Exhibit 2.2
[EXECUTION COPY - CONFORMED AS EXECUTED]
[Provider HealthNet Services, Inc. Logo] [MedGrup Corporation Logo]
AGREEMENT AND PLAN OF MERGER
by and among
PROVIDER HEALTHNET SERVICES INC.
MGC ACQUISITION CORP.
and
MEDGRUP CORPORATION
Dated as of
March 26, 2002
TABLE OF CONTENTS
Page
----
I. THE MERGER..................................................... 1
1.01 The Merger............................................ 1
1.02 Effective Time; Closing............................... 2
1.03 Effects of the Merger................................. 2
1.04 Articles of Incorporation; Bylaws..................... 2
1.05 Directors; Officers................................... 2
II. EXERCISE OF PHNS OPTION; CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES....................................... 3
2.01 Exercise of PHNS Option............................... 3
2.02 Conversion of Securities.............................. 3
2.03 Payment of Merger Consideration....................... 6
2.04 Closing of Stock Transfer Books....................... 8
2.05 Stock Options; Option Plans; Warrant.................. 8
III. REPRESENTATIONS AND WARRANTIES................................. 9
3.01 Representations and Warranties of the Company......... 9
3.02 Representations and Warranties of Parent and
Merger Sub............................................ 24
IV. CONDUCT OF BUSINESS PENDING THE MERGER......................... 26
4.01 Conduct of Business of the Company Pending the Merger. 26
4.02 Notification of Certain Matters....................... 28
V. ADDITIONAL AGREEMENTS.......................................... 28
5.01 Shareholders Meeting.................................. 28
5.02 Preparation of Proxy Statement and Schedule 13E-3;
Recommendation of Board of Directors; Shareholder
Vote.................................................. 29
5.03 Access to Information; Confidentiality................ 29
5.04 Further Actions; Consents; Filings.................... 30
5.05 Indemnification....................................... 30
5.06 Public Announcements.................................. 32
5.07 No-Shop............................................... 32
5.08 [Intentionally Omitted]............................... 33
5.09 Employment and Employee Benefits Matters.............. 33
VI. CONDITIONS TO THE MERGER....................................... 34
6.01 Conditions to the Obligations of Each Party........... 34
6.02 Conditions to the Obligations of Parent and Merger Sub 34
6.03 Conditions to Obligations of the Company.............. 36
VII. TERMINATION, AMENDMENT AND WAIVER.............................. 37
7.01 Termination........................................... 37
7.02 Effect of Termination................................. 39
7.03 Amendment............................................. 39
7.04 Waiver................................................ 39
7.05 Procedures for Termination, Amendment or Waiver....... 40
7.06 Expenses.............................................. 40
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TABLE OF CONTENTS
(continued)
Page
----
VIII. MISCELLANEOUS.................................................. 40
8.01 No Survival of Representations and Warranties......... 40
8.02 Notices............................................... 40
8.03 Definitions........................................... 42
8.04 Interpretation........................................ 43
8.05 Entire Agreement; Assignment.......................... 43
8.06 Parties in Interest................................... 43
8.07 Governing Law......................................... 43
8.08 Headings.............................................. 43
8.09 Counterparts.......................................... 43
8.10 Consent to Jurisdiction............................... 44
8.11 Waiver of Jury Trial.................................. 44
8.12 Severability.......................................... 45
8.13 Enforcement........................................... 45
Schedule 1.05 - Directors and Officers of Surviving Corporation
Exhibit A - Form of Non-Compete Agreement
ii
TABLE OF DEFINED TERMS
Term Section Term Section
---- ------- ---- -------
10-Q's 3.01 Court 8.10
Acquisition Proposal 5.07 Covered Employees 5.09(a)
Additional Merger Dissenting Shares 2.02(e)
Consideration 2.02(d)(iii) Effective Time 1.02
Adjusted Common Stock EKS&H 3.01(v)
Equivalents Environmental Laws 8.03(d)
Outstanding 2.02(d)(iii) Environmental Permits 3.01(t)
Affiliate 8.03(a) ERISA 3.01(m)
Agreed 1.02 Exchange Act 3.01(e)(v)
Agreement Preamble Exchange Agent 2.03(a)
Annualized Company Expenses 7.06
EBITDA 2.02(d)(ii) Fee 7.01(b)
Articles of Merger 1.02 GAAP 3.01(g)
Board Recitals Governmental Entity 3.01(e)(v)
Business Combination 7.01(c) Incentive Stock
Business Day 8.03(b) Option Plan 2.05(a)
Cancelled Company Indemnified Parties 5.05(b)
Stock Options 2.02(d)(iii) Indemnifying Party 5.05(b)
CBCA Recitals Intellectual Property 3.01(p)(ii)
Certificates 2.03(b) IRS 3.01(m)(v)
Claim 5.05(b) Knowledge 8.03(e)
Closing 1.02 Law 3.01(e)(iv)
Closing Date 1.02 Leased Real Property 3.01(k)
Code 2.03(f) Licensed Software 3.01(q)(i)
Company Preamble Majority Shareholders Recitals
Company Disclosure Material Contracts 3.01(s)
Schedule 3.01 Measurement Time 3.01(d)
Company ERISA Plans 3.01(m) Merger Recitals
Company Filed SEC Merger Consideration 2.02(a)
Reports 3.01 Merger Sub Preamble
Company Financial MMC Recitals
Statements 3.01(g) Order 3.01(e)(iv)
Company Indemnified Owned Software 3.01(q)(i)
Parties 5.05(a)(iii) Parent Preamble
Company Material Adverse Parent Disclosure
Effect 3.01(a) Schedule 3.02(b)(ii)
Company Option Agreements 2.05(a) Parent Material Adverse
Company Plans 3.01(m) Effect 3.02(a)
Company Preferred Shares 3.01(d) Payment Fund 2.03(a)
Company SEC Reports 3.01(f) Permits 3.01(l)
Company Shares Recitals Person 8.03(f)
Company Stock Options 2.05(a) PHNS Option Recitals
Confidential Software 3.01(q)(vii) PHNS Option Agreement Recitals
Confidentiality Contract 3.01(q)(vii) Proxy Statement 5.02(a)
Control 8.03(c) Real Property Leases 3.01(k)
Reference Month 2.02(d)
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Representatives 5.03(a)
Requisite Shareholder
Vote 3.01(e)(i)
Returns 3.01(o)(i)
Schedule 13E-3 5.02(a)
SEC 3.01(f)
Shareholder Shares Recitals
Shareholders Meeting 5.01
Software 3.01(p)(ii)
Subsidiary 8.03(g)
Surviving Corporation 1.01
Taxes 3.01(o)(xi)
Trade Secrets 3.01(p)(ii)
Warrants 2.05(a)
WDC Recitals
iv
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is made and entered into on this 26th day
of March, 2002 (this "Agreement"), among Provider HealthNet Services Inc.
("Parent"), MGC Acquisition Corp., a Colorado corporation and a wholly owned
Subsidiary of Parent ("Merger Sub"), and MedGrup Corporation, a Colorado
corporation (the "Company").
WHEREAS, Parent, Xxxxxxx X. Xxxxxx ("WDC") and Xxxxxxxx X. Xxxxxx ("MMC"
and, together with WDC, the "Majority Shareholders") have simultaneously
herewith entered into an Option and Voting Agreement (the "PHNS Option
Agreement"), dated as of March 26, 2002, pursuant to which the Majority
Shareholders have (i) granted Parent the option (the "PHNS Option") to purchase
an aggregate of 3,350,000 shares of the Company's Common Stock, par value $.001
per share, (the "Company Shares"), which shares constitute approximately 56.8%
of the outstanding Company Shares (the Company Shares subject to the PHNS Option
are referred to in this Agreement as the "Shareholder Shares"); (ii) agreed to
vote the Shareholder Shares in favor of the Merger and (iii) granted certain
irrevocable proxies to Parent;
WHEREAS, Parent intends to exercise the PHNS Option at or prior to the
Closing;
WHEREAS, Parent has proposed that Parent acquire the outstanding Company
Shares, other than the Shareholder Shares, on the terms and subject to the
conditions of this Agreement;
WHEREAS, a majority of the members of the Board of Directors of the Company
(the "Board") other than the Majority Shareholders has (i) determined that it is
in the best interests of the Company and its shareholders (excluding Parent and
the Majority Shareholders) to consummate the merger of Merger Sub with and into
the Company, with the Company being the surviving corporation (the "Merger"), on
the terms and subject to the conditions of this Agreement and in accordance with
the Colorado Business Corporation Act (the "CBCA"), (ii) approved and declared
the advisability of this Agreement and the Merger, and (iii) resolved to
recommend that the shareholders of the Company adopt this Agreement;
WHEREAS, the Boards of Directors of Merger Sub, Parent and the Company have
approved this Agreement; and
WHEREAS, Parent, Merger Sub and the Majority Shareholders desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto hereby
agree as follows:
I. The Merger
----------
1.01 The Merger
----------
On the terms of this Agreement and subject to the conditions set forth in
Article VI, and in accordance with the CBCA, at the Effective Time, Merger Sub
will be merged with and into the Company. As a result of the Merger, the
separate existence of Merger Sub will cease and the Company will continue as the
surviving corporation of the Merger (the "Surviving Corporation").
1.02 Effective Time; Closing
-----------------------
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Article VII, and
subject to the satisfaction or waiver of all of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 10:00
a.m. Dallas time, as promptly as practicable and in no event later than the
tenth (10th) Business Day following the satisfaction or waiver of the conditions
set forth in Article VI (other than those conditions that by their nature are to
be satisfied at the Closing), but subject to the fulfillment or waiver of those
conditions, or such other date as may be agreed in writing by Parent and the
Company ("Agreed") (such date, the "Closing Date"), at the offices of Xxxxx,
Day, Xxxxxx & Xxxxx, 0000 Xxxxx Xxxxxxx, Xxxxxx, Xxxxx 00000 (or such other
place as may be Agreed). On the Closing Date, the parties hereto will file
articles of merger (the "Articles of Merger") and any other appropriate
documents with the Secretary of State of the State of Colorado, in such form as
is required by, and executed in accordance with, the relevant provisions of the
CBCA (or such other date as may be Agreed), and will make all other filings or
recordings required under the CBCA in connection with the Merger. The Merger
shall become effective upon the filing with, and the acceptance for filing by,
the Secretary of State of the State of Colorado of the Articles of Merger, or
such later time as may be Agreed and specified in the Articles of Merger (the
"Effective Time").
1.03 Effects of the Merger
---------------------
At the Effective Time, the effect of the Merger will be as provided in this
Agreement and in the applicable provisions of the CBCA (including but not
limited to Section 0-000-000 of the CBCA). Without limiting the generality of
the foregoing, at the Effective Time, Parent and/or Merger Sub will become
obligated to pay the Merger Consideration as provided in Section 2.02, and all
of the property, rights, privileges, powers, franchises and interests of the
Company and Merger Sub will vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of the Company
and Merger Sub will become the debts, liabilities, obligations, restrictions,
disabilities and duties of the Surviving Corporation.
1.04 Articles of Incorporation; Bylaws
---------------------------------
At the Effective Time, (a) the articles of incorporation of Merger Sub as
then in effect will be the articles of incorporation of the Surviving
Corporation until thereafter amended as provided by Law and such articles of
incorporation, and (b) the bylaws of Merger Sub as then in effect will be the
Bylaws of the Surviving Corporation until thereafter amended as provided by Law,
the articles of incorporation of the Surviving Corporation and such bylaws.
1.05 Directors; Officers
-------------------
From and after the Effective Time, (a) the individuals listed in clause (a)
of Schedule 1.05 will become the directors of the Surviving Corporation
effective as of the Effective Time and will each hold office in accordance with
the articles of incorporation and bylaws of the Surviving Corporation until the
earlier of their resignation or removal or until their successors are duly
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elected or appointed and qualified, and (b) the individuals listed in clause (b)
of Schedule 1.05 will be the officers of the Surviving Corporation, and will
each hold office in accordance with the articles of incorporation and bylaws of
the Surviving Corporation until the earlier of their resignation or removal or
until their respective successors are duly elected or appointed and qualified.
II. Exercise of PHNS Option; Conversion of Securities; Exchange of Certificates
---------------------------------------------------------------------------
2.01 Exercise of PHNS Option
-----------------------
To the extent not previously exercised, simultaneously with the Closing and
subject to the satisfaction or waiver of the conditions contained in Article VI
hereof and in Sections 5 and 6 of the PHNS Option Agreement, Parent will
exercise the PHNS Option and acquire all of the Shareholder Shares on the terms
and subject to the conditions of the PHNS Option Agreement.
2.02 Conversion of Securities
------------------------
At the Effective Time, by virtue of the Merger and without any action on
the part of any holder of Company Shares or any other capital stock of the
Company or any shares of capital stock of Merger Sub:
(a) Conversion of Company Shares other than Shareholder Shares
Each Company Share issued and outstanding immediately prior to the
Effective Time (other than any Company Shares to be canceled pursuant to Section
2.02(b) and any Dissenting Shares) will be converted, subject to Sections
2.02(d)(ii) or (iii) and Section 2.03, into the right to receive $2.2465 in cash
per share (the "Merger Consideration"), without any interest thereon. At the
Effective Time, each Company Share issued and outstanding immediately prior to
the Effective Time converted in accordance with this Section 2.02(a) will no
longer be outstanding and will automatically be canceled and retired and cease
to exist, and each Certificate evidencing such Company Shares will evidence only
the right to receive upon surrender cash in an amount equal to the product of
(i) the number of Company Shares represented by such Certificate and (ii) the
Merger Consideration, without any interest thereon.
(b) Cancellation of Treasury Shares and Parent-Owned Shares
Each Company Share or other right to purchase Company Shares held in the
treasury of the Company or owned, directly or indirectly, by Parent or Merger
Sub (which for purposes of this Section 2.02 will be deemed to include all
Shareholder Shares that Parent and Merger Sub acquire pursuant to the exercise
of the PHNS Option), in each case immediately prior to the Effective Time, will
be canceled and extinguished without any conversion thereof and, except as
provided in Section 2.02(f), no payment or distribution will be made with
respect thereto.
(c) Common Stock of Merger Sub
Each share of common stock, par value $0.01 per share, of Merger Sub issued
and outstanding immediately prior to the Effective Time will be converted into
shares of common stock, par value $0.01 per share, of the Surviving Corporation,
which shares shall constitute all of the issued and outstanding capital stock of
the Surviving Corporation immediately after the Effective Time.
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(d) Adjustment of Merger Consideration
(i) If between the date of this Agreement and the Effective Time,
there is a reclassification, recapitalization, stock split, split-up, stock
dividend, combination or exchange of shares with respect to, or rights
issued in respect of, Company Shares, the Merger Consideration will be
adjusted accordingly, without duplication, to reflect such
reclassification, recapitalization, stock split, split-up, stock dividend,
combination or exchange of shares in order to provide to the holders of
Company Shares the same economic effect as contemplated by this Agreement
prior to such event.
