EXHIBIT 10.21
AGREEMENT AND PLAN OF MERGER
dated as of February 18, 1999
Among
DIAGNOSTIC HEALTH SERVICES, INC.,
MAI ACQUISITION CORP.,
and
MEDICAL ALLIANCE, INC.
TABLE OF CONTENTS
Page
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TABLE OF DEFINITIONS........................................................ v
ARTICLE I THE MERGER.................................................. 2
Section 1.01 The Merger.............................................. 2
Section 1.02 Conversion of Shares.................................... 2
Section 1.03 Surrender and Payment................................... 4
Section 1.04 Stock Option Plans...................................... 6
Section 1.05 MAI Warrants............................................ 7
Section 1.06 Fractional Shares....................................... 7
ARTICLE II THE SURVIVING CORPORATION................................... 8
Section 2.01 Article of Incorporation................................ 8
Section 2.02 By-Laws................................................. 8
ARTICLE III REPRESENTATIONS AND WARRANTEES OF MAI....................... 8
Section 3.01 Organization and Power.................................. 8
Section 3.02 Corporate Authorization................................. 9
Section 3.03 Governmental Authorization.............................. 9
Section 3.04 Non-Contravention....................................... 10
Section 3.05 Capitalization of MAI................................... 10
Section 3.06 Capitalization of Subsidiaries.......................... 11
Section 3.07 SEC Filings............................................. 11
Section 3.08 Financial Statements.................................... 12
Section 3.09 Information Supplied.................................... 13
Section 3.10 Absence of Certain Changes.............................. 13
Section 3.11 No Undisclosed Liabilities.............................. 14
Section 3.12 Litigation.............................................. 14
Section 3.13 Taxes................................................... 15
Section 3.14 Employee Benefit Plans; ERISA........................... 17
Section 3.15 Certain Agreements; Compliance with Agreements.......... 18
Section 3.16 Compliance with Laws and-Orders......................... 20
Section 3.17 Environmental Matters................................... 20
Section 3.18 Assets.................................................. 21
Section 3.19 Intellectual Property Rights............................ 22
Section 3.20 Labor Matters........................................... 22
Section 3.21 Transactions with Affiliates............................ 23
Section 3.22 Insurance............................................... 23
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Section 3.23 Takeover Statutes....................................... 23
Section 3.24 Finders' Fees........................................... 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF DHS....................... 24
Section 4.01 Organization and Power.................................. 24
Section 4.02 Corporate Authorization................................. 24
Section 4.03 Governmental Authorization.............................. 25
Section 4.04 Non-Contravention....................................... 25
Section 4.05 Capitalization of DHS................................... 25
Section 4.06 Capitalization of Subsidiaries.......................... 26
Section 4.07 SEC Filings............................................. 27
Section 4.08 Financial Statements.................................... 27
Section 4.09 Information Supplied.................................... 28
Section 4.10 Absence of Certain Changes.............................. 28
Section 4.11 No Undisclosed Liabilities.............................. 29
Section 4.12 Litigation.............................................. 30
Section 4.13 Taxes................................................... 30
Section 4.14 Employee Benefits; ERISA................................ 32
Section 4.15 Certain Agreements; Compliance with Agreements.......... 33
Section 4.16 Compliance with Laws and Orders......................... 35
Section 4.17 Environmental Matters................................... 35
Section 4.18 Assets.................................................. 36
Section 4.19 Intellectual Property Rights............................ 36
Section 4.20 Labor Matters........................................... 36
Section 4.21 Transactions with Affiliates............................ 37
Section 4.22 Insurance............................................... 37
Section 4.23 Takeover Statutes....................................... 38
Section 4.24 Finders' Fees........................................... 38
ARTICLE V COVENANTS................................................... 38
Section 5.01 Conduct of MAI.......................................... 38
Section 5.02 Conduct of DHS.......................................... 40
Section 5.03 No Solicitation......................................... 42
Section 5.04 Approval of Stockholders................................ 44
Section 5.05 Preparation of Form S-4 and Proxy Statement............. 45
Section 5.06 Access to Information................................... 46
Section 5.07 Notices of Certain Events............................... 47
Section 5.08 Regulatory and Other Approvals.......................... 47
Section 5.09 Public Announcements.................................... 48
Section 5.10 Further Assurances...................................... 48
Section 5.11 MAI Affiliates.......................................... 48
Section 5.12 Obligations of Merger Subsidiary........................ 49
Section 5.13 Listing of Stock........................................ 49
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Section 5.14 Antitakeover Statutes................................... 49
Section 5.15 Tax Treatment........................................... 49
Section 5.16 Appointment of Directors................................ 49
Section 5.17 Director and Officer Indemnification.................... 50
Section 5.18 Employee Benefits....................................... 50
Section 5.19 Good Faith Efforts...................................... 50
ARTICLE VI GENERAL CONDITIONS PRECEDENT TO THE MERGER.................. 51
Section 6.01 Stockholder Approval.................................... 51
Section 6.02 HSR Act................................................. 51
Section 6.03 Registration Statements; State Securities Laws.......... 51
Section 6.04 Listing................................................. 51
Section 6.05 Suits or Other Proceedings.............................. 51
Section 6.06 Employment Agreements................................... 52
Section 6.07 Pooling Letters......................................... 52
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DHS AND
MERGER SUBSIDIARY........................................... 52
Section 7.01 Representations and Warranties.......................... 52
Section 7.02 Performance of Obligations.............................. 52
Section 7.03 No Material Adverse Change.............................. 52
Section 7.04 Consents................................................ 53
Section 7.05 Opinion of MAI Counsel.................................. 53
Section 7.06 Proceedings............................................. 53
Section 7.07 Fairness Opinion........................................ 53
ARTICLE VIII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MAI.............. 53
Section 8.01 Representations and Warranties.......................... 53
Section 8.02 Performance of Obligations.............................. 54
Section 8.03 No Material Adverse Change.............................. 54
Section 8.04 Consents................................................ 54
Section 8.05 Opinion of DHS Counsel.................................. 54
Section 8.06 Proceedings............................................. 54
Section 8.07 Tax Opinion............................................. 54
Section 8.08 Fairness Opinion at or prior to the Closing............. 55
Section 8.09 Accounting Matters...................................... 55
Section 8.10 DHS First Quarter Results............................... 55
Section 8.11 Waivers from Lenders.................................... 55
ARTICLE IX TERMINATION................................................. 55
Section 9.01 Termination............................................. 55
Section 9.02 Effect of Termination................................... 56
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ARTICLE X MISCELLANEOUS............................................... 57
Section 10.01 Notices................................................. 57
Section 10.02 Entire Agreement Non-Survival of Representations and
Warranties: Third Party Beneficiaries................... 58
Section 10.03 Amendment............................................... 59
Section 10.04 Waiver.................................................. 59
Section 10.05 Expenses................................................ 59
Section 10.06 Successors and Assigns.................................. 59
Section 10.07 Governing Law........................................... 60
Section 10.08 Jurisdiction............................................ 60
Section 10.09 Counterparts: Effectiveness............................. 60
Section 10.10 Interpretation.......................................... 60
Section 10.11 Severability............................................ 60
Section 10.12 Specific Performance.................................... 60
Section 10.13 Performance by Merger Subsidiary........................ 61
EXHIBITS
Voting Agreement............................................................ A
Affiliate Letter............................................................ B
Registration Rights Agreement............................................... C
Opinion of MAI Counsel...................................................... D
Opinion of DHS Counsel...................................................... E
iv
TABLE OF DEFINITIONS
Term Section
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1933 Act 3.03
1934 Act 3.03
Adjusted Option 1.04(a)
Affiliate Letter 5.11
Alternative Proposal 5.03(a)
Antitrust Division 5.08
Closing 1.01(b)
Closing Date 1.01(b)
Code recitals
Confidentiality Agreement 5.06(a)
Delaware Law 4.23
DHS preamble
DHS 10-K 4.08
DHS Agreement 4.04
DHS Balance Sheet 4.08
DHS Balance Sheet Date 4.08
DHS Benefit Plans 4.14(a)
DHS Common Stock 1.02(a)
DHS Disclosure Letter 2.03
DHS ERISA Affiliate 4.14(a)
DHS Financial Statements 4.08
DHS Group 4.13(1)
DHS Holders recitals
DHS Options 4.05(a)
DHS Permits 4.16
DHS Plans 4.05(a)
DHS Preferred Stock 4.05(a)
DHS Proposal 5.03(b)
DHS SEC Documents 4.07(a)
DHS Securities 4.05(a)
DHS Stockholders' Approval 5.03(b)
DHS Stockholders' Meeting(s) 5.03(b)
DHS Subsidiary Securities 4.06
DHS Tax Returns 4.13
Effective Time 1.01(c)
Environmental Laws 3.17(b)
Environmental Liabilities 3.17(b)
ERISA 3.14(a)
Exchange Agent 1.03(a)
Form S-4 3.09
FTC 5.08
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Term Section
---- -------
GAAP 3.08
Governmental Authorities 3.03
Hazardous Substance 3.17(b)
HSR Act 3.03
Indemnified Persons 5.17
Intellectual Property 3.19(a)
Laws 3.04
Lien 3.04
MAI preamble
MAI 10-K 3.08
MAI Affiliates 5.11
MAI Agreement 3.04
MAI Balance Sheet Date 3.08
MAI Balance Sheet 3.08
MAI Benefit Plans 3.14(a)
MAI Common Stock 1.02(a)
MAI Disclosure Letter 3.01
MAI ERISA Affiliate 3.14(a)
MAI Financial Statements 3.08
MAI Group 3.13(i)
MAI Holders recitals
MAI Option Plan 1.04(a)
MAI Permits 3.16
MAI SEC Documents 3.07(a)
MAI Securities 3.05(a)
MAI Stock Option 1.04(a)
MAI Stockholders' Approval 5.03(a)
MAI Stockholders' Meeting 5.04(a)
MAI Subsidiary Securities 3.06
MAI Tax Returns 3.13(a)
Material Adverse Effect 3.01
Merger 1.01(a)
Merger Consideration 1.02(c)
Merger Subsidiary preamble
Most Recent DHS Balance Sheet 4.08(b)
Most Recent MAI Balance Sheet 3.08(b)
Name Change 5.04(b)
Notice of Superior Proposal 5.04(a)
Orders 3.04
Person 1.02(d)
Proxy Statement 3.09
Qualified Stock Options 1.04(a)
SEC 3.07(a)
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Term Section
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Service 3.13(h)
Share(s) 1.02(a)
Stockholders recitals
Stockholders' Meetings 5.04(b)
Subsidiary 1.02(d)
Subsidiary of MAI 3.17(b)
Superior Proposal 5.03(a)
Surviving Corporation 1.01(a)
Takeover Statute 3.23
Tax Return 3.13(1)
Taxes 3.13(1)
Taxing Authority 3.13(1)
Texas Law 1.01(a)
Voting Agreement recitals
vii
EXHIBIT 10.21
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER dated as of February 18, 1999 among DIAGNOSTIC
HEALTH SERVICES, INC., a Delaware corporation ("DHS"), MAI ACQUISITION CORP., a
Texas corporation and a wholly-owned Subsidiary of DHS ("Merger Subsidiary"),
and MEDICAL ALLIANCE, INC., a Texas corporation ("MAI")
W I T N E S S E T H:
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WHEREAS, DHS and its Subsidiaries are engaged primarily in the provision of
outsourced medical support services and equipment to hospitals, physician
offices and other health care facilities, and MAI and its Subsidiaries are
engaged primarily in the provision of services used to create temporary surgical
environments in physician offices; and
WHEREAS, the respective Boards of Directors of DHS and MAI have approved,
and deem it advisable and in the best interests of their respective stockholders
to consummate, the acquisition of MAI by DHS by means of a merger of Merger
Subsidiary into MAI, as a result of which MAI will become a wholly-owned
subsidiary of DHS, all on the terms and conditions set forth herein; and
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger contemplated by this Agreement qualify as a "reorganization" within
the meaning of Section 368 of the Internal Revenue Code of 1986, as amended, and
the rules and regulations promulgated thereunder (the "Code"); and
WHEREAS, as a condition and inducement to DHS entering into this Agreement
and incurring the obligations set forth herein, concurrently with the execution
and delivery of this Agreement, DHS is entering into a Voting Agreement with
Mapleleaf Capital, Ltd., Sunwestern Cayman 1998 Partners, Sunwestern Investment
Fund III, Xxxx X. Xxxxxxxx, Xxxx X. Xxxx, Xxxxx X. Xxxxxxxxxxxx, Xxxxxx X.
Xxxxxxxxxx, Xxxx Xxxxxxxx and Xxxx XxXxxxxxx (collectively, the "MAI Holders")
and Xxx X. Xxxxxx, Xxxx X. Xxxxxx, Xxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxx, Xx X.
Xxxxx and Xxxxxx X. Xxxxxxxx (collectively, the "DHS Holders," and collectively
with the MAI Holders, the "Stockholders"), in the form of Exhibit A hereto (the
---------
"Voting Agreement") pursuant to which, among other things, the MAI Holders have
agreed to vote the shares of MAI Common Stock owned by them in favor of this
Agreement and the Merger, the Name Change and other transactions provided for
herein, and the DHS Holders have agreed to vote the shares of DHS Common Stock
owned by them in favor of the issuance of shares of DHS Common Stock pursuant to
the Merger, the Name Change and the other transactions contemplated by the
Merger.
NOW, THEREFORE, in consideration of the premises and the respective
representations, warranties, covenants and agreements set forth herein and in
the Voting Agreement, the parties hereto, intending to be legally bound hereby,
agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger.
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(a) Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time, Merger Subsidiary shall be merged (the
"Merger") with and into MAI in accordance with the Texas Business Corporation
Act (the "Texas Law"), whereupon the separate existence of Merger Subsidiary
shall cease, and MAI shall continue as the surviving corporation (the "Surviving
Corporation").
(b) Upon the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at 10:00
a.m. on a date to be specified by the parties (the "Closing Date"), which shall
be no later than the fifth business day after satisfaction of the conditions set
forth in Article VI, at the offices of Xxxxxxx Xxxxxx L.L.P. in Dallas, Texas,
unless another time, date or place is agreed to in writing by the parties
hereto.
(c) Upon the Closing, MAI and Merger Subsidiary will file
articles of merger with the Secretary of State of the State of Texas and make
all other filings or recordings required by Texas Law in connection with the
Merger. The Merger shall become effective at such time as the articles of merger
are duly filed with the Secretary of State of the State of Texas or at such
later time as is agreed by DHS and MAI and specified in the articles of merger
(the "Effective Time").
(d) The Merger shall have the effects set forth in Section 5.04
of the Texas Law.
(e) Each party hereto will, either prior to or after the
Effective Time, execute such further documents, instruments, deeds, bills of
sale, assignments and assurances and take such further actions as may reasonably
be requested by one or more of the other parties to consummate the Merger, to
vest the Surviving Corporation with full title to all assets, properties,
privileges, rights, approvals, immunities and franchises of Merger Subsidiary or
MAI, or to effect the other purposes of this Agreement.
Section 1.02 Conversion of Shares.
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(a) At the Effective Time, by virtue of the Merger and without
any action on the part of the holder of any common stock of MAI or Merger
Subsidiary:
(i) each share of Common Stock, par value $0.002 per share, of
MAI (the "MAI Common Stock") held by MAI as treasury stock or owned by DHS
or any Subsidiary of DHS immediately prior to the Effective Time shall
automatically be canceled and retired without any conversion thereof, and
no DHS Common Stock or other consideration shall be delivered in exchange
therefor;
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(ii) each share of common stock, par value $0.01 per share, of
Merger Subsidiary outstanding immediately prior to the Effective Time shall
automatically be converted into and become one share of common stock of the
Surviving Corporation and shall constitute the only outstanding shares of
capital stock of the Surviving Corporation; and
(iii) each share (each, a "Share" and collectively, the "Shares")
of MAI Common Stock outstanding immediately prior to the Effective Time
shall, except as otherwise provided in Section 1.02(a)(i), automatically be
converted into the right to receive 1.57 shares of fully paid and non-
assessable Common Stock, par value $0.001 per share of DHS (the "DHS Common
Stock"); provided, however, that the foregoing conversion ratio shall be
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(A) appropriately adjusted in the event that there shall occur any stock
dividend, stock split, combination of shares, recapitalization or other
such event relating to the DHS Common Stock or the MAI Common Stock between
the date hereof and the Effective Time, (B) proportionately increased or
decreased (as the case may be) in the event and to the extent that the
number of outstanding shares of DHS Common Stock shall, at the Effective
Time, be greater than or less than the number of outstanding shares of DHS
Common Stock on the date hereof, other than increases resulting from the
exercise of options or warrants that are outstanding on the date hereof or
hereafter issued in accordance with Section 5.02(f) and from the conversion
of any DHS Preferred Stock (including additional shares of DHS Preferred
Stock which may hereafter accrue as in-kind dividends), such that the MAI
stockholders receive in the Merger the same percentage of the total
outstanding DHS Common Stock (immediately after giving effect to the
Merger) as they would have received had the Merger been consummated on the
date of this Agreement, and (C) shall be increased or decreased (as the
case may be) in the event and to the extent that the number of outstanding
shares of MAI Common Stock shall, at the Effective Time, be less than or
greater than the number of outstanding shares of MAI Common Stock on the
date hereof, other than increases resulting from exercises of options or
warrants outstanding on the date hereof or hereafter issued in accordance
with Section 5.01(f) and any issuance of MAI Common Stock pursuant to the
outstanding Asset Purchase Agreement between MAI and Xxxxxx Xxxxxxx, such
that the MAI stockholders receive in the Merger the same percentage of the
total outstanding DHS Common Stock (immediately after giving effect to the
Merger) as they would have received had the Merger been consummated on the
date of this Agreement.
(b) From and after the Effective Time, all Shares converted in
accordance with Section 1.02(a)(iii) shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration.
From and after the Effective Time, all certificates representing the common
stock of Merger Subsidiary shall be deemed for all purposes to represent the
number of shares of Common Stock of the Surviving Corporation into which they
were converted in accordance with Section 1.02(a)(ii).
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(c) The DHS Common Stock to be received as consideration
pursuant to the Merger by each holder of Shares (together with any cash which
may be paid in lieu of fractional shares of DHS Common Stock in accordance with
Section 1.06) is referred to herein as the "Merger Consideration."
(d) For purposes of this Agreement, the word "Subsidiary" when
used with respect to any Person means any other Person, whether incorporated or
unincorporated, of which at least a majority of the securities or other
interests having by their terms ordinary voting power to elect at least a
majority of the board of directors or others performing similar functions with
respect to such corporation or other organization is directly or indirectly
owned or controlled by such Person or by any one or more of its Subsidiaries.
For purposes of this Agreement, "Person" means an individual, a corporation, a
limited liability company, a partnership, an association, a trust or any other
entity or organization, including a Governmental Authority.
Section 1.03 Surrender and Payment.
---------------------
(a) Prior to the Effective Time, DHS shall appoint American
Stock Transfer & Trust Company as agent (the "Exchange Agent") for the purpose
of exchanging certificates representing Shares for the Merger Consideration.
Promptly after the Effective Time (but in any event within five (5) business
days thereafter), DHS will send, or will cause the Exchange Agent to send, to
each holder of Shares at the Effective Time (i) a letter of transmittal for use
in such exchange (which shall specify that delivery of the Merger Consideration
shall be effected, and risk of loss and title to the certificates representing
MAI Common Stock shall pass, only upon proper delivery of the certificates
representing Shares to the Exchange Agent), and (ii) instructions for use in
effecting the surrender of the certificates representing Shares in exchange for
the certificates representing DHS Common Stock constituting Merger
Consideration. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of certificates theretofore
representing Shares for any amount which may be required to be paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(b) Each holder of Shares that have been converted into a right
to receive the Merger Consideration, upon surrender to the Exchange Agent of a
certificate or certificates representing such Shares, together with a properly
completed letter of transmittal covering such Shares, will be entitled to
receive the Merger Consideration payable in respect of such Shares and any
dividends payable pursuant to Section 1.03(f). Until so surrendered, each such
certificate shall, after the Effective Time, represent for all purposes only the
right to receive the Merger Consideration and any dividends payable pursuant to
Section 1.03(f).
