EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
IDX SYSTEMS CORPORATION, PENGUIN ACQUISITION CORPORATION
AND
PHAMIS, INC.
March 25, 1997
TABLE OF CONTENTS
Page
ARTICLE I. - THE MERGER.................................................. 1
1.1 The Merger................................................... 1
1.2 The Closing.................................................. 1
1.3 Actions at the Closing....................................... 2
1.4 Additional Action............................................ 2
1.5 Conversion of Shares......................................... 2
1.6 Dissenting Shares............................................ 4
1.7 Exchange of Shares........................................... 4
1.8 Dividends.................................................... 6
1.9 Fractional Shares............................................ 6
1.10 Options; Employee Stock Purchase Plan; Salary
Savings and Deferral Plan.................................... 6
1.11 Articles of Incorporation.................................... 7
1.12 Bylaws....................................................... 7
1.13 Directors and Officers....................................... 7
1.14 No Further Rights............................................ 7
1.15 Closing of Transfer Books.................................... 7
1.16 Tax-Free Reorganization...................................... 7
1.17 Accounting Treatment......................................... 8
ARTICLE II. - REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............. 8
2.1 Organization, Qualification and Corporate Power.............. 8
2.2 Capitalization............................................... 9
2.3 Authorization of Transaction................................. 9
2.4 Noncontravention............................................. 10
2.5 Subsidiaries................................................. 11
2.6 Reports and Financial Statements............................. 11
2.7 Absence of Certain Changes................................... 12
2.8 No Undisclosed Liabilities................................... 12
2.9 Tax Matters.................................................. 13
2.10 Assets....................................................... 14
2.11 Owned Real Property.......................................... 14
2.12 Intellectual Property........................................ 14
2.13 Real Property Leases......................................... 17
2.14 Contracts.................................................... 17
2.15 Accounts Receivable.......................................... 19
2.16 Powers of Attorney........................................... 19
2.17 Insurance.................................................... 19
2.18 Litigation................................................... 20
2.19 Company Customer Contracts................................... 20
2.20 Employees.................................................... 21
2.21 Employee Benefits............................................ 21
2.22 Environmental Matters........................................ 24
2.23 Legal Compliance............................................. 25
2.24 Permits...................................................... 25
2.25 Certain Business Relationships With Affiliates............... 26
2.26 Brokers' Fees................................................ 26
2.27 Books and Records............................................ 26
2.28 Customers and Suppliers...................................... 26
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2.29 Pooling...................................................... 26
2.30 Company Action............................................... 27
2.31 Rights Plan.................................................. 27
2.32 Disclosure................................................... 27
ARTICLE III. - REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY............................. 27
3.1 Organization, Qualification and Corporate Power.............. 27
3.2 Capitalization............................................... 28
3.3 Authorization of Transaction................................. 28
3.4 Noncontravention............................................. 29
3.5 Reports and Financial Statements............................. 29
3.6 Absence of Material Adverse Changes.......................... 30
3.7 No Undisclosed Liabilities................................... 30
3.8 Intellectual Property........................................ 30
3.9 Litigation................................................... 30
3.10 Environmental Matters........................................ 31
3.11 Legal Compliance............................................. 31
3.12 Disclosure................................................... 31
ARTICLE IV. - COVENANTS.................................................. 32
4.1 Best Efforts................................................. 32
4.2 Notices and Consents......................................... 32
4.3 Special Meeting Prospectus/Proxy Statement and
Registration Statement....................................... 32
4.4 Xxxx-Xxxxx-Xxxxxx Act........................................ 34
4.5 Operation of Company Business................................ 35
4.5A Operation of Buyer Business.................................. 37
4.6 Full Access.................................................. 37
4.7 Notice of Breaches........................................... 37
4.8 Exclusivity.................................................. 38
4.9 Agreements from Certain Affiliates of the Company............ 38
4.10 Listing of Merger Shares..................................... 39
4.11 Rights Agreement............................................. 39
4.12 Pooling Accounting........................................... 39
4.13 Company Equity Plans......................................... 39
4.14 Representations of Principal Stockholders.................... 40
4.15 Directors' and Officers' Liability Insurance;
Indemnification.............................................. 41
4.16 Relocation of Facilities..................................... 41