(ii) Notwithstanding the foregoing, the Merger Consideration shall be
adjusted according to the following formula if the Annualized Company
EBITDA is less than $1,750,000:
MC1=MC0 X ((8 X Annualized Company EBITDA)/14,000,000), where
MC0=$2.2465.
If an adjustment is required pursuant to this Section 2.02(d)(ii),
then the Merger Consideration shall be deemed to be "MC1" as determined
pursuant to this Section 2.02(d)(ii). For purposes of this Section
2.02(d)(ii), "Annualized Company EBITDA" shall mean twelve (12) times the
Company's income before interest, taxes, depreciation and amortization for
the calendar month immediately preceding the calendar month in which the
Closing is scheduled to occur (or, if the Closing is scheduled to occur
before the 15th day of such calendar month, the calendar month prior to the
calendar month immediately preceding the calendar month in which the
Closing is scheduled to occur), with each item of EBITDA determined in
accordance with GAAP. The month used to determine Annualized Company EBITDA
is referred to herein as the "Reference Month." For purposes of determining
the Merger Consideration pursuant to this Agreement, the maximum Annualized
Company EBITDA shall be $1,750,000 and the minimum Annualized Company
EBITDA shall be $1,625,000 and no adjustment will be made to the Merger
Consideration if Annualized Company EBITDA is greater than $1,750,000 or
less than $1,625,000.
(iii) The Merger Consideration shall be subject to further adjustment
in the event that fewer than 1,000,000 Company Stock Options and Warrants
are outstanding at the Effective Time according to the following formula:
Adjustment to Merger Consideration = Merger Consideration +
(Additional Merger Consideration/Adjusted Common Stock Equivalents
Outstanding), where:
"Additional Merger Consideration" equals the difference between
(A) the product of the Merger Consideration times the number of
Company Stock Options that are terminated, cancelled or forfeited
after the date of this Agreement but prior to the Effective Time (the
"Cancelled Company Stock Options") and (B) the aggregate exercise
price of the Cancelled Company Stock Options"); and
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"Adjusted Common Stock Equivalents Outstanding" means, as of the
Effective Time, the sum of (A) the number of outstanding Company
Shares plus (B) the number of in-the-money Company Stock Options
(other than Cancelled Company Stock Options) and the Warrant.
(iv) In the event that any adjustments to the Merger Consideration are
required pursuant to Section 2.02(d)(ii) or (iii), then, when used in this
Agreement, the term "Merger Consideration" shall be deemed to be the Merger
Consideration as adjusted in accordance with either or both of Sections
2.02(d)(ii) or (iii).
(v) No later than ten (10) days after the first date on which the
parties can determine the results of the Reference Month, the Company shall
provide Parent and Merger Sub with a statement setting forth, in reasonable
detail, the calculation of Annualized Company EBITDA, certified by the
Chief Financial Officer of the Company. Parent and Merger Sub shall have
fifteen (15) days from receipt of such statement to object to the
calculation of Annualized Company EBITDA, and if they fail to so object
then such calculation of Annualized Company EBITDA shall be deemed final
for all purposes (including under the PHNS Option Agreement). If Parent and
Merger Sub object to the calculation, they shall deliver a written notice
of such objection, stating in reasonable detail the reasons for any such
objection. The Company, Parent and Merger Sub shall attempt to resolve any
dispute through good faith negotiations between their respective Chief
Executive Officers (or officers to whom settlement authority has been
delegated) to be held no later than twenty (20) days prior to the date of
the Closing. If the parties are unable to reach agreement, the dispute
shall be submitted to resolution to a mutually acceptable independent
public accounting firm or any other mutually agreeable party, whose costs
will be divided equally between Parent and the Company. The decision of
such firm shall be made within ten (10) days of submission of the dispute
and shall be final, conclusive and binding on Parent, Merger Sub and the
Company.
(e) Dissenting Shares
Notwithstanding Section 2.02 or any other provision of this Agreement to
the contrary, Company Shares (other than Shareholder Shares) that have not been
voted in favor of the adoption of this Agreement and with respect to which
dissenters' rights shall have been demanded and perfected in accordance with
Sections 0-000-000 to 0-000-000 of the CBCA and not withdrawn ("Dissenting
Shares") will not be converted into the right to receive the Merger
Consideration at or after the Effective Time, but such Company Shares will be
converted into the right to receive such consideration as may be determined to
be due to holders of Dissenting Shares pursuant to the CBCA; provided, that if
the holder of such Dissenting Shares withdraws his or her demand for such
appraisal or becomes ineligible for such appraisal (through failure to perfect
or otherwise), then, as of the Effective Time or the occurrence of such event,
whichever last occurs, such holder's Dissenting Shares will automatically be
converted into and represent the right to receive the Merger Consideration,
without any interest thereon, as provided in Section 2.02(a). The Company will
give the Parent (a) prompt notice of any demands for appraisal of Company Shares
5
received by the Company and (b) the opportunity to participate in all
negotiations and proceedings with respect to any such demands. Prior to the
Effective Time, the Company will not, without the prior written consent of the
Parent, make any payment with respect to, or settle, offer to settle or
otherwise negotiate, any such demands. The parties hereto agree and acknowledge
that the Majority Shareholders have agreed to vote for the Merger and not to
perfect any dissenters' rights, all as provided in the PHNS Option Agreement.
(f) Treatment of Shareholder Shares
As provided in, and subject to the provisions of Section 2.01, Parent and
the Majority Shareholders intend that, subject to the terms and conditions of
the PHNS Option Agreement, Parent will exercise the PHNS Option at or prior to
the Effective Time and to hold the "Closing" as such term is defined in the PHNS
Option Agreement so that all Shareholders Shares will be owned by Parent (for
purposes of this Article II) at the Effective Time. Therefore, following
execution of the PHNS Option Agreement and prior to the Effective Time, the
Majority Shareholders will have the right to receive only the consideration
provided for in the PHNS Option Agreement and will not be entitled to receive
any Merger Consideration.
2.03 Payment of Merger Consideration
-------------------------------
(a) Exchange Agent/Payment Fund
At or prior to the Closing, Parent will cause to be deposited with a bank
or trust company designated by Parent and having a capital surplus of at least
$500 million (the "Exchange Agent"), for the benefit of the holders of Company
Shares to be converted in accordance with Section 2.02(a), for payment in
accordance with this Article II through the Exchange Agent, immediately
available funds in an aggregate amount necessary to make the payments pursuant
to Section 2.02(a) (such funds, the "Payment Fund").
(b) Procedures for Exchange of Certificate for Merger Consideration
Promptly after the Effective Time, but in no event later than five Business
Days thereafter, Parent will cause the Exchange Agent to mail to each holder of
record of a certificate or certificates (other than certificates evidencing
Company Shares to be canceled pursuant to Section 2.02(b) and any Dissenting
Shares), which immediately prior to the Effective Time represented outstanding
Company Shares (the "Certificates"), (i) a letter of transmittal and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment therefor. Upon surrender to the Exchange Agent of a Certificate for
exchange and cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be required pursuant to such instructions, the holder of
record of each Certificate will be entitled to receive, and the Exchange Agent
shall pay, in respect thereof cash in an amount equal to the product of (i) the
number of Company Shares represented by such Certificate and (ii) the Merger
Consideration, without any interest thereon, and the Certificate so surrendered
will forthwith be canceled in accordance with Section 2.03(c) below. In the
event of a transfer of ownership of Company Shares that is not registered in the
transfer records of the Company, such payment may be issued to a transferee if
the Certificate representing such Company Shares is presented to the Exchange
Agent, accompanied by all documents requested by Parent to evidence and effect
such transfer and by evidence satisfactory to Parent that any applicable share
transfer taxes have been paid.
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(c) Cancellation and Retirement of Shares; No Further Rights
As of the Effective Time, all Company Shares (other than the Company Shares
to be cancelled in accordance with Section 2.02(b) and any Dissenting Shares),
issued and outstanding immediately prior to the Effective Time shall cease to be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a Certificate theretofore representing any such
Company Shares shall cease to have any rights with respect thereto (including
without limitation the right to vote), except the right to receive the Merger
Consideration, without interest, upon surrender of such Certificate in
accordance with this Article II, and until so surrendered, each such Certificate
shall represent for all purposes only the right, subject to Section 2.02(e), to
receive the Merger Consideration, without interest. The Merger Consideration
paid upon the surrender for exchange of Certificates in accordance with the
terms of this Article II shall be deemed to have been paid in full satisfaction
of all rights pertaining to the Company Shares theretofore represented by such
Certificates.
(d) Investment of Payment Fund
The Exchange Agent shall invest the Payment Fund, as directed by Parent, in
(i) direct obligations of the United States of America, (ii) obligations for
which the full faith and credit of the United States of America is pledged to
provide for the payment of principal and interest, (iii) commercial paper rated
the highest quality by either Xxxxx'x Investor Services, Inc. or Standard &
Poor's Corporation, or (iv) certificates of deposit, bank repurchase agreements
or bankers' acceptances of commercial banks with capital exceeding $500 million.
Any net earnings with respect to the Payment Fund shall be the property of and
paid over to Parent as and when requested by Parent; provided, that any such
investment or any such payment of earnings shall not delay the receipt by
holders of Certificates of the Merger Consideration.
(e) Termination of Payment Fund; Limitation of Liability
Any portion of the Payment Fund that remains undistributed to the holders
of Company Shares for 120 days after the Effective Time will be returned to
Parent or the Surviving Corporation, as applicable, upon demand, and any holders
of Company Shares that have not theretofore complied with this Article II will
thereafter look only to Parent and the Surviving Corporation for payment of the
Merger Consideration, without any interest thereon. Any portion of the Payment
Fund remaining unclaimed by holders of Company Shares as of a date that is
immediately prior to such time as such amounts would otherwise escheat to or
become property of any Governmental Entity will, to the extent permitted by
applicable Law, become the property of the Surviving Corporation free and clear
of any claims or interest of any Person previously entitled thereto. Neither
Parent nor the Surviving Corporation will be liable to any holder of Company
Shares for any Merger Consideration (whether payable from the Payment Fund or
otherwise) delivered to a public official pursuant to any abandoned property,
escheat or similar Law.
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(f) Withholding Rights
Each of the Surviving Corporation, Parent and the Exchange Agent will be
entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of Company Shares such amounts as are
required to be deducted and withheld with respect to the making of such payment
under the United States Internal Revenue Code of 1986, as amended (the "Code"),
or any provision of state or local tax Law. To the extent that amounts are so
withheld by the Surviving Corporation, Parent or the Exchange Agent, as the case
may be, such withheld amounts will be treated for all purposes of this Agreement
as having been paid to the holder of the Company Shares in respect of which such
deduction and withholding was made by the Surviving Corporation, Parent or the
Exchange Agent, as the case may be.
(g) Lost Certificates
If any Certificate has been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Certificate to be lost,
stolen or destroyed and, if required by the Surviving Corporation, the posting
by such Person of a bond, in such reasonable amount as the Surviving Corporation
may direct, as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will pay in exchange for such
lost, stolen or destroyed Certificate, cash, in an amount equal to the product
of (x) the number of Company Shares represented by such Certificate and (y) the
Merger Consideration, without any interest thereon.
2.04 Closing of Stock Transfer Books
-------------------------------
At the Effective Time, the stock transfer books of the Company will be
closed and there will be no further registration of transfers of Company Shares
thereafter on the records of the Company.
2.05 Stock Options; Option Plans; Warrant
------------------------------------
(a) Conversion of Stock Options and Warrant
At the Effective Time each vested, unexpired and unexercised option or
right to purchase Company Shares granted under (i) the Company's incentive stock
option plan ("Incentive Stock Option Plan"), (ii) any other stock option
agreement between the Company and any other Person (including, without
limitation, any option agreement filed as an exhibit to any Company Filed SEC
Reports and any option agreement listed on the Disclosure Schedule) (the
"Company Option Agreements") (such vested, unexercised and unexpired options,
collectively with options to purchase Company Shares under the Company's
Incentive Stock Option Plan, the "Company Stock Options") and (iii) the warrants
to purchase Company Shares (the "Warrants") held by affiliates or principals of
Xxxxxxx Davidson Securities Corporation or their transferees that are
outstanding immediately prior to the Effective Time will be automatically
converted at the Effective Time into the right to receive, and each holder of a
Company Stock Option or Warrant will be paid, an amount in cash per Company
Share subject to each such Company Stock Option or Warrant equal to the excess,
if any, of the Merger Consideration over the exercise price of such Company
Stock Option or Warrant, as the case may be (less an amount equal to any
required tax withholdings), whereupon each such Company Stock Option and Warrant
will be cancelled and extinguished. All unvested Company Stock Options will be
terminated on the Effective Date.
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(b) Amendment and Termination of Option Plans and Consents and Releases
Prior to the Effective Time, the Company shall (i) make any amendments to,
or take such other action in respect of, the terms of (A) the Incentive Stock
Option Plan, (B) any Company Option Agreements and (C) any Warrants that Parent
deems necessary to give effect to the transactions contemplated by Section
2.05(a), (ii) cause the Incentive Stock Option Plan to terminate as of the
Effective Time and (iii) obtain consents to cash out and/or cancel any Company
Stock Options or Warrants prior to the Effective Time that by their terms may
not be cancelled upon notice or in connection with the Merger. The Company shall
obtain all necessary waivers, consents or releases from holders of Company Stock
Options and Warrants and take any such other action as may be reasonably
necessary to give effect to the transactions contemplated by Section 2.05(a).
III. Representations and Warranties
------------------------------
3.01 Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to Parent and Merger Sub that,
except as set forth in the disclosure letter delivered by the Company to Parent
on the date hereof in Agreed form (the "Company Disclosure Schedule") or as
disclosed in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2000, the Company's Quarterly Reports on Form 10-QSB for the
fiscal quarters ended March 31, June 30 or September 30, 2001 (the "10-Qs"), any
of the Company's Current Reports on Form 8-K filed with the SEC since January 1,
2001, or the Company's Definitive Proxy Statement for its 2001 Annual Meeting of
Shareholders dated April 17, 2001, including any amendments to any of the
foregoing, in each case in the form filed by the Company with the SEC no later
than two Business Days prior to the date of this Agreement (collectively, the
"Company Filed SEC Reports"):
(a) Organization and Qualification
The Company is a corporation duly organized, validly existing and in good
standing under the Laws of the State of Colorado and has the requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted. The Company has all necessary
governmental licenses, permits, authorizations and approvals to own, lease and
operate its properties and to carry on its business as it is currently being
conducted, except where the failure to have such governmental licenses, permits,
authorizations and approvals has not had or resulted in a Company Material
Adverse Effect. The Company is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the character of the properties owned or leased by it makes such
qualification necessary, other than where the failure to be so duly qualified
and in good standing has not had or resulted in a Company Material Adverse
Effect. For purposes of this Agreement, the term "Company Material Adverse
Effect" means any change, effect, event, condition or exception that,
individually or when taken together with all other such changes, effects,
events, conditions or exceptions (excluding in each case any change, effect,
event, condition or exception to the extent it occurs, exists or arises due to
general economic or stock market conditions) has had or could reasonably be
expected to have or result in an adverse effect equal to or greater than $50,000
on the business, condition (financial or otherwise), assets, properties, results
of operations or prospects of the Company and its Subsidiaries, taken as a
whole.