(c) If any certificate representing Merger Consideration is to
be delivered to a Person other than the registered holder of the Shares
represented by the certificate or certificates surrendered in exchange therefor,
it shall be a condition to the issuance of such certificate evidencing DHS
Common Stock that the certificate or certificates so surrendered shall be
properly endorsed or otherwise be in proper form for transfer and that the
Person requesting such payment shall pay to the Exchange Agent any transfer or
other taxes required by reason of the
4
issuance of shares of DHS Common Stock to a Person other than the registered
holder of such Shares represented by the certificate or certificates so
surrendered or establish to the satisfaction of the Exchange Agent that such tax
has been paid or is not applicable.
(d) After the Effective Time, there shall be no further
registration of transfers of Shares on the stock transfer book of MAI. If, after
the Effective Time, certificates representing Shares are presented to the
Surviving Corporation, they shall be canceled and exchanged for the
consideration provided for, and in accordance with the procedures set forth, in
this Article I.
(e) Any portion of the Merger Consideration that remains
unclaimed by the holders of Shares one (1) year after the Effective Time shall
be returned to DHS, upon demand, and any such holder who has not exchanged his
Shares for the Merger Consideration in accordance with this Section 1.03 prior
to that time shall thereafter look only to DHS for payment of the Merger
Consideration. Notwithstanding the foregoing, DHS shall not be liable to any
holder of Shares for any amount paid to a public official pursuant to applicable
abandoned property laws. Any amounts remaining unclaimed by holders of Shares
seven (7) years after the Effective Time (or such earlier date immediately prior
to such time as such amounts would otherwise escheat to or become property of
any Governmental Authority) shall, to the extent permitted by applicable law,
become the property of DHS free and clear of any claims or interest of any
Person previously entitled thereto.
(f) No dividends or other distributions with respect to DHS
Common Stock issued in the Merger shall be paid to the holder of any
unsurrendered certificates representing Shares until such certificates are
surrendered as provided in this Section 1.03. Subject to the effect of
applicable laws, following the surrender of such certificates, there shall be
paid, without interest, to the record holder of the DHS Common Stock issued in
exchange therefor at the time of such surrender, the amount of dividends or
other distributions with a record date after the Effective Time payable prior to
or on the date of such surrender with respect to such whole shares of DHS Common
Stock and not previously paid, less the amount of any withholding taxes which
may be required thereon.
(g) In the event that any certificate representing Shares shall
have been lost, stolen or destroyed, upon the making of an affidavit (containing
a standard form of indemnity) of the fact by the person claiming such
certificate to be lost, stolen or destroyed, DHS will, after the Effective Time,
issue in exchange for such lost, stolen or destroyed certificate the certificate
evidencing shares of DHS Common Stock deliverable in respect thereof, as
determined in accordance with this Article I. When authorizing such issue of the
certificate of shares of DHS Common Stock in exchange therefor, DHS may, in its
discretion and as a condition precedent to the issuance thereof, require (unless
such requirement is waived by Xxxx Xxxx or Xxxx Xxxxxx) the owner of such lost,
stolen or destroyed certificate (unless such owner is an institutional investor)
to give DHS a bond in such sum as it may direct as indemnity against any claim
that may be made against DHS with respect to the certificate alleged to have
been lost, stolen or destroyed.
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(h) Approval and adoption of this Agreement by the stockholders
of MAI shall constitute, as an integral part of the Merger, ratification of the
appointment of, and the reappointment of, said Exchange Agent.
Section 1.04 Stock Option Plans.
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(a) At the Effective Time, the terms of each outstanding option
granted by MAI to purchase shares of MAI Common Stock (a "MAI Stock Option")
under the 1994 Amended and Restated Long Term Incentive Plan of MAI (the "MAI
Option Plan"), whether vested or unvested, shall be adjusted as necessary to
provide that at the Effective Time, each MAI Stock Option outstanding
immediately prior to the Effective Time shall be fully vested pursuant to the
terms of the MAI Option Plan and shall be deemed to constitute and shall become
an option to acquire, on the same terms and conditions as were applicable under
such MAI Stock Option, the same number of shares of DHS Common Stock as the
holder of such MAI Stock Option would have been entitled to receive pursuant to
the Merger (including, if applicable, after giving effect to the adjustments
contemplated by the proviso to Section 1.02(a)(iii)) had such holder exercised
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such MAI Stock Option in full immediately prior to the Effective Time, at a
price per share of DHS Common Stock equal to (i) the aggregate exercise price
for the shares of MAI Common Stock otherwise purchasable pursuant to such MAI
Stock Option, divided by (ii) the aggregate number of shares of DHS Common Stock
deemed purchasable pursuant to such MAI Stock Option (each, as so adjusted, an
"Adjusted Option"); provided that, after aggregating all the Shares of a holder
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subject to MAI Stock Options, any fractional share of DHS Common Stock resulting
from such calculation for such holder shall be rounded up to the nearest whole
share and provided, further, that in the case of any option to which Section 421
of the Code applies by reason of its qualification under any of Sections 422
through 424 of the Code ("qualified stock options"), the option price, the
number of shares purchasable pursuant to such option, and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424 of the Code.
(b) As soon as practicable after the Effective Time, DHS shall
deliver to the holders of MAI Stock Options appropriate notices setting forth
such holders' rights pursuant to the MAI Option Plan and the agreements
evidencing the grants of such MAI Stock Options and that such MAI Stock Options
and agreements shall be assumed by DHS and shall continue in effect on the same
terms and conditions (subject to the adjustments required by this Section 1.04
after giving effect to the Merger).
(c) DHS shall take such actions as are reasonably necessary for
the assumption of the MAI Option Plan pursuant to this Section 1.04, including
the reservation, issuance and listing of DHS Common Stock as is necessary to
effectuate the transactions contemplated by this Section 1.04. DHS shall prepare
and file with the SEC a registration statement on Form S-8 or other appropriate
form with respect to shares of DHS Common Stock subject to MAI Stock Options
issued under the MAI Option Plan (as well as shares of DHS Common Stock which
become subject to the MAI Warrants as provided in Section 1.05) and shall use
its reasonable efforts to have such registration statement declared effective as
soon as practicable following the Effective Time and to maintain the
effectiveness of such registration
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statement or registration statements covering such MAI Stock Options (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such MAI Stock Options remain outstanding.
Section 1.05 MAI Warrants. At the Effective Time, by virtue of the
------------
Merger and without requirement of any action on the part of the holder(s)
thereof (but subject to the consent of such holder(s) with respect to the
adjustments hereunder), the outstanding common stock purchase warrants of MAI
(the "MAI Warrants") immediately prior to the Effective Time shall automatically
be converted into and shall become warrants of DHS to acquire, on the same terms
and conditions as were applicable under such MAI Warrant, the same number of
shares of DHS Common Stock as the holder of such MAI Warrant would have been
entitled to receive pursuant to the Merger (including, if applicable, after
giving effect to the adjustments contemplated by the proviso to Section
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1.02(a)(iii)) had such holder exercised such MAI Warrant in full immediately
prior to the Effective Time, at a price per share of DHS Common Stock equal to
(a) the aggregate exercise price for the shares of MAI Common Stock otherwise
purchasable pursuant to such MAI Warrant, divided by (b) the aggregate number of
shares of DHS Common Stock deemed purchasable pursuant to such MAI Warrant
(each, as so adjusted, an "Adjusted Warrant"); provided that, after aggregating
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all of the Shares of a holder subject to MAI Warrants, any fractional share of
DHS Common Stock resulting from such calculation for such holder shall be
rounded up to the nearest whole share.
Section 1.06 Fractional Shares. Neither certificates nor scrip for
-----------------
fractional shares of DHS Common Stock will be issued in the Merger, but in lieu
thereof each holder of MAI Common Stock otherwise entitled to a fraction of a
share of DHS Common Stock (after aggregating all fractional shares of MAI Common
Stock that would otherwise be received by such holder) will be entitled
hereunder to (a) if permitted by the senior and subordinated lenders to DHS, a
cash payment calculated as hereinafter provided, or (b) if such cash payment is
not permitted by DHS' lenders, an additional fractional share in an amount
sufficient to round such stockholder's aggregate holdings of DHS Common Stock to
the next nearest whole share. The amount of any such cash payment shall equal,
in the case of each fractional share, an amount (rounded to the nearest whole
cent), without interest, calculated as the product of (i) such fraction,
multiplied by (ii) the arithmetic mean of the closing sales prices for the DHS
Common Stock reported on the NASDAQ National Market System for each of the five
(5) consecutive trading days on which DHS Common Stock was traded immediately
preceding the Effective Time as quoted in the Wall Street Journal, or other
reliable financial newspaper or publication. For the purposes of the preceding
sentence, a "trading day" means a day on which trading generally takes place on
the NASDAQ National Market System. No such fractional share interest shall
entitle the owner thereof to vote or to any rights of a stockholder of DHS.
7
ARTICLE II
THE SURVIVING CORPORATION
Section 2.01 Articles of Incorporation. Subject to the provisions of
-------------------------
Section 5.17, the articles of incorporation of Merger Subsidiary shall be the
articles of incorporation of the Surviving Corporation, except that, at the
Effective Time, the name of the Surviving Corporation shall be changed to "MAI,
Inc." or such other name as DHS may designate on or before the Effective Time,
until thereafter amended in accordance with applicable law and such articles of
incorporation.
Section 2.02 By-Laws. Subject to the provisions of Section 5.17, the
-------
by-laws of Merger Subsidiary in effect at the Effective Time shall be the by-
laws of the Surviving Corporation, until thereafter amended in accordance with
applicable law, the articles of incorporation of the Surviving Corporation and
such by-laws.
Section 2.03 Directors and Officers. From and after the Effective Time,
----------------------
until successors are duly elected or appointed and qualified in accordance with
the Texas Law and the articles of incorporation and by-laws of the Surviving
Corporation, the directors and the officers of the Surviving Corporation shall
be those persons set forth on Schedule 2.03 to the disclosure letter delivered
by DHS to MAI concurrently with the execution and delivery of this Agreement
(the "DHS Disclosure Letter").
ARTICLE III
REPRESENTATIONS AND WARRANTEES OF XXX
XXX represents and warrants to DHS that:
Section 3.01 Organization and Power. Each of MAI and its Subsidiaries
----------------------
is a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and has the requisite corporate
power and authority and governmental approvals to own, lease and operate its
properties and to carry on its business as now being conducted. Each of MAI and
its Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so duly qualified or
licensed and in good standing would not, individually or in the aggregate, have
a Material Adverse Effect on MAI. For purposes of this Agreement, a "Material
Adverse Effect" with respect to any Person means a material adverse effect (a)
on the condition (financial or otherwise), business, liabilities, properties,
assets, results of operations or prospects of such Person and its Subsidiaries,
taken as a whole, or (b) on the ability of such Person to perform its
obligations under or to consummate the transactions contemplated by this
Agreement. Schedule 3.01 to the disclosure letter delivered by MAI to DHS
concurrently with the execution and delivery of this Agreement (the "MAI
Disclosure Letter") sets forth (i) the name and jurisdiction of incorporation of
each Subsidiary of MAI, (ii) its authorized capital stock, (iii) the number of
issued and outstanding shares of its capital stock, and (iv) the record and
beneficial owners of such shares. Except as set forth on Schedule 3.01 to the
MAI Disclosure Letter, MAI does not directly or indirectly own any equity
8
or similar interest in, or any interest convertible into or exchangeable or
exercisable for, any equity or similar interest in, any Person. MAI has
heretofore delivered to DHS true and complete copies of the certificate or
articles of incorporation and by-laws as currently in effect of MAI and its
Subsidiaries.
Section 3.02 Corporate Authorization. The execution, delivery and
-----------------------
performance by MAI of this Agreement and the consummation by MAI of the
transactions contemplated hereby are within MAI's corporate powers and, except
as set forth in the second succeeding sentence of this Section 3.02, have been
duly authorized by all necessary corporate action, including, without
limitation, authorization and approval of its Board of Directors. As of the date
of this Agreement, the Board of Directors of MAI has recommended approval and
adoption of this Agreement by the shareholders of MAI and directed that this
Agreement be submitted to the stockholders of MAI for their approval. The
affirmative vote of the holders of at least two-thirds of the outstanding Shares
is the only vote of any class or series of MAI's capital stock necessary to
approve and adopt this Agreement, the Merger and the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by MAI
and, subject to the receipt of the approval described in the immediately
preceding sentence, constitutes a legal, valid and binding agreement of MAI,
enforceable against MAI in accordance with its terms (subject to applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
other similar laws affecting creditors' rights generally from time to time in
effect and to general principles of equity, regardless of whether in a
proceeding in equity or at law).
Section 3.03 Governmental Authorization. The execution, delivery and
--------------------------
performance by MAI of this Agreement, and the consummation by MAI of the
transactions contemplated hereby, require no action by or in respect of, or
filing with or notice to, any United States federal, state or local government,
any foreign country, any foreign state or local government or any court,
administrative agency or commission or other governmental or regulatory agency
or authority of any of the foregoing (collectively "Governmental Authorities"
and individually a "Governmental Authority"), other than (a) the filing of
articles of merger with respect to the Merger with the Texas Secretary of State
and appropriate documents with the relevant authorities of other states in which
MAI is qualified to do business; (b) compliance with any applicable requirements
of the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), provided that nothing contained in this Agreement shall be deemed to
constitute an acknowledgement that any requirements under the HSR Act are
applicable to the transactions contemplated by this Agreement; (c) compliance
with any applicable requirements of the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder (the "1933 Act"); (d)
compliance with any applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder (the
"1934 Act"); and (e) compliance with any other applicable securities laws.
Section 3.04 Non-Contravention. Except as set forth on Schedule 3.04
-----------------
to the MAI Disclosure Letter, the execution, delivery and performance by MAI of
this Agreement do not, and the consummation by MAI of the transactions
contemplated hereby will not, require the consent of any other Person, or
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
Person any right
9
of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien on any of
the assets or properties of MAI or any of its Subsidiaries under, any of the
terms, conditions or provisions of (a) the certificate or articles of
incorporation, by-laws or similar organizational documents of MAI or any of its
Subsidiaries, (b) assuming receipt of the approval of stockholders referred to
in Section 3.02, and compliance with the matters referred to in Section 3.03,
any United States or foreign statute, law, regulation, rule or ordinance
(together "Laws") or any judgment, injunction, order, writ, license, permit or
decree of any Governmental Authority (together "Orders") binding upon or
applicable to MAI, any Subsidiary of MAI or any of their respective assets or
properties, or (c) any note, bond, mortgage, security agreement, indenture,
lease, contract, instrument or other agreement of any kind to which MAI or any
Subsidiary of MAI is a party or by which MAI or any Subsidiary of MAI or any of
their respective assets or properties is bound (a "MAI Agreement") or any
license, franchise, permit or other similar authorization held by MAI or any
Subsidiary of MAI. For purposes of this Agreement, "Lien" means, with respect to
any asset, any mortgage, lien, pledge, charge, security interest or encumbrance
of any kind in respect of such asset, and, in addition, with respect to real
property, any easement, right of way or other restriction, limitation or burden
of any kind in respect of such real property.
Section 3.05 Capitalization of MAI.
---------------------
(a) The authorized capital stock of MAI consists solely of
30,000,000 shares of MAI Common Stock and 5,000,000 shares of preferred stock,
par value $.002 per share (the "MAI Preferred Stock"). As of the close of
business on December 31, 1998, (i) 6,117,079 shares of MAI Common Stock were
issued and outstanding, 277,203 shares of MAI Common Stock were issued and held
in the treasury of MAI, and 1,107,607 shares of MAI Common Stock were reserved
for issuance under the MAI Option Plan and the MAI Warrants, (ii) options to
purchase 917,541 shares of MAI Common Stock were outstanding under the MAI
Option Plan and warrants to purchase 15,610 shares of MAI Common Stock were
outstanding under the MAI Warrants, and (iii) no shares of MAI Preferred Stock
are issued, outstanding or held in the treasury of MAI. All of the outstanding
shares of MAI Common Stock are, and all shares reserved for issuance will be,
when issued in accordance with the terms specified in the instruments or
agreements pursuant to which they are issuable, duly authorized, validly issued,
fully paid and non-assessable. Except (A) as set forth in this Section 3.05 or
in Schedule 3.05 to the MAI Disclosure Letter, and (B) for Shares that may be
issued as provided in Section 5.01(f), there are outstanding (w) no shares of
capital stock or other voting securities of MAI, (x) no securities of MAI
convertible into or exchangeable for shares of capital stock or voting
securities of MAI, (y) no options, warrants or other rights to acquire from MAI,
and no preemptive or similar rights, subscriptions or other rights, convertible
securities, agreements, arrangements or commitments of any character, obligating
MAI to issue, transfer or sell, any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or voting
securities of MAI or obligating MAI to grant, extend or enter into any such
option, warrant, subscription or other right, convertible security, agreement,
arrangement or commitment, and (z) no restricted stock awards, stock
appreciation rights, performance share agreements or stock unit awards of MAI
(the items in clauses (w), (x), (y) and (z) being referred to collectively as
the "MAI Securities").
10
(b) Except as set forth on Schedule 3.05 to the MAI Disclosure
Letter, (i) there are no voting trusts or other agreements or understandings to
which MAI or any Subsidiary of MAI is a party with respect to the voting of the
capital stock of MAI or any Subsidiary of MAI, (ii) no Person has or is entitled
to any registration rights in respect of any MAI Securities, and (iii) none of
MAI or its Subsidiaries has any contractual obligation to redeem, repurchase or
otherwise acquire any MAI Securities or any capital stock of any Subsidiary of
MAI, including as a result of the transactions contemplated by this Agreement,
or to provide funds to, or make any investment in, any Subsidiary of MAI or any
other Person. Except as permitted by this Agreement, following the Merger,
neither MAI nor any of its Subsidiaries will have any obligation to issue,
transfer or sell any shares of its capital stock pursuant to any employee
benefit plan or otherwise.
Section 3.06 Capitalization of Subsidiaries.
------------------------------
Except as set forth on Schedule 3.06 to the MAI Disclosure Letter, all of the
outstanding shares of capital stock of, or other ownership interests in, each
Subsidiary of MAI, are duly authorized, validly issued, fully paid and non-
assessable and are owned, beneficially and of record, by MAI, directly or
indirectly, free and clear of any consensual Lien (including any restriction on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). There are no (a) outstanding securities of MAI or any
Subsidiary of MAI convertible into or exchangeable for shares of capital stock
or other voting securities or ownership interests in any Subsidiary of MAI, or
(b) options, warrants or other rights to acquire from MAI or any Subsidiary of
MAI, and no other obligation of MAI or any Subsidiary of MAI to issue, any
capital stock, voting securities or other ownership interests in, or any
securities convertible into or exchangeable for, any capital stock, voting
securities or ownership interests in, any Subsidiary of MAI (the items in
clauses (a) and (b) being referred to collectively as the "MAI Subsidiary
Securities").
Section 3.07 SEC Filings.
-----------
(a) MAI has filed all reports, schedules, forms, statements and
other documents with the Securities and Exchange Commission (the "SEC') required
to be filed by MAI since October 11, 1996 (the "MAI SEC Documents").
(b) As of its filing date, each MAI SEC Document filed pursuant
to the 1934 Act complied as to form in all material respects with the
requirements of the 1934 Act and did not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(c) Each MAI SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the
date such registration statement or amendment became effective complied as to
form in all material respects with the requirements of the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 3.08 Financial Statements.
--------------------
11
(a) The audited consolidated financial statements included in MAI's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997 (the "MAI
10-K") and the unaudited consolidated interim financial statements of MAI
included in the MAI SEC Documents filed after such date (collectively, the "MAI
Financial Statements") complied, or will comply, as to form in all material
respects with the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of MAI and its consolidated Subsidiaries as of
the dates thereof and their consolidated results of operations and cash flows
for the periods then ended (subject to footnote disclosures and normal year-end
adjustments in the case of any unaudited interim financial statements). The MAI
Financial Statements have been prepared from and are consistent with the books
and records of MAI, which reflect all material transactions of MAI and its
Subsidiaries. For purposes of this Agreement, "MAI Balance Sheet" means the
consolidated balance sheet of MAI as of December 31, 1997 set forth in the MAI
10-K and "MAI Balance Sheet Date" means December 31, 1997. Each Subsidiary of
MAI is treated as a consolidated subsidiary of MAI in the MAI Financial
Statements for all periods covered thereby.
