's compensation and
other forms of insurance insuring Total eMed, its officers or directors, its
assets or its operations (the "Policies"), setting forth the applicable
deductible amounts. All of the Policies are valid, enforceable and in full force
and effect, all premiums with respect to the Policies covering all periods up to
and including the date as of which this representation is being made have been
paid and no notice of cancellation or termination has been received with respect
to any Policy. The Policies are sufficient for compliance with all requirements
of law and agreements to which Total eMed or any of its Subsidiaries is a party,
and Total eMed believes the Policies are sufficient to provide insurance for the
risks and in the amounts and types of coverage necessary for the operation of
Total eMed's and its Subsidiaries' businesses. There have been no claims made
for insurance payment under any of the Policies in the three years preceding the
date of this Agreement. Complete and accurate copies of the Policies and all
endorsements thereto have been delivered to MDLI. Total eMed has not been
refused any insurance coverage and no insurance coverage has been canceled
during the three years preceding the date of this Agreement.
3.1.19 Permits and Licenses. Schedule 3.1.19 contains a
complete and accurate list of all material governmental licenses, permits,
franchises, easements and authorizations (collectively, "Permits") held by Total
eMed or its Subsidiaries, listed by Governmental Entity. Each of Total eMed and
its Subsidiaries holds, and at all times has held, all Permits necessary for the
lawful conduct of its business pursuant to all applicable statutes, laws,
ordinances, rules and regulations of all Governmental Entities having
jurisdiction over it or any part of its operations, except for Permits the
failure of which to obtain would not have a Material Adverse Effect on Total
eMed or its Subsidiaries. Each of Total eMed and its Subsidiaries is in material
compliance with each of the terms of the applicable Permits listed on Schedule
3.1.19, and there are no claims of violation by Total eMed or any of its
Subsidiaries of any of such Permits. Complete and accurate copies of all Permits
held by Total eMed and its Subsidiaries have been delivered to MDLI. All
Governmental Entities that have issued any Permits to or with respect to Total
eMed or its business have consented to the consummation of the transactions
contemplated by this Agreement without requiring modification of the rights or
obligations of Total eMed or is Subsidiaries under any of such Permits.
19
3.1.20 Taxes.
-----
3.1.20.1 Returns. Except as set forth on Schedule
3.1.20, Total eMed has filed on a timely basis all federal, state, local,
foreign and other returns, reports, forms, declarations and information returns
required to be filed by them with respect to Taxes (as defined below) which
relate to the business, results of operations, financial condition, properties
or assets of Total eMed for all periods (collectively, the "Returns") and have
paid on a timely basis all Taxes shown to be due on the Returns. All Returns
filed are complete and accurate in all material respects and no additional Taxes
are owed by Total eMed with respect to the periods covered by the Returns or for
any other period. Total eMed has provided MDLI with complete and accurate copies
of all Returns for each of Total eMed's fiscal years. Total eMed has never been
a member of an affiliated group filing consolidated returns and has no any
liability for Taxes of any person (other than itself), whether arising under
federal, state, local or foreign law, as a transferee or successor, by contract,
pursuant to Treas Reg ss. 1.1502-6 or otherwise. Except as set forth on Schedule
3.1.20, Total eMed is not currently the beneficiary of any extension of time
within which to file any Return. Except as set forth on Schedule 3.1.20, no
Returns have been examined by the applicable taxing authorities for any period
and, except as set forth on Schedule 3.1.20, Total eMed has not received any
notice of audit or review with respect to any Return or any fiscal year, has no
knowledge of any planned audit or review, and there are no outstanding
agreements or waivers extending the applicable statutory periods of limitation
for Taxes for any period. No claim has ever been made by an authority in a
jurisdiction where Total eMed does not file Returns that Total eMed is or may be
subject to taxation by that jurisdiction. All Taxes that are or have been
required to be withheld or collected by Total eMed or its predecessors have been
duly withheld and collected and, to the extent required, have been properly paid
or deposited as required by applicable laws. Neither Total eMed nor any of its
predecessors has made any payment, or is obligated to make any payment, or is a
party to an agreement that in certain circumstances could obligate it to make a
payment, that is not deductible under Section 280G of the Code. Except as set
forth in Schedule 3.1.20, Total eMed is not an obligor on, and none of its
assets have been financed directly or indirectly by, any tax exempt bonds. Total
eMed is not now nor during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code has ever been a United States real property holding
corporation as defined in Section 897(c)(2) of the Code. Total eMed has not
filed a consent pursuant to Section 341(f) of the Code nor has Total eMed agreed
to have Section 341(f)(2) of the Code apply to any disposition of a subsection
(f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by
Total eMed.
3.1.20.2 Taxes Paid or Reserved. The unpaid Taxes of
Total eMed (a) did not as of the Most Recent Fiscal Year End exceed the reserve
for Tax liability (rather than any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth on the face of
the Total eMed Financial Statements (rather than in any notes thereto) and (b)
do not exceed that reserve as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of Total eMed in
filing its Returns.
20
3.1.20.3 Definitions. The term "Taxes" shall mean all
federal, state, local or foreign taxes, charges, fees, levies or other
assessments, however documented, including, without limitation, all net income,
gross income, gross receipts, premium, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise, estimated
severance, stamp, occupation, property, transfer, workers' compensation, Pension
Benefit Guaranty Corporation premiums, or other taxes, fees, assessments or
charges of any kind whatsoever that Total eMed is required to pay or collect,
together with any interest and any penalties (including penalties for failure to
file in accordance with applicable information reporting requirements), and
additions to tax.
3.1.21 Related Party Interests. Except as listed in Schedule
3.1.21, no shareholder, officer or director of Total eMed (or any entity owned
or controlled by one or more of such parties) (a) has any interest in any
property, real or personal, tangible or intangible, used in or pertaining to
Total eMed's business, (b) is indebted to Total eMed or any of its Subsidiaries,
or (c) to the knowledge of Total eMed has any financial interest, direct or
indirect, in any supplier or customer of, or other outside business which has
significant transactions with Total eMed. True and complete copies of all
agreements listed on Schedule 3.1.21 have been provided to MDLI. Total eMed is
not indebted to any of its shareholders, directors or officers (or any entity
owned or controlled by one or more of such parties) except for amounts due under
normal salary arrangements and for reimbursement of ordinary business expenses.
The consummation of the transactions contemplated by this Agreement will not
(either alone or upon the occurrence of any act or event, or with the lapse of
time, or both) result in any payment (severance or other) becoming due from
Total eMed to any of its shareholders, officers, directors or employees (or any
entity owned or controlled by one or more of such parties).
3.1.22 No Powers of Attorney or Restrictions. No power of
attorney or similar authorization given by Total eMed or any of its Subsidiaries
is presently in effect or outstanding. No contract or agreement to which Total
eMed or any of its Subsidiaries is a party or is bound or to which any of its
properties or assets is subject limits the freedom of Total eMed to compete in
any line of business or with any person. To the knowledge of Total eMed none of
the employees of Total eMed or its Subsidiaries is obligated under any contract
(including licenses, covenants or commitments of any nature), or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with the use of his or her best efforts to promote the interests of
Total eMed or any of its Subsidiaries or that would conflict with the business
of Total eMed or its Subsidiaries as now conducted or proposed to be conducted.
21
3.1.23 Environmental Conditions.
------------------------
3.1.23.1 Compliance. The business and assets of Total
eMed and its Subsidiaries, including without limitation the Leased Real Property
and, during the term of possession by Total eMed, the Previously Leased Real
Property, are and have been in compliance with all Environmental Laws (as
defined below) and all Permits required under any Environmental Laws are listed
separately in Schedule 3.1.19. There are no pending or threatened claims,
actions or proceedings against Total eMed or any of its Subsidiaries under any
Environmental Law or related Permit. All wastes generated in connection with the
business of Total eMed and its Subsidiaries are and have been transported and
disposed of off-site in compliance with all Environmental Laws, and true and
correct logs of such transportation and disposal have been made available to
MDLI.
3.1.23.2 Hazardous Substances. To the knowledge of
Total eMed, no Hazardous Substance has been disposed of, spilled, leaked or
otherwise released on, in, under or from the Leased Real Property or the
Previously Leased Real Property or has otherwise come to be located in the soil
or water (including surface and ground water) on or under the Leased Real
Property or the Previously Leased Real Property, in each case while such
property was leased by Total eMed. To the knowledge of Total eMed, none of the
assets of Total eMed or its Subsidiaries, or the improvements on the Leased Real
Property or the Previously Leased Real Property, have incorporated into them any
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls
(including in any electrical transformer or capacitor located on such property),
or any other Hazardous Substance which is prohibited, restricted or regulated
when present in buildings, structures, fixtures or equipment. To the knowledge
of Total eMed, no Hazardous Substance is or has been generated, manufactured,
treated, stored, transported, used or otherwise handled on the Leased Real
Property or the Previously Leased Real Property or in connection with the
business of Total eMed or its Subsidiaries while occupied by Total eMed or its
Subsidiaries. To the knowledge of Total eMed, there are not and never have been
any above-ground or underground storage tanks on the Leased Real Property or on
the Previously Leased Property (whether or not regulated and whether or not out
of service, closed or decommissioned).
3.1.23.3 Filings and Notices. Total eMed and its
Subsidiaries have timely filed all required reports, obtained all required
approvals and permits, and generated and maintained all required data,
documentation and records under all applicable Environmental Laws. All
notifications required by any Environmental Law in respect of any discharge,
release or emission, including any notices required to be provided under any
applicable state or local law, if any, have been made within the time prescribed
by such Environmental Law, and copies of all such notifications have been
provided to MDLI. No part of the Leased Real Property or the Previously Leased
Real Property is listed as a site contaminated by Hazardous Substances pursuant
to any Environmental Law.
3.1.23.4 Definitions. As used in this Agreement, (a)
"Environmental Law" means any federal, state, foreign or local statute,
ordinance or
22
regulation pertaining to the protection of human health or the environment and
any applicable orders, judgments, decrees, permits, licenses or other
authorizations or mandates under such statutes, ordinances or regulations, and
(b) "Hazardous Substance" means any hazardous, toxic, radioactive or infectious
substance, material or waste as defined, listed or regulated under any
Environmental Law, and includes without limitation radioactive material and
petroleum oil and its fractions.
3.1.24 Consents and Approvals. Except as set forth in Section
3.1.7, no consent, approval, or authorization of, or filing or registration
with, any court, regulatory authority, governmental body, or any other entity or
person not a party to this Agreement is required to be obtained by Total eMed or
any of its Subsidiaries for the consummation of the transactions described in
this Agreement, except for consents, approvals, authorizations, filings or
registrations that would not have a Material Adverse Effect on Total eMed or its
Subsidiaries.
3.1.25 Brokers and Finders. Except for fees owing to Credit
Suisse First Boston Corporation, Total eMed has not incurred any liability for
any brokerage or investment banking fees, commissions or finders' fees in
connection with the Merger.
3.1.26 [Intentionally Omitted].