9
(b) No Subsidiaries
The Company does not own, directly or indirectly, an equity interest
representing 50% or more of the capital stock of, or other equity interests in,
any corporation, partnership, joint venture, limited liability company or other
legal entity.
(c) Articles of Incorporation and Bylaws
The Company has heretofore furnished to Parent a complete and correct copy
of its Amended and Restated Articles of Incorporation and Amended and Restated
Bylaws, each as amended to date. Such Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws are in full force and effect. The
Company is not in violation of any provision of its Amended and Restated
Articles of Incorporation or Amended and Restated Bylaws.
(d) Capitalization
The authorized capital stock of the Company consists of 45,000,000 Company
Shares and 5,000,000 shares of Preferred Stock, par value $.001 per share (the
"Company Preferred Shares"). As of the close of business on the last Business
Day prior to the date hereof (the "Measurement Time"), (i) 5,899,777 Company
Shares (excluding treasury shares) are issued and outstanding, all of which have
been validly issued and are fully paid and nonassessable, (ii) no Company Shares
and no Company Preferred Shares were held in the treasury of the Company, (iii)
1,750,000 Company Shares were reserved for future issuance (with respect to
which options to acquire 1,316,000 Company Shares are issued and outstanding)
pursuant to stock options or other rights granted pursuant to the Incentive
Stock Option Plan, (iv) no Company Shares were reserved for issuance, and no
stock options have been granted under Company Option Agreements, (v) 185,000
Company Shares are reserved for issuance pursuant to the Warrants, and (vi) no
Company Preferred Shares were issued, reserved for issuance or outstanding, and
there were no other shares of capital stock or equity securities of the Company
issued, reserved for issuance or outstanding. During the period from September
30, 2001 to the Measurement Time, (x) there have been no issuances by the
Company of shares of capital stock of, or other equity or voting interests in,
the Company other than issuances of Company Shares pursuant to the exercise of
employee stock options or other rights granted pursuant to the Incentive Stock
Option Plan, the Company Option Agreements or the Warrants, and (y) there have
been no issuances by the Company of options, warrants or other rights to acquire
shares of capital stock of, or other equity or voting interests in, the Company.
Except as otherwise specified in this Agreement or the PHNS Option Agreement,
there are no options, offers, warrants, conversion rights or other rights,
agreements, arrangements or other equity interests or commitments of any
character relating to the issued or unissued capital stock or other equity
interests of the Company or other rights to subscribe for or to purchase from
the Company or obligating the Company or to issue, transfer or sell any shares
of capital stock of the Company (whether debt, equity or a combination of debt
or equity) or obligating the Company to grant, extend or enter into any such
agreement. All issued shares of capital stock of the Company were issued in
10
compliance with all applicable state and federal laws concerning the issuance of
securities and all shares of capital stock of the Company subject to issuance as
aforesaid, have been, or upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable will be, duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Except for this Agreement, there are no outstanding contractual
obligations of the Company (i) to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company or (ii) to provide funds to, or make any
investment (in the form of a loan, capital contribution or otherwise) in, any
Person. The Company Disclosure Schedule lists the name of each optionee, the
date of grant, vesting schedule, exercise price and option termination date for
all of the options and other rights to purchase Company Shares (including under
the Incentive Stock Option Plan, the Company Option Agreements and the Warrants)
which are outstanding as of the Measurement Time. Except as set forth in the
Company Disclosure Schedule, none of the Incentive Stock Option Plan, the
Company Option Agreements or the Warrant contain a provision providing for the
acceleration of vesting or lapse of a repurchase right upon the occurrence of
any events.
(e) Authority; No Conflicts; Consents and Approvals
(i) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and, subject to receipt of the Requisite
Shareholder Vote, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action, and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby (other than, with respect
to the Merger, (a) the adoption of this Agreement by the affirmative vote
of (i) a majority of the outstanding Company Shares entitled to vote
thereon and (ii) a majority of the outstanding Company Shares present at
the Shareholders Meeting and entitled to vote thereon excluding the Parent
Shares and the Shareholder Shares (the votes specified in clauses (i) and
(ii), collectively, the "Requisite Shareholder Vote") and (b) the filing
and recordation of appropriate merger documents as required by the CBCA).
(ii) This Agreement has been duly and validly executed and delivered
by the Company and, assuming the due authorization, execution and delivery
by Parent, Merger Sub and the Majority Shareholders, constitutes a valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms.
(iii) The Board (other than the Majority Shareholders) at a meeting
thereof duly called and held on March 22, 2002, unanimously (A) determined
that this Agreement and the Merger are in the best interests of the Company
and its shareholders (excluding Parent and the Majority Shareholders), (B)
approved and declared the advisability of this Agreement and the Merger,
and (C) resolved to recommend that the shareholders of the Company adopt
this Agreement.
11
(iv) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, (i)
conflict with or result in a violation of the Amended and Restated Articles
of Incorporation or Amended and Restated Bylaws of the Company, in each
case as amended to the date of this Agreement, (ii) conflict with or result
in a violation of any law, statute, ordinance, rule or regulation ("Law")
or any judgment, decree, order, writ, determination or award ("Order")
applicable to the Company or by which any property or asset of the Company
is bound or affected, or (iii) result in any violation or breach of,
constitute (with or without notice or lapse of time or both) a default
under, or require the Company to obtain any consent, approval or action of,
make any filing with or give any notice to, or result in or give to any
Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the loss of any material
benefit under or the creation or imposition of any lien on any property or
asset of the Company, under any of the terms, conditions or provisions of
any agreement, commitment, lease, license, evidence of indebtedness,
mortgage, indenture, security agreement, instrument, note, bond, franchise,
permit, concession or other instrument, obligation or agreement of any kind
to which the Company is a party, except for in the case of clauses (ii) and
(iii), for any thereof that have not had or resulted in, or will not have
or result in, a Company Material Adverse Effect or are not reasonably
expected to prevent or materially delay the consummation of the Merger.
(v) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any domestic, foreign or supranational governmental,
regulatory or administrative authority, agency or commission or any court,
tribunal or arbitral body ("Governmental Entity"), except (i) for
applicable requirements of the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the
"Exchange Act"), the CBCA and the filing and recordation of appropriate
merger documents as required by the CBCA and (ii) for such other consents,
approvals, authorizations, permits, filings or notifications that if not
obtained or made will not prevent or materially delay the consummation of
the transactions contemplated by this Agreement.
(f) SEC Filings
The Company has filed all forms, reports, schedules, statements and
documents required to be filed by it with the Securities and Exchange Commission
("SEC") including (i) its Annual Reports on Form 10-KSB for the fiscal years
ended December 31, 1999 and 2000, respectively, (ii) the 10-Qs, (iii) all proxy
statements relating to the Company's meetings of shareholders (whether annual or
special), and (iv) all other forms, reports and other registration statements
required to be filed by the Company with the SEC (the forms, reports and other
documents referred to in clauses (i), (ii), (iii) and (iv) above, collectively,
the "Company SEC Reports"). The Company SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act of 1933, as amended or
the Exchange Act, as applicable, and the rules and regulations of the SEC
promulgated thereunder, (ii) did not, at the time they were filed, 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 made therein, in
the light of the circumstances under which they were made, not misleading, and
(iii) were filed in a timely manner.
12
(g) Financial Statements
Each of the financial statements (including, in each case, any notes
thereto) contained in the Company SEC Reports (the "Company Financial
Statements") complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC, was prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis (except, in the case of unaudited statements, as permitted by
Form 10-QSB of the SEC) during the periods involved (except as may be indicated
in the notes thereto) and presented fairly in all material respects the
financial position, results of operations and cash flows of the Company as at
the respective dates thereof and for the respective periods indicated therein.
The balance sheets of the Company contained in the Company Financial Statements
reflect all claims against and all debts and liabilities of the Company, fixed
or contingent, as at the respective dates thereof, required to be shown thereon
under GAAP, (except as permitted by Form 10-QSB) and the related statements of
operations and cash flows fairly present the results of operations for the
respective periods indicated, except that any unaudited interim financial
statements were subject to normal and recurring year-end adjustments that have
not had or resulted in a Company Material Adverse Effect.
(h) Absence of Certain Changes or Events; No Undisclosed Liabilities
(i) Except as disclosed in the Company Filed SEC Reports or in the
Company Disclosure Schedule, since the date of the most recent audited
financial statements provided to Parent and which will be included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 2001, which report the Company will timely file with the Commission,
the Company has conducted its business only in the ordinary course, and
there has not been (A) any change, event or occurrence which has had or
could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect; (B) any declaration, setting aside or
payment of any dividend or other distribution in respect of shares of the
Company's capital stock, or any redemption or other acquisition by the
Company of any shares of its capital stock; (C) any increase in the rate or
terms of compensation payable or to become payable by the Company to its
directors, officers or key employees, except increases occurring in the
ordinary course of business consistent with past practices; (D) any entry
into, or increase in the rate or terms of, any bonus, insurance, severance,
pension or other employee or retiree benefit plan, payment or arrangement
made to, for or with any such directors, officers or employees, except
increases occurring in the ordinary course of business consistent with past
practices or as required by applicable Law; (E) any entry into any
agreement, commitment or transaction by the Company which is material to
the Company, except for agreements, commitments or transactions entered
into in the ordinary course of business; (F) any change by the Company in
accounting methods, principles or practices, except as required or
permitted by GAAP; (G) any write-off or write-down of, or any determination
to write-off or write-down, any asset of the Company or any portion thereof
which write-off, write-down or determination exceeds $50,000 individually
or $150,000 in the aggregate; or (H) any agreements by the Company to do
any of the things described in the preceding clauses (A) through (G) other
than as expressly contemplated or provided for herein.
13
(ii) Except as disclosed in the Company Filed SEC Reports or in the
Company Disclosure Schedule and liabilities incurred in the ordinary course
of business since the date of the most recent financial statements included
in the Company Filed SEC Reports, as of the date of this Agreement, there
are no liabilities or obligations of the Company of any kind whatsoever,
whether accrued, contingent, or otherwise, that would be required to be
reflected or reserved for on the most recent balance sheet of the Company
included in the Company Filed SEC Reports except for liabilities or
obligations (i) arising in the ordinary course of business after December
31, 2001 or (ii) which have not had or could not reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
(i) Litigation
As of the date hereof, except as specified in the Company Disclosure
Schedule, (i) there is no suit, claim, action, proceeding (at law or in equity)
or investigation pending or, to the knowledge of the Company, threatened against
the Company before any court or other Governmental Entity, and (ii) the Company
is not subject to any outstanding order, writ, judgment, injunction, decree or
arbitration order or award that, in any such case described in clauses (i) and
(ii), has had or could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. As of the date hereof, there are
no suits, claims, actions, proceedings or investigations pending or, to the
knowledge of the Company, threatened, seeking to prevent, hinder, modify or
challenge the transactions contemplated by this Agreement.
(j) Proxy Statement and Schedule 13E-3
The information supplied by the Company for inclusion in the Proxy
Statement and the Schedule 13E-3, if required, will not, at the time the Proxy
Statement is first mailed to the shareholders of the Company and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to the Company or its officers or directors should be
discovered by the Company, which would cause the Proxy Statement or the Schedule
13E-3, if required, to 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 the light of the circumstances under which
they were made, not misleading, the Company will promptly inform Parent thereof.
The Proxy Statement, the Schedule 13E-3, if required, and all other documents
that the Company is responsible for filing with the SEC in connection with the
Merger will comply as to form and substance in all material respects with the
applicable requirements of the Exchange Act and the rules and regulations
thereunder.
14
(k) Real Property; Other Assets
The Company has heretofore made available to Parent true, correct and
complete copies of all leases, subleases and other agreements (the "Real
Property Leases") under which the Company uses or occupies or has the right to
use or occupy, now or in the future, any real property or facility (the "Leased
Real Property"), including all modifications, amendments and supplements
thereto. Except in each case where the failure could not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse Effect:
(A) the Company has a valid and subsisting leasehold interest in each parcel of
Leased Real Property free and clear of all Liens and each Real Property Lease is
in full force and effect; (B) all rent and other sums and charges payable by the
Company as tenant thereunder are current in all material respects; (C) no
termination event or condition or uncured default of a material nature on the
part of the Company or, to the Company's knowledge, the landlord, exists under
any Real Property Lease; and (D) the Company is the sole undisputed lessee of
each Leased Real Property, is in actual possession thereof and is entitled to
quiet enjoyment thereof in accordance with the terms of the applicable Real
Property Lease. The Company does not own, lease or occupy any real property
other than the Leased Real Property. The Company does not lease any Leased Real
Property from any Majority Shareholder or any Person that is an Affiliate,
"associate" or "immediate family member" (as such terms are defined in the
Exchange Act) of any Majority Shareholder. The Company does not own any real
property.
(l) Conduct of Business; Licenses; Permits
All federal, state, local and foreign governmental approvals,
authorizations, certificates, filings, franchises, licenses, notices, permits
and rights ("Permits") necessary for the Company to own, lease or operate its
properties and assets and to carry on its business as now conducted have been
obtained or made, and there has occurred no default under any such Permit,
except for the lack of Permits and for defaults under Permits which lack or
default could not reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect. Except as disclosed in the Company
Filed SEC Reports or in the Company Disclosure Schedule, the Company is in
compliance with all applicable statutes, laws, ordinances, rules, orders and
regulations of any Governmental Entity, except for non-compliance which could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect.
(m) Employee Benefit Plans
The Company Disclosure Schedule sets forth a true, correct and complete
list of all the employee benefit plans (as that phrase is defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained or contributed to for the benefit of any current or former
employee, officer or director of the Company (the "Company ERISA Plans") and any
other benefit or compensation plan, program or arrangement maintained or
contributed to for the benefit of any current or former employee, officer or
director of the Company (the Company ERISA Plans and such plans being referred
to as "Company Plans"). The Company has furnished or made available to Parent
and its representatives a true, correct and complete copy of every document
pursuant to which each Company Plan is established or operated (including any
summary plan descriptions), a written description of any Company Plan for which
there is no written document, and all annual reports (including Form 5500,
5500-C or 5500-R filings), financial statements and actuarial valuations with
respect to each Company Plan since the commencement of such Company Plan. Except
as specified in the Company Disclosure Schedule:
15
(i) none of the Company ERISA Plans is a "multiemployer plan" within
the meaning of ERISA;
(ii) none of the Company Plans promises or provides for retiree health
or life insurance benefits to any person;
(iii) none of the Company Plans provides for payment of a benefit, the
increase of a benefit amount, the payment of a contingent benefit or the
acceleration of the payment or vesting of a benefit by reason of the
execution of this Agreement or the consummation of the transactions
contemplated by this Agreement;
(iv) the Company has no obligation to adopt, nor is considering the
adoption of, any new Company Plan or, except as required by Law, the
amendment of an existing Company Plan;
(v) each Company ERISA Plan intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service ("IRS") that it is so qualified and nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such Company ERISA Plan;
(vi) each Company Plan, has been operated in accordance with its terms
and the requirements of all applicable Law;
(vii) the Company has not incurred any direct or indirect liability
under, arising out of or by operation of Title IV of ERISA in connection
with the termination of, or withdrawal from, any Company ERISA Plan or
other retirement plan or arrangement, and no fact or event exists that
could reasonably be expected to give rise to any such liability;
(viii) the aggregate accumulated benefit obligations of each Company
ERISA Plan subject to Title IV of ERISA (as of the date of the most recent
actuarial valuation prepared for such Company ERISA Plan and based on the
discount rate and other actuarial assumptions used in such valuation) do
not exceed the fair market value of the assets of such Company ERISA Plan
(as of the date of such valuation); and
(ix) the Company is not aware of any claims relating to the Company
Plans, other than routine claims for benefits;
provided, however, that the failure of the representations set forth in
clauses (v), (vi), (vii) and (ix) to be true and correct shall not be deemed to
be a breach of any such representation unless such failures could reasonably be
expected to have, individually or in the aggregate, a Company Material Adverse
Effect.