(b) Without limitation of Section 3.08(a), (i) MAI or its
Subsidiaries has good and marketable title to all of the assets reflected in the
balance sheet of MAI included in it quarterly report on form 10-Q for the
quarter ended September 30, 1998 (the "Most Recent MAI Balance Sheet") free and
clear of all liens, security interests, encumbrances or other adverse claims
other than liens of secured lenders disclosed in the footnotes to the Most
Recent MAI Balance Sheet and interests of lessors in respect of capitalized
leases, (ii) the reserve for doubtful accounts reflected in the Most Recent MAI
Balance Sheet is adequate and in accordance with GAAP, (iii) the inventories
reflected in the Most Recent MAI Balance Sheet have been valued at the lower of
cost or market, and are not materially in excess of the normal requirement of
MAI's business, and (iv) all equipment and other fixed assets reflected in the
Most Recent MAI Balance Sheet are in good operating condition (reasonable wear
and tear excepted); all of the representations in this Section 3.08(b) being
subject to the collection of accounts receivable, sale and use of inventory, and
disposition of obsolete equipment, in the ordinary course of business.
Section 3.09 Information Supplied. None of the information supplied or
--------------------
to be supplied by MAI for inclusion or incorporation by reference in and none of
the statements based on such information contained in (a) the joint proxy
statement to be filed with the SEC relating to the stockholders' meetings of MAI
and DHS to be held in connection with the Merger, as amended or supplemented
from time to time (as so amended or supplemented, the "Proxy Statement"), will,
at the date the Proxy Statement is first mailed to stockholders and at the time
of the meetings of such stockholders in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading, or (b) the registration statement on Form
S-4 of DHS to be filed under the 1933 Act relating to the issuance of DHS Common
Stock in the Merger, as amended or supplemented from time to time (as so amended
or supplemented, the "Form S-4"), will, at the time the Form S-4 becomes
effective under the 1933 Act and at the Effective Time, contain any untrue
statement of a material fact or omit to state any
12
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 3.10 Absence of Certain Changes. Except as disclosed in the MAI
--------------------------
SEC Documents filed prior to the date of this Agreement or as disclosed on
Schedule 3.10 to the MAI Disclosure Letter, since September 30, 1998, MAI and
its Subsidiaries have conducted their respective businesses in the ordinary
course consistent with past practice and there has not been:
(a) Any material transaction of MAI or any of its Subsidiaries
outside of the normal course of business, any damage or destruction (whether or
not covered by insurance) of any material assets of MAI or any of its
Subsidiaries, or any event, occurrence or development which, individually or in
the aggregate, has had or would be reasonably likely to have a Material Adverse
Effect on MAI;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of MAI, any
issuance of MAI Common Stock other than upon exercise of MAI Warrants or MAI
Options outstanding on December 31, 1997, or any repurchase, redemption or other
acquisition by MAI or any Subsidiary of MAI of any amount of outstanding shares
of capital stock or other equity securities of, or other ownership interests in,
MAI or any Subsidiary of MAI;
(c) any amendment of any term of any MAI Securities or MAI
Subsidiary Securities;
(d) (i) any incurrence or assumption by MAI or any Subsidiary of MAI
of any indebtedness for borrowed money other than under existing credit
facilities in the ordinary course of business consistent with past practices, or
(ii) any guarantee, endorsement or other incurrence or assumption of liability
(whether directly, contingently or otherwise) by MAI or any Subsidiary of MAI
for the obligations of any other Person (other than any wholly-owned Subsidiary
of MAI);
(e) any creation or assumption by MAI or any Subsidiary of MAI of
any consensual Lien on any material asset of MAI or any Subsidiary of MAI;
(f) any making of any loan, advance or capital contribution to or
investment in any Person by MAI or any Subsidiary of MAI other than (i) loans,
advances or capital contributions to or investments in wholly-owned Subsidiaries
of MAI, or (ii) loans or advances to employees of MAI or any Subsidiary of MAI
made in the ordinary course of business consistent with past practice;
(g) (i) any contract or agreement entered into by MAI or any
Subsidiary of MAI on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business, or (ii) any modification,
amendment, assignment, termination or relinquishment by MAI or any Subsidiary of
MAI of any contract, license, or other right (including any insurance policy
naming it as a beneficiary or a loss payable payee) that would be reasonably
likely to have a Material Adverse Effect on MAI, other than those contemplated
by this Agreement;
13
(h) any change in any method of accounting or accounting principles
or practices by MAI or any Subsidiary of MAI, except for any such change
required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any
director, officer or employee of MAI or any of its Subsidiaries, (ii) entering
into of any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or employee
of MAI or any of its Subsidiaries, (iii) increase in benefits payable under any
existing severance or termination pay policies or employment agreements, or (iv)
increase in rates of compensation or bonus in excess of five (5%) percent or
increase in other benefits payable to officers or employees of MAI or any of its
Subsidiaries or increase in compensation, bonus or other benefits payable to
directors of MAI or any of its Subsidiaries.
Section 3.11 No Undisclosed Liabilities. Neither MAI nor any Subsidiary
--------------------------
of MAI has any material liabilities or obligations (whether pursuant to
contracts or otherwise) of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, except:
(a) those liabilities and obligations set forth on the MAI Balance
Sheet and not heretofore paid or discharged;
(b) those liabilities and obligations incurred since September 30,
1998 in the ordinary course of business consistent with past practice; and
(c) those liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 3.12 Litigation. Except as disclosed on Schedule 3.12 to the
----------
MAI Disclosure Letter, (a) there are no actions, suits, arbitrations or
proceedings pending or, to the knowledge of MAI, threatened against, relating to
or affecting, nor are there are any Governmental Authority investigations or
audits pending or, to the knowledge of MAI, threatened against, relating to or
affecting, MAI or any of its Subsidiaries or any of their respective assets or
properties nor, to the knowledge of MAI, is there any valid basis for any such
action, suit, arbitration, proceeding, investigation or audit which, if
adversely determined, would have a Material Adverse Effect on MAI, and (b)
neither MAI nor any of its Subsidiaries is subject to any order of any
Governmental Authority which adversely affects the ability of MAI to consummate
the transactions contemplated by this Agreement.
Section 3.13 Taxes.
-----
(a) All Tax Returns required to be filed by MAI, any of its
Subsidiaries, or any corporation that was included in the filing of a return
with MAI or its Subsidiaries on a consolidated, combined or unitary basis have
been filed (the "MAI Tax Returns") and all Taxes required to be shown on the MAI
Tax Returns, or a subsequent assessment with respect thereto, or otherwise due
or payable (to the extent in excess of $50,000 in the
14
aggregate) have been paid and any penalties and interest relating to such Taxes
(to the extent in excess of $50,000 in the aggregate) have been paid. No other
Taxes (to the extent in excess of $50,000 in the aggregate) are payable by the
MAI Group with respect to items or periods covered by such Tax Returns or with
respect to Tax periods prior to the date of this Agreement. None of the MAI Tax
Returns contain, or are required to contain, a disclosure statement under
Section 6662 of the Code, or any similar provision of state, local or foreign
law, with respect to any items that relate to MAI or its Subsidiaries in order
to avoid a penalty for any taxable year. All MAI Tax Returns are true, correct
and complete in all material respects. MAI has made available to DHS correct and
complete copies of all MAI Tax Returns for all periods which are not closed by
the statute of limitations.
(b) No adjustment relating to any MAI Tax Return has been proposed
formally or, to MAI's knowledge, informally by any Governmental Authority (to
the extent in excess of $50,000 in the aggregate), and no basis exists for any
such adjustment that would have a Material Adverse Effect on MAI. There are no
outstanding subpoenas or requests for information with respect to any MAI Tax
Returns or portions thereof. There are no pending or, to MAI's knowledge,
threatened actions or proceedings for the assessment or collection of Taxes for
which MAI or its Subsidiaries may be liable (to the extent in excess of $50,000
in the aggregate). There are no Tax liens on any assets of MAI or its
Subsidiaries, except with respect to Taxes which are not yet due and payable.
(c) No consent under Section 341(f) of the Code has been filed with
respect to MAI or any of its Subsidiaries. Neither MAI nor any of its
Subsidiaries is or has been subject to the dual consolidated loss provisions of
Section 1503 of the Code.
(d) MAI and its Subsidiaries are members of an affiliated group
(within the meaning of Section 1504 of the Code) that is eligible to file a
consolidated return. No other entity is or has been eligible to file a
consolidated or combined return with MAI and its Subsidiaries, and neither MAI
nor its Subsidiaries have filed or consented to the filing of any Federal or
state consolidated or combined return with any entity not a member of the MAI
Group. Neither MAI nor any of its Subsidiaries has been at any time a member of
any partnership or joint venture or the holder of a beneficial interest in any
trust for any Person for which the statute of limitations for any Tax
potentially applicable as a result of such membership or holding has not
expired.
(e) MAI and its Subsidiaries have properly accrued all current or
contested Taxes (to the extent in excess of $50,000 in the aggregate) on their
books and records, and their books and records reflect reserves that are
adequate for the payment of all Taxes (to the extent in excess of $50,000 in the
aggregate) not yet due and payable that are properly accruable thereon through
the date of this Agreement (including Taxes being contested). Neither MAI nor
any of its Subsidiaries have any liability for any Taxes which, in the
aggregate, are more than $50,000 in excess of amounts accrued or the reserves
established. All Taxes (to the extent in excess of $50,000 in the aggregate)
required to be withheld, collected or deposited in connection with the
operations and activities of MAI or its Subsidiaries have been timely withheld,
collected or deposited and, to the extent required, have been paid to the
relevant taxing authority.
15
(f) MAI does not own nor has it owned during the past five (5) years
any capital stock of DHS. At the Effective Time, the fair market value of the
assets of MAI will exceed the sum of its liabilities, plus the amount of other
liabilities, if any, to which the assets are subject.
(g) There are no requests for rulings, determinations or information
currently outstanding with any Taxing Authority that could reasonably be
expected to affect the Taxes of MAI or any of its Subsidiaries.
(h) The MAI Tax Returns have been audited by the Internal Revenue
Service ("Service") or other governmental agency (or closed by applicable
statutes of limitations) and all Tax liabilities in respect thereof have been
finally determined for all taxable years ending on or before December 31, 1996.
There are no outstanding waivers or agreements extending the statute of
limitations for any period with respect to any Tax to which MAI or any of its
Subsidiaries may be liable.
(i) "Taxes" shall mean any and all taxes, charges, fees, levies or
other assessments, including income, gross receipts, excise, real or personal
property, sales, withholding, social security, retirement, unemployment,
occupation, use, goods and services, service use, license, value added, capital,
net worth, payroll, profits, withholding, franchise, transfer and recording
taxes, fees and charges, and any other taxes, assessment or similar charges
imposed by the Service or any taxing authority (whether domestic or foreign
including any state, county, local or foreign government or any subdivision or
taxing agency thereof (including a United States possession)) (a "Taxing
Authority"), whether computed on a separate, consolidated, unitary, combined or
any other basis, and such term shall include any interest whether paid or
received, fines, penalties or additional amounts attributable to, or imposed
upon, or with respect to, any such taxes, charges, fees, levies or other
assessments. "Tax Return" shall mean any report, return, document, declaration
or other information or filing required to be supplied to any taxing authority
or jurisdiction (foreign or domestic) with respect to Taxes, including
information returns, any documents with respect to or accompanying payments of
estimated Taxes, or with respect to or accompanying requests for the extension
of time in which to file any such report, return, document, declaration or other
information. The term "MAI Group" shall mean, individually and collectively,
(i) MAI, (ii) its Subsidiaries, and (iii) any trust, corporation, partnership or
any other entity as to which MAI or its Subsidiaries is liable for Taxes
incurred by such entity either as a transferee, or pursuant to Treasury
Regulations Section 1.1502-6, or pursuant to any other provision of federal,
state, local or foreign law or regulations.
(j) MAI has made available to DHS a true and complete copy of any
(i) elections, letter rulings and determination letters relating to Taxes with
respect to MAI or its Subsidiaries which were in effect or affected Taxes for
any periods which are not closed by the statute of limitations, and (ii)
examination reports, closing agreements and statements of deficiencies for Taxes
assessed against or agreed to by MAI or any of its Subsidiaries which were in
effect or affected Taxes for any periods which are not closed by the statute of
limitations.
16
Section 3.14 Employee Benefit Plans; ERISA.
-----------------------------
(a) Except as set forth on Schedule 3.14 to the MAI Disclosure
Letter, there are no employee benefit plans (including any plans for the benefit
of directors or former directors), contracts or agreements (including employment
agreements and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights and stock purchase plans) of any type
(including plans described in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), maintained by MAI, any of its
Subsidiaries or any trade or business, whether or not incorporated (a "MAI ERISA
Affiliate"), that together with MAI would be deemed a "controlled group" within
the meaning of Section 4001(a)(14) of ERISA, or with respect to which MAI, any
of its Subsidiaries, or any MAI ERISA Affiliate, has or may have a liability
(the "MAI Benefit Plans"). Except as disclosed on Schedule 3.14 to the MAI
Disclosure Letter (or as otherwise permitted by this Agreement), (i) neither MAI
nor any ERISA Affiliate has any plan or commitment, whether legally binding or
not, to create any additional MAI Benefit Plan or modify or change any existing
MAI Benefit Plan that would affect any employee or terminated employee of MAI or
any ERISA Affiliate, and (ii) since December 31, 1997, there has been no change,
amendment, modification to, or adoption of, any MAI Benefit Plan.
(b) With respect to each MAI Benefit Plan: (i) if intended to
qualify under Section 401(a), 401(k) or 403(a) of the Code, such plan so
qualifies, and its trust is exempt from taxation under Section 501(a) of the
Code; (ii) no failures to administer such plan in accordance with its terms and
applicable law have occurred that have had or would reasonably be expected to
have a Material Adverse Effect on MAI; (iii) no breaches of fiduciary duty have
occurred; (iv) no prohibited transaction within the meaning of Section 406 of
ERISA has occurred; (v) as of the date of this Agreement, no lien imposed under
the Code or ERISA exists; and (vi) all contributions and premiums due (including
any extensions for such contributions and premiums) have been made in full or
adequate provision has been made therefor in the MAI Financial Statements.
(c) None of the MAI Benefit Plans has incurred any "accumulated
funding deficiency," as such term is defined in Section 412 of the Code, whether
or not waived.
(d) Neither MAI nor any MAI ERISA Affiliate has incurred any
liability under Title IV of ERISA (including Sections 4063-4064 and 4069 of
ERISA) since the effective date of ERISA that has not been satisfied in full.
(e) With respect to each MAI Benefit Plan that is a "welfare plan"
(as defined in Section 3(l) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of MAI or any of its
Subsidiaries beyond their termination of employment, other than as required by
law or on an employee-pay-all basis.
(f) Except as set forth on Schedule 3.14 to the MAI Disclosure
Letter, the consummation of the Merger pursuant to this Agreement will not (i)
entitle any individual to severance pay or any tax "gross-up" payments with
respect to the imposition of any tax pursuant to Section 4999 of the Code or
accelerate the time of payment or vesting, or increase the amount,
17
of compensation or benefits due to any individual with respect to any MAI
Benefit Plan, or (ii) constitute or result in a prohibited transaction under
Section 4975 of the Code or Section 406 or 407 of ERISA with respect to any MAI
Benefit Plan.
(g) There is no MAI Benefit Plan that is a "multiemployer plan," as
such term is defined in Section 3(37) of ERISA, or which is covered by Section
4063 or 4064 of ERISA.
Section 3.15 Certain Agreements; Compliance with Agreements.
----------------------------------------------
(a) Except as disclosed on Schedule 3.15 to the MAI Disclosure
Letter or as provided for in this Agreement, neither MAI nor any of its
Subsidiaries is a party to or bound by any oral or written:
(i) consulting agreement not terminable on thirty (30) days' or
less notice;
(ii) agreement with any officer or other key employee the benefits
of which are contingent, or the terms of which are materially altered, upon
the occurrence of the transactions contemplated by this Agreement;
(iii) agreement with respect to any officer providing any term of
employment or compensation guarantee;
(iv) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement;
(v) agreement containing covenants that limit the ability of MAI or
any of its Subsidiaries to compete in any line of business or with any
Person, or that involve any restriction on the geographic area in which, or
method by which, MAI or any of its Subsidiaries may carry on its business
(other than as may be required by law or any regulatory agency);
(vi) agreement, contract or understanding, other than this Agreement
and the articles of incorporation and by-laws of MAI, regarding the capital
stock of MAI or committing to dispose of some or all of the capital stock
or all or substantially all of the assets of MAI;
(vii) partnership, joint venture or profit sharing agreement of MAI
or any of its Subsidiaries with any Person;
(viii) agreement, contract, commitment, indenture or other instrument
of MAI or any of its Subsidiaries relating to the borrowing of money, or
the direct or indirect guarantee of any obligation for, or an agreement to
service the repayment of, borrowed
18
money, or any other contingent obligation in respect to indebtedness of any
other Person, including without limitation any agreement or arrangement
relating to the maintenance of compensating balances, any agreement or
arrangement with respect to lines of credit, any agreement or arrangement
to purchase or repurchase obligations of any other Person, any agreement or
arrangement to advance or supply funds to or to invest in any other Person,
any agreement or arrangement to pay for property, products or services of
any other Person even if such property, products or services are not
conveyed, delivered or rendered, or any guarantee with respect to any lease
or other similar periodic payment to be made by any other Person;
(ix) lease of MAI or any of its Subsidiaries with annual rental
payments aggregating $50,000 or more;
(x) agreement, contract or commitment of MAI or any of its
Subsidiaries relating to the disposition or acquisition of any investment
in any Person if such investment has a book value of, or the disposition or
acquisition price of such investment or interest is, $50,000 or more;
(xi) agreement, contract or commitment which involves payment or
potential payment, pursuant to the terms of such agreement, contract or
commitment, by or to MAI or any of its Subsidiaries of $50,000 or more
within any twelve (12) month period commencing after the date hereof;
(xii) severance or similar agreement with any employee which has been
entered into or modified at any time since June 30, 1998; or
(xiii) agreement, contract, commitment or arrangement between MAI or
any of its Subsidiaries and any Affiliate of MAI or any of its Subsidiaries
that is not described in or filed as an exhibit to a MAI SEC Document.
(b) Neither MAI nor any of its Subsidiaries nor, to the knowledge
of MAI, any other party thereto is in breach or violation of or in default in
the performance or observance of any term or provision of, and no event has
occurred which, with notice or lapse of time or both, is reasonably expected to
result in a default under, (i) the certificates or articles of incorporation,
by-laws or similar organizational documents of MAI or any of its Subsidiaries,
or (ii) any contract, agreement, plan or instrument listed or required to be
listed on Schedule 3.15 to the MAI Disclosure Letter, except in the case of
clause (ii) for breaches, violations or defaults which, individually or in the
aggregate, are not having and are not reasonably expected to have a Material
Adverse Effect on MAI. Except as set forth on Schedule 3.04 to the MAI
Disclosure Letter, no party to any such contract, agreement, plan or instrument
will have the right to terminate any or all of the provisions of any such
contract, agreement, plan or instrument as a result of the transactions
contemplated by this Agreement.
(c) No outstanding purchase commitments of MAI or any of its
Subsidiaries is materially in excess of the reasonable requirements of their
respective business.
19
(d) Neither MAI or any of its Subsidiaries has received written
notice of any existing, announced or anticipated changes in the policies of any
material clients, customers, referral sources or suppliers which could
reasonably be expected to have a Material Adverse Effect on MAI.
Section 3.16 Compliance with Laws and-Orders.
-------------------------------
(a) MAI and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities necessary for
the lawful conduct of their respective businesses (the "MAI Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on MAI. MAI and its
Subsidiaries are in compliance with. the terms of the MAI Permits, except
failures so to comply which, individually or in the aggregate, are not having
and are not reasonably expected to have a Material Adverse Effect on MAI. MAI
and its Subsidiaries are not in violation of or default under any Laws or
Orders, except for such violations or defaults which, individually or in the
aggregate, are not having and are not reasonably expected to have a Material
Adverse Effect on MAI.