----------------------
3.1.27 No Other Agreements to Sell Total eMed or Its Assets.
Except as set forth in Schedule 3.1.27, Total eMed has no legal obligation,
absolute or contingent, to any other person to sell any material portion of
Total eMed's assets, to sell the capital stock or other ownership interests of
Total eMed, or to effect any merger, consolidation or other reorganization of
Total eMed of any of its Subsidiaries or to enter into any agreement with
respect thereto. As of the date hereof, Total eMed is not engaged, directly or
indirectly, in any discussions or negotiations with any other party with respect
to an Acquisition Transaction, as defined in Section 4.2.2.
3.1.28 Vote Required. The approval by a majority of the voting
power represented by the outstanding shares of Total eMed Common Stock and by
each class of Total eMed Preferred Stock (each voting separately as a class) is
the only vote of the holders of any class or series of Total eMed capital stock
necessary to approve the transactions contemplated by this Agreement.
3.1.29 Certain Representations and Warranties Regarding Code
Section 368(a)(2)(E).
-----------------------------------------------------
3.1.29.1 Immediately following the Merger, Surviving
Corporation will hold at least 90 percent of the fair market value of Total
eMed's net assets and at least 70 percent of the fair market value of Total
eMed's gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Total eMed to its shareholders who receive cash
or other property, Total
23
eMed assets used to pay its reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Total eMed prior to
and in connection with the Merger, will be included as assets of Total eMed held
immediately prior to the Merger.
3.1.29.2 There is no intercorporate indebtedness
existing between MDLI and Total eMed or between Merger Corp. and Total eMed that
was issued, acquired, or will be settled at a discount.
3.1.29.3 Total eMed has no plan or intention to issue
additional shares of its stock that would result in MDLI losing control of Total
eMed within the meaning of Section 368(c) of the Code. At the time of the
Merger, Total eMed will not have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any person could
acquire stock in Total eMed that, if exercised or converted, would affect MDLI's
acquisition or retention or control of Surviving Corporation, as defined in
Section 368(c) of the Code. As defined in Section 368(c) of the Code, "control"
means the ownership of stock possessing at least 80 percent of the total
combined voting power of all classes of stock entitled to vote and at least 80
percent of the total number of shares of all other classes of stock.
3.1.29.4 Total eMed is not an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.1.29.5 On the date of the Merger, the fair market
value of the assets of Total eMed will exceed the sum of its liabilities plus
the amount of liabilities, if any, to which its assets are subject.
3.1.29.6 Total eMed is not under the jurisdiction of
a court in a title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
3.1.29.7 None of the compensation received by any
shareholder-employee of Total eMed will be separate consideration for, or
allocable to, any of his or her shares of Total eMed stock; none of the shares
of MDLI stock received by any shareholder-employee will be separate
consideration for, or allocable to, any employment agreement; and the
compensation paid to any shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services.
3.1.29.8 Except as listed on Schedule 3.1.29.8,
during the past five years, neither Total eMed nor any person related to Total
eMed (as defined in Treas Reg ss. 1.368-1(e)(3)) has directly or through any
transaction, agreement, or arrangement with any other person, (i) acquired stock
of Total eMed with consideration other than common stock of MDLI or Total eMed,
or (ii) redeemed or made distributions with respect to Total eMed stock.
3.1.29.9 Total eMed has not paid dividends financed,
directly or indirectly, with borrowed funds.
24
3.1.29.10 No Total eMed shareholder has guaranteed
any debt of Total eMed.
3.1.29.11 Except as otherwise provided in this
Agreement, Total eMed will pay its own expenses, if any, incurred in connection
with the Merger and will not pay expenses of MDLI or Merger Corp.
3.1.29.12 For purposes of satisfying the requirements
of Treas Regss. 1.368-1(d), Total eMed's significant historic lines of business
are medical record transcription and related services to healthcare providers
practicing in outpatient settings.
3.1.29.13 In the Merger, shares of Total eMed stock
representing control of Total eMed, as defined in Section 368(c) of the Code,
will be exchanged solely for voting stock of MDLI.
3.2 Representations and Warranties of MDLI. MDLI hereby represents and
warrants to Total eMed that, except as specifically set forth in Schedule 3.2
(the "MDLI Disclosure Schedule") in a numbered paragraph that corresponds to the
section for which disclosure is made:
3.2.1 Organization and Status. MDLI is a corporation duly
organized and validly existing under the laws of its jurisdiction of
incorporation and is duly qualified and in good standing as a foreign
corporation in each jurisdiction where the properties owned, leased or operated,
or the business conducted, by it require such qualification, except where the
failure to so qualify or be in good standing, when taken together with all such
failures, would not have a Material Adverse Effect on MDLI. MDLI has all
requisite corporate power and authority to own, operate and lease its property
and to carry on its businesses as they are now being conducted.
3.2.2 Corporate Authority. MDLI has the corporate power and
authority and has taken all corporate action necessary to execute and deliver
this Agreement and, upon receipt of the shareholder approval contemplated in
Section 4.1.2, to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized by the Board of Directors of MDLI
and duly and validly executed and delivered by MDLI and as of the Closing Date
will be validly authorized by MDLI shareholders. This Agreement constitutes the
valid and binding obligation of MDLI, enforceable in accordance with its terms,
except as enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and except that the availability of the equitable
remedy of specific performance or injunctive relief is subject to the discretion
of the court before which any proceeding may be brought.
3.2.3 Governmental Filings. Other than (a) the filing of the
Certificate of Merger contemplated by Article I, (b) the HSR Filing to be made
by MDLI and Total eMed described in Section 4.1.8 and (c) the Form S-4 and Proxy
Statement described in Section 4.1.1, no notices, reports or other filings are
required to be made by MDLI with, nor are any
25
consents, registrations, approvals, permits or authorizations required to be
obtained by MDLI from, any Governmental Entity in connection with the execution
and delivery of this Agreement by MDLI and the consummation by MDLI of the
transactions contemplated hereby.
3.2.4 Information Supplied. None of the information supplied
or to be supplied by MDLI specifically for inclusion or incorporation by
reference in the Form S-4 or the Proxy Statement for use relating to
registration of the Merger Consideration or to obtain approval of the
shareholders of MDLI and Total eMed of the Merger, respectively, will, at the
time the Form S-4 is filed with the SEC or at the time the Proxy Statement is
first mailed to Total eMed's stockholders or MDLI's shareholders or at the time
of the MDLI Special Meeting and Total eMed Special Meeting, respectively,
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, in light of the circumstances under which they are made, not
misleading, except that no representation or warranty is made by MDLI with
respect to statements made or incorporated by reference therein based on (i)
information supplied by Total eMed in writing specifically for inclusion or
incorporation by reference therein or (ii) information relating to Total eMed
which is reviewed by Total eMed without objection and with knowledge that it
will be used in the Form S-4 or the Proxy Statement.
3.2.5 SEC Reports and Financial Statements. MDLI has filed
with the SEC, and has made available to Total eMed true and complete copies of,
all forms, reports, schedules, statements, and other documents required to be
filed by it since September 30, 1999 under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") or the Securities Act (each of such forms,
reports, schedules, statements, and other documents, to the extent filed and
publicly available before the date of this Agreement, other than preliminary or
pre-effective filings, is referred to as a "MDLI SEC Document"). Each MDLI SEC
Document, at the time filed, (a) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading and (b) complied in all material
respects with the applicable requirements of the Exchange Act and the Securities
Act, as the case may be, and the applicable rules and regulations of the SEC
thereunder. The financial statements included in the MDLI SEC Documents (the
"MDLI Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present
in all material respects (subject, in the case of the unaudited statements, to
normal, recurring audit adjustments) the consolidated financial position of MDLI
and its consolidated subsidiaries as at the dates thereof, the consolidated
results of their operations and cash flows for the periods then ended, are
correct and complete, and are consistent with the books and records of MDLI
(which books and records are correct and complete in all material respects).
26
3.2.6 No Adverse Consequences. Neither the execution and
delivery of this Agreement by MDLI nor the consummation of the transactions
contemplated by this Agreement will (a) result in the creation or imposition of
any Lien on any of the assets or properties of MDLI, (b) violate any provision
of the Articles of Incorporation or Bylaws of MDLI, (c) to the knowledge of
MDLI, violate any statute, judgment, order, injunction, decree, rule, regulation
or ruling of any governmental authority applicable to MDLI, or (d) either alone
or with the giving of notice or the passage of time or both, conflict with,
constitute grounds for termination of, accelerate the performance required by,
accelerate the maturity of any indebtedness or obligation under, result in the
breach of the terms, conditions or provisions of or constitute a default under
any mortgage, deed of trust, indenture, note, bond, lease, license, permit or
other agreement, instrument or obligation to which either MDLI is a party or by
which any of them is bound.
3.2.7 Brokers and Finders. Except for fees to be paid by MDLI
to Xxxxxxxxx, Xxxxxx & Xxxxxxxx in connection with a fairness opinion, MDLI has
not incurred any liability for any brokerage or investment banking fees,
commissions or finders' fees in connection with the Merger.
3.2.8 Opinion of MDLI Financial Advisor. The Board of
Directors of MDLI has received from Xxxxxxxxx, Lufkin & Xxxxxxxx an opinion as
to the fairness from a financial point of view of the ratio to be applied for
the exchange of common stock in the Merger. A copy of such opinion is attached
hereto as Exhibit D.
3.2.9 Certain Representations and Warranties Regarding Code
Section 368(a)(2)(E).
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3.2.9.1 Immediately following the Merger, Surviving
Corporation will hold at least 90 percent of the fair market value of Merger
Corp.'s net assets and at least 70 percent of the fair market value of Merger
Corp.'s gross assets held immediately prior to the Merger. For purposes of this
representation, amounts paid by Merger Corp. to Total eMed shareholders who
receive cash or other property and Merger Corp. assets used to pay
reorganization expenses will be included as assets of Merger Corp. held
immediately prior to the Merger.
3.2.9.2 Prior to the Merger, MDLI will be in control
of Merger Corp. within the meaning of Section 368(c) of the Code.
3.2.9.3 MDLI has no plan or intention to cause or
allow Surviving Corporation to issue additional shares of its stock that would
result in MDLI losing control of Surviving Corporation within the meaning of
Section 368(c) of the Code.
3.2.9.4 Prior to or in the Merger, neither MDLI nor
any person related to MDLI (as defined in Treas Reg ss. 1.368-1(e)(3)) will have
acquired directly or through any transaction, agreement or arrangement with any
other person, stock of Total eMed with consideration other than common stock of
MDLI. There is no plan or intention by MDLI or
27
any person related to MDLI (as defined in Treas Reg ss. 1.368-1(e)(3)) to
acquire or redeem any of the stock of MDLI issued in the Merger either directly
or through any transaction, agreement, or arrangement with any other person.
3.2.9.5 MDLI has no plan or intention to liquidate
Surviving Corporation; to merge Surviving Corporation with and into another
corporation; to sell or otherwise dispose of the stock of Surviving Corporation;
or to cause Surviving Corporation to sell or otherwise dispose of any of the
assets of Total eMed or Merger Corp., except for dispositions made in the
ordinary course of business or transfers of assets to a corporation controlled
by Surviving Corporation.