4.17 Company Savings Plan......................................... 41
ARTICLE V. - CONDITIONS TO CONSUMMATION OF MERGER....................... 42
5.1 Conditions to Each Party's Obligations....................... 42
5.2 Conditions to Obligations of the Buyer and the
Transitory Subsidiary........................................ 43
5.3 Conditions to Obligations of the Company..................... 44
ARTICLE VI. - TERMINATION................................................ 45
6.1 Termination of Agreement..................................... 45
6.2 Effect of Termination........................................ 47
6.3 Termination Fees............................................. 47
ARTICLE VII. - DEFINITIONS............................................... 47
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ARTICLE VIII. - MISCELLANEOUS............................................ 49
8.1 Press Releases and Announcements............................. 49
8.2 No Third Party Beneficiaries................................. 49
8.3 Entire Agreement............................................. 49
8.4 Succession and Assignment.................................... 49
8.5 Counterparts................................................. 49
8.6 Headings..................................................... 49
8.7 Notices...................................................... 50
8.8 Governing Law................................................ 50
8.9 Amendments and Waivers....................................... 51
8.10 Severability................................................. 51
8.11 Expenses..................................................... 51
8.12 Specific Performance......................................... 51
8.13 Submission to Jurisdiction................................... 52
8.14 Construction................................................. 52
8.15 Incorporation of Exhibits and Schedules...................... 52
8.16 survivalNon of Representations, Warranties and
Agreements................................................... 52
Exhibit A -- Rights Plan Amendment
Exhibit B -- Affiliate Agreement
Exhibit C -- Opinion of Counsel to the Company
Exhibit D -- Opinion of Counsel to the Transitory Subsidiary and the Buyer
Schedule 4.5 -- Certain Permitted Actions
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AGREEMENT AND PLAN OF MERGER
Agreement entered into as of March 25, 1997 by and among IDX SYSTEMS
CORPORATION, a Vermont corporation (the "Buyer"), PENGUIN ACQUISITION
CORPORATION, a Washington corporation and a wholly-owned subsidiary of the Buyer
(the "Transitory Subsidiary"), and PHAMIS, INC., a Washington corporation (the
"Company"). The Buyer, the Transitory Subsidiary and the Company are referred
to collectively herein as the "Parties."
This Agreement contemplates a tax-free reorganization under Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), of the Buyer, the
Transitory Subsidiary and the Company. In the Merger, the stockholders of the
Company will receive capital stock of the Buyer in exchange for their capital
stock of the Company. It is intended that the Merger shall be accounted for as
a pooling of interests basis.
Now, therefore, in consideration of the representations, warranties and
covenants contained herein, the Parties agree as follows.
ARTICLE I.
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
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Agreement, the Transitory Subsidiary shall merge with and into the Company (with
such merger referred to herein as the "Merger") at the Effective Time (as
defined below). From and after the Effective Time, the separate corporate
existence of the Transitory Subsidiary shall cease and the Company shall
continue as the surviving corporation in the Merger (the "Surviving
Corporation"). The "Effective Time" shall be the time at which the Company and
the Transitory Subsidiary file the articles of merger or other appropriate
documents prepared and executed in accordance with the relevant provisions of
the Washington Business Corporation Act (the "Articles of Merger") with the
Secretary of State of the State of Washington. The Merger shall have the
effects set forth in Section 23B.11 of the Washington Business Corporation Act
(the "Washington Act").
1.2 The Closing. Unless this Agreement is terminated and the transactions
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abandoned pursuant to Section 6.1 hereof, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Xxxxxx Pepper & Shefelman in Seattle, Washington, commencing at 9:00 a.m.
local time on July 10, 1997, or, if all of the conditions to the obligations of
the Parties to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on such mutually agreeable later date as soon
as practicable after the satisfaction or waiver of all conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
(the "Closing Date").
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1.3 Actions at the Closing. At the Closing, (a) the Company shall deliver
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to the Buyer and the Transitory Subsidiary the various certificates, instruments
and documents referred to in Section 5.2, (b) the Buyer and the Transitory
Subsidiary shall deliver to the Company the various certificates, instruments
and documents referred to in Section 5.3, (c) the Company and the Transitory
Subsidiary shall file with the Secretary of State of the State of Washington the
Articles of Merger, and (d) the Buyer shall deliver a certificate for the Merger
Shares (as defined below) to a bank trust company or other entity reasonably
satisfactory to the Company appointed by the Buyer to act as the exchange agent
(the "Exchange Agent") in accordance with Section 1.7. If the Washington
Secretary of State requires any changes in the Articles of Merger as a condition
to filing the Articles of Merger or issuing its certificate to the effect that
the Merger is effective, the Parties shall execute any necessary revisions
incorporating such changes, provided such changes are not inconsistent with and
do not result in any substantial change in the terms of this Agreement.