(b) Without limitation of Section 3.16(a), MAI and its Subsidiaries
have at all times operated their businesses in compliance with all applicable
federal, state and other fraud and abuse, anti-kickback ("Xxxxx laws") and other
statutes, rules and regulations governing the provision of medical or related
services and/or payments or reimbursements for such services.
Section 3.17 Environmental Matters.
---------------------
(a) No notice, notification, demand, request for information,
citation, summons or order has been received by, no complaint has been filed
against, no penalty has been assessed against, and no investigation, action,
claim, suit, proceeding or review is pending or, to the knowledge of MAI or any
Subsidiary of MAI, is threatened by any Person against, MAI or any Subsidiary of
MAI with respect to any matters relating to or arising out of any Environmental
Law;
(b) No Hazardous Substance has been discharged, disposed of,
dumped, injected, pumped, deposited, spilled, leaked, emitted or released, in
violation of any Environmental Law, at, on, under or adjacent to any property
now or, to the knowledge of MAI, previously owned, leased or operated by MAI or
any Subsidiary of MAI; and
(c) There are no Environmental Liabilities.
(d) For purposes of this Section 3.17, the following terms shall
have the meanings set forth below:
(i) "MAI" and "Subsidiary of MAI" shall include any entity which
is, in whole or in part, a predecessor of MAI or any of its Subsidiaries.
20
(ii) "Environmental Laws" means any and all federal, state, local
and foreign law (including common law), treaty, judicial decision,
regulation, rule, judgment, order, decree, injunction, permit, or
governmental restrictions or any agreement with any governmental authority
or other third party, relating to human health and safety, the physical
condition of any real property now or formerly owned, leased or operated by
MAI of any of its Subsidiaries or of any improvements thereon, the
environment or to pollutants, contaminants, wastes or chemicals or toxic,
radioactive, ignitable, corrosive, reactive or otherwise hazardous
substances, wastes or materials, including without limitation Hazardous
Substances as defined herein.
(iii) "Environmental Liabilities" means any and all liabilities of or
relating to MAI or any Subsidiary of MAI of any kind whatsoever, whether
accrued, contingent, absolute, determined, determinable or otherwise, which
(A) arise under or relate to matters covered by Environmental Laws, and (B)
arise from actions occurring or conditions existing on or prior to the
Effective Time.
(iv) "Hazardous Substances" means any pollutant, contaminant, waste
or chemical or any toxic, radioactive, corrosive, reactive or otherwise
hazardous substance, waste or material, or any substance having any
constituent elements displaying any of the foregoing characteristics,
including, without limitation, petroleum, its derivatives, by-products and
other hydrocarbons, or any substance, waste or material regulated under any
Environmental Laws.
Section 3.18 Assets. The assets, properties, rights and contracts,
------
including (as applicable) title or leaseholds thereto, of MAI and its
Subsidiaries, taken as a whole, are sufficient to permit MAI and its
Subsidiaries to conduct their respective businesses as currently being
conducted. Neither MAI nor any of its Subsidiaries owns any real property.
Section 3.19 Intellectual Property Rights.
----------------------------
(a) Except as disclosed in Schedule 3.19 to the MAI Disclosure
Letter, MAI and its Subsidiaries own or have the right to use all Intellectual
Property individually or in the aggregate material to the conduct of the
businesses of MAI and its Subsidiaries. To the knowledge of MAI, (i) neither MAI
nor any Subsidiary of MAI is in default (or with the giving of notice or lapse
of time or both would be in default) under any license to use such Intellectual
Property, (ii) such Intellectual Property (other than patents) is not being
infringed by any third party, and (iii) neither MAI nor any Subsidiary of MAI is
infringing any intellectual property of any third party. For purposes of this
Agreement, "Intellectual Property" means patents and patent rights, trademarks
and trademark rights, service marks and service xxxx rights, trade names and
trade name rights, copyrights and copyright rights and other proprietary
intellectual property rights and all pending applications for and registrations
of any of the foregoing that MAI or its Subsidiaries own, license or otherwise
have the right to use. An accurate schedule of all Intellectual Property of MAI
or its Subsidiaries consisting of patents, registered trademarks, registered
service marks, registered trade names and registered copyrights and all pending
applications therefor is set forth on Schedule 3.19 to the MAI Disclosure
Letter.
21
(b) Either MAI or one of its Subsidiaries is listed in the
records of the appropriate United States, state or foreign agency as the sole
owner of record for each application and registration included in the
Intellectual Property, other than Intellectual Property of which MAI or its
Subsidiaries is a licensee.
(c) MAI and its Subsidiaries, with respect to all Intellectual
Property owned thereby, have taken or caused to be taken all reasonable steps in
the exercise of reasonable business judgment to obtain and retain valid and
enforceable Intellectual Property rights therein, including the submission of
all necessary filings in accordance with the legal and administrative
requirements of the appropriate jurisdictions. No application or registration
listed on Schedule 3.19 to the MAI Disclosure Letter is the subject of any
pending, existing or, to MAI's knowledge, threatened, opposition, interference,
cancellation proceeding or other legal or governmental proceeding before any
registration authority in any jurisdiction.
(d) The consummation of the transactions contemplated hereby will
not result in the loss or impairment of MAI's or any of its Subsidiaries' right
to own or use any of the Intellectual Property nor will it require the consent
of any Governmental Authority or third party.
Section 3.20 Labor Matters. MAI has previously furnished to DHS true and
-------------
complete copies of all labor and collective bargaining agreements (if any) to
which MAI or any of its Subsidiaries is a party and that are currently in
effect, together with all amendments thereto (if any). Since January 1, 1996,
there have been no strikes, slowdowns or other work stoppages or lockouts
involving any employees of MAI or any of its Subsidiaries and there are no
disputes by any labor organization in progress or pending or, to the knowledge
of MAI, threatened against MAI or any of its Subsidiaries that would have a
Material Adverse Effect on MAI. Except as disclosed in Schedule 3.20 to the MAI
Disclosure Letter, MAI and its Subsidiaries are in compliance in all material
respects with all applicable laws and regulations in respect of employment and
employment practices, terms and conditions of employment, wages and hours,
occupational safety, health or welfare conditions relating to premises occupied,
and civil rights. There are no charges of unfair labor practices pending before
any Governmental Authority involving or affecting MAI or any of its
Subsidiaries. As of the date of this Agreement, there is no representation claim
or petition pending before the National Labor Relations Board and, to the
knowledge of MAI, no question concerning representation exists with respect to
the employees of MAI or any of its Subsidiaries. MAI has not received notice
that any customer or supplier of MAI or any or its Subsidiaries is involved in
or threatened with or affected by any strike or other labor disturbance or
dispute, litigation or administrative proceeding or judgment, order, injunction,
decree or award, the consequences of which would have a Material Adverse Effect
on MAI.
Section 3.21 Transactions with Affiliates. Except to the extent disclosed
----------------------------
in the MAI SEC Documents filed prior to the date of this Agreement, none of the
officers or directors of MAI or any of its Subsidiaries nor any of its
Affiliates, and, to MAI's knowledge, none of its key employees or the key
employees of any of its Subsidiaries, is a party to any transaction with MAI or
any of its Subsidiaries (other than for services as an employee, officer or
director and other than transactions between MAI and one or more of its direct
or indirect wholly-owned
22
Subsidiaries or between such Subsidiaries), including, without limitation, any
contract, agreement or other arrangement (a) providing for the furnishing of
services to or by, (b) providing for rental of real or personal property to or
from, or (c) otherwise requiring payments to or from, any such officer,
director, Affiliate or key employee, any member of the family of any such
officer, director or key employee or any corporation, partnership, trust or
other entity in which any such officer, director or key employee has substantial
interest (excluding the ownership of not more than two percent (2%) of the
capital stock of a publicly traded corporation) or which is an Affiliate of such
officer, director or key employee.
Section 3.22 Insurance. Schedule 3.22 to the MAI Disclosure Letter sets
---------
forth a complete and accurate list of all primary, excess and umbrella policies,
bonds and other forms of insurance currently owned or held by or on behalf of or
providing insurance coverage to MAI or any of its Subsidiaries and their
respective businesses, properties and assets (or its directors, officers, agents
or employees). All such policies are in full force and effect. Neither MAI nor
any of its Subsidiaries has received notice of default under any such policy, or
has received written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium increase
with respect to any such policy, the failure of which to maintain has a Material
Adverse Effect on MAI. Schedule 3.22 to the MAI Disclosure Letter sets forth a
complete and accurate summary of all of the self-insurance coverage provided by
MAI or any of its Subsidiaries and no letters of credit have been posted in
respect thereof.
Section 3.23 Takeover Statutes. Except for the Business Combination Act
-----------------
set forth in Article 13 of the Texas Business Corporation Act, no "fair price",
"moratorium", "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States (each, a
"Takeover Statute") applicable to MAI or any of its Subsidiaries is applicable
to the Merger or the other transactions contemplated hereby.
Section 3.24 Finders' Fees. Except as disclosed in Schedule 3.24 to the
-------------
MAI Disclosure Letter, no investment banker, broker, finder, other intermediary
or other Person is entitled to any fee or commission from MAI or any Subsidiary
of MAI upon consummation of the transactions contemplated by this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DHS
DHS represents and warrants to MAI that:
Section 4.01 Organization and Power. Each of DHS and its Subsidiaries is
----------------------
a corporation, partnership or other entity duly organized, validly existing and,
except as disclosed on Schedule 4.01 to the DHS Disclosure Letter, in good
standing under the laws of the jurisdiction of its incorporation or
organization, and has the requisite corporate or other power and authority and
governmental approvals to own, lease and operate its properties and to carry on
its business as now being conducted. Each of DHS and its Subsidiaries is duly
qualified or licensed to do business and, except as disclosed on Schedule 4.01
to the DHS Disclosure Letter, is in good standing in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the
23
failure to be so duly qualified or licensed and in good standing would not,
individually or in the aggregate, have a Material Adverse Effect on DHS.
Schedule 4.01 to the DHS Disclosure Letter sets forth (a) the name and
jurisdiction of incorporation of each Subsidiary of DHS, (b) its authorized
capital stock, (c) the number of issued and outstanding shares of its capital
stock, and (d) the record and beneficial owners of such shares. Except as set
forth on Schedule 4.01 to the DHS Disclosure Letter, DHS does not directly or
indirectly own any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any equity or similar interest in, any
Person. DHS has heretofore delivered to MAI true and complete copies of the
certificate or articles of incorporation and by-laws as currently in effect of
DHS and its Subsidiaries.
Section 4.02 Corporate Authorization. The execution, delivery and
-----------------------
performance by DHS and Merger Subsidiary of this Agreement and the consummation
by DHS and Merger Subsidiary of the transactions contemplated hereby are within
the corporate power of DHS and Merger Subsidiary and, except for the required
approval by the stockholders of DHS of the issuance of shares of DHS Common
Stock in connection with the Merger, have been duly authorized by all necessary
corporate action, including, without limitation, authorization and approval of
the Board of Directors of Merger Subsidiary and the Board of Directors of DHS,
in its capacity as the Board of Directors of DHS and in its capacity as the sole
stockholder of Merger Subsidiary. This Agreement has been duly executed and
delivered by each of DHS and Merger Subsidiary and, subject to the approval of
the holders of DHS Common Stock with respect to the issuance of shares of DHS
Common Stock in connection with the Merger (including any shares contemplated by
Sections 1.04 and 1.05), constitutes a legal, valid and binding agreement of
each of DHS and Merger Subsidiary, enforceable against DHS or Merger Subsidiary,
as applicable, in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and other similar
laws affecting creditors' rights generally from time to time in effect and to
general principles of equity, regardless of whether in a proceeding in equity or
at law). The shares of DHS Common Stock issued in connection with the Merger,
when issued in accordance with the terms hereof, will be duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights.
Section 4.03 Governmental Authorization. The execution, delivery and
--------------------------
performance by DHS and Merger Subsidiary of this Agreement, and the consummation
by DHS and Merger Subsidiary of the transactions contemplated hereby, require no
action by or in respect of, or filing with or notice to, any Governmental
Authority, other than (a) the filing of articles of merger with respect to the
Merger with the Texas Secretary of State; (b) compliance with any applicable
requirements of the HSR Act, provided that nothing contained in this Agreement
shall be deemed to constitute an acknowledgment that any requirements under the
HSR Act are applicable to the transactions contemplated by this Agreement; (c)
compliance with any applicable requirements of the 1933 Act; (d) compliance with
any applicable requirements of the 1934 Act; and (e) compliance with any other
applicable securities laws.
Section 4.04 Non-Contravention. Except as set forth on Schedule 4.04 to
-----------------
the DHS Disclosure Letter, the execution, delivery and performance by DHS and
Merger Subsidiary of this Agreement do not, and the consummation by DHS and
Merger Subsidiary of the transactions
24
contemplated hereby will not, require the consent of any other Person, or
conflict with, result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or give to any
Person any right of payment or reimbursement, termination, cancellation,
modification or acceleration of, or result in the creation or imposition of any
Lien on any of the assets or properties of DHS or any of its Subsidiaries under,
any of the terms, conditions or provisions of (a) the certificate or articles of
incorporation, by-laws or similar organizational documents of DHS or any of its
Subsidiaries, (b) assuming receipt of the approval of stockholders referred to
in Section 4.02, and compliance with the matters referred to in Section 4.03,
any Laws or Orders binding upon or applicable to DHS or any Subsidiary of DHS or
any of their respective assets or properties, or (c) any note, bond, mortgage,
security agreement, indenture, lease, contract, instrument or other agreement of
any kind to which DHS or any Subsidiary of DHS is a party or by which DHS or any
Subsidiary of DHS or any of their respective assets or properties is bound (a
"DHS Agreement") or any license, franchise, permit or other similar
authorization held by DHS or any Subsidiary of DHS.
Section 4.05 Capitalization of DHS.
---------------------
(a) The authorized capital stock of DHS consists of 50,000,000
shares of DHS Common Stock, par value $0.001 per share, and 10,000,000 share of
preferred stock, par value $0.001 per share (the "DHS Preferred Stock"). As of
the close of business on December 31, 1998, (i) 11,480,636 shares of DHS Common
Stock were issued and outstanding, 233,259 shares of DHS Common Stock were
issued and held in the treasury of DHS, and an aggregate of 2,321,975 shares of
DHS Common Stock were reserved for issuance under DHS' 1992 Stock Option Plan,
1995 Non-Qualified Stock Option Plan, 1995 Incentive Stock Option Plan and 1997
Non-Qualified Stock Option Plan (collectively, the "DHS Plans"); (ii) options to
purchase 1,821,051 shares of DHS Common Stock under the DHS Plans ("DHS
Options") were outstanding; and (iii) 746,500 shares of DHS Preferred Stock were
outstanding. All of the outstanding shares of DHS Common Stock are, and all
shares reserved for issuance will be, when issued in accordance with the terms
specified in the instruments or agreements pursuant to which they are issuable,
duly authorized, validly issued, fully paid and non-assessable. Except (A) as
set forth in this Section 4.05 or in Schedule 4.05 to the DHS Disclosure Letter,
(B) for DHS Common Stock that may be issued as provided in Section 5.02(f), and
(C) for the transactions contemplated by this Agreement (including those
permitted in Article II), there are outstanding (w) no shares of capital stock
or other voting securities of DHS, (x) no securities of DHS convertible into or
exchangeable for shares of capital stock or voting securities of DHS, (y) no
options, warrants or other rights to acquire from DHS, and no preemptive or
similar rights, subscriptions or other rights, convertible securities,
agreements, arrangements or commitments of any character, obligating DHS to
issue, transfer or sell, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of DHS
or obligating DHS to grant, extend or enter into any such option, warrant,
subscription or other right, convertible security, agreement, arrangement or
commitment, and (z) no restricted stock awards, stock appreciation rights,
performance share agreements or stock unit awards of DHS (the items in clauses
(w), (x), (y) and (z) being referred to collectively as the "DHS Securities").
25
(b) Except as set forth on Schedule 4.05 to the DHS Disclosure
Letter, (i) there are no voting trusts or other agreements or understandings to
which DHS or any Subsidiary of DHS is a party with respect to the voting of the
capital stock of DHS or any Subsidiary of DHS, (ii) no Person has or is entitled
to any registration rights in respect of any DHS Securities, and (iii) none of
DHS or its Subsidiaries has any contractual obligation to redeem, repurchase or
otherwise acquire any DHS Securities or any capital stock of any Subsidiary of
DHS, including as a result of the transactions contemplated by this Agreement,
or to provide funds to, or to make any investment in, any Subsidiary of DHS or
any other Person. Except as permitted by this Agreement, following the Merger,
DHS will not have any obligation to issue, transfer or sell any shares of its
capital stock pursuant to any employee benefit plan or otherwise.
Section 4.06 Capitalization of Subsidiaries. Except as set forth on
------------------------------
Schedule 4.06 to the DHS Disclosure Letter, all of the outstanding shares of
capital stock of, or other ownership interests in, each Subsidiary of DHS, are
duly authorized, validly issued, fully paid and non-assessable and are owned
beneficially, and of record, by DHS, directly or indirectly, free and clear of
any consensual Lien (including any restriction on the right to vote, sell or
otherwise dispose of such capital stock or other ownership interests). There are
no (a) outstanding securities of DHS or any Subsidiary of DHS convertible into
or exchangeable for shares of capital stock or other voting securities or
ownership interests in any Subsidiary of DHS, or (b) options, warrants or other
rights to acquire from DHS or any Subsidiary of DHS, and no other obligation of
DHS or any Subsidiary of DHS to issue, any capital stock, voting securities or
other ownership interests in, or any securities convertible into or exchangeable
for, any capital stock, voting securities or ownership interests in, any
Subsidiary of DHS (the items in clauses (a) and (b) being referred to
collectively as the "DHS Subsidiary Securities").
Section 4.07 SEC Filings.
-----------
(a) DHS has filed all reports, schedules, forms, statements and
other documents with the SEC required to be filed by DHS since January 1, 1996
(the "DHS SEC Documents").
(b) As of its filing date, each DHS SEC Document filed pursuant
to the 1934 Act complied as to form in all material respects with the 1934 Act
and did not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(c) Each DHS SEC Document that is a registration statement, as
amended or supplemented, if applicable, filed pursuant to the 1933 Act as of the
date such registration statement or amendment became effective complied as to
form in all material respects with the requirements of the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.08 Financial Statements.
--------------------
(a) The audited consolidated financial statements included in
DHS' Annual
26
Report on Form 10-K for the fiscal year ended December 31, 1997 (the "DHS 10-K")
and the unaudited consolidated interim financial statements of DHS included in
the DHS SEC Documents filed after such date (collectively, the "DHS Financial
Statements") complied, or will comply, as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of DHS and its consolidated
Subsidiaries as of the dates thereof and their consolidated results of
operations and cash flows for the periods then ended (subject to footnote
disclosures and normal year-end adjustments in the case of any unaudited interim
financial statements). The DHS Financial Statements have been prepared from and
are consistent with the books and records of DHS, which reflect all material
transactions of DHS and its Subsidiaries. For purposes of this Agreement, "DHS
Balance Sheet" means the consolidated balance sheet of DHS as of December 31,
1997 set forth in the DHS 10-K and "DHS Balance Sheet Date" means December 31,
1997.
(b) Without limitation of Section 4.08(a), (i) DHS or its
Subsidiaries has good and marketable title to all of the assets reflected in the
balance sheet of DHS included in it quarterly report on form 10-Q for the
quarter ended September 30, 1998 (the "Most Recent DHS Balance Sheet") free and
clear of all liens, security interests, encumbrances or other adverse claims
other than liens of secured lenders disclosed in the footnotes to the Most
Recent DHS Balance Sheet and interests of lessors in respect of capitalized
leases, (ii) the reserve for doubtful accounts reflected in the Most Recent DHS
Balance Sheet is adequate and in accordance with GAAP, (iii) the inventories
reflected in the Most Recent DHS Balance Sheet have been valued at the lower of
cost or market, and are not materially in excess of the normal requirement of
DHS' business, and (iv) all equipment and other fixed assets reflected in the
Most Recent DHS Balance Sheet are in good operating condition (reasonable wear
and tear excepted); all of the representations in this Section 4.08(b) being
subject to the collection of accounts receivable, sale and use of inventory, and
disposition of obsolete equipment, in the ordinary course of business.