3.2.9.6 Merger Corp. will have no liabilities assumed
by Surviving Corporation and will not transfer to Surviving Corporation in the
Merger any assets subject to liabilities.
3.2.9.7 Following the Merger, MDLI will cause
Surviving Corporation to continue the historic business of Total eMed or use a
significant portion of Total eMed's business assets in a business.
3.2.9.8 MDLI does not own, nor has it owned during
the past five years, any shares of the stock of Total eMed.
3.2.9.9 MDLI is not an investment company as defined
in Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.2.9.10 The payment of cash in lieu of fractional
shares of MDLI stock is solely for the purpose of avoiding the expense and
inconvenience to MDLI of issuing fractional shares and does not represent
separately bargained-for consideration. The total cash consideration that will
be paid in the Merger to the Total eMed shareholders instead of issuing
fractional shares of MDLI stock will not exceed one percent of the total
consideration that will be issued in the Merger to the Total eMed shareholders
in exchange for their shares of Total eMed stock. The fractional share interests
of each Total eMed shareholder will be aggregated, and no Total eMed shareholder
will receive cash in an amount equal to or greater than the value of one full
share of MDLI stock.
3.2.9.11 Following and in connection with the Merger,
MDLI will not transfer any shares of Total eMed Common Stock to (a) a
corporation that is not a member of MDLI's "qualified group" as defined in Treas
Reg ss. 1.368-1(d)(4)(ii) or (b) a partnership.
3.2.9.12 MDLI will not redeem any of the MDLI Common
Stock exchanged for Total eMed Common Stock in connection with the Merger, other
than pursuant to an ongoing stock repurchase program not created or modified in
connection with the Merger.
28
3.2.9.13 No person related to MDLI, as defined in
Treas Regss.1.368-1(e)(3) will acquire, with consideration other than a
proprietary interest in MDLI, Total eMed Common Stock exchanged for MDLI Common
Stock in the Merger.
3.2.9.14 Except as otherwise provided in this
Agreement, MDLI will pay its own expenses, if any, incurred in connection with
the Merger and will not pay expenses of Total eMed.
3.2.9.15 In the Merger, shares of Total eMed stock
representing control of Total eMed, as defined in Section 368(c) of the Code,
will be exchanged solely for voting stock of MDLI.
3.2.10 Litigation. Except as listed on Schedule 3.2.10, no
material litigation, proceeding or governmental investigation is pending or, to
MDLI's knowledge, threatened against or relating to MDLI, its officers or
directors in their capacities as such, or any of MDLI's properties or
businesses.
3.2.11 Capitalization. MDLI has authorized capital stock
consisting of 100,000,000 shares of MDLI Common Stock, no par value, of which
30,776,975 shares were outstanding on December 31, 1999 and 50,000,000 shares of
Preferred Stock, of which no shares were outstanding on December 31, 1999. As of
November 30, 1999, a total of options to purchase 2,878,560 shares of MDLI
Common Stock were outstanding pursuant to grants made under MDLI's 1996 Stock
Incentive Plan and MDLI's 1993 Stock Incentive Plan. All of the outstanding
shares of capital stock of MDLI have been duly authorized and are validly
issued, fully paid and nonassessable, and no shares were issued, and no options
were granted, in violation of preemptive or similar rights of any shareholder or
in violation of any applicable securities laws. Except as set forth above, or on
Schedule 3.2.11, there are no shares of capital stock of MDLI authorized, issued
or outstanding, and there are no preemptive rights or any outstanding
subscriptions, options, warrants, rights, convertible securities or other
agreements or commitments of MDLI of any character relating to the issued or
unissued capital stock or other securities of MDLI. There are no outstanding
obligations of MDLI to repurchase, redeem or otherwise acquire any of its
outstanding shares of capital stock. All shares of MDLI Common Stock to be
issued and delivered in the Merger shall be, at the time of such issuance and
delivery, validly issued, fully paid and nonassessable shares of MDLI Common
Stock, free of all preemptive rights.
3.2.12 Undisclosed Liabilities. Except for liabilities or
obligations which were incurred after September 30, 1999 in the ordinary course
of business and of a type and in an amount consistent with past practices, MDLI
has no material liability or obligation (whether absolute, accrued, contingent
or otherwise, and whether due or to become due) which is not accrued, reserved
against, or identified in the most recent MDLI Financial Statements.
3.2.13 Absence of Certain Changes or Events. Except as set
forth on Schedule 3.2.13, since September 30, 1999 there has not been a Material
Adverse Change.
29
3.2.14 Taxes.
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3.2.14.1 Returns. MDLI has filed on a timely basis
all federal, state, local, foreign and other returns, reports, forms,
declarations and information returns required to be filed by them with respect
to Taxes which relate to the business, results of operations, financial
condition, properties or assets of MDLI for all periods (collectively, the "MDLI
Returns") and has paid on a timely basis all Taxes shown to be due on the MDLI
Returns. All MDLI Returns filed are complete and accurate in all material
respects and no additional Taxes are owed by MDLI or its subsidiaries with
respect to the periods covered by the MDLI Returns or for any other period. MDLI
has no any liability for Taxes of any person (other than themselves), whether
arising under federal, state, local or foreign law, as a transferee or
successor, by contract, pursuant to Treas Reg ss. 1.1502-6 or otherwise. Except
as set forth on Schedule 3.2.14, MDLI is not currently the beneficiary of any
extension of time within which to file any MDLI Return. Except as set forth on
Schedule 3.2.14, no MDLI Returns have been examined by the applicable taxing
authorities and, except as set forth on Schedule 3.2.14, MDLI has not received
any notice of audit or review with respect to any MDLI Return or any fiscal
year, has no knowledge of any planned audit or review, and there are no
outstanding agreements or waivers extending the applicable statutory periods of
limitation for Taxes for any period. No claim has ever been made by an authority
in a jurisdiction where MDLI does not file MDLI Returns that they are or may be
subject to taxation by that jurisdiction. All Taxes that are or have been
required to be withheld or collected by MDLI or its predecessors have been duly
withheld and collected and, to the extent required, have been properly paid or
deposited as required by applicable laws. Neither MDLI nor any of its
predecessors has made any payment, or is obligated to make any payment, or is a
party to an agreement that in certain circumstances could obligate it to make a
payment, that is not deductible under Section 280G of the Code. Except as set
forth in Schedule 3.2.14, MDLI is not an obligor on, and none of its assets have
been financed directly or indirectly by, any tax exempt bonds. MDLI is not now
nor during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code has ever been a United States real property holding corporation as defined
in Section 897(c)(2) of the Code. MDLI has not filed a consent pursuant to
Section 341(f) of the Code nor has MDLI agreed to have Section 341(f)(2) of the
Code apply to any disposition of a subsection (f) asset (as such term is defined
in Section 341(f)(4) of the Code) owned by MDLI.
3.2.14.2 Taxes Paid or Reserved. The unpaid Taxes of
MDLI (A) did not as of December 31, 1999 exceed the reserve for Tax liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the most
recent balance sheet included in an MDLI SEC Document (rather than in any notes
thereto) and (B) do not exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of MDLI
in filing its MDLI Returns.
30
3.2.15 Related Party Interests. There are no other material
related-party transactions, as defined under Regulation S-K of the Securities
Act, other than those listed on Schedule 3.2.15.
3.2.16 No Powers of Attorney or Restrictions. No power of
attorney or similar authorization given by MDLI is presently in effect or
outstanding. No contract or agreement to which MDLI is a party or is bound or to
which any of its properties or assets is subject limits the freedom of MDLI to
compete in any line of business or with any person. To the knowledge of MDLI
none of the employees of MDLI is obligated under any contract (including
licenses, covenants or commitments of any nature), or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his or her best efforts to promote the interests of MDLI or that
would conflict with the business of MDLI as now conducted or proposed to be
conducted.
3.2.17 Consents and Approvals. Except as set forth in Section
3.2.3, no consent, approval, or authorization of, or filing or registration
with, any court, regulatory authority, governmental body, or any other entity or
person not a party to this Agreement is required to be obtained by MDLI for the
consummation of the transactions described in this Agreement.
3.3 Representations and Warranties Relating to Merger Corp. MDLI and
Merger Corp. hereby represent and warrant to Total eMed that:
3.3.1 Organization and Status. Merger Corp. is a corporation
duly organized and validly existing under the laws of the State of Delaware.
Merger Corp. does not own any properties (other than the initial cash
subscription for shares) nor has it commenced any business or operations.
3.3.2 Capitalization. Merger Corp. has an authorized capital
stock consisting of 100 shares of Common Stock. All of the issued and
outstanding shares of capital stock of Merger Corp. are owned by MDLI.
3.3.3 Corporate Authority. Merger Corp. has the corporate
power and authority and has taken all corporate action necessary to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Agreement has been duly and validly authorized by the Board of Directors and
sole shareholder of Merger Corp., duly and validly executed and delivered by
Merger Corp. and constitutes the valid and binding obligation of Merger Corp.,
enforceable in accordance with its terms, except as enforcement may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and except that the
availability of the equitable remedy of specific performance or injunctive
relief is subject to the discretion of the court before which any proceeding may
be brought.
3.3.4 Governmental Filings. Other than the filing of the
Certificate of Merger contemplated by Article I, no notices, reports or other
filings are required to be made by
31
Merger Corp. with, nor are any consents, registrations, approvals, permits or
authorizations required to be obtained by Merger Corp. from, any Governmental
Entity in connection with the execution and delivery of this Agreement by Merger
Corp. and the consummation by Merger Corp. of the transactions contemplated
hereby.
3.3.5 Certain Representations and Warranties Regarding Code
Section 368(a)(2)(E).
-----------------------------------------------------
3.3.5.1 Merger Corp. is not an investment company as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code.
3.3.5.2 Except as otherwise provided in this
Agreement, Merger Corp. will pay its own expenses, if any, incurred in
connection with the Merger and will not pay expenses of MDLI or Total eMed.
3.3.5.3 Merger Corp. has been formed solely in order
to consummate the Merger, and Merger Corp. has not conducted and will not
conduct any business activities or other operations of any kind other than the
issuance of its stock to MDLI, prior to the Effective Date.