1.4 Additional Action. The Surviving Corporation may, at any time after
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the Effective Time, take any action, including executing and delivering any
document, in the name and on behalf of either the Company or the Transitory
Subsidiary, in order to consummate the transactions contemplated by this
Agreement.
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
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and without any action on the part of any Party or the holder of any of the
following securities:
(a) (i) Each share of common stock, $0.0025 par value per share, of
the Company ("Company Shares") issued and outstanding immediately prior to the
Effective Time (other than Company Shares owned beneficially by the Buyer or the
Transitory Subsidiary, Dissenting Shares (as defined below) and Company Shares
held in the Company's treasury) shall be converted into such number of newly
issued shares of common stock, $.01 par value per share, of the Buyer ("Buyer
Common Stock") as is equal to the Conversion Ratio. As used in this Agreement,
the term "Merger Shares" shall mean the shares of Buyer Common Stock issued by
the Buyer upon conversion of the Company Shares. The "Conversion Ratio" shall
initially be 0.73, and shall be subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event affecting
the Buyer Common Stock between the date of this Agreement and the Effective Time
(collectively, a "Recapitalization"). All such Company Shares when so converted
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing such
shares shall cease to have any rights with respect thereto, except the right to
receive the shares of Buyer Common Stock and any cash in lieu of fractional
shares of Buyer Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 1.7, without interest.
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(ii) Notwithstanding the foregoing (A) if the average closing price
per share of the Buyer Common Stock on the Nasdaq National Market over the
twenty consecutive trading days ending on the trading day two trading days
immediately preceding the date of the Company Special Meeting (the "Buyer Stock
Value") is greater than $34.375 per share (subject to equitable adjustment in
the event of any Recapitalization), the Conversion Ratio shall be equal to .73
multiplied by a fraction the numerator of which shall be $34.375 and the
denominator of which shall be the Buyer Stock Value; provided, however, that the
Conversion Ratio shall never be lower than .6811; and (B) if the Buyer Stock
Value is less than $28.125 per share (subject to equitable adjustment in the
event of any Recapitalization), the Conversion Ratio shall be equal to .73
multiplied by a fraction, the numerator of which shall be $28.125 and the
denominator of which shall be the Buyer Stock Value, provided, however, that the
Conversion Ratio shall never be higher than .8.
(iii) Further notwithstanding the foregoing, the Company shall
have the right to terminate this Agreement pursuant to Section 6.1(g) if the
Buyer Stock Value is less than the lower of (A) $25.663 per share (subject to
equitable adjustment in the event of any Recapitalization), or (B) the "Index
Floor Price" per share (as defined below). For purposes of this Section 1.5,
the Index Floor Price shall equal the difference between (I) the closing sale
price of the Buyer Common Stock on the Nasdaq National Market on March 24, 1997
(the "Current Buyer Price") and (II) the Current Buyer Price multiplied by the
product of (X) 1.15 and (Y) the "Composite Index Change" (as defined below).
For purposes of this Section 1.5, the Composite Index Change shall equal the
difference between (I) one (1) and (II) a fraction (which may not exceed one
(1)), the denominator of which is the sum of the closing prices on the Nasdaq
National Market on March 24, 1997 of the common stock, par value $.01 per share,
of Cerner Corporation, the common stock, $.05 par value per share, of HBO &
Company, the common stock, $.01 par value per share, of HCIA, Inc., the common
stock, $.01 par value per share, of Physician Computer Network, Inc. and the
common stock, $.01 par value per share, of Shared Medical Systems Corporation
(collectively, the "Composite Common Stocks") and the numerator of which is the
sum of the average closing prices per share of the Composite Common Stocks on
the Nasdaq National Market over the twenty consecutive trading days ending on
the trading day two trading days immediately preceding the date of the Company
Special Meeting, in each case subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event affecting
any of the Composite Common Stocks between the date of this Agreement and the
date of the Company Special Meeting; provided, that if on or after the date of
this Agreement and prior to the close of business on the date of the Company
Special Meeting the issuer of any of the Composite Common Stocks is the subject
of any publicly announced acquisition proposal by a third party or such issuer
publicly announces a proposed acquisition of a third party in one or more
transactions having a value in excess of 25% of such issuer's
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market capitalization on the date of this Agreement, such issuer's common stock
shall be removed from the Composite Common Stocks.