Section 4.09 Information Supplied. None of the information supplied or
--------------------
to be supplied by DHS for inclusion or incorporation by reference in and none of
the statements based on such information contained in (a) the Proxy Statement
will, at the date the Proxy Statement is first mailed to stockholders and at the
time of the meetings of such stockholders in connection with the Merger, contain
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or (b) the Form S-4 will, at the
time the Form S-4 becomes effective under the 1933 Act or at the Effective Time,
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
Section 4.10 Absence of Certain Changes. Except as disclosed in the DHS
--------------------------
SEC Documents filed prior to the date of this Agreement or as disclosed on
Schedule 4.10 to the DHS Disclosure Letter, since September 30, 1998, DHS and
its Subsidiaries have conducted their respective businesses in the ordinary
course consistent with past practice and there has not been:
27
(a) Any material transaction of DHS or any of its Subsidiaries
outside of the normal course of business, any damage or destruction (whether or
not covered by insurance) of any material assets of DHS or any of its
Subsidiaries, or any event, occurrence or development which, individually or in
the aggregate, has had or would be reasonably likely to have a Material Adverse
Effect on DHS;
(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of DHS, any
issuance of DHS Common Stock other than upon exercise of DHS Options, or any
repurchase, redemption or other acquisition by DHS or any Subsidiary of DHS of
any amount of outstanding shares of capital stock or other equity securities of,
or other ownership interests in, DHS or any Subsidiary of DHS;
(c) any amendment of any term of any DHS Securities or any DHS
Subsidiary Securities;
(d) (i) any incurrence or assumption by DHS or any Subsidiary of
DHS of any indebtedness for borrowed money other than under existing credit
facilities in the ordinary course of business consistent with past practices, or
(ii) any guarantee, endorsement or other incurrence or assumption of liability
(whether directly, contingently or otherwise) by DHS or any Subsidiary of DHS
for the obligations of any other Person (other than any wholly-owned Subsidiary
of DHS);
(e) any creation or assumption by DHS or any Subsidiary of DHS of
any consensual Lien on any material asset of DHS or any Subsidiary of DHS;
(f) any making of any loan, advance or capital contribution to or
investment in any Person by DHS or any Subsidiary of DHS other than (i) loans,
advances or capital contributions to or investments in wholly-owned Subsidiaries
of DHS, or (ii) loans or advances to employees of DHS or any Subsidiary of DHS
made in the ordinary course of business consistent with past practice;
(g) (i) any contract or agreement entered into by DHS or any
Subsidiary of DHS on or prior to the date hereof relating to any material
acquisition or disposition of any assets or business, or (ii) any modification,
amendment, assignment, termination or relinquishment by DHS or any Subsidiary of
DHS of any contract, license or other right (including any insurance policy
naming it as a beneficiary or a loss payable payee) that would be reasonably
likely to have a Material Adverse Effect on DHS, other than those contemplated
by this Agreement;
(h) any change in any method of accounting or accounting
principles or practices by DHS or any Subsidiary of DHS, except for any such
change required by reason of a change in GAAP; or
(i) any (i) grant of any severance or termination pay to any
director, officer or employee of DHS or any of its Subsidiaries, (ii) entering
into of any employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement)
28
with any director, officer or employee of DHS or any of its Subsidiaries, (iii)
increase in benefits payable under any existing severance or termination pay
policies or employment agreements, or (iv) increase in rates of compensation or
bonus in excess of five (5%) percent or increase in other benefits payable to
officers or employees of DHS or any of its Subsidiaries or increase in
compensation, bonus or other benefits payable to directors of DHS or any of its
Subsidiaries.
Section 4.11 No Undisclosed Liabilities. Neither DHS nor any Subsidiary
--------------------------
of DHS has any material liabilities or obligations (whether pursuant to
contracts or otherwise) of any kind whatsoever whether, accrued, contingent,
absolute, determined, determinable or otherwise, except:
(a) those liabilities and obligations set forth on the DHS
Balance Sheet and not heretofore paid or discharged;
(b) those liabilities and obligations incurred since September
30, 1998 in the ordinary course of business consistent with past practice; and
(c) those liabilities or obligations under this Agreement or
incurred in connection with the transactions contemplated hereby.
Section 4.12 Litigation. Except as disclosed on Schedule 4.12 to the DHS
----------
Disclosure Letter, (a) there are no actions, suits, arbitrations, or proceedings
pending or, to the knowledge of DHS, threatened against, relating to or
affecting, nor are there any Governmental Authority investigations or audits
pending or, to the knowledge of DHS, threatened against, relating to or
affecting, DHS or any of its Subsidiaries or any of their respective assets or
properties nor, to the knowledge of DHS, is there any valid basis for any such
action, suit, arbitration, proceeding, investigation or audit, which if
adversely determined, would have a Material Adverse Effect on DHS, and (b)
neither DHS nor any of its Subsidiaries is subject to any order of any
Governmental Authority which adversely affects the ability of DHS to consummate
the transactions contemplated by this Agreement.
Section 4.13 Taxes.
-----
(a) All Tax Returns required to be filed by DHS, any of its
Subsidiaries, or any corporation that was included in the filing of a return
with DHS or its Subsidiaries on a consolidated, combined or unitary basis have
been filed (the "DHS Tax Returns") and all Taxes required to be shown on the DHS
Tax Returns, or a subsequent assessment with respect thereto, or otherwise due
or payable (to the extent in excess of $50,000 in the aggregate) have been paid
and any penalties and interest relating to such Taxes have been paid. No other
Taxes (to the extent in excess of $50,000 in the aggregate) are payable by the
DHS Group with respect to items or periods covered by such Tax Returns or with
respect to Tax periods prior to the date of this Agreement. None of the DHS Tax
Returns contain, or are required to contain, a disclosure statement under
Section 6662 of the Code, or any similar provision of state, local or foreign
law, with respect to any items that relate to DHS or its Subsidiaries in order
to avoid a penalty for any taxable year. All DHS Tax Returns are true, correct
and complete in all material respects. DHS
29
has made available to MAI correct and complete copies of all DHS Tax Returns for
all periods which are not closed by the statute of limitations.
(b) No adjustment relating to any DHS Tax Return has been
proposed formally or, to DHS' knowledge, informally by any Governmental
Authority (to the extent in excess of $50,000 in the aggregate), and no basis
exists for any such adjustment that would have a Material Adverse Effect on DHS.
There are no outstanding subpoenas or requests for information with respect to
any DHS Tax Returns or portions thereof. There are no pending or, to DHS'
knowledge, threatened actions or proceedings for the assessment or collection of
Taxes for which DHS or its Subsidiaries may be liable (to the extent in excess
of $50,000 in the aggregate). There are no Tax liens on any assets of DHS or its
Subsidiaries, except with respect to Taxes which are not yet due and payable.
(c) No consent under Section 341(f) of the Code has been filed
with respect to DHS or any of its Subsidiaries. Neither DHS nor any of its
Subsidiaries is or has been subject to the dual consolidated loss provisions of
Section 1503 of the Code.
(d) DHS and its Subsidiaries are members of an affiliated group
(within the meaning of Section 1504 of the Code) that is eligible to file a
consolidated return. No other entity is or has been eligible to file a
consolidated or combined return with DHS and its Subsidiaries, and neither DHS
nor its Subsidiaries have filed or consented to the filing of any Federal or
state consolidated or combined return with any entity not a member of the DHS
Group. Neither DHS nor any of its Subsidiaries has been at any time a member of
any partnership or joint venture or the holder of a beneficial interest in any
trust for any Person for which the statute of limitations for any Tax
potentially applicable as a result of such membership or holding has not
expired.
(e) DHS and its Subsidiaries have properly accrued all current or
contested Taxes (to the extent in excess of $50,000 in the aggregate) on their
books and records, and their books and records reflect reserves that are
adequate for the payment of all Taxes (to the extent in excess of $50,000 in the
aggregate) not yet due and payable that are properly accruable thereon through
the date of this Agreement (including Taxes being contested). Neither DHS nor
any of its Subsidiaries have any liability for any Taxes which, in the
aggregate, are more than $50,000 in excess of amounts accrued or the reserves
established. All Taxes (to the extent in excess of $50,000 in the aggregate)
required to be withheld, collected or deposited in connection with the
operations and activities of DHS or its Subsidiaries have been timely withheld,
collected or deposited and, to the extent required, have been paid to the
relevant taxing authority.
(f) DHS does not own, nor has it owned during the past five (5)
years, any capital stock of MAI. At the Effective Time, the fair market value of
the assets of DHS will exceed the sum of its liabilities, plus the amount of
other liabilities, if any, to which the assets are subject.
(g) There are no requests for rulings, determinations or
information currently outstanding with any Taxing Authority that could
reasonably be expected to affect the Taxes of DHS or any of its Subsidiaries.
30
(h) The DHS Tax Returns have not been audited by the Service. There
are no outstanding waivers or agreements extending the statute of limitations
for any period with respect to any Tax to which DHS or any of its Subsidiaries
may be liable.
(i) The term "DHS Group" shall mean, individually and collectively,
(i) DHS, (ii) its Subsidiaries, and (iii) any trust, corporation, partnership or
any other entity as to which DHS or its Subsidiaries is liable for Taxes
incurred by such entity either as a transferee, or pursuant to Treasury
Regulations Section 1.1502-6, or pursuant to any other provision of federal,
state, local or foreign law or regulations.
(j) DHS has made available to MAI a true and complete copy of any (i)
elections, letter rulings and determination letters relating to Taxes with
respect to DHS or its Subsidiaries which were in effect or affected Taxes for
any periods which are not closed by the statute of limitations, and (ii)
examination reports, closing agreements and statements of deficiencies for Taxes
assessed against or agreed to by DHS or any of its Subsidiaries which were in
effect or affected Taxes for any periods which are not closed by the statute of
limitations.
Section 4.14 Employee Benefits; ERISA.
------------------------
(a) Except as set forth on Schedule 4.14 to the DHS Disclosure Letter,
there are no employee benefit plans (including any plans for the benefit of
directors or former directors), contracts or agreements (including employment
agreements and severance agreements, incentive compensation, bonus, stock
option, stock appreciation rights and stock purchase plans) of any type
(including plans described in Section 3(3) of ERISA), maintained by DHS, any of
its Subsidiaries or any trade or business, whether or not incorporated (an "DHS
ERISA Affiliate"), that together with DHS would be deemed a "controlled group"
within the meaning of Section 4001(a)(14) of ERISA, or with respect to which DHS
or any of its Subsidiaries has or may have a liability (the "DHS Benefit
Plans"). Except as disclosed on Schedule 4.14 to the DHS Disclosure Letter (or
as otherwise permitted by this Agreement), (i) neither DHS nor any ERISA
Affiliate has any plan or commitment, whether legally binding or not, to create
any additional DHS Benefit Plan or modify or change any existing DHS Benefit
Plan that would affect any employee or terminated employee of DHS or any ERISA
Affiliate, and (ii) since December 31, 1997, there has been no change,
amendment, modification to, or adoption of, any DHS Benefit Plan.
(b) With respect to each DHS Benefit Plan: (i) if intended to qualify
under Section 401(a), 401(k) or 403(a) of the Code, each such plan so qualifies,
and its trust is exempt from taxation under Section 501(a) of the Code; (ii) no
failures to administer such plan in accordance with its terms and applicable law
have occurred that have had or would reasonably be expected to have a Material
Adverse Effect on DHS; (iii) no breaches of fiduciary duty have occurred; (iv)
no prohibited transaction within the meaning of Section 406 of ERISA has
occurred; (v) as of the date of this Agreement, no lien imposed under the Code
or ERISA exists; and (vi) all contributions and premiums due (including any
extensions for such contributions and premiums) have been made in full or
adequate provision has been made therefor in the DHS Financial Statements.
31
(c) None of the DHS Benefit Plans has incurred any "accumulated
funding deficiency," as such term is defined in Section 412 of the Code, whether
or not waived.
(d) Neither DHS nor any ERISA Affiliate has incurred any liability
under Title IV of ERISA (including Sections 4063-4064 and 4069 of ERISA) since
the effective date of ERISA that has not been satisfied in full.
(e) With respect to each DHS Benefit Plan that is a "welfare plan" (as
defined in Section 3(l) of ERISA), no such plan provides medical or death
benefits with respect to current or former employees of DHS or any of its
Subsidiaries beyond their termination of employment, other than as required by
law or on an employee-pay-all basis.
(f) The consummation of the Merger pursuant to this Agreement will not
(i) entitle any individual to severance pay or any tax "gross-up" payments with
respect to the imposition of any tax pursuant to Section 4999 of the Code or
accelerate the time of payment or vesting, or increase the amount, of
compensation or benefits due to any individual with respect to any DHS Benefit
Plan, or (ii) constitute or result in a prohibited transaction under Section
4975 of the Code or Section 406 or 407 of ERISA with respect to any DHS Benefit
Plan.
(g) There is no DHS Benefit Plan that is a "multiemployer plan," as
such term is defined in Section 3(37) of ERISA, or which is covered by Section
4063 or 4064 of ERISA.
Section 4.15 Certain Agreements; Compliance with Agreements.
----------------------------------------------
(a) Except as disclosed on Schedule 4.15 to the DHS Disclosure Letter
or as provided for in this Agreement, neither DHS nor any of its Subsidiaries is
a party to or bound by any oral or written:
(i) consulting agreement not terminable on thirty (30) days' or
less notice;
(ii) agreement with any officer or other key employee the benefits
of which are contingent, or the terms of which are materially altered, upon
the occurrence of the transactions contemplated by this Agreement;
(iii) agreement with respect to any officer providing any term of
employment or compensation guarantee;
(iv) agreement or plan, including any stock option plan, stock
appreciation rights plan, employee stock ownership plan, restricted stock
plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement;
(v) agreement containing covenants that limit the ability of DHS or
any of its Subsidiaries to compete in any line of business or with any
Person, or that involve any
32
restriction on the geographic area in which, or method by which, DHS or any
of its Subsidiaries may carry on its business (other than as may be
required by law or any regulatory agency);
(vi) agreement, contract or understanding, other than this Agreement
and the certificate of incorporation and by-laws of DHS, regarding the
capital stock of DHS or committing to dispose of some or all of the capital
stock or all or substantially all of the assets of DHS;
(vii) partnership, joint venture or profit sharing agreement of DHS
or any of its Subsidiaries with any Person;
(viii) agreement, contract, commitment, indenture or other instrument
of DHS or any of its Subsidiaries relating to the borrowing of money, or
the direct or indirect guarantee of any obligation for, or an agreement to
service the repayment of, borrowed money, or any other contingent
obligation in respect to indebtedness of any other Person, including
without limitation any agreement or arrangement relating to the maintenance
of compensating balances, any agreement or arrangement with respect to
lines of credit, any agreement or arrangement to purchase or repurchase
obligations of any other Person, any agreement or arrangement to advance or
supply funds to or to invest in any other Person, any agreement or
arrangement to pay for property, products or services of any other Person
even if such property, products or services are not conveyed, delivered or
rendered, or any guarantee with respect to any lease or other similar
periodic payment to be made by any other Person;
(ix) lease of DHS or any of its Subsidiaries with annual rental
payments aggregating $50,000 or more;
(x) agreement, contract or commitment of DHS or any of its
Subsidiaries relating to the disposition or acquisition of any investment
in any Person if such investment has a book value of, or the disposition or
acquisition price of such investment or interest is, $50,000 or more;
(xi) agreement, contract or commitment which involves payment or
potential payment, pursuant to the terms of such agreement, contract or
commitment, by or to DHS or any of its Subsidiaries of $50,000 or more
within any twelve (12) month period commencing after the date hereof;
(xii) severance or similar agreement entered into or amended at any
time since June 30, 1998; or
(xiii) agreement, contract, commitment or arrangement between DHS or
any of its Subsidiaries and any Affiliate of DHS or any of its Subsidiaries
that is not described in or filed as an exhibit to a DHS SEC Document.
33
(b) Neither DHS nor any of its Subsidiaries nor, to the knowledge of
DHS, any other party thereto is in breach or violation of or in default in the
performance or observance of any term or provision of, and no event has occurred
which, with notice or lapse of time or both, is reasonably expected to result in
a default under, (i) the certificates or articles of incorporation, by-laws or
similar organizational documents of DHS or any of its Subsidiaries, or (ii) any
contract, agreement, plan or instrument listed or required to be listed on
Schedule 4.15 to the DHS Disclosure Letter, except in the case of clause (ii)
for breaches, violations or defaults which, individually or in the aggregate,
are not having and are not reasonably expected to have a Material Adverse Effect
on DHS. No party to any such contract, agreement, plan or instrument will have
the right to terminate any or all of the provisions of any such contract, plan
or instrument as a result of the transactions contemplated by this Agreement.
(c) No outstanding purchase commitments of DHS or any of its
Subsidiaries is materially in excess of the reasonable requirements of their
respective business.
(d) Neither DHS or any of its Subsidiaries has received written notice
of any existing, announced or anticipated changes in the policies of any
material clients, customers, referral sources or suppliers which could
reasonably be expected to have a Material Adverse Effect on DHS.
Section 4.16 Compliance with Laws and Orders.
-------------------------------
(a) DHS and its Subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals of all Governmental Authorities necessary for
the lawful conduct of their respective businesses (the "DHS Permits"), except
for failures to hold such permits, licenses, variances, exemptions, orders and
approvals which, individually or in the aggregate, are not having and are not
reasonably expected to have a Material Adverse Effect on DHS. DHS and its
Subsidiaries are in compliance with the terms of the DHS Permits, except
failures so to comply which, individually or in the aggregate, are not having
and are not reasonably expected to have a Material Adverse Effect on DHS. DHS
and its Subsidiaries are not in violation of or default under any Laws or
Orders, except for such violations or defaults which, individually or in the
aggregate, are not having and are not reasonably expected to have a Material
Adverse Effect on DHS.
(b) Without limitation of Section 4.16(a), DHS and its Subsidiaries
have at all times operated their businesses in compliance with all applicable
federal, state and other fraud and abuse, anti-kickback ("Xxxxx laws") and other
statutes, rules and regulations governing the provision of medical or related
services and/or payments or reimbursements for such services.
Section 4.17 Environmental Matters.
---------------------
(a) No notice, notification, demand, request for information,
citation, summons or order has been received by, no complaint has been filed
against, no penalty has been assessed against, and no investigation, action,
claim, suit, proceeding or review is pending or, to the knowledge of DHS or any
Subsidiary of DHS, is threatened by any Person, against DHS or
34
any Subsidiary of DHS with respect to any matters relating to or arising out of
any Environmental Law;
(b) No Hazardous Substance has been discharged, disposed of, dumped,
injected, pumped, deposited, spilled, leaked, emitted or released, in violation
of any Environmental Law, at, on, under or adjacent to any property now or, to
the knowledge of DHS, previously owned, leased or operated by DHS or any
Subsidiary of DHS; and
(c) There are no Environmental Liabilities.
(d) For purposes of this Section 4.17, capitalized terms used shall
have the meanings assigned to them in Section 3.17(b), except that in all cases
the word "DHS" shall be substituted for the word "MAI".
Section 4.18 Assets. The assets, properties, rights and contracts,
------
including (as applicable) title or leaseholds thereto, of DHS and its
Subsidiaries, taken as a whole, are sufficient to permit DHS and its
Subsidiaries to conduct their respective businesses as currently being
conducted. Neither DHS nor any of its Subsidiaries owns any real property.
Section 4.19 Intellectual Property Rights.
----------------------------
(a) DHS and its Subsidiaries own or have the right to use all
Intellectual Property individually or in the aggregate material to the conduct
of the businesses of DHS and its Subsidiaries. To the knowledge of DHS, (i)
neither DHS nor any Subsidiary of DHS is in default (or with the giving of
notice or lapse of time or both would be in default) under any license to use
such Intellectual Property, (ii) such Intellectual Property (other than patents)
is not being infringed by any third party, and (iii) neither DHS nor any
Subsidiary of DHS is infringing any intellectual property of any third party.
An accurate schedule of all Intellectual Property of DHS or its Subsidiaries
consisting of patents, registered trademarks, registered service marks,
registered trade names and registered copyrights and all pending applications
therefor is set forth on Schedule 4.19 to the DHS Disclosure Letter.