ARTICLE IV
COVENANTS
4.1 Mutual Covenants. Total eMed and MDLI mutually covenant and
agree as follows:
4.1.1 Preparation of Registration Statement and the Proxy
Statement. Promptly following the date of this Agreement and as soon as
practicable, Total eMed and MDLI shall prepare and file with the SEC the Proxy
Statement, and MDLI shall prepare and file with the SEC the Form S-4, in which
the Proxy Statement will be included as a prospectus. Each of Total eMed and
MDLI shall use its reasonable best efforts to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
MDLI will use its reasonable best efforts to cause the Proxy Statement to be
mailed to its shareholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. MDLI shall also take any action
required to be taken under any applicable state securities law in connection
with the issuance of MDLI Common Stock in the Merger, and Total eMed shall
furnish all information concerning Total eMed and the holders of Total eMed
Common Stock and rights to acquire Total eMed Common Stock as may be reasonably
required in connection with any such action. Each of MDLI and Total eMed shall
furnish all information concerning itself to the other as may be reasonably
requested in connection with any such action and the preparation, filing and
distribution of the Form S-4 and the preparation, filing and distribution of the
Proxy Statement. Total eMed and MDLI each agree to correct any information
provided by it for use in the Form S-4 or the Proxy Statement which shall have
become false or misleading. MDLI shall notify Total eMed promptly (i) of the
receipt of the comments of the
32
SEC, (ii) of any request by the SEC for amendments or supplements to the S-4,
(iii) of the time when the S-4 has become effective or any supplement or
amendment has been filed, or the issuance of any stop order and (iv) of the
suspension of the qualification of the MDLI Common Stock issuable in connection
with the Merger for offering or sale in any jurisdiction and shall supply Total
eMed with copies of all correspondence with the SEC with respect to the S-4.
4.1.2 Shareholder Meetings.
--------------------
(a) MDLI shall (i) promptly and duly call, give notice of,
convene and hold as soon as practicable following the date upon which the Form
S-4 becomes effective a meeting of the holders of MDLI Common Stock for the
purpose of voting to approve the issuance of the MDLI Common Stock in the Merger
(the "MDLI Special Meeting"), and (ii) take all reasonable and lawful action to
solicit and obtain such approval. Except as limited by the fiduciary obligations
of the MDLI Board of Directors, the S-4 shall include the recommendation of the
MDLI Board of Directors in favor of the issuance of the MDLI Common Stock in
connection with the Merger and, to the extent required by applicable law or
otherwise, the other transactions contemplated hereby (the "Proposal"). Unless
and until this Agreement is validly terminated in accordance with its terms,
nothing herein shall limit or eliminate in any way MDLI's obligation to call,
give notice of, convene and hold the MDLI Special Meeting and at such meeting to
submit the Proposal to a vote of the MDLI shareholders (and not postpone or
adjourn such meeting or the vote of the MDLI shareholders upon the Proposal to
another date without Total eMed's approval, not to be unreasonably withheld if
and only to the extent such postponement or adjournment is required by law or by
the SEC or Nasdaq regulation). Total eMed shall (i) promptly and duly call, give
notice of, convene and hold on the same date as the MDLI Special Meeting is held
a meeting of the holders of Total eMed Capital Stock for the purpose of voting
to approve the Merger (the "Total eMed Special Meeting"), and (ii) take all
reasonable and lawful action to solicit and obtain such approval.
(b) Except as limited by the fiduciary obligations of the
Total eMed Board of Directors, the Proxy Statement shall include the
recommendation of the Total eMed Board of Directors in favor of the Merger.
Unless and until this Agreement is validly terminated in accordance with its
terms, nothing herein shall limit or eliminate in any way Total eMed's
obligation to call, give notice of, convene and hold the Total eMed Special
Meeting and at such meeting to submit the Proposal to a vote of the Total eMed
shareholders (and not postpone or adjourn such meeting or the vote of the Total
eMed shareholders upon the Merger to another date without MDLI's approval, not
to be unreasonably withheld if and only to the extent such postponement or
adjournment is required by law or by the SEC or Nasdaq regulation).
4.1.3 Consents and Approvals. Total eMed and MDLI each will
use reasonable best efforts to secure, and MDLI will cause Merger Corp. to use
its reasonable best efforts to secure, all consents, approvals, licenses or
permits which may be required in connection with the Merger, and each will
cooperate with the other to secure all such consents, approvals, licenses or
permits in a form mutually satisfactory to Total eMed and MDLI.
33
4.1.4 Best Efforts. Subject to the terms of this Agreement,
Total eMed and MDLI each will use reasonable best efforts, and MDLI will cause
Merger Corp. to use its reasonable best efforts, to effectuate the transactions
contemplated hereby and to fulfill the conditions of their respective
obligations under this Agreement.
4.1.5 Publicity. Except as required by law, no party will
issue any press releases or otherwise make any public statements with respect to
the transactions contemplated hereby without the prior written consent of MDLI
and Total eMed, in each case not to be unreasonably withheld.
4.1.6 Confidentiality. The provisions of the Mutual
Confidential Disclosure Agreement between MDLI and Total eMed (the
"Confidentiality Agreement") shall apply to all "Confidential Information" (as
defined in the Confidentiality Agreement) obtained by any party pursuant to this
Agreement.
4.1.7 [Intentionally Omitted].
----------------------
4.1.8 Antitrust Improvements Act. Each of MDLI and Total eMed
will timely and promptly make the filing required to be made by it under the
Antitrust Improvements Act of 1976, as amended (each such filing an "HSR
Filing"). MDLI and Total eMed will furnish to one another such information and
assistance as the other party may reasonably request in connection with the
other party's preparation of filings or submissions to any governmental agency,
including, without limitation, any HSR Filing. As reasonably requested by the
other party, MDLI and Total eMed will supply one another with copies of all
correspondence, filings or communications (or memoranda setting forth the
substance thereof) between MDLI and Total eMed or their respective
representatives, on the one hand, and the Federal Trade Commission, the
Antitrust Division of the United States Department of Justice or any other
governmental agency or authority or members of their respective staffs, on the
other hand, with respect to this Agreement or the transaction contemplated
hereby.
4.1.9 Restructuring of Merger. The parties expressly
acknowledge and agree that, although it is their current intention to effect a
business combination among themselves in the form contemplated by this
Agreement, it may be preferable to effectuate such a business combination by
means of an alternate structure as described below.
4.1.9.1 MDLI, in its sole discretion, may determine,
not later than March 31, 2000, to reorganize for the purpose of effecting one or
more business combinations in addition to the combination contemplated by this
Agreement (the "Reorganization"). As a result of the Reorganization, a
newly-established holding company ("HoldCo") would directly own all of the
issued and outstanding capital stock of MDLI, and the articles of incorporation
of HoldCo would be the same as the articles of incorporation of MDLI (other than
in any respect which does not materially adversely affect the benefits of the
Merger for Total eMed stockholders).
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4.1.9.2 In the event MDLI determines to effect the
Reorganization, this Agreement shall be amended so that the rights and
obligations of MDLI shall become the rights and obligations of HoldCo, the
representations and warranties of MDLI shall be repeated by HoldCo (subject to
such changes as may be necessary to reflect the Reorganization), and in all
other respects this Agreement shall remain the same, except for those changes as
may be necessary to reflect the Reorganization. In no event shall such changes
materially adversely affect the relative rights, obligations, benefits and
burdens of MDLI/HoldCo and Total eMed, or the benefits of the Merger for Total
eMed stockholders.
4.1.9.3 The parties agree that any Reorganization and
the steps, actions or approvals required, taken or proposed to implement the
same shall not give rise to any breach of this Agreement or right to terminate
this Agreement, and that the amendments to this Agreement required to give
effect to the Reorganization shall not have any effect on the binding nature of
this Agreement or the obligations of the parties to effect and consummate the
transactions contemplated hereby. The parties further agree to use all
reasonable best efforts to ensure that the Reorganization and the Merger are
completed.
4.2 Covenants of Total eMed. Total eMed covenants and agrees as
follows:
4.2.1 Conduct of Business. Prior to the Effective Time, Total
eMed will carry on its business in the ordinary and usual manner and maintain
its existing relationships with suppliers, customers, employees and business
associates, and will not, without the prior written consent of MDLI:
(a) amend its Certificate of Incorporation or Bylaws;
(b) enter into any new agreements or modify existing
agreements respecting an increase in compensation or benefits payable to its
officers or employees; except that Total eMed may, without MDLI's prior written
consent, enter into new employment agreements or hire new employees in its
ordinary course of business and with respect to nonmanagement positions;
(c) split, combine, reclassify any of the outstanding shares
of its capital stock or otherwise change its authorized capitalization;
(d) declare, set aside or pay any dividends payable in cash,
stock or property with respect to shares of its capital stock;
(e) issue, sell, pledge, dispose of or encumber any additional
shares of, or securities convertible into or exchangeable for, or options,
warrants, calls, commitments or rights of any kind to acquire, any shares of its
capital stock of any class (other than pursuant to Options in the ordinary
course and consistent with past practice and other than conversions of Preferred
Stock in connection with the transactions contemplated by this Agreement);
35
(f) redeem, purchase or otherwise acquire any shares of its
capital stock, merge into or consolidate with any other corporation or permit
any other corporation to merge into or consolidate with it, liquidate or sell or
dispose of any of its assets other than in the ordinary course of business, or
close any plant or business operation;
(g) except for short-term indebtedness and indebtedness
incurred pursuant to Total eMed's revolving credit agreement and renewals,
replacements and amendments thereof not in excess of the current maximum under
such credit agreement incurred in the ordinary course of business, incur, assume
or guarantee (other than endorsements) any indebtedness, or modify or repay any
existing indebtedness;
(h) enter into any transaction, make any commitment (whether
or not subject to the approval of the Board of Directors of Total eMed) or
modify any Contracts, except as otherwise contemplated or permitted by this
Agreement or in the ordinary course of business and not exceeding $25,000
singly, or take any action which could be reasonably anticipated to have a
Material Adverse Effect on Total eMed;
(i) transfer, lease, license, guarantee, sell, mortgage,
pledge, or dispose of, any property or assets (including without limitation any
intellectual property), encumber any property or assets or incur or modify any
liability, other than the sale of inventory in the ordinary and usual course of
business;
(j) authorize capital expenditures other than in the ordinary
course of business, form any subsidiary, or make any acquisition of, or
investment in, assets or stock of any other person or entity;
(k) make any tax election;
(l) permit any insurance policy naming it as a beneficiary or
a loss payable payee to be canceled or terminated without prior notice to MDLI;
(m) change its method of accounting as in effect at the Most
Recent Fiscal Year End except as required by changes in GAAP as concurred with
by Total eMed's independent auditors, or change its fiscal year;
(n) authorize or enter into an agreement to do any of the
actions referred to in paragraphs (a) through (m) above.
4.2.2 Acquisition Proposals. Unless and until this Agreement
shall have been terminated pursuant to Section 6.1 or Section 6.2, Total eMed
shall not directly, or indirectly through any officer, director, agent, employee
or representative (each, a "Representative") (i) encourage, initiate, solicit or
entertain, on or after the date hereof, any inquiries or the submission of any
proposals or offers from any person relating to any merger, consolidation, sale
of all or substantially all of its assets or similar business transaction
involving Total eMed (each, an "Acquisition Transaction"); (ii) participate in
any negotiations regarding, furnish to
36
any other person any information with respect to, or otherwise assist or
participate in, any attempt by any third party to propose or offer any
Acquisition Transaction; (iii) enter into or execute any agreement relating to
an Acquisition Transaction; or (iv) make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Transaction or any
proposal or offer relating to an Acquisition Transaction, in each case other
than with respect to the Merger. Total eMed will promptly (a) notify MDLI in
writing if, on or after the date of this Agreement, it receives any proposal or
written inquiry or written request for information in connection with an
Acquisition Transaction or potential Acquisition Transaction and (b) notify MDLI
in writing of the significant terms and conditions of any Acquisition
Transaction or potential Acquisition Transaction including the identity of the
party making an Acquisition Transaction. In addition, from and after the date of
this Agreement, until the earlier to occur of the Effective time or termination
of this Agreement pursuant to its terms, Total eMed will not, and will instruct
its directors, officers, employees, representatives, investment bankers, agents
and affiliates not to, directly or indirectly, make or authorize any public
statement, recommendation or solicitation in support of any Acquisition
Transaction made by any person, entity or group (other than MDLI).