(b) Each Company Share held in the Company's treasury immediately
prior to the Effective Time and each Company Share owned beneficially by the
Buyer or the Transitory Subsidiary shall be canceled and retired without payment
of any consideration therefor.
(c) Each share of common stock, $.01 par value per share, of the
Transitory Subsidiary issued and outstanding immediately prior to the Effective
Time shall be converted into and thereafter evidence one share of common stock,
$.01 par value per share, of the Surviving Corporation and the separate
existence of the Transitory Subsidiary shall cease.
1.6 Dissenting Shares.
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(a) For purposes of this Agreement, "Dissenting Shares" means Company
Shares held as of the Effective Time by a Company Stockholder who has not voted
such Company Shares in favor of the adoption of this Agreement and the Merger
and with respect to which appraisal shall have been duly demanded and perfected
in accordance with Section 23B.13 of the Washington Act and not effectively
withdrawn or forfeited prior to the Effective Time. Dissenting Shares shall not
be converted into or represent the right to receive Merger Shares, unless such
Company Stockholder shall have forfeited his right to appraisal under the
Washington Act or withdrawn, with the consent of the Company, his demand for
appraisal. If such Company Stockholder has so forfeited or withdrawn his right
to appraisal of Dissenting Shares, then (i) as of the occurrence of such event,
such holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted into and represent the right to receive the Merger Shares issuable in
respect of such Company Shares pursuant to Section 1.5(a), and (ii) promptly
following the occurrence of such event, the Buyer shall deliver to the Exchange
Agent a certificate representing the Merger Shares to which such holder is
entitled pursuant to Section 1.5(a).
(b) The Company shall give the Buyer (i) prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company and
(ii) the opportunity to direct all negotiations and proceedings with respect to
demands for appraisal under the Washington Act. The Company shall not, except
with the prior written consent of the Buyer, make any payment with respect to
any demands for appraisal of Company Shares or offer to settle or settle any
such demands.
1.7 Exchange of Shares.
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(a) Prior to the Effective Time, the Buyer shall appoint the Exchange
Agent to effect the exchange for the certificates
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that, immediately prior to the Effective Time, represented Company Shares
converted into Merger Shares pursuant to Section 1.5 (including any Company
Shares referred to in the last sentence of Section 1.6(a)) ("Certificates"). On
the Closing Date, the Buyer shall deliver to the Exchange Agent, in trust for
the benefit of holders of Certificates, a stock certificate (issued in the name
of the Exchange Agent or its nominee) representing the Merger Shares, as
described in Section 1.5(a). As soon as practicable after the Effective Time,
the Buyer shall cause the Exchange Agent to send a notice and a transmittal form
to each holder of a Certificate advising such holder of the effectiveness of the
Merger and the procedure for surrendering to the Exchange Agent such Certificate
in exchange for the Merger Shares issuable pursuant to Section 1.5(a). Each
holder of a Certificate, upon proper surrender thereof to the Exchange Agent in
accordance with the instructions in such notice, shall be entitled to receive in
exchange therefor (subject to any taxes required to be withheld) the Merger
Shares issuable pursuant to Section 1.5(a). Until properly surrendered, each
such Certificate shall be deemed for all purposes to evidence only the right to
receive the Merger Shares issuable pursuant to Section 1.5(a). Holders of
Certificates shall not be entitled to receive certificates for the Merger Shares
to which they would otherwise be entitled until such Certificates are properly
surrendered.
(b) If any Merger Stores are to be issued in the name of a person
other than the person in whose name the Certificate surrendered in exchange
therefor is registered, it shall be a condition to the issuance of such Merger
Shares that (i) the Certificate so surrendered shall be transferable, and shall
be properly assigned, endorsed or accompanied by appropriate stock powers, (ii)
such transfer shall otherwise be proper and (iii) the person requesting such
transfer shall pay to the Exchange Agent any transfer or other taxes payable by
reason of the foregoing or establish to the satisfaction of the Exchange Agent
that such taxes have been paid or are not required to be paid. Notwithstanding
the foregoing, no Affiliate (as defined below) of the Company may transfer his
or her Merger Shares pursuant to this paragraph (b). Notwithstanding the
foregoing, neither the Exchange Agent nor any Party shall be liable to a holder
of Company Shares for any Merger Shares issuable to such holder pursuant to
Section 1.5(a) (or dividends or distributions with respect thereto) that are
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed, the Buyer shall issue in
exchange for such lost, stolen or destroyed Certificate the Merger Shares
issuable in exchange therefor pursuant to Section 1.5(a). The Buyer may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to give the Buyer a bond in
such sum as it may direct as indemnity
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against any claim that may be made against the Buyer with respect to the
Certificate alleged to have been lost, stolen or destroyed.