(b) Either DHS or one of its Subsidiaries is listed in the records of
the appropriate United States, state or foreign agency as the sole owner of
record for each application and registration included in the Intellectual
Property, other than Intellectual Property of which DHS or its Subsidiaries is a
licensee.
(c) DHS and its Subsidiaries, with respect to all Intellectual
Property owned thereby, have taken or caused to be taken all reasonable steps in
the exercise of reasonable business judgement to obtain and retain valid and
enforceable Intellectual Property rights therein, including the submission of
all necessary filings in accordance with the legal and administrative
requirements of the appropriate jurisdictions. No application or registration
listed on Schedule 4.19 to the DHS Disclosure Letter is the subject of any
pending, existing or, to DHS' knowledge, threatened, opposition, interference,
cancellation proceeding or other legal or governmental proceeding before any
registration authority in any jurisdiction.
35
(d) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of DHS' or any of its Subsidiaries' right to
own or use any of the Intellectual Property nor will it require the consent of
any Governmental Authority or third party.
Section 4.20 Labor Matters. DHS has previously furnished to MAI true
-------------
and complete copies of all labor and collective bargaining agreements (if any)
to which DHS or any of its Subsidiaries is a party and that are currently in
effect, together with all amendments thereto (if any). Since January 1, 1996,
there have been no strikes, slowdowns or other work stoppages or lockouts
involving any employees of DHS or any of its Subsidiaries and there are no
disputes by any labor organization in progress or pending or, to the knowledge
of DHS, threatened against DHS or any of its Subsidiaries that would have a
Material Adverse Effect on DHS. DHS and its Subsidiaries are in compliance in
all material respects with all applicable laws and regulations in respect of
employment and employment practices, terms and conditions of employment, wages
and hours, occupational safety, health or welfare conditions relating to
premises occupied, and civil rights. There are no charges of unfair labor
practices pending before any Governmental Authority involving or affecting DHS
or any of its Subsidiaries. As of the date of this Agreement, there is no
representation claim or petition pending before the National Labor Relations
Board and, to the knowledge of DHS, no question concerning representation exists
with respect to the employees of DHS or any of its Subsidiaries. DHS has not
received notice that any customer or supplier of DHS or any or its Subsidiaries
is involved in or threatened with or affected by any strike or other labor
disturbance or dispute, litigation or administrative proceeding or judgment,
order, injunction, decree or award, the consequences of which would have a
Material Adverse Effect on DHS.
Section 4.21 Transactions with Affiliates. Except to the extent
----------------------------
disclosed in the DHS SEC Documents filed prior to the date of this Agreement,
none of the officers or directors of DHS or any of its Subsidiaries nor any of
its Affiliates, and, to DHS' knowledge, none of its key employees or the key
employees of any of its Subsidiaries, is a party to any transaction with DHS or
any of its Subsidiaries (other than for services as an employee, officer or
director and other than transactions between DHS and one or more of its direct
or indirect wholly owned Subsidiaries or between such Subsidiaries), including,
without limitation, any contract, agreement or other arrangement (a) providing
for the furnishing of services to or by, (b) providing for rental of real or
personal property to or from, or (c) otherwise requiring payments to or from,
any such officer, director, Affiliate or key employee, any member of the family
of any such officer, director or key employee or any corporation, partnership,
trust or other entity in which any such officer, director or key employee has
substantial interest (excluding the ownership of not more than two percent (2%)
of the capital stock of a publicly traded corporation) or which is an Affiliate
of such officer, director or key employee.
Section 4.22 Insurance. Schedule 4.22 to the DHS Disclosure Letter sets
---------
forth a complete and accurate list of all primary, excess and umbrella policies,
bonds and other forms of insurance currently owned or held by or on behalf of or
providing insurance coverage to DHS or any of its Subsidiaries and their
respective businesses, properties and assets (or its directors, officers, agents
or employees). All such policies are in full force and effect. Neither DHS nor
any of its Subsidiaries has received notice of default under any such policy, or
has received
36
written notice of any pending or threatened termination or cancellation,
coverage limitation or reduction, or material premium increase with respect to
any such policy, the failure of which to maintain has a Material Adverse Effect
on DHS. Schedule 4.22 to the DHS Disclosure Letter sets forth a complete and
accurate summary of all of the self-insurance coverage provided by DHS or any of
its Subsidiaries and no letters of credit have been posted in respect thereof.
Section 4.23 Takeover Statutes. The Boards of Directors of DHS and
-----------------
Merger Subsidiary have duly and validly approved the Merger, this Agreement and
the transactions contemplated by this Agreement and such approval is sufficient
to render inapplicable to the Merger, this Agreement, and the transactions
contemplated by this Agreement and the Voting Agreement, the provisions of
Section 203 of the Delaware General Corporation Law (the "Delaware Law"). No
other Takeover Statute applicable to DHS or any of its Subsidiaries is
applicable to the Merger or the other transactions contemplated hereby.
Section 4.24 Finders' Fees. Except for a fee payable to Prudential
-------------
Securities Incorporated, a copy of whose engagement agreement has been provided
to MAI, no investment banker, broker, finder, other intermediary or other Person
is entitled to any fee or commission from DHS or any Subsidiary of DHS upon
consummation of the transactions contemplated by this Agreement.
ARTICLE V
COVENANTS
Section 5.01 Conduct of MAI. From the date hereof until the Effective
--------------
Time, except as otherwise expressly required by this Agreement or with the prior
written consent of DHS, MAI shall conduct, and shall cause its Subsidiaries to
conduct, their respective businesses in the ordinary course consistent with past
practice and shall use commercially reasonable efforts to preserve intact
commercially reasonable organizations and relationships with customers,
suppliers, creditors and business partners and shall use their reasonable
efforts to keep available the services of their present officers and employees.
Without limiting the generality of the foregoing, from the date hereof until the
Effective Time, except as described in Schedule 5.01 to the MAI Disclosure
Letter, without the prior written approval of DHS (which approval will not be
unreasonably withheld or delayed with respect to (c), (d), (h), (i), (j), (n) or
(o), or (k) as it applies to filing any amended Tax Return):
(a) MAI will not adopt or propose any change in its articles of
incorporation or any change in its by-laws;
(b) MAI will not, and will not permit any Subsidiary of MAI to, adopt
a plan or agreement of complete or partial liquidation, or resolutions providing
for or authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of MAI or any of its
Subsidiaries (other than a liquidation or dissolution of any Subsidiary or a
merger or consolidation between wholly-owned Subsidiaries);
37
(c) MAI will not, and will not permit any Subsidiary of MAI to, make
any investment in or any acquisition of the business of any Person or any
material amount of assets (other than inventory);
(d) MAI will not, and will not permit any Subsidiary of MAI to, sell
or otherwise dispose of any assets (other than inventory) in an amount that
would be material to MAI and its Subsidiaries, taken as a whole, except in the
ordinary course of business consistent with past practice;
(e) MAI will not, and will not permit any Subsidiary of MAI to,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock other than dividends paid by
any Subsidiary of MAI to MAI or any other Subsidiary of MAI, or split, combine,
reclassify or take similar action with respect to any of its capital stock or
MAI Securities or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock or MAI Securities;
(f) MAI will not, and will not permit any Subsidiary of MAI to, issue,
deliver, sell, transfer, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class or series of MAI or its Subsidiaries, or issue or grant any restricted
stock awards, stock appreciation rights, performance share agreements or stock
unit awards, other than (i) the issuance of options with an exercise price at
least equal to the fair market value of the MAI Common Stock on the date of
grant for up to 75,000 shares of MAI Common Stock under the MAI Option Plan as
in effect on the date hereof, and (ii) issuances of MAI Common Stock pursuant to
the exercise of options granted pursuant to the MAI Option Plan and the exercise
of MAI Warrants described in Section 3.05(a) which are outstanding on the date
hereof or are hereafter issued pursuant to the foregoing clause (i); and MAI
will not amend the terms of any option, warrant, right or other security
outstanding on the date hereof;
(g) MAI will not, and will not permit any Subsidiary of MAI to,
redeem, purchase or otherwise acquire directly or indirectly any of MAI's
capital stock or any MAI Securities;
(h) MAI will not, and will not permit any Subsidiary of MAI to, enter
into or amend in any material respect any employment contract with any of its
officers, directors or employees earning annual compensation of more than
$50,000, adopt or amend any MAI Benefit Plan in any material respect or make any
payments, awards or distributions under any MAI Benefit Plan or otherwise not
consistent with past practice or custom except (i) as required by a contract in
existence on the date hereof and listed on Schedule 3.15 to the MAI Disclosure
Letter, or (ii) as necessary to make any MAI Benefit Plan listed on Schedule
3.14 to the MAI Disclosure Letter meet the requirements of ERISA to the extent
such amendment is described in such Schedule or is approved by DHS;
(i) MAI will not, and will not permit any Subsidiary of MAI to, (i)
enter into (or commit to enter into) any new lease or renew any existing lease
of real property (except
38
pursuant to commitments for such lease or lease renewal entered into prior to
the date hereof), or (ii) purchase or acquire or enter into any agreement to
purchase or acquire any real estate;
(j) MAI will not, and will not permit any Subsidiary of MAI to, make
or commit to make any capital expenditures in excess of $500,000 in the
aggregate;
(k) MAI will not, and will not permit any Subsidiary of MAI to, change
any tax election, change any annual tax accounting period, change any method of
tax accounting, file any amended Tax Return, enter into any closing agreement
relating to any Tax, settle any Tax claim or assessment, surrender any right to
claim a Tax refund or consent to any extension or waiver (other than a
reasonable extension or waiver) of the limitations period applicable to any Tax
claim or assessment, if any such action would have the effect of increasing the
aggregate Tax liability or reducing the aggregate tax assets of MAI and its
Subsidiaries, taken as a whole;
(l) MAI will not, and will not permit any Subsidiary of MAI to, (i)
incur any indebtedness for borrowed money or guarantee any such indebtedness
other than in the ordinary course of its business consistent with past practice,
or (ii) voluntarily purchase, cancel, prepay or otherwise provide for a complete
or partial discharge in advance of a scheduled repayment date with respect to,
or waive any right under, any indebtedness for borrowed money;
(m) MAI will not, and will not permit any Subsidiary of MAI to, enter
into any contract or amend or modify any existing contract, or engage in any new
transaction outside the ordinary course of business consistent with past
practice or not on an arm's length basis, with any Affiliate of such party or
any of its Subsidiaries;
(n) MAI will not, and will not permit any Subsidiary of MAI to, agree
or commit to do any of the foregoing; and
(o) MAI will not, and will not permit any Subsidiary of MAI to, take
or agree or commit to take any action that would make any representation or
warranty of MAI in this Agreement inaccurate at, or as of any time prior to, the
Effective Time.
Section 5.02 Conduct of DHS. From the date hereof until the Effective
--------------
Time, except as otherwise expressly required by this Agreement or with the prior
written consent of MAI, DHS shall conduct, and shall cause its Subsidiaries to
conduct, their respective businesses in the ordinary course consistent with past
practice and shall use commercially reasonable efforts to preserve intact their
business organizations and relationships with customers, suppliers, creditors
and business partners and shall use their reasonable efforts to keep available
the services of their present officers and employees. Without limiting the
generality of the foregoing, from the date hereof until the Effective Time,
without the prior written approval of MAI (which approval will not be
unreasonably withheld or delayed with respect to (c), (d), (h), (i), (j), (n) or
(o), or (k) as it applies to filing any amended Tax Return):
(a) DHS will not adopt or propose any change in its certificate of
incorporation or any change in its by-laws, except (i) as and to the extent
required to consummate the Merger, and (ii) for the proposed change of the
corporate name of DHS to
39
"Medical Alliance, Inc." at the Effective Time;
(b) DHS will not, and will not permit any Subsidiary of DHS to, adopt
a plan or agreement of complete or partial liquidation, or resolutions providing
for or authorizing such liquidation or a dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of DHS or any of its
Subsidiaries (other dm a liquidation or dissolution of any Subsidiary or a
merger or consolidation between wholly-owned Subsidiaries);
(c) DHS will not, and will not permit any Subsidiary of DHS to, make
any investment in or any acquisition of the business of any Person or any
material amount of assets (other than inventory);
(d) DHS will not, and will not permit any Subsidiary of DHS to, sell
or otherwise dispose of any assets (other than inventory) in an amount that
would be material to DHS and its Subsidiaries, taken as a whole, except in the
ordinary course of business consistent with past practice;
(e) DHS will not, and will not permit any Subsidiary of DHS to,
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock, other than dividends paid
by any Subsidiary of DHS to DHS or any other Subsidiary of DHS, or split,
combine, reclassify or take similar action with respect to any of its capital
stock or DHS Securities or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock of DHS Securities;
(f) DHS will not, and will not permit any Subsidiary of DHS to, issue,
deliver, sell, transfer, pledge, dispose of or encumber any shares of, or
securities convertible into or exchangeable for, or options, warrants, calls,
commitments or rights of any kind to acquire, any shares of capital stock of any
class or series of DHS or its Subsidiaries, or issue or grant any restricted
stock awards, stock appreciation rights, performance share agreements or stock
unit awards, other than (i) the issuance of options with an exercise price at
least equal to the fair market value of the DHS Common Stock on the date of
grant for up to 75,000 shares of DHS Common Stock under the DHS Plans as in
effect on the date hereof, and (ii) issuances pursuant to the exercise of
options granted pursuant to the DHS Plans described in Section 4.05(a) which are
outstanding on the date hereof or are hereafter issued pursuant to the foregoing
clause (i); and DHS will not amend the terms of any option, warrant, right or
other security outstanding on the date hereof, except for the extension of stock
options held by outgoing directors of DHS (provided that such extensions shall
not cause the expiration dates of such options to extend beyond the later of the
third anniversary of the Effective Time or the tenth (10th) anniversary of the
date of issuance of the subject options);
(g) DHS will not, and will not permit any Subsidiary of DHS to,
redeem, purchase or otherwise acquire directly or indirectly any of DHS' capital
stock or any DHS Securities;
(h) DHS will not, and will not permit any Subsidiary of DHS to, enter
into or
40
amend in any material respect any employment contract with any of its officers,
directors or employees earning annual compensation of more than $50,000 (other
than as contemplated by Section 6.06), adopt or amend any DHS Benefit Plan in
any material respect or make any payments, awards or distributions under any DHS
Benefit Plan or otherwise not consistent with past practice or custom except (i)
as required by a contract in existence on the date hereof and listed on Schedule
4.15 to the DHS Disclosure Letter, or (ii) as necessary to make any DHS Benefit
Plan listed on Schedule 4.14 to the DHS Disclosure Letter meet the requirements
of the Code or ERISA to the extent such amendment is described in such Schedule
or is approved by MAI;
(i) DHS will not, and will not permit any Subsidiary of DHS to, (i)
enter into (or commit to enter into) any new lease or renew any existing lease
of real property (except pursuant to commitments for such lease or lease renewal
entered into prior to the date hereof), or (ii) purchase or acquire or enter
into any agreement to purchase or acquire any real estate;
(j) DHS will not, and will not permit any Subsidiary of DHS to, make
or commit to make any capital expenditures in excess of $750,000 in the
aggregate;
(k) DHS will not, and will not permit any Subsidiary of DHS to, change
any tax election, change any annual tax accounting period, change any method of
tax accounting, file any amended Tax Return, enter into any closing agreement
relating to any Tax, settle any Tax claim or assessment, surrender any right to
claim a Tax refund or consent to any extension or waiver (other than a
reasonable extension or waiver) of the limitations period applicable to any Tax
claim or assessment, if any such action would have the effect of increasing the
aggregate Tax liability or reducing the aggregate tax assets of MAI and its
Subsidiaries, taken as a whole;
(l) DHS will not, and will not permit any Subsidiary of DHS to, (i)
incur any indebtedness for borrowed money or guarantee any such indebtedness
other than in the ordinary course of its business consistent with past practice
or other than in connection with the transactions contemplated by this
Agreement, or (ii) voluntarily purchase, cancel, prepay or otherwise provide for
a complete or partial discharge in advance of a scheduled repayment date with
respect to, or waive any right under, any indebtedness for borrowed money;
(m) DHS will not, and will not permit any Subsidiary of DHS to, enter
into any contract or amend or modify any existing contract, or engage in any new
transaction outside the ordinary course of business consistent with past
practice or not on an arm's length basis, with any Affiliate of such party or
any of its Subsidiaries;
(n) DHS will not, and will not permit any Subsidiary of DHS to, agree
or commit to do any of the foregoing; and
(o) DHS will not, and will not permit any Subsidiary of DHS to, take
or agree or commit to take any action that would make any representation or
warranty of DHS in this Agreement inaccurate at, or as of any time prior to, the
Effective Time.
41
Section 5.03 No Solicitation.
---------------
(a) From the date hereof until the earlier of the Effective Time or
the termination of this Agreement, MAI agrees that: (i) it will not, and will
use its best efforts to cause its Subsidiaries and the officers, directors,
employees, investment bankers, consultants and other agents of MAI and its
Subsidiaries and the Affiliates of MAI not to, directly or indirectly, initiate,
solicit, encourage or facilitate or take any action to initiate, solicit,
encourage or facilitate any inquiries or the making or implementation of any
proposal or offer (including, without limitation, any proposal or offer to its
stockholders) with respect to a merger, consolidation or other business
combination including MAI or any of its Subsidiaries or any acquisition or
similar transaction (including, without limitation, a tender or exchange offer)
involving the purchase of (A) all or any significant portion of the assets of
MAI and its Subsidiaries taken as a whole, (B) 20% or more of the outstanding
shares of MAI Common Stock, or (C) 20% of the outstanding shares of the capital
stock of any Subsidiary of MAI (any such proposal or offer being hereinafter
referred to as an "Alternative Proposal"), or engage in any discussions or
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any Person or group relating to an Alternative
Proposal (excluding the transactions contemplated by this Agreement) or
otherwise facilitate any effort or attempt to make or implement an Alternative
Proposal; (ii) it will immediately cease and cause to be terminated and will
cause its Subsidiaries and the officers, directors, employees, investment
bankers, consultants and other agents of MAI and its Subsidiaries and the
Affiliates of MAI to immediately cease and terminate, any existing activities,
discussions or negotiations with any parties with respect to any of the
foregoing, and it will take the necessary steps to inform such parties of its
obligations under this Section 5.03(a); and (iii) it will notify DHS immediately
(and in no event later than 24 hours after receipt of any Alternative Proposal)
if any such inquiries, proposals or offers are received by, any such information
is requested from, or any such negotiations or discussions are sought to be
initiated or continued with, it or any of such Persons; provided, however, that
-------- -------
nothing contained in this Section 5.03 shall prohibit the Board of Directors of
MAI from (x) furnishing information to (but only pursuant to a confidentiality
agreement in customary form and having terms and conditions substantially
comparable to the Confidentiality Agreement) or entering into discussions or
negotiations with any Person or group that makes an unsolicited bona fide
---- ----
Alternative Proposal, if, and only to the extent that, (i) the Board of
Directors of MAI, based upon the written opinion of outside counsel, determines
in good faith that such action is required for the Board of Directors to comply
with its fiduciary duties to stockholders imposed by applicable law, (ii) prior
to furnishing such information to, or entering into discussions or negotiations
with, such Person or group, MAI provides written notice to DHS to the effect
that it is furnishing information to, or entering into discussions or
negotiations with such Person or group (without being required to identify such
Person or group), and (iii) MAI keeps DHS informed (which notice shall be
provided orally and in writing) of the status of such discussions or
negotiations (provided that MAI will not be required to inform DHS of the
substantive terms of such discussions or negotiations, other than the aggregate
consideration being offered to MAI and/or its stockholders), and (y) to the
extent required, complying with Rule 14e-2 promulgated under the 1934 Act with
regard to an Alternative Proposal. Except for DHS' termination rights pursuant
to Section 9.01, DHS will not utilize any of the information provided to it by
MAI pursuant to this Section 5.03(a) in any manner which could reasonably be
expected to undermine MAI's
42
discussions or negotiations with any Person or group identified to DHS by MAI
hereunder.