4.2.3 Investigations. Total eMed agrees to give MDLI and its
representatives and agents reasonable access to all its premises, books and
records and agreements and files and to cause its officers of Total eMed to
furnish MDLI with such financial and operating data and other information with
respect to its business and properties as MDLI shall from time to time
reasonably request. Any such investigations (a) shall be conducted in such
manner as not to interfere unreasonably with the operation of Total eMed's
business; and (b) shall not diminish any of the representations and warranties
hereunder.
4.3 Covenants of MDLI.
-----------------
4.3.1 Investigations. MDLI agrees to give Total eMed and its
representatives and agents reasonable access to all its premises, books and
records and agreements and files and to cause its officers of MDLI to furnish
Total eMed with such financial operating data and other information with respect
to its business and properties as Total eMed shall from time to time reasonably
request. Any such investigations (a) shall be conducted in such manner as not to
interfere unreasonably with the operation of MDLI's business; and (b) shall not
diminish any of the representations and warranties hereunder.
4.3.2 Notification to Optionees. Promptly after the Effective
Date, MDLI will notify in writing each holder of an Option of the exchange of
the Option for an option to purchase MDLI Common Stock in accordance with
Section 1.3.3 of this Agreement.
4.3.3 MDLI Board. Effective on the Closing, MDLI will cause
two persons designated by Total eMed, who are reasonably acceptable to MDLI, to
be elected or appointed to the MDLI Board of Directors.
4.3.4 [Intentionally Omitted].
----------------------
37
4.3.5 Nasdaq Listing Application. MDLI shall promptly prepare
and submit to Nasdaq a listing application for the MDLI Common Stock to be
issued in the Merger, and shall use its reasonable best efforts to obtain, prior
to the Effective Time, approval for the listing of such MDLI Common Stock.
4.3.6 Officer and Director Indemnification. For a period of
six years from the Closing Date, MDLI agrees to indemnify the officers and
directors of Total eMed for all actions taken prior to Closing to the extent
authorized in Total eMed's charter and bylaws prior to Closing and to the extent
such officer and director liability coverage was maintained by Total eMed prior
to Closing. For a period of six years MDLI agrees to maintain officer and
director liability coverage for the benefit of the officers and directors of
Total eMed in such amounts and on such terms substantially equivalent to the
coverage maintained by Total eMed prior to the Effective Time.
4.3.7 Conduct of Business. Prior to the Effective Time, MDLI
will not:
(a) amend its Articles of Incorporation or Bylaws if the
amendment would materially and adversely affect the relative rights, preferences
and privileges of the MDLI Common Stock; or
(b) declare, set aside or pay any dividends payable in cash,
stock or property with respect to shares of its Capital Stock.
4.3.8 Break Up Fee. If the shareholders of MDLI fail to
approve the issuance of the MDLI Common Stock in the Merger at the MDLI Special
Meeting and Total eMed is not in breach of this Agreement in any material
respect, MDLI shall within five business days pay to Total eMed the cash amount
of $6,000,000.
4.4 Covenants of Merger Corp. Merger Corp. covenants and agrees that,
except as is contemplated by this Agreement, prior to the Effective Time, Merger
Corp., subject to Section 4.1.9 above, will not engage in any business
activities or liquidate, merge into or consolidate with any other corporation or
permit any other corporation to merge into or consolidate with it; or increase
its authorized capital stock; or issue options, rights or warrants to purchase
any of its capital stock.
ARTICLE V
CONDITIONS
5.1 Conditions to the Obligations of All Parties. The obligations of
Total eMed, MDLI and Merger Corp. to consummate the transactions contemplated by
this Agreement are subject to the fulfillment at or before the Closing of each
of the following conditions:
5.1.1 Regulatory Approvals. The parties shall have made all
filings and received all approvals of any Governmental Entity of competent
jurisdiction necessary in order
38
to consummate the Merger, and each of such approvals shall be in full force and
effect at the Closing and not subject to any condition which requires the taking
or refraining from taking of any action which would have a Material Adverse
Effect on Total eMed or on MDLI.
5.1.2 Litigation. There shall not be in effect any order,
decree or injunction of a Federal or State court of competent jurisdiction
restraining, enjoining or prohibiting the consummation of the transactions
contemplated by this Agreement (each party agreeing to use its reasonable best
efforts, including appeals to higher courts, to have any such non-final,
appealable order, decree or injunction set aside or lifted), and no action shall
have been taken, and no statute, rule or regulation shall have been enacted, by
any state or federal government or governmental agency in the United States
which would prevent the consummation of the Merger.
5.1.3 Shareholder Approval. Each class or series of the
capital stock of Total eMed shall have approved the Merger in accordance with
Total eMed's Certificate of Incorporation, the rights and privileges of such
class or series, and the DGCL. The issuance of MDLI Common Stock in the Merger
shall have been approved by the affirmative vote of the holders of a majority of
the shares of MDLI Common Stock present in person or represented by proxy,
entitled to vote and voted at the MDLI Special Meeting.
5.1.4 Registration of Securities; Listing. The shares of MDLI
Common Stock to be issued pursuant to this Agreement will have been registered
under the Securities Act, and under the securities laws of such states as
counsel for MDLI deems necessary or exemptions from such state registrations or
qualifications will have been determined by such counsel to be available, and
will have been listed on the Nasdaq National Market System.
5.2 Conditions to the Obligations of Total eMed. The obligations of
Total eMed to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or before the Closing of each of the following
conditions:
5.2.1 Representations, Warranties and Covenants. The
representations and warranties of MDLI contained in this Agreement qualified by
"Material Adverse Effect" shall be true and correct in all respects, and all
other representations and warranties of MDLI contained in this Agreement shall
be true and correct in all respects, except where the failure to be true and
correct would not have a Material Adverse Effect on MDLI, except for
representations and warranties made as of a specific date, which representations
and warranties need only be true and correct as of such date, and for changes
specifically contemplated by this Agreement, and MDLI and Merger Corp. shall
have performed in all material respects all of their respective covenants and
obligations hereunder to be performed as of the Closing. Total eMed shall have
received at the Closing certificates to the foregoing effect, dated the Closing
Date, and executed on behalf of MDLI by an executive officer of MDLI and on
behalf of Merger Corp. by an executive officer of Merger Corp.
5.2.2 No Material Adverse Change. Since September 30, 1999,
there shall have been no Material Adverse Change, or discovery of a condition or
occurrence of an event,
39
which has resulted or reasonably can be expected to result in a Material Adverse
Change of MDLI and its subsidiaries taken as a whole.
5.2.3 Legal Opinion. Total eMed shall have received from legal
counsel to MDLI an opinion dated as of the Closing, substantially in the form
attached to this Agreement as Exhibit E.
5.3 Conditions to the Obligations of MDLI and Merger Corp. The
obligations of MDLI and Merger Corp. to consummate the transactions contemplated
by this Agreement are subject to the fulfillment at or before the Closing of
each of the following conditions:
5.3.1 Representations, Warranties and Covenants. The
representations and warranties of Total eMed contained in this Agreement
qualified by "Material Adverse Effect" shall be true and correct in all
respects, and all other representations and warranties of Total eMed contained
in this Agreement shall be true and correct in all respects, except where the
failure to be true and correct would not have a Material Adverse Effect on Total
eMed, except for representations and warranties made as of a specific date,
which representations and warranties need only be true and correct as of such
date, and for changes specifically contemplated by this Agreement and Total eMed
shall have performed in all material respects all of its covenants and
obligations hereunder to be performed as of the Closing. MDLI shall have
received at the Closing certificates to the foregoing effect, dated the Closing
Date, and executed on behalf of Total eMed by an executive officer of Total
eMed.
5.3.2 Lock-up. The stockholders of Total eMed listed on
Schedule 2.1 shall at MDLI's request enter into an agreement with the
underwriters in MDLI's initial public offering in customary form providing that
before June 7, 2000 the stockholders may not sell or otherwise transfer any
securities of MDLI.
5.3.3 No Material Adverse Change. Since the Most Recent Fiscal
Year End, there shall have been no Material Adverse Change, or discovery of a
condition or occurrence of an event, which has resulted or reasonably can be
expected to result in a Material Adverse Change of Total eMed and its
Subsidiaries taken as a whole.
5.3.4 [Intentionally Omitted].
-----------------------
5.3.5 [Intentionally Omitted].
-----------------------
5.3.6 Dissenting Shares. Not more than ten percent of the
total issued and outstanding Total eMed Common Shares (taking into account all
Total eMed Common Shares issued or issuable pursuant to options, warrants,
convertible securities, or other rights to acquire Total eMed Common Stock)
shall be Dissenting Shares.
5.3.7 Preferred Stock. Immediately prior to the Effective
Time, all of the issued and outstanding shares of Preferred Stock of Total eMed
shall have been converted into shares of Common Stock of Total eMed in
accordance with their terms, except for Total
40
eMed's Series C Preferred Stock, par value $.001, which shall be deemed to be
converted into Series C Common Equivalents, and which shall deemed to be
outstanding.
5.3.8 Escrow Schedule. Total eMed shall have executed and
delivered to MDLI the Escrow Schedule (as defined in Section 7.2.1 of this
Agreement).
5.3.9 Legal Opinion. MDLI shall have received from legal
counsel to Total eMed an opinion dated as of the Closing, substantially in the
form attached to this Agreement as Exhibit F.
ARTICLE VI
TERMINATION
6.1 Termination by Mutual Consent. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by the
mutual consent of Total eMed and MDLI.
6.2 Termination by Either Total eMed or MDLI. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(a) by MDLI or Total eMed if the Merger shall not have become
effective on or prior to July 31, 2000, provided, however, that the right to
terminate this Agreement pursuant to this Section 6.2(a) shall not be available
to any party whose breach of this Agreement has been the cause of, or resulted
in, the failure of the Merger to occur on or before such date;
(b) by MDLI or Total eMed if any court of competent
jurisdiction in the United States or any state shall have issued an order,
judgment or decree (other than a temporary restraining order) restraining,
enjoining or otherwise prohibiting the Merger and such order, judgment or decree
shall have become final and nonappealable;
(c) by MDLI if MDLI is not in material breach of this
Agreement and there has been a material breach by Total eMed of any
representation, warranty, covenant or agreement contained in this Agreement that
is not curable or, if curable, is not cured within a reasonable time (but in no
event more than 30 days) after written notice of such breach is given by Total
eMed to MDLI; or
(d) by Total eMed if Total eMed is not in material breach of
this Agreement and there has been a material breach by MDLI of any
representation, warranty, covenant or agreement contained in this Agreement that
is not curable or, if curable, is not cured within a reasonable time (but in no
event more than 30 days) after written notice of such breach is given by MDLI to
Total eMed.