(d) Promptly following the date which is six months after the Closing
Date, the Exchange Agent shall return to the Buyer all Merger Shares in its
possession, and the Exchange Agent's duties shall terminate. Thereafter, each
holder of a Certificate may surrender such Certificate to the Buyer and, subject
to applicable abandoned property, escheat and similar laws, receive in exchange
therefor the Merger Shares issuable with respect thereto pursuant to Section
1.5(a).
1.8 Dividends. No dividends or other distributions that are payable to
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the holders of record of Buyer Common Stock as of a date on or after the Closing
Date shall be paid to former Company Stockholders entitled by reason of the
Merger to receive Merger Shares until such holders surrender their Certificates
in accordance with Section 1.7. Upon such surrender, the Buyer shall pay or
deliver to the persons in whose name the certificates representing such Merger
Shares are issued any dividends or other distributions that are payable to the
holders of record of Buyer Common Stock as of a date on or after the Closing
Date and which were paid or delivered between the Effective Time and the time of
such surrender; provided that no such person shall be entitled to receive any
interest on such dividends or other distributions.
1.9 Fractional Shares. No certificate or script representing fractional
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Merger Stores shall be issued to former Company Stockholders upon the surrender
for exchange of Certificates, and such former Company Stockholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of the Buyer with respect to any fractional
Merger Shares that would otherwise be issued to such former Company
Stockholders. In lieu of any fractional Merger Shares that would otherwise be
issued, each former Company Stockholder that would have been entitled to receive
a fractional Merger Share shall, upon proper surrender of such person's
Certificates, receive a cash payment equal to the closing price per share of the
Buyer Common Stock on the Nasdaq National Market, as reported by Nasdaq, on the
business day immediately preceding the Closing Date, multiplied by the fraction
of a share that such Company Stockholder would otherwise be entitled to receive.
1.10 Options; Employee Stock Purchase Plan; Salary Savings and Deferral
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Plan. At the Effective Time, all then outstanding options to purchase Company
----
Shares issued under the Company's Amended and Restated 1993 Combined
Nonqualified and Incentive Stock Option Plans, Amended and Restated 1983
Combined Nonqualified and Incentive Stock Option Plan and 1994 Non-Employee
Director Stock Option Plan (collectively, the "Company Option Plans") shall be
assumed by the Buyer in accordance with Section 4.13. Immediately prior to the
Effective Time, the Company shall (i) apply the funds credited as of such date
under the Company's 1994 Employee Stock Purchase Plan (the "Company Purchase
Plan") within each
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participant's payroll account to the purchase of whole Company Shares in
accordance with the terms of the Company Purchase Plan; (ii) contribute to the
Company Salary Savings and Deferral Plan (the "Company Savings Plan") sufficient
Company Shares to fulfill the Company's obligation under the Company Savings
Plan to make matching contributions with respect to the salary deferral
contributions paid or payable to such plan for the period from January 1, 1997
until the Closing Date.
1.11 Articles of Incorporation. The Articles of Incorporation of the
-------------------------
Surviving Corporation shall be the same as the Articles of Incorporation of the
Transitory Subsidiary immediately prior to the Effective Time, except that the
name of the corporation set forth therein shall be changed to the name of the
Company.
1.12 Bylaws. The bylaws of the Surviving Corporation shall be the same as
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the bylaws of the Transitory Subsidiary immediately prior to the Effective Time,
except that the name of the corporation set forth therein shall be changed to
the name of the Company.
1.13 Directors and Officers. The directors of the Transitory Subsidiary
----------------------
shall become the initial directors of the Surviving Corporation as of the
Effective Time, and the officers of the Company immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualify. Prior to the Effective Time, the Buyer shall (i) increase the number
of the members of the Board of Directors of the Buyer to nine and take such
action as is necessary such that immediately following the Effective Time,
Xxxxxxx Xxxxxx shall become a Class III director of the Buyer and Xxxxx X.