(b) From the date hereof until the earlier of the Effective Time or
the termination of this Agreement, DHS agrees that: (i) it will not, and will
use its best efforts to cause its Subsidiaries and the officers, directors,
employees, investment bankers, consultants and other agents of DHS and its
Subsidiaries and Affiliates of DHS not to, directly or indirectly, initiate,
solicit, encourage or facilitate or take any action to initiate, solicit,
encourage or facilitate any inquiries or the making or implementation of any
proposal or offer with respect to any transaction such as would cause ownership
or voting control of DHS to be vested in any Person or group, or with respect to
a material acquisition in any line of business not substantially related to the
existing line of business of DHS and its Subsidiaries (a "DHS Proposal"); (ii)
it will immediately cease and cause to be terminated and will cause its
Subsidiaries and the officers, directors, employees, investment bankers,
consultants and other agents of DHS and its Subsidiaries and the Affiliates of
DHS to immediately cease and terminate, any existing activities, discussions or
negotiations with any parties with respect to any of the foregoing, and it will
take the necessary steps to inform such parties of its obligations under this
Section 5.03(b); and (iii) it will notify MAI immediately (and in no event later
than 24 hours after receipt of any proposal with respect to any such
transaction) if any inquiries, proposals, or offers are received by, or any
information is requested in respect of, any transaction of the type described in
this Section 5.03(b). DHS shall be permitted to conduct unsolicited
negotiations and discussions with respect to any such transaction, and shall be
required to report thereon to MAI, in the same manner and to the same extent as
is applicable under Section 5.03(a) with respect to any Alternative Proposal as
described therein. Except for MAI's termination rights pursuant to Section
9.01, MAI will not utilize any information provided to it by DHS pursuant to
this Section 5.03(b) in any manner which could reasonably be expected to
undermine DHS' discussions or negotiations with any Person or group identified
to MAI by DHS hereunder.
Section 5.04 Approval of Stockholders.
------------------------
(a) MAI shall, through its Board of Directors, duly call, give notice
of, convene and hold a meeting of its stockholders (the "MAI Stockholders'
Meeting") for the purpose of voting on the approval and adoption of this
Agreement and the Merger (the "MAI Stockholders' Approval") as soon as
reasonably practicable after the date hereof. Except as provided in the next
sentence, the Board of Directors of MAI shall recommend approval and adoption of
this Agreement and the Merger by the holders of MAI Common Stock and shall use
all commercially reasonable efforts to obtain such approval and adoption. The
Board of Directors of MAI shall be permitted to (i) not recommend to the holders
of MAI Common Stock that they give the MAI Stockholders' Approval, or (ii)
withdraw or modify in a manner adverse to DHS its recommendation to the holders
of MAI Common Stock that they give the MAI Stockholders' Approval, but in each
of cases (i) and (ii) only if and to the extent that a Superior Proposal is
pending at the time the MAI Board of Directors determines to take any such
action or inaction; provided, however, that no such failure to recommend,
-------- -------
withdrawal or modification shall be made unless MAI shall have delivered to DHS
a written notice (a "Notice of Superior Proposal") advising DHS that the Board
of Directors of MAI has received a Superior Proposal and identifying the Person
or group making such Superior Proposal; and further provided, that
--- ------- --------
43
nothing contained in this Agreement shall prevent the Board of Directors of MAI
from complying with Rule 14e-2 under the 1934 Act with regard to an Alternative
Proposal. For purposes of this Agreement, "Superior Proposal" means any bona
----
fide Alternative Proposal for at least a majority of the outstanding Shares on
----
terms that the Board of Directors of MAI determines in its good faith judgment
(based on the advice of an independent reputable financial advisor, taking into
account all the terms and conditions of the Alternative Proposal, including any
break-up fees, expense reimbursement provisions and conditions to consummation)
are more favorable and provide greater value to all holders of MAI Common Stock
than this Agreement and the Merger taken as a whole.
(b) DHS shall, through its Board of Directors, duly call, give notice
of, convene and hold a meeting of its stockholders (the "DHS Stockholders'
Meeting" and, together with the MAI Stockholders' Meeting, the "Stockholders'
Meetings") for the purpose of voting on (i) the issuance of DHS Common Stock in
the Merger (the "DHS Stockholders' Approval"), and (ii) the name change of DHS
described in Section 5.02(a) (the "Name Change") as soon as reasonably
practicable after the date hereof. The Board of Directors of DHS shall
recommend that the stockholders of DHS approve such issuances of DHS Common
Stock, and the Name Change, and shall use its best efforts to obtain such
approval.
(c) DHS and MAI shall coordinate and cooperate with respect to the
timing of the Stockholders' Meetings and shall use their best efforts to cause
the Stockholders' Meetings to be held on the same day and as soon as practicable
after the date hereof.
Section 5.05 Preparation of Form S-4 and Proxy Statement.
-------------------------------------------
(a) MAI and DHS shall prepare and file with the SEC as soon as
reasonably practicable after the date hereof, the Proxy Statement, and DHS shall
prepare and file with the SEC as soon as reasonably practicable after such date,
a registration statement on Form S-4 with respect to the DHS Common Stock
issuable in the Merger, and in which the Proxy Statement will be included within
the prospectus. DHS and MAI shall use all reasonable efforts to have the Form
S-4 declared effective by the SEC as promptly as practicable after such filing.
Prior to the Effective Date, DHS shall also take any action (other than
qualifying as a foreign corporation or taking any action which would subject it
to service of process in any jurisdiction where DHS is not now so qualified or
subject) required to be taken under applicable state blue sky or securities laws
in connection with the issuance of DHS Common Stock in connection with the
Merger and will pay all expenses incident thereto. If at any time prior to the
Effective Time any event shall occur that should be set forth in an amendment of
or a supplement to the Form S-4, DHS shall prepare and file with the SEC such
amendment or supplement as soon thereafter as is reasonably practicable. DHS,
Merger Subsidiary and MAI shall cooperate with each other in the preparation of
the Form S-4 and the Proxy Statement and any amendment or supplement thereto,
and each shall notify the other of the receipt of any comments of the SEC with
respect to the Form S-4 and any amendment or supplement thereto or for
additional information, and shall provide to the other promptly copies of all
correspondence between DHS or MAI, as the case may be, and the SEC with respect
to the Form S-4 or the Proxy Statement. DHS shall give MAI and its counsel the
opportunity to review and comment on the Form S-4 and all responses to requests
for
44
additional information by and replies to comments of the SEC before their being
filed with, or sent to, the SEC. Each of MAI, DHS, and Merger Subsidiary agrees
to use its best efforts, after consultation with the other parties hereto, to
respond promptly to all such comments of and requests by the SEC and to cause
(i) the Form S-4 to be declared effective by the SEC at the earliest practicable
time and to be kept effective as long as is necessary to consummate the Merger,
and (ii) the Proxy Statement to be mailed to the holders of DHS Common Stock and
MAI Common Stock entitled to vote at the meetings of the stockholders of DHS and
MAI at the earliest practicable time.
(b) DHS agrees that the Form S-4, when declared effective by the SEC,
will not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the foregoing shall not apply to the extent
-------- -------
that any such untrue statement of a material fact or omission to state a
material fact was made by DHS in reliance upon and in conformity with written
information concerning MAI or any of its Affiliates furnished to DHS by MAI or
any of its Affiliates. MAI agrees that the information provided by it for
inclusion in the Proxy Statement, when the Proxy Statement is mailed to
stockholders, will not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No amendment or supplement to the Form S-4 will be made by DHS
until it has consulted with MAI and its counsel. DHS will advise MAI, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order, or the suspension of the qualification of DHS Common Stock issuable
in connection with the Merger for offering or sale in any jurisdiction or any
request by the SEC for amendment of the Proxy Statement or the Form S-4 or
comments thereon and responses thereto or requests for additional information.
Section 5.06 Access to Information.
---------------------
(a) To the extent permitted by applicable law, from the date hereof
until the Effective Time, MAI will give DHS, its counsel, financial advisors,
auditors and other authorized representatives reasonable access during normal
business hours to the offices, properties, books and records of MAI and its
Subsidiaries, will furnish to DHS, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct MAI's
employees, auditors, counsel and financial advisors to cooperate with DHS in its
investigation of the business of MAI and its Subsidiaries; provided, however,
-------- -------
that no investigation pursuant to this Section 5.06(a) shall affect any
representation or warranty made by MAI to DHS hereunder. The foregoing
information shall be held in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement between DHS and
MAI (the "Confidentiality Agreement").
(b) To the extent permitted by applicable law, from the date hereof
until the Effective Time, DHS will give MAI, its counsel, financial advisors,
auditors and other authorized
45
representatives reasonable access during normal business hours to the offices,
properties, books and records of DHS and its Subsidiaries, will furnish to MAI,
its counsel, financial advisors, auditors and other authorized representatives
such financial and operating data and other information as such Persons may
reasonably request and will instruct DHS' employees, auditors, counsel and
financial advisors to cooperate with MAI in its investigation of the business of
DHS and its Subsidiaries; provided, however, that no investigation pursuant to
-------- -------
this Section 5.06(b) shall affect any representation or warranty made by DHS to
MAI hereunder. Such information shall be held in confidence to the extent
required by, and in accordance with, the Confidentiality Agreement.
Section 5.07 Notices of Certain Events.
-------------------------
(a) MAI and DHS shall promptly notify each other of:
(i) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement; and
(ii) any notice or other communication from any Governmental
Authority in connection with the transactions contemplated by this
Agreement.
(b) MAI shall promptly notify DHS of any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting MAI or any Subsidiary
of MAI which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 3.12 or Section 3.17 or which relate
to the consummation of the transactions contemplated by this Agreement.
(c) DHS shall promptly notify MAI of any actions, suits, claims,
investigations or proceedings commenced or, to its knowledge, threatened
against, relating to or involving or otherwise affecting DHS or any Subsidiary
of DHS which, if pending on the date of this Agreement, would have been required
to have been disclosed pursuant to Section 4.12 or Section 4.17 or which relate
to the consummation of the transactions contemplated by this Agreement.
Section 5.08 Regulatory and Other Approvals. Subject to the terms and
------------------------------
conditions of this Agreement, each of MAI and DHS will proceed diligently and in
good faith to, as promptly as practicable, (a) obtain all consents, approvals or
actions of, make all filings with and give all notices to Governmental
Authorities or any other public or private third parties required of DHS, MAI or
any of their Subsidiaries to consummate the Merger and the other transactions
contemplated hereby, and (b) provide such other information and communications
to such Governmental Authorities or other public or private third parties as the
other party or such Governmental Authorities or other public or private third
parties may reasonably request in connection therewith. In addition to and not
in limitation of the foregoing, each of the parties will (i) take promptly all
actions necessary to make any filings (if any) legally required of DHS and MAI
or their respective Affiliates under the HSR Act as soon as practicable but in
no event
46
later than thirty (30) days after the date hereof, (ii) comply at the earliest
practicable date with any request for additional information received by such
party or its Affiliates from the Federal Trade Commission (the "FTC") or the
Antitrust Division of the Department of Justice (the "Antitrust Division")
pursuant to the HSR Act, and (iii) cooperate with the other party in connection
with such party's filings (if any) under the HSR Act and in connection with
resolving any investigation or other inquiry concerning the Merger or the other
transactions contemplated by this Agreement commenced by either the FTC or the
Antitrust Division or state attorneys general. Without limiting the generality
of the foregoing, DHS and MAI shall together, or pursuant to an allocation of
responsibility to be agreed between them, coordinate and cooperate in
determining whether any action by or in respect of, or filing with, any
Governmental Authorities is required, or any actions, consents, approvals or
waivers are required to be obtained from parties to any contracts, in connection
with the consummation of the transactions contemplated by this Agreement, and in
seeking any such actions, consents, approvals or waivers or making any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such actions, consents, approvals or waivers.
Section 5.09 Public Announcements. So long as this Agreement is in
--------------------
effect, DHS and MAI will consult with each other before issuing any press
release or making any SEC filing or other public statement with respect to this
Agreement or the Voting Agreement or the transactions contemplated hereby or
thereby and, except as may be required by applicable law, court process or any
listing agreement with any national securities exchange or with NASDAQ, will not
issue any such press release or make any such SEC filing or other public
statement prior to such consultation and providing the other party with a
reasonable opportunity to comment thereon and approve the same (such approval
not to be unreasonably withheld or delayed). Simultaneously with the
announcement regarding the execution and delivery of this Agreement, DHS shall
announce its fourth quarter 1998 earnings results and its change in contract
accounting methods and its proposed write-offs for impairment of goodwill and
other assets, which announcement shall be substantially in the form of Schedule
5.09 to the DHS Disclosure Letter.
Section 5.10 Further Assurances. At and after the Effective Time, the
------------------
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of MAI or Merger Subsidiary, any
deeds, bills of sale, assignments or assurances and to take and do, in the name
and on behalf of MAI or Merger Subsidiary, any other actions and things to vest,
perfect or confirm of record or otherwise in the Surviving Corporation any and
all right, title and interest in, to and under any of the rights, properties or
assets of MAI acquired or to be acquired by the Surviving Corporation as a
result of, or in connection with, the Merger.
Section 5.11 MAI Affiliates. At least thirty (30) days prior to the
--------------
Effective Time, MAI shall deliver a letter to DHS identifying all persons who,
at the time of the MAI Stockholders' Meeting, may, in MAI's reasonable judgment,
be deemed to be "affiliates" (as such term is used in Rule 145 under the 0000
Xxx) of MAI ("MAI Affiliates"). MAI shall use its reasonable efforts to cause
each MAI Affiliate to deliver to DHS at or prior to the Effective Time a letter
substantially in the form and to the effect of Exhibit B hereto (an "Affiliate
---------
Letter"). DHS shall be entitled to issue appropriate stop transfer instructions
to the transfer agent for the DHS Common Stock to be issued to MAI Affiliates
pursuant to the Merger, consistent with the terms
47
of such Affiliate Letters. At the Closing, unless the shares of DHS Common Stock
issuable to the MAI Affiliates are included for resale in the Form S-4
registration statement contemplated by Section 5.05 and are freely tradeable
upon the effectiveness of such Form S-4, DHS and the MAI Affiliates will enter
into a Registration Rights Agreement in substantially the form attached hereto
as Exhibit C; and, in the event that the shares of DHS Common Stock issuable to
---------
the MAI Affiliates are included for resale in the Form S-4 and are freely
tradeable upon the effectiveness of such Form S-4, DHS shall file such
amendments to such Form S-4 as may be required to keep such registration
statement and the resale prospectus therein current and effective for a period
of two years following the effective date thereof (or, if sooner, until such
date as all such DHS Common Stock has been disposed of by the MAI Affiliates).
Section 5.12 Obligations of Merger Subsidiary. DHS will take all action
--------------------------------
necessary to cause Merger Subsidiary to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
Section 5.13 Listing of Stock. DHS shall use its best efforts to cause
----------------
the shares of DHS Common Stock to be issued in connection with the Merger to be
approved for listing on the NASDAQ National Market System at or prior to the
Effective Time, subject to official notice of issuance.
Section 5.14 Antitakeover Statutes. If any Takeover Statute is or may
---------------------
become applicable to the Merger, each of DHS and MAI shall take such actions as
are necessary so that the transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated hereby and
otherwise act to eliminate or minimize the effects of any Takeover Statute on
the Merger.
Section 5.15 Tax Treatment. Each of DHS and MAI shall not take any
-------------
action and shall not fail to take any action which action or failure to act
would cause, or would be reasonably likely to cause, DHS, MAI or their
respective stockholders to recognize gain or loss for federal income tax
purposes (other than in respect of any cash paid in lieu of fractional shares)
as a result of the issuance of DHS Common Stock in the Merger, and MAI shall use
its reasonable efforts to obtain the opinion of counsel referred to in Section
8.07.
Section 5.16 Appointment of Directors. Immediately following the
------------------------
Closing, DHS shall cause Xxxx Xxxxxxxx, Xxx Xxxxxxxxxx and Xxx Xxxxxxx to become
members of the Board of Directors of DHS immediately following the Effective
Time, and shall increase the size of the Board of Directors of DHS to seven (7)
members consisting of the aforesaid three (3) persons, and Xxxx X. Xxxxxx, Xxx
X. Xxxxxx and two independent directors selected by the existing Board of
Directors of DHS. To the extent that any of such individuals is not already
designated within a class of directors of DHS, such individuals shall be
allocated as nearly equally as possible among the three classes of DHS
directors. DHS covenants that any existing directors of DHS who do not continue
as directors from and after the Closing will resign at the time of Closing so as
to avoid any optional reductions of exercise price under outstanding DHS
Options. If, from and after the Effective Time, any director shall die, resign
or agree not to be nominated
48
for reelection to the Board of Directors of DHS, then DHS shall invite Xxxx Xxxx
to become a member of the Board of Directors of DHS to fill the vacancy thereby
created.
Section 5.17 Director and Officer Indemnification. DHS agrees that all
------------------------------------
rights to indemnification and advancement of expenses existing in favor of the
current and former directors and officers of MAI (the "Indemnified Persons")
under the provisions existing on the date hereof of the articles of
incorporation and by-laws of MAI shall survive the Effective Time for six (6)
years thereafter, and DHS agrees to indemnify and advance expenses to the
Indemnified Persons to the same extent as would be required or permitted by MAI
under the provisions existing on the date hereof of the articles of
incorporation, by-laws and indemnification agreements of MAI. Until the sixth
(6th) anniversary of the Effective Time, DHS shall cause the Surviving
Corporation to maintain in effect with respect to matters occurring prior to the
Effective Time, to the extent available, the policies of directors' and
officers' liability insurance currently maintained by MAI (or may cause similar
coverage to be included in DHS' directors' and officers' liability coverage).
Section 5.18 Employee Benefits.
-----------------
(a) DHS hereby agrees to cause the Surviving Corporation to (i) pay,
in accordance with their terms as in effect on the date hereof, all amounts due
and payable under the terms of all written employment, severance and termination
contracts, agreements, plans, policies and commitments of MAI and its
Subsidiaries with or with respect to its current or former employees, officers
and directors as set forth in the MAI Disclosure Letter to the extent vested on
or prior to the date of this Agreement or which become vested as a result of the
transactions contemplated hereby, and (ii) assume and continue to honor the
terms of such agreements and commitments.
(b) DHS hereby acknowledges that the consummation of the Merger will
constitute a "friendly" change of control of MAI (to the extent relevant) for
all benefit plans, employee agreements, stock option plans and other
compensation arrangements of MAI.
Section 5.19 Good Faith Efforts. Each party will use its good faith
------------------
efforts to satisfy or cause to be satisfied the conditions precedent to the
parties' performance hereunder as set forth in Articles VI, VII and VIII,
subject to applicable legal requirements and limitations.
ARTICLE VI
GENERAL CONDITIONS PRECEDENT TO THE MERGER
The obligations of MAI, DHS and Merger Subsidiary to consummate the Merger
pursuant to this Agreement and the other transactions required to be consummated
by such date by this Agreement are subject to the satisfaction (or waiver by the
party for whose benefit the applicable condition exists) of each of the
following conditions:
Section 6.01 Stockholder Approval. This Agreement and the transactions
--------------------
contemplated hereby shall have been approved and adopted by the stockholders of
MAI in accordance with Texas Law. The stockholders of DHS shall have approved
the issuance of DHS Common Stock
49
in the Merger by the requisite vote under applicable law and under the
applicable rules of the NASDAQ National Market System, as the case may be.
Approval of the Name Change shall not constitute a condition precedent
---
hereunder.
Section 6.02 HSR Act. Any applicable waiting period under the HSR Act
-------
relating to the transactions contemplated by this Agreement shall have expired
or been terminated.
Section 6.03 Registration Statements; State Securities Laws. The Form
----------------------------------------------
S-4 shall have become effective in accordance with the provisions of the 1933
Act, and no stop order suspending such effectiveness shall have been issued and
remain in effect and no proceeding seeking such an order shall be pending or
threatened. DHS shall have received all state securities or blue sky permits
and other authorizations necessary to issue the DHS Common Stock pursuant to
this Agreement.
Section 6.04 Listing. The shares of DHS Common Stock to be issued in
-------
the Merger shall have been approved for listing on the NASDAQ National Market
System, subject to official notice of issuance.