41
6.3 Effect of Termination and Abandonment. In the event of termination
of this Agreement and abandonment of the Merger pursuant to this Article VI, (i)
this Agreement immediately will become void and of no effect, except that
Sections 4.1.6, and 8.1 will survive the event of termination; and (ii) no party
hereto (or any of its directors of officers) shall have any liability or further
obligation to any other party to this Agreement, except for breach of this
Agreement.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 Survival of Representations and Warranties. All of Total eMed's
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (each as modified by the Disclosure Schedules) shall
survive the Merger and continue until 5:00 p.m., Pacific time, on the fifth
business day after the delivery to MDLI of the audit report of its independent
public accountants regarding MDLI's consolidated financial statements for the
year ended December 31, 2000 (the "Expiration Date"). The representations,
warranties and covenants of MDLI in this Agreement shall not survive the Merger
and shall terminate at the Effective Time.
7.2 Escrow Arrangements.
-------------------
7.2.1 Contract Escrow Fund. At the Effective Time, holders of
Total eMed Common Stock immediately before the Effective Time (the
"Shareholders") will be deemed to have received and deposited with the Escrow
Agent (as defined below) five percent of the shares of MDLI Common Stock to be
received by the holders of Total eMed Common Stock pursuant to Section 1.3 of
this Agreement, provided that the shares to be delivered on behalf of each such
holder shall be rounded down to the nearest whole share of MDLI Common Stock
(plus any additional shares as may be issued upon any stock split, stock
dividend or recapitalization effected by MDLI after the Effective Time) (the
"Escrow Amount") without any act of any shareholder. As soon as practicable
after the Effective Time, the Escrow Amount, without any act of any Total eMed
shareholder, will be deposited with West Coast Trust (or other institution
acceptable to MDLI and the Securityholder Agent (as defined in Section 7.2.7
below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute an
escrow fund (the "Contract Escrow Fund") to be governed by the terms set forth
herein. The portion of the Escrow Amount contributed on behalf of each
shareholder of Total eMed shall be in proportion to the aggregate MDLI Common
Stock to which such holder would otherwise be entitled under Section 1.3 and
shall be in the respective share amounts and percentages listed opposite each
Shareholder's names listed in a schedule to be executed by Total eMed and
delivered to MDLI at Closing (the "Escrow Schedule"). The Contract Escrow Fund
shall be available to compensate MDLI and its affiliates (including the
Surviving Corporation) for any claims, losses, liabilities, obligations,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses, and expenses of investigation and defense (hereinafter
individually a "Loss" and collectively "Losses") incurred by MDLI, its officers,
directors, or
42
affiliates (including the Surviving Corporation) directly or indirectly as a
result of any inaccuracy or breach of a representation or warranty of Total eMed
contained herein (or in any certificate, instrument, schedule or document
attached to this Agreement and delivered by Total eMed in connection with the
Merger). Except as otherwise provided herein, MDLI may not receive any shares
from the Contract Escrow Fund unless and until Officer's Certificates (as
defined in Section 7.2.4.1 below) identifying Losses, the aggregate amount of
which exceeds $1,000,000 (except in the case of Losses arising from any breach
or inaccuracy of Sections 3.1.2 (Capitalization), 3.1.15 (Intellectual Property)
and 3.1.20 (Taxes), as to which such threshold shall not apply), have been
delivered to the Escrow Agent as provided in Section 7.2.5 and such amount is
determined pursuant to this Article VII to be payable; in such case, MDLI may
recover shares from the Contract Escrow Fund equal in value to all indemnified
Losses (to the extent such Losses exceed the $1,000,000 threshold) for which
there is no objection or any objection had been resolved in accordance with the
provisions of this Article VII. For purposes of this Article VII, each of the
matters described on Schedule 3.1.2 of Total eMed's Disclosure Schedules shall
be deemed to be a breach of Total eMed's representations and warranties in
Section 3.1.2 of this Agreement (the "Earn-out Claim(s)"). The Earn-out Claims
shall not be subject to the $1,000,000 threshold. MDLI may make claims against
the Contract Escrow Fund with respect to any and all Earn-out Claims (a) to
compensate for any Losses; (b) to satisfy any obligation to issue shares of the
capital stock of MDLI or any of its affiliates; and/or (c) to compensate and
reimburse MDLI for any Losses or other amounts MDLI directly or indirectly
incurs or expends to redeem, acquire or cancel by any means permitted by law
such shares of the capital stock of MDLI's affiliate.
7.2.1.1 Litigation Escrow Fund. In addition to the
shares placed in the Contract Escrow Fund, at the Effective Time, the
Shareholders will be deemed to have received and deposited with the Escrow Agent
shares of MDLI Common Stock whose market value equals $21,000,000, based on the
average closing price of MDLI Common Stock for the ten full trading days
immediately preceding the Effective Time. The shares to be delivered on behalf
of each such holder shall be rounded down to the nearest whole share of MDLI
Common Stock (plus any additional shares as may be issued upon any stock split,
stock dividend or recapitalization effected by MDLI after the Effective Time)
without any act of any shareholder. Such deposit shall constitute an escrow fund
(the "Litigation Escrow Fund") which shall be available to compensate MDLI and
its affiliates (including the Surviving Corporation) for any and all Losses,
whether by way of settlement, arbitration, adjudication or other quasi-judicial
proceeding, arising from or relating to the lawsuit styled MedQuist MRC, Inc. v.
Xxxx X. Xxxxxx and Network Health Services, Inc. in the United States District
Court, Northern District of Ohio, Eastern Division, Case Number 1:99CV 2010,
subsequently transferred to the United States District Court, Middle Tennessee
District (the "Litigation"). The portion of the shares contributed to the
Litigation Escrow Fund on behalf of each Shareholder shall be in the respective
share amounts and percentages listed opposite each Shareholder's names listed in
the Escrow Schedule. At all times during the term of the Litigation Escrow Fund,
the Shareholders shall be deemed to be the record holders of their respective
amounts of the MDLI Common Stock in such fund.
43
7.2.1.2 Distribution from Litigation Escrow Fund. The
shares in the Litigation Escrow Fund shall be distributed only in accordance
with the provisions hereof.
7.2.1.2.1 Except as otherwise provided
herein, MDLI may not receive any shares from the Litigation Escrow Fund for
losses relating to fees and expenses of the Litigation (the "Litigation
Expenses") unless and until Officer's Certificates (as defined in Section
7.2.4.1 below) identifying Litigation Expenses, the aggregate amount of which
exceeds $1,000,000 (provided that this threshold shall only apply to Litigation
Expenses and shall not apply to any other Losses agreed to in any settlement or
awarded in any arbitration, adjudication or other quasi-judicial proceeding),
have been delivered to the Escrow Agent as provided in Section 7.2.5 and such
amount is determined pursuant to this Article VII to be payable; in such case,
MDLI may recover shares from the Litigation Escrow Fund equal in value to all
indemnified Litigation Expenses (to the extent such Litigation Expenses exceed
the $1,000,000 threshold) for which there is no objection or any objection had
been resolved in accordance with the provisions of this Article VII.
7.2.1.2.2 In the event of final settlement
or arbitration award or the entry of a final order in adjudication of the
Litigation, the Securityholder Agent and MDLI shall both certify to the Escrow
Agent the amount of the Losses incurred by MDLI and/or its affiliates in the
Litigation. As promptly as practicable after receipt thereof, the Escrow Agent
shall deliver to MDLI the number of shares equal to the amount of Losses agreed
to or awarded to MDLI or any of its affiliates in any settlement, arbitration,
adjudication or quasi-judicial proceeding divided by the closing price per share
of MDLI Common Stock on the date that the settlement, award, or order becomes
final. The Escrow Agent shall also deliver any remaining shares to the
Shareholders in proportion to their respective original contributions to the
Litigation Escrow Fund (as set forth on the Escrow Schedule). This Section
7.2.1.2.2 shall not apply to the distribution of shares from the Litigation
Escrow Fund for payment of Litigation Expenses.
7.2.1.2.3 Prior to the settlement,
arbitration or adjudication of the Litigation, the Securityholder Agent may
periodically, but no more often than twice each calendar year, request that MDLI
consider releasing shares from the Litigation Escrow Fund (each such
consideration, a "Litigation Assessment"). The request for a Litigation
Assessment shall be accompanied by an explanation of any facts and circumstances
that merit the release of shares from the Litigation Escrow Fund. MDLI shall in
good faith consider those facts and circumstances and any other information
which MDLI deems reasonable, including the market value of the shares in the
Litigation Escrow Fund relative to the original $21,000,000 valuation, and shall
evaluate the risk of a finding of liability against MDLI and its affiliates in
the Litigation. After conducting the Litigation Assessment and within fourteen
days of receiving the request for the Litigation Assessment, MDLI shall respond
to the Securityholder Agent in writing with its decision as to whether to allow
the distribution of any shares from the Litigation Escrow Fund. In the event
MDLI allows such a distribution, it will direct the Escrow Agent to release to
the Shareholders the particular number of shares, and the Escrow
44
Agent shall thereupon release to the Shareholders such shares, in proportion to
their respective original contributions to the Litigation Escrow Fund (as set
forth on the Escrow Schedule).
7.2.1.2.4 The rights of MDLI to make claims
upon the Litigation Escrow Fund shall be the sole and exclusive remedy of MDLI
as against the Shareholders after the Effective Time with respect to the
Litigation.
7.2.1.2.5 The provisions of Sections 7.2.3,
7.2.4 (solely with respect to Litigation Expenses), 7.2.5 (solely with respect
to Litigation Expenses), 7.2.6 (solely with respect to Litigation Expenses),
7.2.7, 7.2.8, 7.2.9, 7.2.10 and 7.2.11 shall apply to the existence and
operation of the Litigation Escrow Fund.
7.2.2 Escrow Period; Distribution upon Termination of Escrow
Periods. Subject to the following requirements, the Contract Escrow Fund shall
be in existence immediately following the Effective Time and shall terminate at
5:00 p.m., Pacific time, on the Expiration Date (the "Escrow Period"); provided,
however, that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof), that together with the aggregate amount remaining in
the Contract Escrow Fund is reasonably necessary to satisfy any unsatisfied
claims concerning facts and circumstances existing prior to the termination of
such Escrow Period specified in any Officer's Certificate delivered to the
Escrow Agent prior to termination of such Escrow Period. MDLI and Total eMed, on
behalf of itself and its stockholders, agree that (i) as of the Expiration Date,
any and all Earn-out Claims shall be deemed to be an unsatisfied claim; (ii)
MDLI may make claims against the Contract Escrow Fund with respect to the
Earn-out Claims after the Expiration Date; and (iii) the Escrow Period shall
extend with until final resolution of all Earn-out Claims. As soon as all such
unsatisfied claims have been resolved, as evidenced by written memorandum of the
Securityholder Agent and MDLI, the Escrow Agent shall deliver to the
Shareholders the remaining portion of the Contract Escrow Fund not required to
satisfy such unsatisfied claims; provided, however, the Escrow Agent shall
release to the Shareholders on the Expiration Date such portion of the Contract
Escrow Fund that is in excess of the amount in dispute of any unsatisfied
claims. Deliveries of Escrow Amounts to the Shareholders pursuant to this
Section 7.2.2 shall be made in proportion to their respective original
contributions to the Contract Escrow Fund (as set forth on the Escrow Schedule).