Sample shall become a Class I Director of the Buyer and (ii) take such action so
that upon the Effective Time, Xxxxx X. Sample shall be elected to the position
of Executive Vice President of the Buyer.
1.14 No Further Rights. From and after the Effective Time, no Company
-----------------
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.15 Closing of Transfer Books. At the Effective Time, the stock transfer
-------------------------
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Surviving Corporation or the Exchange Agent, they shall be canceled and
exchanged for Merger Shares in accordance with Section 1.5(a), subject to
Section 1.7 and to applicable law in the case of Dissenting Shares.
1.16 Tax-Free Reorganization. The Merger is intended to be a
-----------------------
reorganization within the meaning of Section 368 of the Code, and this Agreement
is intended to be a "plan of reorganization" within
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the meaning of the regulations promulgated under Section 368 of the Code.
1.17 Accounting Treatment. The business combination to be effected by the
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Merger is intended to be treated for accounting purposes as a "pooling of
interests."
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and complete as of the date hereof and
shall be true and complete as of the Effective Time, except as set forth in the
disclosure schedule delivered by the Company to the Buyer on or before the date
of this Agreement (the "Company Disclosure Schedule"). The Company Disclosure
Schedule shall be signed by the Parties and shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
II, and the disclosures in any paragraph of the Company Disclosure Schedule
shall qualify only the corresponding paragraph in this Article II.
2.1 Organization, Qualification and Corporate Power. The Company is a
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corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. The Company is duly qualified to conduct
business and is in good standing under the laws of each jurisdiction in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except as set forth on Section 2.21 of the Company
Disclosure Schedule, where the failure to be so qualified individually or in the
aggregate would not have a Company Material Adverse Effect (as defined below).
As used herein, the term "Company Material Adverse Effect" shall mean any change
or effect that, individually or when taken together with all other such changes
or effects that have occurred prior to the date of determination of the
occurrence of the Company Material Adverse Effect, is or is reasonably likely to
be, materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Company and its
Subsidiaries, taken as a whole, or that is or is reasonably likely to have a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement; provided, however, that a Company
Material Adverse Effect shall not include any changes that are the effect of or
result exclusively from economic factors affecting the medical information
software industry generally. The Company has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Company has furnished to the Buyer
true and complete copies of its Articles of Incorporation and bylaws, each as
amended and as in effect on the date hereof. The Company is not in default
under or in violation of any provision of its Articles of Incorporation or
bylaws.
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2.2 Capitalization. The entire authorized capital stock of the Company
--------------
consists of 25,000,000 Company Shares, of which 6,161,745 shares are issued and
outstanding and no shares are held in the treasury of the Company as of March
21, 1997. The Company has authorized 4,000,000 shares of preferred stock, none
of which are issued and outstanding or will be issued and outstanding as of or
at any time prior to the Effective Time. No material change in the
capitalization of the Company has occurred between March 21, 1997 and the date
of this Agreement. For purposes of the foregoing sentence, the issuance of
Company Shares upon the exercise of outstanding Options or pursuant to the
Company Purchase Plan shall not be considered to be a "material change in
capitalization." Section 2.2 of the Company Disclosure Schedule sets forth a
complete and accurate list as of the date of this Agreement of (i) all Company
Shares reserved for future issuance pursuant to stock options granted and
outstanding under the Company Option Plans, (ii) all Company Shares reserved for
future issuance pursuant to the rights outstanding under the Company Purchase
Plan, (iii) all Company Shares reserved for future issuance upon exercise of
purchase rights (the "Company Rights") under the Rights Agreement dated as of
July 24, 1996 by and between the Company and First Interstate Bank of
Washington, N.A. as Rights Agent (the "Company Rights Agreement") and (iv) all
holders of options, warrants or other rights to purchase shares of Company
Shares ("Options"), indicating the number of Company Shares subject to each
Option. All of the issued and outstanding Company Shares are, and all Company
Shares that may be issued as specified on Section 2.2 of the Company Disclosure
Schedule will be, duly authorized, validly issued, fully paid, nonassessable and
free of all preemptive rights. There are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance, disposition,
repurchase or acquisition of any of its capital stock, other than the Options
listed in Section 2.2 of the Company Disclosure Schedule or issuances as
contemplated in this Agreement. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company.
There are no agreements or understandings with respect to registration under the
Securities Act of 1933, as amended (the "Securities Act") or, to the knowledge
of the Company, with respect to voting, of any Company Shares. All of the
issued and outstanding Company Shares were issued in compliance with applicable
federal and state securities laws.