Section 6.05 Suits or Other Proceedings. There shall not be pending or
--------------------------
threatened in writing (on any basis which DHS or MAI may reasonably deem
credible and not of mere nuisance value) any suit, action or proceeding by any
Governmental Authority or other Person, (a) seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement, or seeking to obtain from DHS or MAI any damages the amount of which
would be reasonably likely to have a Material Adverse Effect on MAI or DHS, or
(b) seeking to prohibit or limit the ownership or operation by DHS, MAI or any
of their respective Subsidiaries of, or to compel DHS, MAI or any of their
respective Subsidiaries to dispose of or hold separate, any material portion of
the business or assets of DHS, MAI or any of their respective Subsidiaries, as a
result of the Merger or any of the other transactions contemplated by this
Agreement.
Section 6.06 Employment Agreements. DHS shall have assumed the current
---------------------
employment agreement between MAI and Xxxx Xxxx, or entered into a new employment
agreement with Xxxx Xxxx on terms and conditions mutually agreeable to DHS and
Xxxx Xxxx.
Section 6.07 Pooling Letters. To the extent required by either of the
---------------
investment bankers rendering the fairness opinions contemplated by Sections 7.07
and 8.08 in order to confirm, or avert the withdrawal of, such fairness
opinions, MAI's independent public accountants shall have delivered to DHS and
MAI an opinion letter confirming that MAI is an entity which does not preclude
the Merger from being treated as a pooling of interests for accounting purposes,
and DHS' independent public accountants shall have delivered to DHS and MAI an
opinion letter confirming that the Merger will qualify for a pooling of interest
accounting treatment; and if requested by either of such investment bankers,
such opinion letters shall be confirmed on and as of the date of mailing of the
Proxy Statement to stockholders.
50
ARTICLE VII
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF DHS AND MERGER SUBSIDIARY
The obligations of DHS and Merger Subsidiary to consummate the Merger
pursuant to this Agreement and the other transactions required to be consummated
by such date by this Agreement are further subject to the satisfaction, at or
prior to the Effective Time, of each of the following conditions (all or any of
which may be waived in whole or in part by DHS and Merger Subsidiary in their
sole discretion):
Section 7.01 Representations and Warranties. The representations and
------------------------------
warranties made by MAI in this Agreement shall be true and correct in all
material respects correct as of the Closing Date as though made on and as of the
Closing Date or, in the case of representations and warranties made as of a
specified date earlier than the Closing Date, on and as of such earlier date,
and MAI shall have delivered to DHS a certificate, dated the Closing Date and
executed by its President to such effect.
Section 7.02 Performance of Obligations. MAI shall have performed and
--------------------------
complied with each agreement, covenant and obligation required by this Agreement
to be so performed or complied with by MAI at or prior to the Closing, and MAI
shall have delivered to DHS a certificate, dated the Closing Date and executed
by its President to such effect.
Section 7.03 No Material Adverse Change. Except as otherwise disclosed
--------------------------
in this Agreement or the MAI Disclosure Letter, there shall not have been any
change in the consolidated business, results of operations, financial condition
or prospects of MAI and its Subsidiaries, taken as a whole, between September
30, 1998 and the Closing Date which would have a Material Adverse Effect on MAI.
Section 7.04 Consents. DHS shall have received consents or waivers from
--------
such Persons as are necessary for DHS to consummate the transactions
contemplated by this Agreement, and from the holder(s) of the MAI Warrants with
respect to the adjustments pursuant to Section 1.05. In connection with the
foregoing, if and to the extent required by any of DHS' lenders, MAI shall have
caused Xxxxxx Xxxxxxxxxx and/or his Affiliates to provide to Chase Bank of
Texas, National Association, a replacement undertaking for the agreement of MAI
described in Item 1 of Schedule 3.05 to the MAI Disclosure Letter.
Section 7.05 Opinion of MAI Counsel. At the Closing, DHS shall have
----------------------
received from Xxxxxxx Xxxxxx L.L.P., counsel to MAI, a written opinion
reasonably satisfactory to DHS, dated as of the Closing Date, substantially to
the effect as set forth in Exhibit D hereto.
---------
Section 7.06 Proceedings. All proceedings to be taken on the part of
-----------
MAI in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to DHS, and DHS shall have received copies of all such documents and
other evidences as DHS may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
51
Section 7.07 Fairness Opinion. DHS shall have received a written
----------------
opinion of Prudential Securities Incorporated, dated as of a date reasonably
prior to the date of mailing of the Proxy Statement to DHS' stockholders, to the
effect that the exchange ratio set forth in Section 1.02(a)(iii) is fair to DHS
from a financial point of view, such fairness opinion to be in form and
substance reasonably acceptable to DHS and its Board of Directors; and, at the
date of such mailing of the Proxy Statement, no event or circumstance shall
exist such as has caused Prudential Securities Incorporated to withdraw or
materially adversely modify such fairness opinion.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF MAI
The obligations of MAI to consummate the Merger pursuant to this
Agreement and the other transactions required to be consummated by such date by
this Agreement are further subject to the satisfaction, at or prior to the
Effective Time, of each of the following conditions (all or any of which may be
waived in whole or in part by MAI in its sole discretion):
Section 8.01 Representations and Warranties. The representations and
------------------------------
warranties made by DHS and Merger Subsidiary in this Agreement shall be true and
correct in all material respects as of the Closing Date as though made on and as
of the Closing Date or, in the case of representations and warranties made as of
a specified date earlier than the Closing Date, on and as of such earlier date,
and DHS and Merger Subsidiary shall each have delivered to MAI a certificate,
dated the Closing Date and executed by DHS' President and by Merger Subsidiary's
President to such effect.
Section 8.02 Performance of Obligations. DHS and Merger Subsidiary
--------------------------
shall each have performed and complied with each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by DHS
or Merger Subsidiary at or prior to Closing, and DHS and Merger Subsidiary shall
each have delivered to MAI a certificate, dated the Closing Date and executed by
DHS' President and by Merger Subsidiary's President to such effect.
Section 8.03 No Material Adverse Change. Except as otherwise disclosed
--------------------------
in this Agreement or the DHS Disclosure Letter, there shall not have been any
change in the consolidated business, results of operations, financial condition
or prospects of DHS and its Subsidiaries, taken as a whole, between September
30, 1998 and the Closing Date which would have a Material Adverse Effect on DHS.
Section 8.04 Consents. MAI shall have received consents or waivers from
--------
such Persons as are necessary for MAI to consummate the transactions
contemplated by this Agreement.
Section 8.05 Opinion of DHS Counsel. At the Closing, MAI shall have
----------------------
received from Xxxxxxxxx Traurig, counsel to DHS, a written opinion reasonably
satisfactory to MAI, dated as of the Closing Date, substantially to the effect
as set forth in Exhibit E hereto.
---------
52
Section 8.06 Proceedings. All proceedings to be taken on the part of
-----------
DHS in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to MAI, and MAI shall have received copies of all such documents and
other evidences as MAI may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
Section 8.07 Tax Opinion. MAI shall have received an opinion of Xxxxxxx
-----------
Xxxxxx L.L.P., in form and substance reasonably satisfactory to MAI, on the
basis of certain facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing at the Effective
Time, to the effect that the Merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code,
and that neither MAI nor any of its stockholders shall recognize gain or loss
for U.S. federal income tax purposes as a result of the Merger (other than in
respect of any cash paid in lieu of fractional shares). In rendering the
opinions described in the preceding sentence, such counsel may rely upon the
opinions described in Sections 7.07 and 8.08 and may require and rely upon
representations contained in this Agreement and in certificates of officers and
principal stockholders of MAI, DHS and their respective Subsidiaries.
Section 8.08 Fairness Opinion at or prior to the Closing. MAI shall
-------------------------------------------
have received a written opinion of Xxxxxxx & Company, Inc., dated as of a date
reasonably prior to the date of mailing of the Proxy Statement to MAI's
stockholders, to the effect that the Merger Consideration to be received by the
holders of Shares in the Merger is fair to MAI from a financial point of view,
such fairness opinion to be in form and substance reasonably acceptable to MAI
and its Board of Directors; and, at the date of such mailing of the Proxy
Statement, no event or circumstance shall exist such as has caused Xxxxxxx &
Company, Inc. to withdraw or materially adversely modify such fairness opinion.
Section 8.09 Accounting Matters. There shall not be pending any
------------------
unresolved dispute or objection by the SEC with respect to the implementation of
the accounting changes and write-offs described in the last sentence of Section
5.09; and to the extent that the SEC shall have requested any material
modification to such changes or write-offs, such changes or modifications shall
be reasonably satisfactory to MAI.
Section 8.10 DHS First Quarter Results. The results of operations of
-------------------------
DHS and its Subsidiaries for the quarter ending March 31, 1999 shall not, taken
as a whole, be materially adversely different than the most recent projections
of such results of operations provided by DHS to MAI.
Section 8.11 Waivers from Lenders. DHS shall have received from Chase
--------------------
Bank of Texas, National Association ("Chase") and The Prudential Insurance
Company of America ("Prudential") the consents of such lenders to, or waivers by
such lenders of any defaults with respect to, (a) the charges and write-offs
taken by DHS pertaining to the change in contract accounting and write-offs for
impairment of goodwill and other assets (as described in Section 5.09), and (b)
charges (to the extent identifiable and quantifiable) resulting from the
53
consummation of the Merger, such consents or waivers to be in form and substance
reasonably satisfactory to MAI.
ARTICLE IX
TERMINATION
Section 9.01 Termination. This Agreement may be terminated and the
-----------
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time whether prior to or after Stockholders' Approval:
(a) By mutual written agreement of MAI and DHS duly authorized by
action taken by or on behalf of their respective Boards of Directors;
(b) By either MAI or DHS upon notification to the non-terminating
party by the terminating party;
(i) at any time after May 31, 1999 if the Merger shall not have been
consummated on or prior to such date and such failure to consummate the
Merger is not caused by or substantially attributable to a breach of this
Agreement by the terminating party;
(ii) if (A) MAI Stockholders' Approval (under Texas Law), or (B) DHS
Stockholders' Approval (under Delaware Law and under the applicable
regulations of NASDAQ National Market System), as the case may be, shall
not be obtained by reason of the failure to obtain the requisite vote upon
a vote held at a meeting of stockholders, or any adjournment thereof,
called therefor;
(iii) if (A) there has been a material breach of any representation,
warranty, covenant or agreement on the part of the non-terminating party
set forth in this Agreement, which breach is not curable or, if curable,
has not been cured within thirty (30) days following receipt by the non-
terminating party of notice of such breach from the terminating party (or,
if sooner and the terminating party has not delayed giving notice of such
breach, May 31, 1999), or (B) any condition precedent to the terminating
party's obligations set forth in Article VII, with respect to DHS, or
Article VIII, with respect to MAI, of this Agreement has not been met or
waived by such party by May 31, 1999; or
(iv) if any court of competent jurisdiction or other competent
Governmental Authority shall have issued an order making illegal or otherwise
restricting, preventing or prohibiting the Merger and such order shall have
become final and nonappealable;
(c) By MAI if: (i) the Board of Directors of MAI determines in good
faith to accept a Superior Proposal; or (ii) the Board of Directors of DHS shall
have withdrawn or modified in a manner materially adverse to MAI its approval or
recommendation of this Agreement or the Merger;
54
(d) By DHS if the Board of Directors of MAI (i) shall have withdrawn
or modified in a manner materially adverse to DHS its approval or recommendation
of this Agreement or the Merger, or (ii) shall have recommended a Superior
Proposal to the stockholders of MAI or shall have entered into a definitive
agreement providing for a Superior Proposal with a Person other than DHS; or
(e) By MAI if DHS is engaged in ongoing active negotiations for, or
has accepted and there remains in effect, a DHS Proposal.
Section 9.02 Effect of Termination.
---------------------
(a) If this Agreement is validly terminated by either MAI or DHS
pursuant to Section 9.01, this Agreement will forthwith become null and void and
there will be no liability or obligation on the part of either MAI or DHS (or
any of their respective representatives or Affiliates), except that (i) the
provisions of Sections 10.05 and 10.08, this Section 9.02 and the
Confidentiality Agreement will continue to apply following any such termination,
and (ii) nothing contained herein shall relieve any party hereto from liability
for willful breach of its representations, warranties, covenants or agreements
contained in this Agreement.
(b) (i) If this Agreement is terminated by (A) MAI pursuant to
Section 9.01(c)(i), or (B) by DHS pursuant to Section 9.01(d)(i) (unless any of
the conditions precedent set forth in Articles VI and/or VIII above (other than
Sections 6.01, 8.05, 8.07 or 8.08, or Section 8.04 to the extent that any
consent is contingent only upon stockholder approval or the Closing, or Section
8.06 to the extent that the DHS Stockholders' Meeting is held subsequent to the
MAI Stockholders' Meeting) shall not have been satisfied, after due notice and
opportunity to cure, at the time of the MAI Stockholders' Meeting held to
consider approval of the transactions contemplated herein) or Section
9.01(d)(ii), then MAI shall pay or cause to be paid to DHS, by wire transfer of
same day funds on the day of such termination, a termination fee of $1,000,000.
(ii) If this Agreement is terminated by MAI pursuant to Section
9.01(e), then DHS shall pay or cause to be paid to MAI, by wire transfer of
same day funds on the day of such termination, a termination fee of
$1,000,000.
(iii) In the event that either DHS or MAI shall fail or refuse to
consummate the transactions contemplated by this Agreement for no reason,
or for any reason which would not give such party the right to terminate
this Agreement in accordance with this Article IX, then the party which is
prepared to consummate the transactions hereunder may, so long as it is not
in material breach of any representation, warranty, covenant or agreement
on its part hereunder, terminate this Agreement by written notice to the
non-performing party, whereupon the non-performing party shall pay or cause
to be paid to the terminating party, by wire transfer of same day funds on
the day of such termination, a termination fee of $375,000; and the payment
of such termination fee shall relieve the party making payment from any
liability under Section 9.02(a)(ii) above.
(c) The parties acknowledge that the agreements contained in this
Section 9.02 are an integral part of the transactions contemplated by this
Agreement, and that, without
55
these agreements, the parties hereto would not enter into this Agreement;
accordingly, if either party fails promptly to pay any amount due pursuant to
this Section 9.02, and in order to obtain such payment, either party commences a
suit which results in a judgment against the non-paying party for any fee or
expense reimbursement set forth in this Section 9.02, the non-paying party shall
pay to the other party its costs and expenses (including reasonable attorneys'
fees and expenses) in connection with such suit, together with interest on the
amount of the fee at the publicly announced prime rate of Citibank, N.A. in
effect on the date such payment was required to be made.
ARTICLE X
MISCELLANEOUS
Section 10.01 Notices. All notices, requests and other communications
-------
to any party hereunder shall be in writing and will be deemed to have been duly
given only if delivered personally or by facsimile transmission or mailed (first
class mail postage prepaid), or by overnight express courier (charges prepaid or
billed to the account of the sender) to the parties at the following addresses
or facsimile numbers:
If to DHS or Merger Subsidiary, to:
Diagnostic Health Services, Inc.
0000 Xxxxxxxx Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx X. Xxxxxx
with a copy to:
Xxxxxxxxx Traurig
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attention: Xxxxx Xxxxxxxx, Esq.
56
If to MAI, to:
Medical Alliance, Inc.
0000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxxxxx
with a copy to:
Xxxxxxx Xxxxxx L.L.P.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
or such other address or facsimile number as such party may hereafter specify
for the purpose by notice to the other parties hereto. Each such notice,
request or other communication shall be effective (a) if delivered personally,
upon delivery, (b) if given by facsimile, when such facsimile is transmitted to
the facsimile number specified in this Section 10.01 and the appropriate
facsimile confirmation is received, (c) if given by mail in the manner described
above, on the third business day after mailing, or (d) if delivered by overnight
express courier, on the next business day.
Section 10.02 Entire Agreement Non-Survival of Representations and
----------------------------------------------------
Warranties: Third Party Beneficiaries.
-------------------------------------
(a) This Agreement (including any exhibits hereto), the other
agreements referred to in this Agreement and the Confidentiality Agreement
constitute the entire agreement among the parties with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
negotiations, both written and oral, between the parties with respect to such
subject matter. None of this Agreement, the Confidentiality Agreement or any
other agreement contemplated hereby or thereby (or any provision hereof or
thereof) is intended to confer on any Person other than the parties hereto or
thereto any rights or remedies (except that Article I is intended to confer
rights and remedies on the Persons specified therein).
(b) The MAI Disclosure Letter, the DHS Disclosure Letter and any
Exhibits attached to this Agreement and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
(c) The representations and warranties contained herein or in any
schedule, instrument or other writing delivered pursuant hereto shall not
---
survive the Effective Time.
Section 10.03 Amendment. This Agreement may be amended, supplemented or
---------
modified by action taken by or on behalf of the respective Boards of Directors
of the parties hereto at any time prior to the Effective Time, whether prior to
or after the Stockholders'
57
Approvals shall have been obtained, but after such adoption and approval only to
the extent permitted by applicable law. No such amendment, supplement or
modification shall be effective unless set forth in a written instrument duly
executed by or on behalf of each party hereto.
Section 10.04 Waiver. At any time prior to the Effective Time, any
------
party hereto may, to the extent permitted by applicable law (i) extend the time
for the performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other parties hereto contained herein or in any document delivered pursuant
hereto, or (iii) waive compliance with any of the covenants, agreements or
conditions of the other parties hereto contained herein. No such extension or
waiver shall be effective unless set forth in a written instrument duly executed
by or on behalf of the party extending the time of performance or waiving any
such inaccuracy or non-compliance. No waiver by any party of any term or
condition of this Agreement, in any one or more instances, shall be deemed to be
or construed as a waiver of the same or any other term or condition of this
Agreement on any fixture occasion.
Section 10.05 Expenses. Except as otherwise specified in Section 9.02
--------
or agreed in writing by the parties, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement, whether or not the Merger is consummated, shall be paid by the party
incurring such cost or expense.
Section 10.06 Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns; provided, however, that no
-------- -------
party may assign, delegate or otherwise transfer any of its rights or
obligations under this Agreement without the written consent of the other
parties hereto except that Merger Subsidiary may (subject to Section 5.15)
assign, in its sole discretion, any or all of its rights, interests and
obligations hereunder to any direct or indirect wholly-owned Subsidiary of DHS,
it being understood that no such assignment shall relieve Merger Subsidiary from
any of its obligations hereunder.
Section 10.07 Governing Law. This Agreement shall be construed in
-------------
accordance with and governed by the laws of the State of Texas (without regard
to principles of conflict of laws).
Section 10.08 Jurisdiction. Any suit, action or proceeding seeking to
------------
enforce any provision of, or based on any matter arising out of or in connection
with, this Agreement or the transactions contemplated by this Agreement may be
brought against any of the parties in any state or federal court sitting in
Dallas County, Texas, and each of the parties hereto hereby consents to the
exclusive jurisdiction of such courts (and of the appropriate appellate courts
therefrom) in any such suit, action or proceeding and waives any objection to
venue laid therein. Each party hereto agrees that service of process upon such
party at the address referred to in Section 10.01, together with written notice
of such service to such party, shall be deemed effective service of process upon
such party.
Section 10.09 Counterparts: Effectiveness. This Agreement may be signed
---------------------------
in any number of counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement shall become
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effective when each party hereto shall have received counterparts hereof signed
by all of the other parties hereto.
Section 10.10 Interpretation. When a reference is made in this Agreement
--------------
to a Section or Schedule, such reference shall be to a Section of this Agreement
or a Schedule to the subject Disclosure Letter unless otherwise indicated. The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the words "include," "includes" or "including" are
used in this Agreement they shall be deemed to be followed by the words "without
limitation." The phrases "the date of this Agreement," "the date hereof," and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to February 18, 1999.
Section 10.11 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against public policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated. Upon such determination that any term, provision, covenant or
restriction of this Agreement is invalid, void, unenforceable or against public
policy, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the extent possible.
Section 10.12 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement, in
addition to any other remedy to which they are entitled at law or in equity.
Section 10.13 Performance by Merger Subsidiary. DHS shall cause Merger
--------------------------------
Subsidiary to perform each of Merger Subsidiary's duties and obligations under
this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date first
set forth above.
DIAGNOSTIC HEALTH SERVICES, INC.
By:
------------------------------
Name: Xxxx X. Xxxxxx
Title: President
MAI ACQUISITION CORP.
By:
------------------------------
Name: Xxxx X. Xxxxxx
Title: President
MEDICAL ALLIANCE, INC.
By:
------------------------------
Name: Xxxx Xxxxxxxx
Title: Chief Executive Officer
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