At all times during the Escrow Period, the Shareholders shall be deemed to be
the record holders of their respective amounts of the MDLI Common Stock
comprising the Escrow Amount. Securityholder Agent shall provide to the Escrow
Agent a current schedule of the Shareholders' names and addresses and pro rata
share of the Escrow Amount prior to the date of distribution of the Escrow
Amount.
45
7.2.3 Protection of Escrow Fund.
-------------------------
7.2.3.1 For purposes of this Article VII, the
Contract Escrow Fund and the Litigation Escrow Fund shall be collectively
referred to as the "Escrow Fund."
7.2.3.2 The Escrow Agent shall hold and safeguard the
Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and shall hold and dispose of the
Escrow Fund only in accordance with the terms hereof.
7.2.3.3 Any shares of MDLI Common Stock or other
equity securities issued or distributed by MDLI (including shares issued upon a
stock split or stock dividend) ("New Shares") in respect of MDLI Common Stock in
the Escrow Fund which have not been released from the Escrow Fund shall be added
to the Escrow Fund and become a part thereof. New Shares issued in respect of
shares of MDLI Common Stock which have been released from the Escrow Fund shall
not be added to the Escrow Fund but shall be distributed to the recordholders
thereof. Cash dividends on MDLI Common Stock shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof.
7.2.3.4 Each Shareholder shall be deemed the record
holder of, and shall have voting, dividend, distribution and all other rights
with respect to the shares of MDLI Common Stock contributed to the Escrow Fund
by such Shareholder (and on any voting securities and other equity securities
added to the Escrow Fund in respect of such shares of MDLI Common Stock).
7.2.4 Claims upon Escrow Fund.
-----------------------
7.2.4.1 Upon receipt by the Escrow Agent at any time
on or before the Expiration Date of a certificate (an "Officer's Certificate")
signed by any officer of MDLI: (A) stating that MDLI has paid or properly
incurred Losses, and (B) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid or
properly accrued, and the nature of the misrepresentation, breach of warranty,
covenant, obligation or claim to which such item is related, the Escrow Agent
shall, subject to the provisions of Section 7.2.5 hereof, deliver to MDLI out of
the Escrow Fund, as promptly as practicable, shares of MDLI Common Stock held in
the Escrow Fund in an amount equal to such Losses.
7.2.4.2 For the purposes of determining the number of
shares of MDLI Common Stock to be delivered out of the Escrow Fund pursuant to
Sections 7.2.4.1 of this Agreement, the shares of MDLI Common Stock shall be
valued at the closing price per share of MDLI Common Stock on the later of the
date of the Officer's Certificate or the date of the resolution of any objection
to an Officer's Certificate.
7.2.4.3 Litigation Expenses shall be paid with shares
from the Litigation Escrow Fund.
46
7.2.4.4 In the event of a breach of the
representation set forth in Section 3.1.15.21 of this Agreement, MDLI agrees to
pursue its rights and remedies under a vendor's warranty policy with respect to
the Technology, if any, before pursuing a claim against the Contract Escrow
Fund.
7.2.5 Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent by the Securityholder Agent, the party
delivering the Officer's Certificate shall deliver a duplicate copy of such
certificate to the other party and for a period of 30 days after such delivery,
the Escrow Agent shall not deliver any Escrow Amounts pursuant to Section 7.2.4
hereof unless the Escrow Agent shall have received written authorization from
such other party to make such delivery. After the expiration of such 30 day
period, the Escrow Agent shall make delivery of shares of MDLI Common Stock from
the Escrow Fund in accordance with Section 7.2.4 hereof, provided that no such
payment or delivery may be made if such other party shall object in a written
statement to the claim made in the Officer's Certificate, and such statement
shall have been delivered to the Escrow Agent prior to the expiration of such 30
day period.
7.2.6 Resolution of Conflicts; Arbitration.
------------------------------------
7.2.6.1 In case the Securityholder Agent shall so
object in writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and MDLI shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and MDLI should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute shares of MDLI Common Stock from the Escrow Fund in
accordance with the terms thereof.
7.2.6.2 If no such agreement can be reached after
good faith negotiation, and in any event not later than 60 days after receipt of
the written objection of the Securityholder Agent, either MDLI or the
Securityholder Agent may demand arbitration of the matter unless the amount of
the damage or loss is at issue in pending litigation with a third party, in
which event arbitration shall not be commenced until such amount is ascertained
or both parties agree to arbitration; and in either such event the matter shall
be settled by arbitration conducted by three arbitrators. MDLI and the
Securityholder Agent shall each select one arbitrator, and the two arbitrators
so selected shall select a third arbitrator, each of which arbitrators shall be
independent and have at least ten years relevant experience. The arbitrators
shall set a limited time period and establish procedures designed to reduce the
cost and time for discovery while allowing the parties an opportunity, adequate
in the sole judgment of the arbitrators, to discover relevant information from
the opposing parties about the subject matter of the dispute. The arbitrators
shall rule upon motions to compel or limit discovery and shall have the
authority to impose sanctions, including attorneys fees and costs, to the extent
as a court of competent law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery was
refused or objected to without substantial
47
justification. The decision of a majority of the three arbitrators as to the
validity and amount of any claim in such Officer's Certificate shall be binding
and conclusive upon the parties to this Agreement, and notwithstanding anything
in Section 7.2.5 hereof, the Escrow Agent shall be entitled to act in accordance
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.
7.2.6.3 Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction. Any such
arbitration shall be held in San Francisco, California under the rules then in
effect of the Judicial Arbitration and Mediation Services, Inc. For purposes of
this Section 7.2.6, in any arbitration hereunder in which any claim or the
amount thereof stated in the Officer's Certificate is at issue, the party
delivering the Officer's Certificate shall be deemed to be the Non-Prevailing
Party in the event that the arbitrators award the sum of one-half or less of the
disputed amount plus any amounts not in dispute; otherwise, the other party
shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an
arbitration shall pay its own expenses, the fees of each arbitrator, the
administrative costs of the arbitration, and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration, independent of the escrow fund.
7.2.7 Securityholder Agent of the Shareholders; Power of
Attorney.
--------------------------------------------------
7.2.7.1 In the event that the Merger is approved,
effective upon such vote, and without further act of any shareholder, EF Private
Equity Partners (Americas) LP shall be appointed as agent and attorney-in-fact
(the "Securityholder Agent") for each shareholder of Total eMed (except such
shareholders, if any, as shall have perfected their appraisal rights under the
DGCL, for and on behalf of the Shareholders, to give and receive notices and
communications, to authorize delivery to MDLI of shares of MDLI Common Stock
from the Escrow Fund in satisfaction of claims by MDLI, to object to such
deliveries, to agree to, negotiate, enter into settlements and compromises of,
and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such agency may be changed by the Shareholders from time to time
upon not less than 30 days prior written notice to MDLI; provided that the
Securityholder Agent may not be removed unless holders of a two-thirds interest
of the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notices or
communications to or from the Securityholder Agent shall constitute notice to or
from each of the shareholders of Total eMed.
48
7.2.7.2 The Securityholder Agent shall not be liable
for any act done or omitted hereunder as Securityholder Agent while acting in
good faith and in the exercise of reasonable judgment. The Shareholders on whose
behalf the Escrow Amount was contributed to the Escrow Fund shall jointly and
severally indemnify the Securityholder Agent and hold the Securityholder Agent
harmless against any loss, liability or expense incurred without negligence or
bad faith on the part of the Securityholder Agent and arising out of or in
connection with the acceptance or administration of the Securityholder Agent's
duties hereunder, including the reasonable fees and expenses of any legal
counsel retained by the Securityholder Agent.
7.2.8 Actions of the Securityholder Agent. A decision, act,
consent or instruction of the Securityholder Agent shall constitute a decision
of all the Shareholders for whom a portion of the Escrow Amount otherwise
issuable to them are deposited in the Escrow Fund and shall be final, binding
and conclusive upon each of such Shareholders, and the Escrow Agent and MDLI may
rely upon any such written decision, consent or instruction of the
Securityholder Agent as being the decision, consent or instruction of each every
such Shareholder. The Escrow Agent and MDLI are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, consent or instruction of the Securityholder Agent.
7.2.9 Third-Party Claims.
------------------
7.2.9.1 If any third party shall notify MDLI or its
affiliates with respect to any matter (hereinafter referred to as a "Third Party
Claim"), which may give rise to a claim by MDLI against the Escrow Fund, then
MDLI shall give notice to the Securityholder Agent within 30 days of MDLI
becoming aware of any such Third Party Claim or of facts upon which any such
Third Party Claim will be based setting forth such material information with
respect to the Third Party Claim as is reasonably available to MDLI; provided,
however, that no delay or failure on the part of MDLI in notifying the
Securityholder Agent shall relieve the Securityholder Agent and the Shareholders
from any obligation hereunder unless the Securityholder Agent and the
Shareholders are thereby materially prejudiced (and then solely to the extent of
such prejudice). The Securityholder Agent and the Shareholders shall not be
liable for any attorneys fees and expenses incurred by MDLI prior to MDLI's
giving notice to the Securityholder Agent of a Third Party Claim. The
Shareholders shall be entitled, at their expense, to participate, but without
controlling, in any defense of a Third Party Claim; provided, however, the
Shareholders may assume the defense of the Third Party Claim, if permitted by
Section 7.2.9.2, if the Securityholder Agent notifies MDLI in writing, within
ten days after receiving notice of the Third Party Claim, of the Shareholders
intent to assume the defense.
7.2.9.2 The Shareholders may elect to assume the
defense of the Third Party Claim unless (i) such Third Party Claim seeks an
order, injunction, or other equitable relief against MDLI or any of its
subsidiaries (and either (A) the third party seeks a temporary restraining order
or preliminary injunction, or (B) MDLI reasonably determines that the relief
49
sought would be materially adverse to it) or (ii) MDLI has reasonably concluded
that there is a conflict of interest between it and the Shareholders in the
conduct of the defense of such claim. If the Shareholders assume the defense of
the Third-Party Claim, the Securityholder Agent shall undertake, conduct, and
control the settlement or defense of the Third-Party Claim diligently, through
counsel chosen by it and approved by MDLI, and shall use all reasonable efforts
in good faith to resolve the Third Party Claim expeditiously and at the least
possible cost under the circumstances; provided, however, that the
Securityholder Agent shall have no obligation to undertake any separate
obligation or duty in settlement of such claim. MDLI shall cooperate with the
indemnifying party in connection therewith and make available to the
Securityholder Agent all relevant information reasonably available to it that is
material to the defense of the Third Party Claim. MDLI may participate in the
defense of the Third Party Claim through counsel of its choice. Neither the
Securityholder Agent nor the Shareholders shall, without the prior written
consent of MDLI, settle or compromise, or consent to the entry of any judgment
in, any such claim or any pending or threatened claim or action in respect of
which indemnification may be sought under this Article VII, unless such
settlement, compromise, or consent includes an unconditional release of MDLI and
each of its subsidiaries from all liability arising out of such claim or action.