16
(n) Absence of Changes in Benefit Plans
Except as disclosed in the Company Filed SEC Reports or in the Company
Disclosure Schedule, since the date of the most recent financial statements
included in the Company Filed SEC Reports, the Company has not adopted or agreed
to adopt any collective bargaining agreement or any Company Plan.
(o) Taxes
Except as specified in the Company Disclosure Schedule:
(i) Except where the failure to do so could not reasonably be expected
to have, individually or in the aggregate, a Company Material Adverse
Effect, the Company (and any affiliated or unitary group of which the
Company was a member) has (A) timely filed all federal, state, local and
foreign returns, declarations, reports, estimates, information returns and
statements ("Returns") required to be filed by or for it in respect of any
Taxes (as hereinafter defined) and has caused such Returns as so filed to
be true, correct and complete, (B) established reserves that are reflected
in Company's most recent financial statements included in the Company Filed
SEC Reports and that as so reflected are adequate for the payment of all
Taxes not yet due and payable with respect to the results of operations of
the Company through the date hereof, and (C) timely withheld and paid over
to the proper taxing authorities all Taxes and other amounts required to be
so withheld and paid over. The Company (and any affiliated or unitary group
of which the Company was a member) has timely paid all Taxes that are shown
as being due on the Returns referred to in the immediately preceding
sentence.
(ii) (A) There has been no taxable period since 1994 for which a
Return of the Company has been examined by the IRS, (B) all examinations
described in clause (A) have been completed without the assertion of
material deficiencies, and (C) except for alleged deficiencies which have
been finally and irrevocably resolved, the Company has not received formal
or informal notification that any deficiency for any Taxes, the amount of
which could reasonably be expected to have, individually or in the
aggregate, a Company Material Adverse Effect, has been or will be proposed,
asserted or assessed against the Company by any federal, state, local or
foreign taxing authority or court with respect to any period.
(iii) The Company has not executed or entered into with the IRS or any
other taxing authority (A) any agreement or other document that continues
in force and effect beyond the Effective Time and that extends or has the
effect of extending the period for assessments or collection of any
federal, state, local or foreign Taxes, (B) any closing agreement or other
similar agreement (nor has the Company received any ruling, technical
advice memorandum or similar determination) affecting the determination of
Taxes required to be shown on any Return not yet filed, or (C) requested
any extension of time to be granted to file after the Effective Time any
return required by applicable law to be filed by it.
17
(iv) The Company has not made an election under Section 341(f) of the
Code or 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 the Company. None of the assets of the
Company is required to be treated as being owned by any other Person
pursuant to the "safe harbor" leasing provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954 as formerly in effect.
(v) The Company is not a party to, is not bound by nor has any
obligation under any tax sharing agreement or similar agreement or
arrangement.
(vi) The Company has not agreed to make, nor is it required to make,
any material adjustment under Section 481(a) of the Code by reason of a
change in accounting method or otherwise.
(vii) The Company is not, and has not been, a United States Real
Property Holding Corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Code.
(viii) No security interests have been imposed upon or asserted
against any assets of the Company as a result of or in connection with any
failure or alleged failure to pay any Tax, except liens for Taxes that are
not yet due and payable.
(ix) The Company is not nor will it become obligated to make a
payment, the deduction of which may be disallowed by reason of Section 280G
of the Code.
(x) The Company has custody of copies of all Returns described in
Section 3.01(o)(i)(A), and of all workpapers, computer files, spreadsheets
and other data and information used to prepare such Returns and that will
be needed to prepare all Returns that must be filed within 60 days after
the Closing Date.
(xi) For purposes of this Agreement, "Taxes" shall mean all federal,
state, local, foreign income, property, sales, excise, employment, payroll,
franchise, withholding and other taxes, tariffs, charges, fees, levies,
imposts, duties, licenses or other assessments of every kind and
description, together with any interest and any penalties, additions to tax
or additional amounts imposed by any taxing authority.
(p) Intellectual Property
(i) The Company Disclosure Schedule sets forth all United States and
foreign: (A) patents and patent applications, (B) trademarks, trade names,
brand names and corporate names, and all service marks, registrations and
applications thereof, (C) internet domain, name registrations and
applications and (D) copyright registrations and applications owned or
licensed by the Company in each case described in clauses (A) through (D),
used by the Company in connection with the conduct of the Company's
business, specifying as to each item, as applicable: (w) the nature of the
item, including the title; (x) the owner of the item; (y) the jurisdictions
in which the item is issued or registered or in which the application for
issuance or registration has been filed; and (z) the issuance, registration
or application numbers and dates.
18
(ii) For purposes of this Agreement, "Intellectual Property" means all
of the following as they exist in all jurisdictions throughout the world,
in each case, to the extent owned by, licensed to, or otherwise used by the
Company: (A) patents, patent applications, and other patent rights
(including any divisions, continuations, continuations-in-part,
substitutions, or reissues thereof, whether or not patents are issued on
any such applications and whether or not any such applications are
modified, withdrawn, or resubmitted); (B) trademarks, service marks, trade
dress, trade names, brand names, Internet domain names, designs, logos, or
corporate names, whether registered or unregistered, and all registrations
and applications for registration thereof; (C) copyrights, including all
renewals and extensions, copyright registrations and applications for
registration, and non-registered copyrights; (D) trade secrets, concepts,
ideas, designs, research, processes, procedures, techniques, methods,
know-how, data, compilations of data, mask works, discoveries, inventions,
modifications, extensions, improvements, and other proprietary technical
and business information (whether or not patentable or subject to
copyright, mask work, or trade secret protection) (the "Trade Secrets") and
(E) computer software programs, including without limitation all source
code, object code, software for web, Internet and intranet sites, and
documentation related thereto (the "Software").
(iii) The Intellectual Property includes all of the intellectual
property rights owned or licensed by the Company that are reasonably
necessary to conduct the Company's business as it is now or currently
contemplated to be conducted. Except as specified in the Company Disclosure
Schedule, (A) the Company has good, marketable and exclusive title to, and
the valid and enforceable power and unqualified right to make, have made,
use, sell, offer to sell, license, lease, import, transfer or otherwise
exploit the Intellectual Property free and clear of all Liens, (B) the
Company has the right to bring actions for infringement of Intellectual
Property owned by the Company, (C) no Person or entity other than the
Company has any right or interest of any kind or nature in or with respect
to the Intellectual Property or any portion thereof or any rights to use,
market or exploit the Intellectual Property or any portion thereof, (D) no
Person has a right to receive a royalty or similar payment in respect of
any Intellectual Property owned by the Company, whether pursuant to any
contractual agreements entered into by the Company or otherwise and (E) to
the Knowledge of the Company no Person has challenged the validity of any
Intellectual Property. Except as disclosed in the Company Disclosure
Schedule, the Company is not currently, nor will be as a result of the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, in breach of any provision of any
agreement that relates to any Intellectual Property other than any breach
which, individually or in the aggregate with other breaches, would not
result in a Company Material Adverse Effect.
(q) Software
(i) The Company Disclosure Schedule sets forth a true, correct and
complete list of all Software, including without limitation all programs
used in the testing and development phase and all predecessor and earlier
versions of any computer programs, owned by the Company (the "Owned
Software"), and a true, correct and complete list of all Software not owned
by the Company, but in which the Company has rights (by license or
19
otherwise) from another Person ( the "Licensed Software"). The right of the
Company to use Licensed Software that is material to the Company's business
as it is now or currently contemplated to be conducted is solely under
written license agreements or other Material Contracts specified in the
Company Disclosure Schedule.
(ii) The Company is in actual possession of the source code and object
code for each computer program included in the Owned Software, and the
Company is in possession of all other documentation, including without
limitation all related engineering specifications, program flow charts,
installation and user manuals and know-how necessary for the effective use
of the Software as currently used in the Company's business or as offered
or represented to the Company's customers or potential customers. All Owned
Software released for commercial distribution to third parties
substantially conforms to all published specifications therefor and to all
technical and other written materials provided by the Company to a licensee
in connection with such Owned Software. The Software constitutes all of the
computer programs necessary to conduct the Company's business as now
conducted, and includes all of the computer programs used in the
development, marketing, licensing, sale or support of the products and the
services presently offered by the Company.
(iii) The Company Disclosure Schedule sets forth a true, correct and
complete list, by computer program, of (A) all Persons other than the
Company that have been provided with the source code or have a right to be
provided with the source code (including any such right that may arise
after the occurrence of any specified event or circumstance, either with or
without the giving of notice or passage of time or both) for any of the
Owned Software and (B) all source code escrow agreements relating to any of
the Owned Software (setting forth as to any such escrow agreement the
source code subject thereto and the names of the escrow agent and all other
Persons who are actual or potential beneficiaries of such escrow
agreement). Except as specified in the Company Disclosure Schedule, no
Person (other than the Company and any Person that is a party to a contract
referred to in clause (v) of the first sentence of Section 3.01(s) that
restricts such Person from disclosing any information concerning such
source code) is in possession of, or has or has had access to, any source
code for any computer program included in the Owned Software.
(iv) To the Knowledge of the Company there are no defects in any
computer program included in the Software that would materially adversely
affect the functioning thereof in accordance with any published
specifications therefor. The Company Disclosure Schedule sets forth a true,
correct and complete list of any current material developments or
maintenance efforts with respect to the Owned Software, including without
limitation the development of new computer programs, enhancements or
revisions to existing computer programs included in the Owned Software and
software fixes in progress for any Person to whom or to which the Company
has sold, licensed, leased, transferred or otherwise furnished Software or
related products or services.
(v) The Company does not market and has not marketed, and it has not
supported and is not obligated to support, any Licensed Software.
20
(vi) Except as specified in the Company Disclosure Schedule, no Person
other than the Company has any right or interest of any kind or nature in
or with respect to the Owned Software or any portion thereof or any rights
to sell, license, lease, transfer, use or otherwise exploit the Owned
Software or any portion thereof.
(vii) Except as set forth in the Company Disclosure Schedule, all
employees, agents, consultants, distributors and licensees of the Company
who have had access to any of the Trade Secrets or source code, object code
and access codes for the Owned Software ("Confidential Software") have been
put on written notice of the confidential and proprietary nature of the
Trade Secrets and the Confidential Software and have been required to enter
into a written agreement ("Confidentiality Contract") with the Company
acknowledging the confidential nature of and agreeing not to disclose the
Trade Secrets or Confidential Software other than as permitted by such
Confidentiality Contract.
(r) No Infringement
Except as specified in the Company Disclosure Schedule, neither the
existence nor the sale, license, lease, transfer, use, reproduction,
distribution, development, modification or other exploitation by the Company or
any of its respective successors or assigns of any Intellectual Property is or
was, or is currently contemplated to be, sold, licensed, leased, transferred,
used, reproduced, distributed, developed, modified or otherwise exploited by
such Persons, does, did or will (i) infringe on any patent, trademark, copyright
or other right of any other Person, (ii) constitute a misuse or misappropriation
of any trade secret, know-how, process, proprietary information or other right
of any other Person, or (iii) entitle any other Person to any interest therein,
or right to compensation from the Company or any of its respective successors or
assigns, by reason thereof, except for infringements, misuse, misappropriation
or other acts or omissions that, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
specified in the Company Disclosure Schedule, the Company has not received any
complaint, assertion, threat or allegation or otherwise has notice of any
lawsuit, claim, demand, proceeding or investigation involving matters of the
type contemplated by the immediately preceding sentence or is aware of any facts
or circumstances that could reasonably be expected to give rise to any such
lawsuit, claim, demand, proceeding or investigation. Except as specified in the
Company Disclosure Schedule, there are no restrictions on the ability of the
Company or any of its respective successors or assigns to sell, license, lease,
transfer, use, reproduce, distribute, modify or otherwise exploit any
Intellectual Property. Except as specified in the Company Disclosure Schedule,
no Person has infringed, violated or misappropriated or now infringes, violates
or misappropriates the Intellectual Property.
(s) Contracts
The Company has made available to Parent and its representatives true,
correct and complete copies of all of the following contracts to which the
Company is a party or by which it is bound (collectively, the "Material
Contracts"): (i) contracts with any current officer or director of the Company
or with any Person owning, beneficially or otherwise, more than 10% of the
Company Shares outstanding as of the date of this Agreement; (ii) contracts
pursuant to which the Company licenses or sublicenses other Persons to use
Intellectual Property and pursuant to which other Persons license or sublicense
the Company to use Intellectual Property; (iii) contracts (A) for the sale of
21
any of the assets of the Company, other than contracts entered into in the
ordinary course of business or (B) for the grant to any Person of any
preferential rights to purchase any of its assets; (iv) contracts which restrict
the Company from competing in any line of business or with any Person in any
geographical area or which restrict any other Person from competing with the
Company in any line of business or in any geographical area; (v) contracts which
restrict the Company from disclosing any information concerning or obtained from
any other Person or which restrict any other Person from disclosing any
information concerning or obtained from the Company; (vi) indentures, credit
agreements, security agreements, mortgages, guaranties, promissory notes and
other contracts relating to the borrowing of money; (vii) contracts which
account, or which are expected to account, for more than 5% of the consolidated
revenues of the Company during its most recent fiscal year and its current
fiscal year; and (viii) all other agreements, contracts or instruments entered
into outside of the ordinary course of business or which are material to the
Company. Except as specified in the Company Disclosure Schedule, all of the
Material Contracts are in full force and effect and are the legal, valid and
binding obligation of the Company, enforceable against it in accordance with
their respective terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and subject, as to enforceability, to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law or in
equity). Except as specified in the Company Disclosure Schedule, the Company is
not in breach or default in any material respect under any Material Contract
nor, to the Knowledge of the Company, is any other party to any Material
Contract in breach or default thereunder in any material respect.