2.3 Authorization of Transaction. The Company has all requisite corporate
----------------------------
power and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by a
majority of the votes represented by the outstanding Company Shares entitled to
vote on this Agreement and the Merger (the "Requisite Stockholder Approval"),
the performance by the Company of this Agreement and the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary
-9-
corporate action on the part of the Company. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
2.4 Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Securities Act and any applicable state securities laws, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Xxxx-
Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "Xxxx-Xxxxx-
Xxxxxx Act") and the filing of the Articles of Merger as required by the
Washington Act, neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby, will (a) conflict with or violate any provision of the Articles of
Incorporation or bylaws of the Company, (b) require on the part of the Company
or any corporation with respect to which the Company, directly or indirectly,
has the power to vote or direct the voting of sufficient securities to elect a
majority of the directors (a "Subsidiary") any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), other than any filing, permit,
authorization, consent or approval which if not obtained or made would not have
a Company Material Adverse Effect, (c) conflict with, result in a breach of,
constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract, lease, sublease, license, sublicense, franchise,
permit, indenture, agreement or mortgage for borrowed money, instrument of
indebtedness, Security Interest (as defined below) or other arrangement to which
the Company or any Subsidiary is a party or by which the Company or any
Subsidiary is bound or to which any of their assets is subject, other than any
conflict, breach, default, acceleration, termination, modification or
cancellation which individually or in the aggregate would not have a Company
Material Adverse Effect, (d) result in the imposition of any Security Interest
upon any assets of the Company or any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their properties or assets. For purposes of this
Agreement, "Security Interest" means any mortgage, pledge, security interest,
encumbrance, charge, or other lien (whether arising by contract or by operation
of law), other than (i) mechanic's, materialmen's, and similar liens, (ii) liens
arising under workers compensation, unemployment insurance, social security,
retirement, and similar legislation, and (iii) liens on goods in transit
incurred pursuant to documentary letters of credit, in each case arising in the
ordinary course of business consistent with past custom and practice (including
with respect to frequency and amount) ("Ordinary Course of Business") of the
Company and not material to the Company.
-10-
2.5 Subsidiaries. Section 2.5 of the Company Disclosure Schedule sets
------------
forth for each Subsidiary (a) its name and jurisdiction of incorporation, (b)
the number of shares of authorized capital stock of each class of its capital
stock, (c) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof and the number of shares held by
each such holder, (d) the number of shares of its capital stock held in
treasury, and (e) its directors and officers. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct
business and is in good standing under the laws of each jurisdiction in which
the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified would
not have a Company Material Adverse Effect. Each Subsidiary has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
delivered to the Buyer correct and complete copies of the charter and bylaws of
each Subsidiary, as amended to date. No Subsidiary is in default under or in
violation of any provision of its charter or bylaws. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. All
shares of each Subsidiary that are held of record or owned beneficially by
either the Company or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding
or authorized options, warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital stock of
any Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. There are no voting trusts,
proxies, or other agreements or understandings with respect to the voting of any
capital stock of any Subsidiary. The Company does not control directly or
indirectly or have any direct or indirect equity participation in any
corporation, partnership, trust, or other business association which is not a
Subsidiary.
2.6 Reports and Financial Statements. The Company has previously
--------------------------------
furnished to the Buyer complete and accurate copies, as amended or supplemented,
of its (a) Annual Report on Form 10-K for the fiscal years ended 1994 and 1995,
as filed with the Securities and Exchange Commission (the "SEC"), (b) proxy
statements relating to all meetings of its stockholders (whether annual or
special) since December 16, 1994 and (c) all other reports or registration
statements, other than Registration Statements on Form S-8, filed by the Company
with the SEC since December 16, 1994 (such annual reports, proxy statements,
registration statements and other filings, together with any amendments or
supplements thereto, are
-11-
collectively referred to herein as the "Company Reports"). The Company Reports
constitute all of the documents filed or required to be filed by the Company
with the SEC since December 16, 1994, other than any Registration Statement on
Form S-8. As of their respective dates, the Company Reports did not contain 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. The audited financial
statements and unaudited interim financial statements of the Company included in
the Company Reports, including any Company Reports filed after the date of this
Agreement until the Closing (together, the "Company Financial Statements") (i)
comply or will comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, (ii) have been prepared or will be prepared in accordance with
United States generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto and in the case of quarterly financial
statements, as permitted by Form 10-Q under the Exchange Act), (iii) fairly
present the consolidated financial condition, results of operations and cash
flows of the Company and the Subsidiaries as of the respective dates thereof and
for the periods referred to therein, and (iv) are consistent with the books and
records of the Company and the Subsidiaries, including the audited financial
Statements of the Company as of December 31, 1996 which have been provided to
the Buyer and which shall be substantially identical to the audited financial
statements to be filed by the Company with the SEC as part of its Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 (the "Most Recent
Company Financial Statements"), except that such financial statements may
include a footnote describing the Merger.