If the Shareholders do not elect to assume the defense of the Third Party Claim,
then MDLI shall undertake, conduct, and control the settlement or defense of the
Third Party Claim diligently, through counsel chosen by MDLI, and shall use all
reasonable efforts in good faith to resolve the Third Party Claim expeditiously
and at the least possible cost under the circumstances; provided, however, that
MDLI shall have no obligation to undertake any separate obligation or duty in
settlement of such claim or to undertake any action that would materially
adversely affect the future conduct of its business. The Securityholder Agent
shall cooperate with MDLI in connection therewith and make available to MDLI all
relevant information reasonably available to the Securityholder Agent or the
Shareholders that is material to the defense of the Third Party Claim. MDLI
shall have the right in its sole discretion to settle any Claim; provided,
however, that MDLI may not settle any Third Party Claim without the consent of
the Securityholder Agent, which consent shall not be unreasonably withheld.
7.2.10 Escrow Agent's Duties.
---------------------
7.2.10.1 The Escrow Agent shall be obligated only for
the performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of MDLI
and the Securityholder Agent and agreed to and signed by the Escrow Agent, and
may rely and shall be protected in relying or refraining from acting on any
instrument reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the advice of counsel shall be conclusive evidence of such good faith.
50
7.2.10.2 The Escrow Agent is hereby expressly
authorized to disregard any and all warnings given by any of the parties hereto
or by any other person, excepting only orders or process of courts of law, and
is hereby expressly authorized to comply with and obey orders, judgments or
decrees of any court. In case the Escrow Agent obeys or complies with any such
order, judgment or decree of any court, the Escrow Agent shall not be liable to
any of the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
7.2.10.3 The Escrow Agent shall not be liable in any
respect on account of the identity, authority or rights of the parties executing
or delivering or purporting to execute or deliver this Agreement or any
documents or papers deposited or called for hereunder.
7.2.10.4 The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
7.2.10.5 In performing any duties under the
Agreement, the Escrow Agent shall not be liable to any party for damages,
losses, or expenses, except for gross negligence or willful misconduct on the
part of the Escrow Agent. The Escrow Agent shall not incur any such liability
for (A) any act or failure to act made or omitted in good faith, or (B) any
action taken or omitted in reliance upon any written instrument, including any
written statement or affidavit provided for in this Agreement that the Escrow
Agent shall in good faith believe to be genuine, nor will the Escrow Agent be
liable or responsible for forgeries, fraud, impersonations, or determining the
scope of any representative authority. In addition, the Escrow Agent may consult
with the legal counsel in connection with Escrow Agent's duties under this
Agreement and shall be fully protected in any act taken, suffered, or permitted
by him/her in good faith in accordance with the advice of counsel. The Escrow
Agent is not responsible for determining and verifying the authority of any
person acting or purporting to act on behalf of any party to this Agreement.
7.2.10.6 If any controversy arises between the
parties to this Agreement, or with any other party, concerning the subject
matter of this Agreement, its terms or conditions, the Escrow Agent will not be
required to determine the controversy or to take any action regarding it. The
Escrow Agent may hold all documents and shares of MDLI Common Stock and may wait
for settlement of any such controversy by final appropriate legal proceedings or
other means as, in the Escrow Agent's discretion, the Escrow Agent may be
required, despite what may be set forth elsewhere in this Agreement. In such
event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow
Agent may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and shares of
MDLI Common Stock held in escrow, except all cost, expenses, charges and
reasonable attorney fees incurred by the Escrow Agent due to the
51
interpleader action and which the parties jointly and severally agree to pay.
Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
7.2.10.7 MDLI and the Surviving Corporation agree
jointly and severally to indemnify and hold Escrow Agent harmless against any
and all losses, claims, damages, liabilities, and expenses, including reasonable
costs of investigation, counsel fees, and disbursements that may be imposed on
Escrow Agent or incurred by Escrow Agent in connection with the performance of
his/her duties under this Agreement, including but not limited to any litigation
arising from this Agreement or involving its subject matter; provided, however,
that in the event the Securityholder Agent shall be the Non-Prevailing Party in
connection with any claim or action initiated by one or more of the
Shareholders, then Shareholders shall be responsible for the indemnification of
the Escrow Agent to the full extent provided by this Section 7.2.10.7.
7.2.10.8 The Escrow Agent may resign at any time upon
giving at least 30 days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within 30 days after
receiving such notice. If the parties fail to agree upon a successor escrow
agent within such time, the Escrow Agent shall have the right to appoint a
successor escrow agent. The successor escrow agent shall execute and deliver an
instrument accepting such appointment and it shall, without further acts, be
vested with all the estates, properties, rights, powers, and duties of the
predecessor escrow agent as if originally named as escrow agent. The Escrow
Agent shall be discharged from any further duties and liability under this
Agreement.
7.2.10.9 Anything in this Agreement to the contrary
notwithstanding, in no event shall the Escrow Agent be liable for special,
indirect or consequential loss or damage of any kind whatsoever (including but
not limited to lost profits), even if the Escrow Agent has been advised of the
likelihood of such loss or damage and regardless of the form of action.
7.2.10.10 It is further understood that any
corporation into which the Escrow Agent is its individual capacity may be merged
or converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Escrow Agent in its
individual capacity shall be a party, or any corporation to which substantially
all the corporate trust business of the Escrow Agent in its individual capacity
my be transferred, shall be the Escrow Agent under this Escrow Agreement without
further act.
7.2.11 Fees. All fees of the Escrow Agent for performance of
its duties hereunder shall be paid by MDLI. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this
52
Agreement, or if the parties request a substantial modification of its terms, or
if any controversy arises, or if the Escrow Agent is made a party to, or
intervenes in, any litigation pertaining to this escrow or its subject matter,
the Escrow Agent shall be reasonably compensated for such extraordinary services
and reimbursed for all costs, attorneys' fees, and expenses occasioned by such
default, delay, controversy or litigation. MDLI promises to pay these sums upon
demand.
7.2.12 Maximum Liability and Remedies. The rights of MDLI to
make claims upon the Contract Escrow Fund in accordance with this Article VII
shall be the sole and exclusive remedy of MDLI after the Closing with respect to
any representation or warranty made by Total eMed under this Agreement.
ARTICLE VIII
MISCELLANEOUS AND GENERAL
8.1 Payment of Expenses. If the Merger is not consummated, each party
shall pay its own out-of-pocket legal, accounting, investment banking and other
expenses incidental to this Agreement and the transactions contemplated by this
Agreement, except for the HSR Filing fees, which shall be shared equally by
Total eMed and MDLI. Nothing in this Agreement is meant to limit the right of a
non-breaching party to obtain reimbursement of expenses and other damages,
including attorneys' fees, incurred as a result of a breach of this Agreement by
the other party.
8.2 Entire Agreement. This Agreement, including the schedules and the
exhibits hereto, constitutes the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof.
8.3 Assignment. This Agreement shall not be assignable by any of the
parties to this Agreement without the prior written consent of each of MDLI and
Total eMed; provided that MDLI may assign this Agreement to an affiliate;
provided no such assignment shall result in Total eMed shareholders receiving
consideration in any form other than stock of MDLI or such affiliate which has
been registered under the Securities Act.
8.4 Binding Effect; No Third Party Benefit. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns, subject to the restrictions on assignment contained in
Section 8.3. Except as provided for in Section 4.3.6 and Article VII of this
Agreement, nothing express or implied in this Agreement is intended or shall be
construed to confer upon or give to a person, firm or corporation other than the
parties hereto any rights or remedies under or by reason of this Agreement or
any transaction contemplated hereby.
8.5 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented at any time prior to or at
the Closing, whether before
53
or after the votes of shareholders of Total eMed, by written agreement executed
and delivered by the duly authorized officers of Total eMed and MDLI.
8.6 Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Merger are for the sole benefit of such party and
may be waived by such party in whole or in part to the extent permitted by
applicable law; provided, however, that any waiver by a party must be in
writing.
8.7 Counterparts. For the convenience of the parties hereto, this
Agreement may be executed in any number of counterparts, each such counterpart
being deemed to be an original instrument, and all such counterparts shall
together constitute the same agreement.
8.8 Captions. The article, section and paragraph captions herein are
for convenience of reference only, do not constitute a part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof.
8.9 Subsidiary. When a reference is made in this Agreement to a
subsidiary of a party, the term "subsidiary" means any corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its subsidiaries, or by such party and one or more of its subsidiaries.
8.10 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally
or mailed, certified or registered mail with postage prepaid, or sent by telex,
telegram or facsimile (in each case with evidence of confirmed transmission) as
follows:
If to Total eMed, to it at:
0000 Xxxxxxxx Xxx
Xxxxx 000
Xxxxxxxxx, XX 00000
Attn: President
Fax: (000) 000 0000
Tel: (000) 000-0000 x000
54
with copies to:
Xxxxxxx Xxxxxx Xxxx Xxxxxxx & Manner, PC
1800 First American Center
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx Xxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
If to MDLI or Merger Corp., to it at:
00000 XX Xxxxxxxxx Xxxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
with copies to:
Stoel Rives LLP
000 XX Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
If to the Escrow Agent, to it at:
West Coast Trust
000 Xxxx Xxxxxx
Xxxxxxxxx, XX 00000
Atten: Xx. Xxxxxx X. Xxxx
Fax: (000) 000-0000
Tel: (000) 000-0000
or to such other person or address as any party shall specify by notice in
writing. All such notices, requests, demands, waivers and communications shall
be deemed to have been received on the date of delivery or on the third business
day after the mailing thereof.
8.11 Choice of Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, exclusive of choice of law
or conflicts of
55
law rules, provisions, or principles, except that the provisions of this
Agreement relating to the Merger shall also be governed by the merger provisions
of the DGCL.
8.12 Separability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.
[SIGNATURE PAGES FOLLOW]
56
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties to this Agreement as of the date
set forth in the preface of this Agreement.
MEDICALOGIC, INC.
By: XXXX X. XXXXXXX
-----------------------------------------
Name: Xxxx X. Xxxxxxx, MD
Title: CEO
TOTAL EMED, INC.
By: XXXXXXX XXXX, MD
-----------------------------------------
Name: Xxxxxxx Xxxx, MD
Title: CEO
AQ MERGER CORP.
By: XXXXX X. XXXXXXXXXXX
-----------------------------------------
Name: Xxxxx X. Xxxxxxxxxxx
Title: President
57
WEST COAST TRUST CO., INC.,
doing business as WEST COAST TRUST
By: XXXXXX X. XXXX
-----------------------------------------
Name: Xxxxxx X. Xxxx
Title: Trust Officer
West Coast Trust Company, Inc.