(t) Environmental Matters
Except as specified in the Company Disclosure Schedule and except as could
not reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect: (A) the Company has not violated or is not in violation
of any Environmental Law; (B) none of the properties leased by the Company
(including without limitation soils and surface and ground waters) are
contaminated with any hazardous substance in quantities which require
investigation or remediation under Environmental Laws; (C) the Company is not
liable for any off-site contamination; (D) the Company does not have any
liability or remediation obligation under any Environmental Law; (E) no assets
of the Company are subject to pending or threatened Liens under any
Environmental Law; (F) the Company has all Permits required under any
Environmental Law ("Environmental Permits"); and (G) the Company is in
compliance with its Environmental Permits.
(u) Labor Matters
(i) Except as specified in the Company Disclosure Schedule, the
Company is not a party to any employment, labor or collective bargaining
agreement, and there are no employment, labor or collective bargaining
agreements which pertain to employees of the Company. The Company has
heretofore made available to Parent true, complete and correct copies of
the employment, labor and collective bargaining agreements set forth in the
Company Disclosure Schedule, together with all amendments, modifications,
supplements or side letters affecting the duties, rights and obligations of
any party thereunder.
22
(ii) No employees of the Company are represented by any labor
organization and, to the Knowledge of the Company, no labor organization or
group of employees of the Company has made a pending demand for recognition
or certification. There are no representation or certification proceedings
or petitions seeking a representation proceeding presently pending or
threatened in writing to be brought or filed with the National Labor
Relations Board or any other labor relations tribunal or authority and, to
the Knowledge of the Company, there are no organizing activities involving
the Company pending with any labor organization or group of employees of
the Company.
(iii) Except as specified in the Company Disclosure Schedule, there
are no (A) unfair labor practice charges, grievances or complaints pending
or threatened in writing by or on behalf of any employee or group of
employees of the Company which, if resolved against the Company could
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect, or (B) complaints, charges or claims against the
Company pending, or threatened in writing to be brought or filed, with any
Governmental Entity or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment
of any individual by the Company which, if resolved against the Company
could reasonably be expected to have, individually or in the aggregate, a
Company Material Adverse Effect.
(iv) The Company is not aware of any employee of the Company who is
obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would interfere with such
employee's duties to the Company or that would conflict with the Company's
business as currently conducted. The Company does not believe it is or will
be necessary to utilize any inventions of any of the Company's employees
made prior to their employment by the Company except for inventions that
have been assigned to the Company.
(v) Brokers
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of the Company, except that Xxxxxxxx Xxxxx
Xxxxxxx & Xxxxxxx, P.C. ("EKS&H") shall be entitled to a fee of $50,000 in
connection with the delivery of the opinion required by Section 6.03(c). The
Company has heretofore furnished to Parent a complete and correct copy of all
agreements between the Company and EKS&H pursuant to which such firm would be
entitled to any payment relating to the Merger.
(w) Voting Requirements
The Requisite Shareholder Vote is the only vote of the holders of any class
or series of the Company's capital stock or other securities required in
connection with the consummation by the Company of the Merger and the other
transactions contemplated hereby to be consummated by the Company.
23
3.02 Representations and Warranties of Parent and Merger Sub
-------------------------------------------------------
(a) Organization and Qualification
Each of Parent and Merger Sub is a corporation duly organized, validly
existing and in good standing under the Laws of its respective jurisdiction of
incorporation and has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted, except where the failure to be duly organized, validly existing or in
good standing, or to have such requisite corporate power and authority, has not
had or resulted in a Parent Material Adverse Effect. Each of Parent and Merger
Sub has all necessary governmental licenses, permits, authorizations and
approvals to own, lease and operate its properties and to carry on its business
as it is currently being conducted, except where the failure to have such
governmental licenses, permits, authorizations and approvals have not had or
resulted in a Parent Material Adverse Effect. Each of Parent and Merger Sub is
duly qualified and in good standing to do business in each jurisdiction in which
the nature of the business conducted by it or the character of the properties
owned or leased by it makes such qualification necessary, other than where the
failure to be so duly qualified and in good standing have not had or resulted in
a Parent Material Adverse Effect. For purposes of this Agreement, the term
"Parent Material Adverse Effect" means any change, effect, condition or
exception that, individually or when taken together with all other such changes,
effects, events, conditions or exceptions, has prevented or materially delayed,
or could reasonably be expected to prevent or materially delay, the consummation
of the transactions contemplated by this Agreement, including without limitation
the payment of the Merger Consideration for Company Shares converted in
accordance with Section 2.02(a) or the receipt thereof by the holders of such
Company Shares.
(b) Authority; No Conflicts; Consents and Approvals
(i) Each of Parent and Merger Sub has all necessary corporate power
and authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the Merger and the other
transactions contemplated hereby. The execution and delivery of this
Agreement by Parent and Merger Sub and the consummation by Parent and
Merger Sub of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action, and no other
proceedings on the part of Parent or Merger Sub are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby (other
than, with respect to the Merger, the filing and recordation of appropriate
merger documents as required by the CBCA). This Agreement has been duly and
validly executed and delivered by Parent and Merger Sub and, assuming the
due authorization, execution and delivery by the Company and the Majority
Shareholders, constitutes a valid and binding obligation of each of Parent
and Merger Sub enforceable against Parent and Merger Sub in accordance with
its terms.
(ii) Except as specified in the disclosure letter delivered by Parent
to Company on the date received in Agreed form (the "Parent Disclosure
Schedule"), the execution and delivery of this Agreement by each of Parent
and Merger Sub do not, and the performance of this Agreement by Parent and
Merger Sub will not, (A) conflict with or violate the certificate of
24
articles of incorporation, or bylaws, of Parent or Merger Sub, (B) conflict
with or violate any Law applicable to Parent or Merger Sub or any of their
respective Subsidiaries or by which any property or asset of Parent or
Merger Sub or any of their respective Subsidiaries is bound or affected, or
(C) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, or require payment under, or result in the loss of any material benefit
under or the creation of a lien or other encumbrance on any property or
asset of Parent or Merger Sub or any of their respective Subsidiaries
pursuant to, or trigger any right of first refusal under, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or other instrument or obligation to which Parent or Merger Sub or any of
their respective Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any of their respective properties is bound, except, in the
case of clauses (B) and (C), for any conflict or breach that has not had or
resulted in, and will not have or result in, a Parent Material Adverse
Effect and except, in the case of clause (C), for any consents or approvals
required for the performance of this Agreement by Parent and Merger Sub
that will have been received or waived at or prior to the Effective Time.
(iii) The execution and delivery of this Agreement by each of Parent
and Merger Sub do not, and the performance of this Agreement by Parent and
Merger Sub will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any Governmental Entity, except (A)
for applicable requirements of the Exchange Act and the rules and
regulations thereunder, and the filing and recordation of appropriate
merger documents as required by the CBCA (B) as specified in the Parent
Disclosure Schedule and (C) for such other consents, approvals,
authorizations, permits, filings or notifications, which if not obtained at
or prior to the Effective Time or made, have not had or resulted in, and
will not have or result in, a Parent Material Adverse Effect.
(c) Operations of Merger Sub
Merger Sub is a direct wholly owned Subsidiary of Parent, was formed solely
for the purpose of holding Company Shares and has engaged in no business
activities other than in connection with the holding of Company Shares and the
performance of its obligations hereunder.
(d) Financing
Parent has sufficient financial capacity, and will cause Merger Sub to have
sufficient financial capacity, to consummate the Merger and the transactions
contemplated hereby in accordance with the terms of this Agreement.
(e) Proxy Statement and Schedule 13E-3
The information supplied by Parent for inclusion in the Proxy Statement and
the Schedule 13E-3, if required, will not, at the time the Proxy Statement is
first mailed to the shareholders of the Company and at the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to Parent or any of its Subsidiaries, or their respective
officers or directors, should be discovered by Parent which would cause the
Proxy Statement or the Schedule 13E-3, if required, to contain any untrue
25
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 the
light of the circumstances under which they were made, not misleading, Parent
will promptly inform the Company and the Majority Shareholders thereof. All
documents that Parent is responsible for filing with the SEC in connection with
the Merger will comply as to form and substance in all material respects with
the applicable requirements of the Exchange Act at the time the Proxy Statement
is first mailed to the shareholders of the Company and at the Effective Time.
(f) Brokers
No broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission from the Company or any of its Subsidiaries
in connection with the Merger based upon arrangements made by or on behalf of
Parent or Merger Sub.
(g) Litigation
As of the date hereof, except as specified in the Parent Disclosure
Schedule, (i) there is no suit, claim, action, proceeding (at law or in equity)
or investigation pending or, to the knowledge of the Parent or Merger Sub,
threatened against Parent or Merger Sub or any of their Subsidiaries before any
court or other Governmental Entity, and (ii) neither the Parent, Merger Sub nor
any of their Subsidiaries is subject to any outstanding order, writ, judgment,
injunction, decree or arbitration order or award that, in any such case
described in clauses (i) and (ii), has had or could reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect. As of
the date hereof, there are no suits, claims, actions, proceedings or
investigations pending or, to the knowledge of the Parent, threatened, seeking
to prevent, hinder, modify or challenge the transactions contemplated by this
Agreement.
IV. Conduct of Business Pending the Merger
--------------------------------------
4.01 Conduct of Business of the Company Pending the Merger
-----------------------------------------------------
Except as contemplated by this Agreement, during the period from the date
of this Agreement to the Effective Time, the Company shall act and carry on its
businesses only in the ordinary course of business and, to the extent consistent
therewith, use reasonable efforts to preserve intact its current business
organizations, keep available the services of its current key officers and
employees and preserve the goodwill of those engaged in material business
relationships with them, and to that end, without limiting the generality of the
foregoing, Company shall not without the prior consent of Parent:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of
its outstanding capital stock (other than, with respect to a Subsidiary of
Company, to its corporate parent), (B) split, combine or reclassify any of
its outstanding capital stock or issue or authorize the issuance of any
26
other securities in respect of, in lieu of or in substitution for shares of
its outstanding capital stock, or (C) purchase, redeem or otherwise acquire
any shares of outstanding capital stock or any rights, warrants or options
to acquire any such shares, except, in the case of clause (C), for the
acquisition of Company Shares from holders of Company Stock Options or
Warrant in full or partial payment of the exercise price payable by such
holder upon exercise of Company Stock Options or Warrant;
(ii) issue, sell, grant, pledge or otherwise encumber any shares of
its capital stock, any other voting securities or any securities
convertible into or exchangeable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible or exchangeable
securities, other than upon the exercise of Company Stock Options
outstanding on the date of this Agreement;
(iii) amend its articles of incorporation, bylaws or other comparable
charter or organizational documents;
(iv) directly or indirectly acquire, make any investment in, or make
any capital contributions to, any Person other than in the ordinary course
of business;
(v) directly or indirectly sell or otherwise dispose of any of its
properties or assets that are material to its business, except for sales or
dispositions in the ordinary course of business;
(vi) (A) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another Person, other than indebtedness owing to or
guarantees of indebtedness owing to the Company or any direct or indirect
wholly owned Subsidiary of the Company or (B) make any loans or advances to
any other Person, other than to the Company or to any direct or indirect
wholly owned Subsidiary of the Company and other than routine advances to
employees, except, in the case of clause (A), for short-term borrowings in
respect of trade creditors or vendors in the ordinary course of business or
under existing credit facilities described in the Company Filed SEC Reports
in the ordinary course of business;
(vii) grant or agree to grant to any employee any increase in wages or
bonus, severance, profit sharing, retirement, deferred compensation,
insurance or other compensation or benefits, or establish any new
compensation or benefit plans or arrangements, or amend or agree to amend
any existing Company Plans, except as may be required under existing
agreements or by Law and normal, regularly scheduled increases in respect
of non-officer employees consistent with past practices;
(viii) enter into or amend any employment, consulting, severance or
similar agreement with any individual, except with respect to new hires in
the ordinary course of business consistent with past practice;
(ix) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other material
reorganization or any agreement relating to an Acquisition Proposal (as
hereinafter defined) (other than as expressly permitted pursuant to this
Agreement);
27
(x) make any tax election or settle or compromise any income tax
liability of Company or of any of its Subsidiaries involving on an
individual basis more than $10,000;
(xi) make any change in any method of accounting or accounting
practice or policy, except as required by any changes in generally accepted
accounting principles;
(xii) enter into any agreement, understanding or commitment that
restrains, limits or impedes the Company's ability to compete with or
conduct any business or line of business, except for any such agreement,
understanding or commitment entered into in the ordinary course of business
consistent with past practice;
(xiii) form any Subsidiary; or
(xiv) authorize any of, or commit or agree to take any of, the
foregoing actions in respect of which it is restricted by the provisions of
this Section 4.01.
4.02 Notification of Certain Matters
-------------------------------
(a) Notification of Certain Events. Parent will give prompt notice to the
Company and the Majority Shareholders, and the Company and the Majority
Shareholders will give prompt notice to Parent, of (i) the occurrence or
nonoccurrence of any event the occurrence or nonoccurrence of which would be
reasonably likely to cause (A) any representation or warranty of Parent, the
Company or the Majority Shareholders, as the case may be, contained in this
Agreement to be untrue or inaccurate in any material respect or (B) any material
covenant, condition or agreement of Parent, the Company or the Majority
Shareholders, as the case may be, contained in this Agreement not to be complied
with or satisfied and (ii) any material failure of Parent, the Company or the
Majority Shareholders, as the case may be, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 4.02 will not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
(b) Notification of Acquisition Proposals. Except to the extent that the
Company is legally obligated to keep such information confidential, the Company
will give prompt written notice to Parent of any Acquisition Proposal. Except to
the extent that the Company is legally obligated to keep such information
confidential, the Company will notify Parent promptly if any Acquisition
Proposal is made and will, in any such notice to Parent, indicate in reasonable
detail the identity of the Person making such Acquisition Proposal and the terms
and conditions of such Acquisition Proposal.
V. Additional Agreements
---------------------
5.01 Shareholders Meeting
--------------------
In accordance with the Exchange Act, the CBCA and the Company's Amended and
Restated Articles of Incorporation and Amended and Restated Bylaws, each as
amended to date, the Company will promptly after the date of this Agreement use
commercially reasonable efforts to seek adoption of this Agreement by the
Requisite Shareholder Vote. The Company will use commercially reasonable efforts
to call a meeting of its shareholders (the "Shareholders Meeting"), to be held
as soon as is reasonably practicable after the date hereof, for the purpose of
considering and voting upon the adoption of this Agreement.
28
5.02 Preparation of Proxy Statement and Schedule 13E-3; Recommendation of Board
of Directors; Shareholder Vote
---------------------------------------------------------------------------
(a) As promptly as practicable after the execution of this Agreement, the
Company will prepare and cause to be filed with the SEC a proxy statement
(together with any amendments thereof or supplements thereto, the "Proxy
Statement") to solicit proxies from the shareholders of the Company in favor of
the adoption of this Agreement. If required by the SEC, Parent and/or the
Majority Shareholders will cause to be filed with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3 (the "Schedule 13E-3"). Each of Parent,
Merger Sub and the Company will furnish all information concerning Parent,
Merger Sub or the Company as such party may reasonably request in connection
with such actions and the preparation of the Proxy Statement and the Schedule
13E-3 (if required). The Company, Merger Sub and Parent will use their
respective commercially reasonable efforts to respond promptly to all SEC
comments with respect to the Proxy Statement and Schedule 13E-3 (if required)
and, subject to compliance with SEC rules and regulations, the Company will
cause the Proxy Statement to be mailed to the Company's shareholders at the
earliest practicable date.
(b) The Proxy Statement will include the recommendation of the Board, other
than the Majority Shareholders, that this Agreement and the Merger should be
approved and declared advisable and the recommendation of a majority of the
members of the Company's Board, other than the Majority Shareholders, to the
shareholders of the Company to adopt this Agreement; provided, however, that the
Board may, at any time prior to the Effective Time, withdraw, modify or change
any such recommendation to the extent that the Board determines in good faith,
after consultation with independent legal counsel (who may be the Company's
regularly engaged legal counsel), that the failure to so withdraw, modify or
change such recommendation would result in a breach of its fiduciary duties to
the Company's shareholders (excluding Parent and Merger Sub) under applicable
Law; provided further, that nothing in this Section 5.02(b) will affect the
Company's obligation to seek the Requisite Shareholder Vote (regardless of
whether the recommendation of the Board has been withdrawn, modified or changed)
unless this Agreement has previously been terminated in accordance with Article
VII.
5.03 Access to Information; Confidentiality
--------------------------------------
(a) From the date of this Agreement to the Effective Time, the Company will
(i) provide Parent (and Parent's officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (collectively,
"Representatives")) access at reasonable times upon reasonable prior notice to
its officers, employees, agents, properties, offices and other facilities and to
its books and records and (ii) furnish promptly such information concerning its
business, properties, contracts, assets, liabilities and personnel as Parent or
Parent's Representatives may reasonably request.
(b) Each party to this Agreement agrees to, and agrees to cause its
Representatives to treat and hold as confidential all information relating to
the other party hereto in accordance with the terms and conditions of the
Confidentiality Agreement, dated as of July 26, 2001, between Parent and the
Company.
29
(c) No investigation pursuant to this Section 5.03 will affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
5.04 Further Actions; Consents; Filings
----------------------------------
On the terms and subject to the conditions hereof, each of the parties
hereto will use its commercially reasonable efforts to (a) take, or cause to be
taken, all appropriate action and do, or cause to be done, all things necessary,
advisable or appropriate under applicable Law or otherwise to consummate and
make effective the Merger and the other transactions contemplated by this
Agreement as soon as practicable, (b) obtain from Governmental Entities any
consents, licenses, permits, waivers, approvals, authorizations or orders
required to be obtained or made by Parent or the Company or any of their
Subsidiaries in connection with the authorization, execution and delivery of
this Agreement and the consummation of the Merger, and (c) make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement, the Merger and the other transactions contemplated by this
Agreement that are required under the Exchange Act and any other applicable
federal or state securities Laws, and any other applicable Law. The parties
hereto will cooperate with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing and, if requested, by accepting all
reasonable additions, deletions or changes suggested in connection therewith.
Subject to the terms and conditions hereof, each party hereto, at the reasonable
request of another party hereto, will execute and deliver such other instruments
and do and perform such other acts and things as may be necessary or desirable
for effecting completely the consummation of this Agreement and the transactions
contemplated hereby.
5.05 Indemnification
---------------
(a) Indemnification of Directors and Officers
(i) The Articles of Incorporation and Bylaws of the Surviving
Corporation, and the articles of incorporation and bylaws or comparable
organizational documents of each Subsidiary of the Surviving Corporation,
will contain provisions with respect to indemnification that are no less
favorable than those set forth in the Amended and Restated Articles of
Incorporation and Amended and Restated Bylaws of the Company on the date of
this Agreement, which provisions will not be amended, repealed or otherwise
modified for a period of four years from and after the Effective Time in
any manner that would affect adversely the rights thereunder of individuals
that at the Effective Time were directors or officers of the Company, in
respect of actions or omissions occurring at or prior to the Effective
Time, unless such modification will be required by Law.
30
(ii) The Surviving Corporation will cause to be maintained in effect
tail policies of directors' and officers' liability insurance for a period
of at least three years from the Effective Time. If no such tail policy is
available, then for a period of three years after the Effective Time, the
Surviving Corporation shall use commercially reasonable efforts to cause to
be maintained in effect policies of directors' and officers' liability
insurance with coverage in amount and scope at least as favorable as the
Company's existing policies with respect to claims arising from facts or
events that occurred prior to the Effective Time; provided, however, that
the Surviving Corporation shall not be required to pay any premium for
directors' and officers' liability insurance that would exceed the amount
being paid by the Company as of the date hereof.
(iii) From and after the Effective Time, the Surviving Corporation
will, to the fullest extent required or permitted under the CBCA, indemnify
and hold harmless, including the advancement of defense costs as provided
in Section 5.05(b) below, each present and former director or officer of
the Company (collectively, the "Company Indemnified Parties") against all
costs and expenses (including attorneys' fees), judgments, fines, losses,
claims, damages, liabilities and settlement amounts paid in connection with
any claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), based on the fact that such Person is
or was a director or officer of the Company or any Subsidiary of the
Company and arising out of or pertaining to any action or omission
occurring at or before the Effective Time, including without limitation
actions taken in connection with, or pursuant to, the terms of this
Agreement, provided, however, that the foregoing indemnity will not apply
to any act or failure to act which a court of competent jurisdiction
determines in an order or decision not subject to appeal constituted
misappropriation of cash or other property of the Company or any of its
Subsidiaries.
(iv) The Company and the Surviving Corporation agree that all rights
to indemnification under this Section 5.05(a) (including the right to
advancement of expenses incurred in defense of any Claim provided under
Section 5.05(b) below), existing in favor of a Company Indemnified Party
shall survive the Merger and shall continue in full force and effect for a
period of not less than four years from the Effective Time; provided,
however, that all rights to indemnification in respect of any Claims
asserted or made against any Company Indemnified Parties within such period
shall continue until the disposition of such Claims.
(b) Conduct of Indemnification Proceedings
Without limiting any of the foregoing indemnity obligations of Section
5.05(a), in the event any such claim, action, suit, proceeding or investigation
(a "Claim") is brought against a Company Indemnified Party (the "Indemnified
Parties") (whether arising before or after the Effective Time), (i) the party
required to provide indemnification pursuant to Section 5.05(a) (the
"Indemnifying Party"), shall assume and direct all aspects of the defense of
such Claim, including the settlement thereof, (ii) the Indemnifying Party shall
retain and direct, and shall pay the reasonable fees and expenses of counsel
reasonably satisfactory to the Indemnified Party, promptly after statements
therefor are received, provided, that in respect of fees and expenses of Counsel
to the Company Indemnified Parties in respect of a Claim for which
indemnification is being sought under Section 5.05(a) above, the Indemnifying
Party will pay any expenses in advance of the final disposition of such action
or proceeding to each Indemnified Party to the fullest extent permitted under
31
the CBCA, upon receipt from the Indemnified Party to whom expenses are advanced
of an undertaking to repay such advances if required under the CBCA, and (iii)
the Indemnified Party will cooperate in the defense of any such Claim. The
Indemnified Party shall have a right to participate in (but not control) the
defense of any such Claim with its own counsel at its own expense. No
Indemnifying Party shall be liable for any settlement effected without its prior
written consent, which shall not be unreasonably withheld or delayed. No
Indemnifying Party will settle any such matter unless (i) the Indemnified Party
gives prior written consent, which shall not be unreasonably withheld or
delayed, or (ii) the terms of the settlement provide that the Indemnified Party
will have no responsibility for the discharge of any settlement amount and
impose no other obligations or duties on the Indemnified Party and the
settlement discharges all rights against the Indemnified Party with respect to
such matter. Any Indemnified Party wishing to claim indemnification under
Section 5.05(a), upon learning of any Claim, shall notify the Indemnifying Party
and shall provide the Company (or the Surviving Corporation, after the Effective
Date) with an undertaking as contemplated by Section 0-000-000 of the CBCA;
provided, that failure to provide notice of a Claim shall not relieve a party of
its indemnity obligations under Section 5.05(a) unless such failure prejudices
such party. No Indemnifying Party will be obligated pursuant to Section 5.05(a)
to pay the fees and expenses of more than one counsel (plus appropriate local
counsel) for all Indemnified Parties in any single action except to the extent,
as determined by counsel to the Indemnified Parties, that there may be one or
more legal defenses available to one Indemnified Party that are different from
or in addition to those available to the other Indemnified Parties that would,
in the judgment of such counsel, prohibit such counsel from representing all
Indemnified Parties under the rules of professional ethics, in which case such
additional counsel (including local counsel) as may be required to avoid any
such conflict or likely conflict may be retained by the Indemnified Parties at
the expense of the Indemnifying Parties.
5.06 Public Announcements
--------------------
Parent and the Company will consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement or the Merger and will not issue any such press release or make any
such public statement without the prior consent of the other (which consent will
not be unreasonably withheld or delayed), except as either such party may
determine is required by Law, provided that statements made by the Company to
its employees, customers or suppliers will not be deemed to be public statements
for purposes of this Section 5.06.
5.07 No-Shop
-------
Until the earlier of the Effective Time or termination of this Agreement in
accordance with Section 7.01, the Company shall not, and shall not authorize or
permit any of its affiliates, officers, directors, employees, agents or
representatives (including without limitation any investment banker, financial
advisor, attorney or accountant retained by the Company), to, directly or
indirectly (x) solicit, initiate or encourage, including without limitation by
way of furnishing information, or take any other action to facilitate, any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal, or (y) participate in any
discussions or negotiations regarding any Acquisition Proposal; provided,
32
however, that nothing in this Agreement shall prohibit the Company or the Board
from furnishing information to, or entering into, maintaining or continuing
discussions or negotiations with, any person that makes an unsolicited
Acquisition Proposal after the date hereof, if, and to the extent that, the
Board, after consultation with and based upon the advice of independent legal
counsel, determines in good faith that (i) such Acquisition Proposal would be
more favorable to the Company's shareholders (other than the Majority
Shareholders) than the Merger, and (ii) the failure to take such action would
result in a breach by the Board of its fiduciary duties to Company's
shareholders (other than the Majority Shareholders) under applicable law, and,
prior to furnishing any non-public information to such person, the Company
receives from such person an executed confidentiality agreement with provisions
no less favorable to the Company than the letter agreement relating to the
furnishing of confidential information of Company to Parent referred to in
Section 5.03(b). For purposes of this Agreement, the term "Acquisition Proposal"
shall mean any proposal or offer from any Person, including without limitation
any request for information relating to any acquisition or purchase of all or
any material portion of the capital stock of the Company or a significant amount
of the assets of the Company outside the ordinary course of its business, any
merger, consolidation or other business combination with the Company or any
other tender or exchange offer or other similar extraordinary business
transaction involving or otherwise relating to the Company. The Company shall
provide notice of any Acquisition Proposal as provided in Section 4.02(b).
5.08 [Intentionally Omitted]
---------------------
5.09 Employment and Employee Benefits Matters
----------------------------------------
(a) Parent shall, and shall cause its Subsidiaries, as applicable,
following the Effective Time (including the Surviving Corporation) to, except as
otherwise agreed by the Parent and the Company, hire and retain all employees of
the Company who are employees of the Company at the Effective Time ("Covered
Employees").
(b) If Covered Employees are included in any benefit plan (including
without limitation provision for vacation) of Parent or its Subsidiaries, Parent
agrees that the Covered Employees shall receive credit as employees of the
Company and its Subsidiaries for service prior to the Effective Time with the
Company and its Subsidiaries to the same extent such service was counted under
similar Company Plans for purposes of eligibility, vesting, eligibility for
retirement (but not for benefit accrual) and, with respect to vacation,
disability and severance, benefit accrual.
(c) Notwithstanding anything to the contrary contained herein, except as
provided in Section 5.09(a) from and after the Effective Time, the Surviving
Corporation will have sole discretion over the hiring, promotion, retention,
firing and other terms and conditions of the employment of employees of the
Surviving Corporation. Except as otherwise provided in this Section 5.09,
nothing herein shall prevent Parent or the Surviving Corporation from amending
or terminating any Company Plan in accordance with its terms.
(d) Within a reasonable period following the Effective Time, Parent will
issue non-qualified options to purchase Parent's Class B Common Stock, par value
$.01 per share, to certain officers and managers of the Company. The identity of
such Persons and the amount of options to be granted to such Persons shall be
determined through negotiations between Parent and the Company. The other terms
33
and provisions of such options (exercise price, method of payment of exercise
price, vesting and similar terms and provisions) shall be determined in
accordance with Parent's 2000 Stock Option/Stock Incentive Plan. Key employees
of the Company, as agreed upon by Parent and the Company, will be eligible to
participate in, and will be considered for annual stock option grants under,
Parent's 2000 Stock Option/Stock Issuance Plan.
VI. Conditions to the Merger
------------------------
6.01 Conditions to the Obligations of Each Party
----------------------------------------
The obligations of the Company, Parent and Merger Sub to consummate the
Merger are subject to the satisfaction or waiver (where permissible) of the
following conditions:
(a) Shareholder Approval
The Requisite Shareholder Vote shall have been received.
(b) No Injunctions or Restraints
No Governmental Entity shall have enacted, issued, promulgated, enforced or
entered any Law or Order (whether temporary, preliminary or permanent) that is
then in effect and has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger; provided, however, that each of the
parties to this Agreement shall use its commercially reasonable efforts to cause
any such Order to be vacated or lifted.
6.02 Conditions to the Obligations of Parent and Merger Sub
------------------------------------------------------
The obligations of Parent and Merger Sub to consummate the Merger are
subject to the satisfaction or waiver (where permissible) of the following
additional conditions:
(a) Representations and Warranties
The representations and warranties of the Company and the Majority
Shareholders contained in this Agreement shall be true and correct on and as of
the Closing Date as though such representations and warranties had been made on
and as of the Closing Date (other than representations and warranties made as of
a specified date which shall speak as of such date), without giving effect to
any qualification or limitation based on materiality (whether by reference to
Company Material Adverse Effect or otherwise), and Parent and Merger Sub shall
have received a certificate on behalf of Company by an authorized officer of
Company to such effect.
(b) Covenants
The Company shall have performed or complied in all material respects with
all covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time, and Parent shall have received a certificate
signed on behalf of the Company by an officer of the Company to that effect.
34
(c) No Material Adverse Change
Since the date of this Agreement, the Company shall not have experienced
any change, event or occurrence that has had or could reasonably be expected to
have, individually or in the aggregate, a Company Material Adverse Effect.
(d) No Litigation
There shall not be pending or threatened any suit, action or proceeding,
seeking to restrain or prohibit the Merger or seeking to obtain from Parent or
the Company or any of their respective affiliates in connection with the Merger
any material damages, or seeking any other relief that, following the Merger,
would materially limit or restrict the ability of Parent and its Subsidiaries to
own and conduct both the assets and businesses owned and conducted by Parent and
its Subsidiaries prior to the Merger and the assets and businesses owned and
conducted by Company prior to the Merger.
(e) Consents
All consents, authorizations, orders and approvals of (or filings or
registrations with) any Governmental Entity or any other Person required to be
obtained or made prior to the Effective Time in connection with the execution,
delivery and performance of this Agreement (including without limitation the
consents of the holders of Company Stock Options and the Warrant contemplated by
Section 2.05) shall have been obtained or made, except for the filing of the
articles of merger pursuant to Section 1.02 and except where the failure to have
obtained or made such consents, authorizations, orders, approvals, filings or
registrations could not reasonably be expected to have, individually or in the
aggregate, a Parent Material Adverse Effect or a material adverse effect on the
Surviving Corporation.
(f) Key-man Life Insurance
Parent shall have obtained, or caused Merger Sub to obtain, key-man life
insurance on the life of Xxxxxxx X. Xxxxxx in an amount to be mutually agreed
upon, but not to exceed $5,000,000.
(g) Completion of Review of Company
Parent shall be satisfied, in its sole discretion, with its ability to
conduct a business, legal and accounting due diligence with respect to the
Company and its access to the officers, books, records and properties of the
Company and Parent shall be satisfied, in its sole discretion, with the results
of such due diligence review of the Company; provided, however, that the
condition set forth in this Section 6.02(g) shall be deemed satisfied if, on or
prior to the thirtieth (30th) day following the execution and delivery of the
Agreement by the parties hereto, Parent has not delivered to the Company a
notice indicating that (i) Parent is not satisfied with its ability to conduct
such due diligence review and/or (ii) Parent is not satisfied with the results
of such due diligence review.
35
(h) Amendments to Existing Company Employment Agreements; Non-Compete
Agreements
Each of WDC, MMC, Xxxx X. Xxxxxxxxxx and Xxx Xxxxxxx will have (i) amended
their existing employment agreements with the Company, or waived applicable
provisions of such employment agreements, such that (A) none of Parent, Merger
Sub or the Company will be required to make any severance, change of control or
similar payments in connection with or as a result of the Merger, (B) any
"evergreen" provision contained in such employment agreements will be
ineffectual at the Effective Time, and (C) neither Parent nor Merger Sub will be
under any obligation to renew any such employment agreements, and (ii) entered
into a non-compete agreement with Parent and Merger Sub substantially in the
form attached hereto as Exhibit A.
6.03 Conditions to Obligations of the Company
----------------------------------------
The obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties
The representations and warranties of each of Parent and Merger Sub
contained in this Agreement shall be true and correct on and as of the Closing
Date as though such representations and warranties had been made on and as of
the Closing Date (other than representations and warranties made as at a
specified date which shall speak as of such date), without giving effect to any
qualification or limitation based on materiality (whether by reference to a
Parent Material Adverse Effect or otherwise), except where the matters in
respect of which such representations and warranties of Parent and Merger Sub
are not true and correct, in the aggregate, have not had and could not
reasonably be expected to have a Parent Material Adverse Effect and Company
shall have received a certificate signed on behalf of Parent and Merger Sub by
an authorized officer of Parent and Merger Sub to such effect.
(b) Covenants
Parent and Merger Sub shall have performed or complied in all material
respects with all covenants required by this Agreement to be performed or
complied with by it on or prior to the Effective Time, and the Company shall
have received a certificate of the Parent and Merger Sub signed on behalf of
Parent and Merger Sub by an officer of each of Parent and Merger Sub to that
effect.
(c) Opinion of Financial Advisor
The Board has received the written opinion of EKS&H, dated as of a date no
later than the date that the definitive Proxy Statement is first mailed or sent
to the shareholders of the Company, to the effect that, as of the date of this
Agreement, the Merger Consideration is fair to the shareholders of the Company
(excluding the Majority Shareholders) from a financial point of view, and such
opinion has not been withdrawn. A copy of such opinion has been delivered to
Parent.
36
(d) Consents
All consents, authorizations, orders and approvals of (or filings or
registrations with) any Governmental Entity or any other Person required to be
obtained or made prior to the Effective Time in connection with the execution,
delivery and performance of this Agreement (except for the consents of the
holders of Company Stock Options and the Warrant contemplated by Section 2.04)
and any other consents or approvals required from any Affiliate of the Company
or a Majority Shareholder shall have been obtained or made, except for the
filing of the Articles of Merger pursuant to Section 1.02 and except where the
failure to have obtained or made such consents, authorizations, orders,
approvals, filings or registrations could not reasonably be expected to have,
individually or in the aggregate, a material adverse effect on the business,
condition (financial or otherwise), assets, properties, results of operations or
prospects of Parent or the Surviving Corporation.
VII. Termination, Amendment and Waiver
---------------------------------
7.01 Termination
-----------
(a) Events Giving Rise to Right to Terminate Agreement.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time prior to the Effective Time, notwithstanding
approval and adoption thereof by the shareholders of Company, in any one of the
following circumstances:
(i) By mutual written consent duly authorized by the Boards of
Directors of the Parent and the Company.
(ii) By the Parent or the Company, if the Effective Time shall not
have occurred on or before July 31, 2002, otherwise than as a result of any
material breach of this Agreement by the party seeking to effect such
termination.
(iii) By the Parent or the Company, if any federal or state court of
competent jurisdiction or other Governmental Entity shall have issued an
order, decree or ruling, or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and non-appealable, provided
that neither party may terminate this Agreement pursuant to this Section
7.01(a)(iii) if it has not complied with its obligations under Section
5.04.
(iv) By the Parent or the Company, if the Shareholders Meeting shall
have been held and this Agreement shall not have been approved and adopted
by the Requisite Shareholder Vote at such Shareholders Meeting or any
adjournment or continuance thereof.
(v) By the Company, if it shall have received an Acquisition Proposal
and shall have advised the Parent in writing that the Company's Board of
Directors, after consultation with and based upon the advice of independent
legal counsel, determined in good faith that failure to accept such
Acquisition Proposal would result in a breach by the Board of Directors of
the Company of its fiduciary duties to the Company's shareholders under
37
applicable Law; provided, however, that this Agreement shall not be
terminated pursuant to this Section 7.01(a)(v) unless prior to such
termination the Company shall have made the payment to the Parent of the
Fee required to be paid pursuant to Section 7.01(b).
(vi) By the Parent, if either (x) the Board of Directors of the
Company shall have (A) withdrawn, modified or amended in any adverse
respect its approval or recommendation of this Agreement, the Merger or the
other transactions contemplated hereby, (B) approved, endorsed or
recommended to its shareholders an Acquisition Proposal, or (C) resolved to
do any of the foregoing or (y) EKS&H withdraws, modifies or changes the
opinion referred to in Section 6.03(c) in a manner adverse to Parent or
Merger Sub.
(vii) By the Parent, if (A) the Company or the Majority Shareholders
shall have failed to comply in any material respect with any of the
covenants and agreements contained in this Agreement to be complied with or
performed by such party at or prior to such date of termination, and such
failure continues for 20 business days after the actual receipt by the
Company of a written notice from Parent setting forth in detail the nature
of such failure, or (B) a representation or warranty of the Company
contained in this Agreement shall have been untrue in any respect on the
date when made (or in the case of any representations and warranties that
are made as of a different date, as of such different date) and the matters
in respect of which such representation or warranty shall have been untrue
has had or could reasonably be expected to have a Company Material Adverse
Effect.
(viii) By the Company if (A) Parent or Merger Sub shall have failed to
comply in any material respect with any of the covenants and agreements
contained in this Agreement to be complied with or preformed by such party
at or prior to such date of termination, and such failure continues for
twenty (20) Business Days after the actual receipt by the Parent of a
written notice from the Company setting forth in detail the nature of such
failure, or (B) a representation or warranty of Parent or Merger Sub shall
have been untrue in any respect on the date when made (or, in the case of
any representations and warranties that are made as of a different date, as
of such different date) and the matters in respect of which such
representation or warranty shall have been untrue has had or could
reasonably be expected to have a Parent Material Adverse Effect.
(ix) By the Parent if the PHNS Option Agreement is terminated.
(b) Termination Fee.
If this Agreement is terminated pursuant to:
(i) Section 7.01(a)(v); or
------------------
(ii) Section 7.01(a)(vi)
--------------------
38
then, in such event, Company shall pay to Parent prior to such termination,
if such termination is pursuant to Section 7.01(a)(v), or promptly (but in
no event later than three business days after the first of such events
shall have occurred), if such termination is pursuant to Section
7.01(a)(vi) a fee of $420,000 (the "Fee"), which amount shall be payable in
immediately available funds; provided, however, that in the event of a
termination of this Agreement pursuant to clause (y) of Section
7.01(a)(vi), the Fee will not be payable if (1) Company and Parent have no
other cause to terminate this Agreement pursuant to Section 7.01(a)(v)
(without regard to the payment of the Fee pursuant to the proviso thereof)
or clause (x) of Section 7.01(a)(vi), as the case may be, and (2) the
opinion referred to in Section 6.03 is not withdrawn due to any direct or
indirect action of, or any omission by, the Company.
(c) Topping Fee.
If (i) this Agreement is terminated pursuant to Section 7.01(a)(iv) and
(ii) not later than one year from the date of such termination (A) the Company
consummates a merger, acquisition, consolidation, recapitalization, liquidation,
dissolution or similar transaction involving, or any sale of all or
substantially all of the assets or equity securities of, the Company and its
Subsidiaries (a "Business Combination"), or (B) the Company enters into an
agreement providing for a Business Combination, which Business Combination is
ultimately consummated, irrespective of when such consummation occurs, then the
Company will promptly pay the Fee to the Parent in immediately available funds.
7.02 Effect of Termination
---------------------
In the event of the termination and abandonment of this Agreement pursuant
to Section 7.01(a) hereof, this Agreement (except for the provisions of Section
5.03, 5.05, 5.06, paragraph (b) of Section 7.01, this Section 7.02 and Article
VIII) shall forthwith become void and cease to have any force or effect, without
any liability on the part of any party hereto or any of its Affiliates;
provided, however, that nothing in this Section 7.02 shall relieve any party to
this Agreement of liability for any willful or intentional breach of this
Agreement.
7.03 Amendment
---------
Subject to the applicable provisions of the CBCA, at any time prior to the
Effective Time, the parties hereto may modify or amend this Agreement, by
written agreement executed and delivered by duly authorized officers of the
respective parties and by Majority Shareholders holding a majority of the
Company Shares owned by the Majority Shareholders; provided, however, that if
this Agreement is approved and adopted at the Shareholders Meeting, no amendment
shall be made which would reduce the amount or change the type of consideration
into which each Company Share shall be converted upon consummation of the
Merger. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties.
7.04 Waiver
------
At any time prior to the Effective Time, the parties may (a) extend the
time for the performance of any of the obligations or other acts of the other
parties, (b) waive any inaccuracies in the representations and warranties of the
other parties contained in this Agreement or in any document delivered pursuant
to this Agreement, or (c) subject to Section 7.03, waive compliance with any of
the agreements or conditions of the other parties contained in this Agreement.
39
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
7.05 Procedures for Termination, Amendment or Waiver
-----------------------------------------------
A termination of this Agreement pursuant to Section 7.01, an amendment of
this Agreement pursuant to Section 7.03 or an extension or waiver pursuant to
Section 7.04 shall, in order to be effective, require in the case of Parent,
Merger Sub or Company, action by its Board of Directors or the duly authorized
designee of its Board of Directors.
7.06 Expenses
--------
Except as otherwise set forth herein, all Expenses incurred in connection
with this Agreement and the transactions contemplated by this Agreement will be
paid by the party incurring such Expenses, whether or not the Merger or any
other transaction is consummated. "Expenses" as used in this Agreement will
include all reasonable out-of-pocket expenses (including without limitation all
reasonable fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a party hereto and its Affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement, the
preparation, printing, filing and mailing of the Proxy Statement and the
Schedule 13E-3, the solicitation of shareholder approvals and all other matters
related to the closing of the Merger and the other transactions contemplated by
this Agreement. Notwithstanding any other provision hereof, if this Agreement is
terminated pursuant to Section 7.01(a)(v) or (vi) and Parent would be entitled
to receive the Fee, then all Expenses of Parent and Merger Sub will be paid by
the Company.
VIII. Miscellaneous
-------------
8.01 No Survival of Representations and Warranties
---------------------------------------------
The representations and warranties of the Company in this Agreement or in
any instrument delivered pursuant to this Agreement shall terminate as of the
Effective Time
8.02 Notices
-------
All notices, requests, claims, demands and other communications hereunder
will be in writing and will be deemed to be delivered (a) when delivered in
person, (b) when received if sent by facsimile or e-mail if a copy is sent by
United States mail (certified mail, return receipt requested) or by nationally
recognized overnight courier service (provided, however, that such notice was
delivered prior to 5:00 p.m., local time, on a Business Day; otherwise, such
notice will be deemed delivered on the next Business Day), (c) one Business Day
after having been dispatched by a nationally recognized overnight courier
service, or (d) on the fifth Business Day after deposit in the United States
mail, if mailed by registered or certified mail (postage prepaid, return receipt
requested), in each case to the respective parties at the following addresses
(or at such other address for a party as will be specified in a notice given in
accordance with this Section 8.02), in each case with a copy (which shall not
constitute notice) to the Persons indicated:
40
if to Parent or Merger Sub:
Provider HealthNet Services Inc.
00000 Xxxxxx Xxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000-0000
E-mail: xxx@xxxx.xxx
Facsimile: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxx
with copies to:
Xxxxx, Day, Xxxxxx & Xxxxx
0000 Xxxxx Xxxxxxx
Xxxxxx, Xxxxx 00000
E-mail: xxxxxxxxxxx@xxxxxxxx.xxx
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
if to the Company:
MedGrup Corporation
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
E-mail: xxxxxxx@xxxxxxx.xxx
Facsimile No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxx
with copies to:
Xxxxxxx, Xxxxxxx & Associates, P.C.
0000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxxxxx 00000
E-mail: xxxxxxxxx@xxxxx.xxx
Facsimile No.: (000) 000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
if to the Majority Shareholders:
c/o Xxxxxxx X. Xxxxxx
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
E-mail: xxxxxxx@xxxxxxx.xxx
Facsimile No.: (000) 000-0000
41
8.03 Definitions
-----------
(a) "Affiliate"
-----------
of a specified Person means a Person that directly or indirectly through
one or more intermediaries controls, is Controlled by, or is under common
Control with such specified Person, provided, however, that as used in this
Agreement with respect to the Company, the term "Affiliate" will only include
the Subsidiaries of the Company; provided further, that as used in this
Agreement with respect to Parent, the term "Affiliate" will not include the
Company or any of the Subsidiaries of the Company;
(b) "Business Day"
-------------
means any day on which the principal offices of the SEC in Washington, D.C.
are open to accept filings, or, in the case of determining a date when any
payment is due, any day on which banks are not required or authorized to close
in the City of New York;
(c) "Control"
---------
(including the terms "Controlled by" and "under common Control with") means
the possession, directly or indirectly or as trustee or executor, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise;
(d) "Environmental Laws"
--------------------
means any law, rule, regulation, code, ordinance, order, decree, judgment,
injunction, notice or binding agreements issued, promulgated or entered into by
any Governmental Entity, relating in any way to the environment, preservation or
reclamation of natural resources, the management, release or threatened release
of any hazardous material or to health and safety matters;
(e) "to the Knowledge"
------------------
of any Person means, when referring to an individual, the actual knowledge
of such individual, and when referring to any other Person, means the actual
knowledge of such Person's officers and its board of directors or managers, as
appropriate, in each case without undertaking any specific investigation for
purposes of making any representation or warranty in this Agreement;
(f) "Person"
--------
means an individual, corporation, partnership, limited partnership,
syndicate, limited liability company, joint venture, person (including, without
limitation, a "person" as defined in Section 13(d)(3) of the Exchange Act),
trust, association or entity or Governmental Entity; and
(g) "Subsidiary" or "Subsidiaries"
------------------------------
of any Person means any corporation, partnership, joint
venture, limited liability company or other legal entity of which such Person
(either alone or through or together with any other Subsidiary) owns, directly
or indirectly, more than 50% of the stock or other equity interests, the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity,
provided, however, that for purposes of the representations and the warranties
of Parent in Section 3.02, and the covenants and other agreements of Parent in
Articles IV and V, except as otherwise specifically provided therein, the
"Subsidiaries" of Parent will not include the Company or any Subsidiaries of the
Company.
42
8.04 Interpretation
--------------
Unless the context otherwise requires, (i) all references to Sections,
Schedules or Exhibits are to Sections, Schedules or Exhibits of or to this
Agreement, (ii) each term defined in this Agreement has the meaning assigned to
it, (iii) each accounting term not otherwise defined in this Agreement has the
meaning assigned to it in accordance with GAAP, (iv) "or" is disjunctive but not
necessarily exclusive, (v) words in the singular include the plural and vice
versa, (vi) all references to "$" or dollar amounts will be to lawful currency
of the United States of America, (vii) all references to the masculine, feminine
or neuter gender shall be deemed to include the others, and (viii) references to
"including" shall be interpreted to mean "including but not limited to."
8.05 Entire Agreement; Assignment
----------------------------
This Agreement (including the Company Disclosure Schedule and the Exhibits)
constitutes the entire agreement between the parties with respect to the subject
matter hereof and supersedes all prior agreements and undertakings, both written
and oral, between the parties, with respect to the subject matter hereof. This
Agreement will not be assigned by any party without the prior written consent of
the other parties hereto, except that Parent and Merger Sub may assign all or
any of their rights and obligations hereunder to any direct wholly owned
subsidiary of Parent; provided, however, that no such assignment will relieve
the assigning party of its obligations hereunder.
8.06 Parties in Interest
-------------------
This Agreement will be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Agreement, express or implied, is intended to
or will confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, other than Section 5.05(a)
(which is intended to be for the benefit of the Persons covered thereby and may
be enforced by such Persons).
8.07 Governing Law
-------------
This Agreement will be governed by and construed in accordance with the
Laws of the State of Colorado (without giving effect to conflict of laws
principles) as to all matters, including validity, construction, effect,
performance and remedies.
8.08 Headings
--------
The descriptive headings contained in this Agreement are included for
convenience of reference only and will not affect in any way the meaning or
interpretation of this Agreement.
8.09 Counterparts
------------
This Agreement may be executed and delivered (including by facsimile
transmission) in one or more counterparts, and by each party hereto in separate
counterparts, each of which when executed and delivered will be deemed to be an
original but all of which taken together will constitute one and the same
agreement.
43
8.10 Consent to Jurisdiction
-----------------------
(a) Each party hereby irrevocably and unconditionally submits, for itself
and its property, to the exclusive jurisdiction of the courts of the State of
Colorado and the United States District Court for the District of Colorado (as
applicable, the "Court"), and any appellate court from any such court, in any
suit, action or proceeding arising out of or relating to this Agreement, or for
recognition or enforcement of any judgment resulting from any such suit, action
or proceeding, and each party hereby irrevocably and unconditionally agrees that
all claims in respect of any such suit, action or proceeding may be heard and
determined in the Court.
(b) It will be a condition precedent to each party's right to bring any
such suit, action or proceeding that such suit, action or proceeding, in the
first instance, be brought in the Court (unless such suit, action or proceeding
is brought solely to obtain discovery or to enforce a judgment), and if each
such court refuses to accept jurisdiction with respect thereto, such suit,
action or proceeding may be brought in any other court with jurisdiction.
(c) No party may move to (i) transfer any such suit, action or proceeding
from the Court to another jurisdiction, (ii) consolidate any such suit, action
or proceeding brought in the Court with a suit, action or proceeding in another
jurisdiction unless such motion seeks solely and exclusively to consolidate such
suit, action or proceeding in the Court, or (iii) dismiss any such suit, action
or proceeding brought in the Court for the purpose of bringing or defending the
same in another jurisdiction.
(d) Each party hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, (i) any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement in the Court, (ii) the
defense of an inconvenient forum to the maintenance of such suit, action or
proceeding in the Court, and (iii) the right to object, with respect to such
suit, action or proceeding, that such court does not have jurisdiction over such
party. Each party irrevocably consents to service of process in any manner
permitted by law. Notwithstanding the foregoing, this Section 8.10 will not
apply to any suit, action or proceeding by a party seeking indemnification or
contribution pursuant to this Agreement or otherwise in respect of a suit,
action or proceeding against such party by a third party if such suit, action or
proceeding by such party seeking indemnification or contribution is brought in
the same court as the suit, action or proceeding against such party.
8.11 Waiver of Jury Trial
--------------------
Each of Parent, Merger Sub, the Company and the Majority Shareholders
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Parent, Merger Sub, the Company or
the Majority Shareholders in the negotiation, administration, performance and
enforcement thereof.
44
8.12 Severability
------------
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of Law or public policy, all other
conditions and provisions of this Agreement will nevertheless remain in full
force and effect as long as the economic or legal substance of the Merger is not
affected in any manner materially adverse to any party. Upon such determination
that any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto will negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in a mutually acceptable manner in order that the Merger be consummated
as originally contemplated to the fullest extent possible.
8.13 Enforcement
-----------
The parties agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions of this
Agreement in any court of the United States located in the Northern District of
Texas, this being in addition to any other remedy to which they are entitled at
law or in equity.
[Signature Page Follows]
45
IN WITNESS WHEREOF, Parent, Merger Sub and Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
PROVIDER HEALTHNET SERVICES INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------
Xxxxxxx X. Xxxxxxxx
Chief Administrative Officer
MGC ACQUISITION CORP.
By: /s/ Xxxxxxx X. Xxxxxxxx
-----------------------------
Xxxxxxx X. Xxxxxxxx
President
MEDGRUP CORPORATION
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------------
Xxxxxxx X. Xxxxxx
Chief Executive Officer
46
Schedule 1.05
(a) Directors of Surviving Corporation
Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxx
Xxxxx Xxxxxxx
(b) Officers of Surviving Corporation
President and CEO - Xxxxxxx X. Xxxxxx
CFO and Vice President - Xxxxx Xxxxxxx
Vice President and Treasurer - Xxxx Xxxxxxx
Vice President and Secretary - Xxxxxxx X. Xxxxxxxx
Exhibit A
---------
FORM OF CONFIDENTIALITY, NON-SOLICITATION
AND NON-COMPETITION AGREEMENT
This Confidentiality, Non-Solicitation and Non-Competition Agreement (this
"Agreement") is made and entered into on this ___ day of __________, 2002, among
_______________, an individual residing in the State of _______ ("Executive"),
Provider HealthNet Services Inc., a Delaware corporation ("Parent"), and MedGrup
Corporation, a Colorado corporation (the "Company").
WHEREAS, pursuant to the Agreement and Plan of Merger (the "Merger
Agreement") dated as of March __, 2002, among Parent, MGC Acquisition Corp., a
Colorado corporation and a wholly owned subsidiary of Parent ("Merger Sub") and
the Company, Merger Sub will merge with and into the Company, with the Company
being the surviving corporation and becoming a wholly owned subsidiary of Parent
(the "Merger").
WHEREAS, prior to and continuing after the effectiveness of the Merger,
Executive serves as an integral member of the Company's management team.
WHEREAS, Parent and Merger Sub would not be willing to enter into the
Merger Agreement without Executive agreeing to be bound by the terms of this
Agreement.
WHEREAS, the execution and delivery of this Agreement is a condition
precedent to the obligations of Parent and Merger Sub to consummate the Merger
and the other transactions contemplated by the Merger Agreement.
NOW THEREFORE, in consideration of the foregoing and the mutual promises
contained herein, the sufficiency of which are hereby acknowledged, it is hereby
agreed as follows:
I. Definitions
-----------
1.01 Confidential Information
------------------------
"Confidential Information" means any confidential information relating to
Parent's or the Company's business plan, systems, operations, processes,
procedures, computer programs and data bases, drawings, sketches, records,
development data and reports, technical and engineering data and reports,
software applications or designs, business engineering and re-engineering
designs and plans, plan designs, quality control specifications, costs analysis,
flow charts, process sheets, know-how, or other confidential information or
intellectual property relating to technical matters; together with any
information relating to sales, financial structures, contracts or other
agreements, financial information, margins, pricing, marketing data, customer or
corporate partner data, personnel data, business plans, acquisition or corporate
partner plans, and other information of like nature. Confidential Information
further includes all of the foregoing information that Executive has learned in
the past or learns in the future during the course of Executive's
employment by the Company or any affiliate (as defined under the Securities
Exchange Act of 1934, as amended) of Parent or the Company, whether or not such
information is marked or otherwise designated as confidential. Confidential
Information does not include any information that (a) is or becomes part of the
public domain or is or becomes publicly available without breach of this
Agreement by Executive; (b) is lawfully acquired by Executive from a source not
under any obligation regarding the disclosure of such information; (c) is
disclosed to any third party by or with the permission of Parent or the Company
without confidentiality restrictions; or (d) is developed by an independent
Person who has not received, directly or indirectly, any Confidential
Information from Executive, Parent, the Company or otherwise.
1.02 Business
--------
"Business" means the business of providing information technology, data
processing, and business process and related services to healthcare providers
and other healthcare organizations that Parent or the Company is engaged in, or
have substantive plans to engage in, as of the date of termination of
Executive's employment by the Company.
1.03 Territory
---------
"Territory" means the 48 contiguous states of the United States of America.
1.04 Person
------
"Person" means an individual, firm, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust, or
unincorporated organization, or a federal, state, city, municipal, or foreign
government or an agency or political subdivision thereof, or any other type of
entity or third party.
II. Terms of Confidentiality, Non-Solicitation and Non-Competition Agreement
------------------------------------------------------------------------
2.01 Confidentiality Agreement
-------------------------
Executive covenants and agrees that he will not, directly or indirectly,
use, divulge, disclose or make available or accessible any Confidential
Information to or for any Person other than the Company or at the specific
direction, and with the knowledge and written consent of another executive
officer, of the Company. Nothing in this Agreement, however, prohibits Executive
from disclosing Confidential Information when required to do so pursuant to a
valid subpoena. Executive agrees that in the event he, or any Person with whom
Executive is affiliated or employed as an officer, employee, owner, consultant
or agent of any kind, receives a subpoena that would require him to divulge, in
whole or in part, Confidential Information, he will immediately contact the
Company in order to allow the Company the opportunity to intervene if necessary
to protect against the disclosure of Confidential Information.
A-2
2.02 Non-Solicitation of Employees
-----------------------------
Executive agrees and covenants not to, directly or indirectly, for a period
of two (2) years following the termination of Executive's employment by the
Company, solicit, induce, or attempt to solicit or induce any persons who are
employees of Parent, the Company or its affiliates as of the date of such
termination to (a) leave the employ of Parent or the Company or (b) accept a
position of employment or other involvement, directly or indirectly, with any
Person with whom Executive is affiliated or employed as an officer, employee,
owner, consultant or agent of any kind.
2.03 Covenant Not to Compete
-----------------------
Executive agrees for a period of three (3) years following the termination
of Executive's employment by the Company, he will not, directly or indirectly,
(a) engage in any capacity whatsoever, whether as owner, officer, agent,
principal, partner, consultant, investor, lender or otherwise, in the Business
in the Territory, either individually or in affiliation with any Person; or (b)
be the record or beneficial owner of more than three percent (3%) of the
outstanding capital stock or voting securities (or obligations or securities
convertible into capital stock or voting securities) of any Person that is
engaged, directly or indirectly, in the Business in the Territory or that is a
direct or indirect owner or affiliate of any other Person that is engaged,
directly or indirectly, in the Business in the Territory.
III. Miscellaneous
-------------
3.01 Waiver
------
The waiver of the breach of any term or condition of this Agreement will
not be deemed to constitute the waiver of any other breach of the same or any
other term or condition.
3.02 Governing Law
-------------
This Agreement will be governed by and construed in accordance with the
laws of the State of Texas (without giving effect to conflict of laws
principles) as to all matters, including validity, construction, effect,
performance and remedies.
3.03 Severability
------------
If any provision of this Agreement is held invalid or unenforceable, the
remainder of this Agreement will nevertheless remain in full force and effect
and if any provision is held invalid or unenforceable with respect to particular
circumstances, it will nevertheless remain in full force and effect in all other
circumstances.
3.04 Reformation
-----------
Notwithstanding the provisions of Section 2.03 of this Agreement, it is the
intent of the parties that the provisions of Section 2.03 be given the fullest
force and effect permissible by law. In the event any portion of Section 2.03 is
deemed by a court to be overly restrictive as to time, scope of restricted
activity, and geographic territory, the court shall reform the unlawful
provision to the maximum time, scope of restricted activity or geographic
territory as would be in conformance with the law under the facts as they exist
at the time of enforcement.
A-3
3.05 Specific Performance
--------------------
Executive acknowledges and agrees that any breach of Sections 2.01, 2.02 or
2.03 of this Agreement will result in irreparable damage to Parent and the
Company for which there will be no adequate remedy at law, and Executive
consents to an injunction in favor of Parent or the Company by any court of
competent jurisdiction enjoining any such breach, without prejudice to any other
right or remedy to which Parent or the Company may be entitled.
[Signature Page Follows]
A-4
IN WITNESS WHEREOF, the Parties have executed this Agreement this ___ day
of __________, 2002.
PROVIDER HEALTHNET SERVICES INC.
By:__________________________________________
Name:________________________________________
Title:_______________________________________
MEDGRUP CORPORATION
By:__________________________________________
Name:________________________________________
Title:_______________________________________
EXECUTIVE
_____________________________________________
Name:________________________________________
A-5