2.7 Absence of Certain Changes. Since December 31, 1996 (the "Most Recent
--------------------------
Fiscal Quarter End") the Company has operated in the Ordinary Course of Business
and, (a) there has not been any Company Material Adverse Effect and (b) neither
the Company nor any Subsidiary has taken any of the actions set forth in
paragraphs (a) through (o) of Section 4.5 except as set forth on Section 2.7 of
the Company Disclosure Schedule.
2.8 No Undisclosed Liabilities. Except as disclosed in the Company
--------------------------
Reports, none of the Company and its Subsidiaries has any liability (whether
known or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for (a) liabilities shown
on the Most Recent Company Financial Statements, (b) liabilities which have
arisen since the Most Recent Fiscal Quarter End in the Ordinary Course of
Business, (c) contractual liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance sheet, (d)
liabilities incurred in connection with this Agreement set forth on Section 2.8
of the Company Disclosure Schedule and (e) other liabilities that are not
reasonably likely to have a Company Material Adverse Effect.
-12-
2.9 Tax Matters.
-----------
(a) Each of the Company and the Subsidiaries has filed all Tax Returns
(as defined below) that it was required to file and all such Tax Returns were
correct and complete in all material respects. Each of the Company and the
Subsidiaries has paid all Taxes (as defined below) that are shown to be due on
any such Tax Returns. The unpaid Taxes of the Company and the Subsidiaries for
tax periods through the date of the Most Recent Company Financial Statements do
not exceed the accruals and reserves for Taxes (other than any reserves for
deferred Taxes) set forth on the Most Recent Company Financial Statements.
Neither the Company nor any Subsidiary has any actual or potential liability for
any Tax obligation of any taxpayer (including without limitation any affiliated
group of corporations or other entities that included the Company or any
Subsidiary during a prior period) other than the Company and the Subsidiaries.
All Taxes that the Company or any Subsidiary is or was required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity. For purposes of
this Agreement, "Taxes" means all taxes, charges, fees, levies or other similar
assessments or liabilities, including without limitation income, gross receipts,
ad valorem, premium, value-added, excise, real property, personal property,
sales, use, transfer, withholding, employment, payroll and franchise taxes
imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof. For purposes of this Agreement,
"Tax Returns" means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes.
(b) The Company has delivered to the Buyer correct and complete copies
of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by any of the Company or any
Subsidiary for tax years ended December 31, 1992 through December 31, 1995. The
federal income Tax Returns of the Company have been audited by the Internal
Revenue Service or are closed by the applicable statute of limitations for all
taxable years through 1992. No examination or audit of any Tax Returns of the
Company or any Subsidiary by any Governmental Entity is currently in progress
or, to the knowledge of the Company and the Subsidiaries, threatened or
contemplated except as set forth in Section 2.9 of the Company Disclosure
Schedule. Neither the Company nor any Subsidiary has waived any statute of
limitations with respect to taxes or agreed to an extension of time with respect
to a tax assessment or deficiency.
(c) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the Code and none of the
assets of the Company or the Subsidiaries
-13-
are subject to an election under Section 341(f) of the Code. Neither the
Company nor any Subsidiary has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Neither
the Company nor any Subsidiary is a party to any Tax allocation or sharing
agreement. The Company is not a party to any agreement which requires the
Company to make any payment that is not deductible pursuant to Sections 28OG or
404(b) of the Code.
(d) Neither the Company nor any Subsidiary is or has ever been a
member of an "affiliated group" of corporations (within the meaning of Section
1504 of the Code), other than a group of which only the Company and the
Subsidiaries are members. Neither the Company nor any Subsidiary has made an
election under Treasury Reg. Section 1.1502-20(g). Neither the Company nor any
Subsidiary is or has been required to make a basis reduction pursuant to
Treasury Reg. Section 1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
2.10 Assets. Each of the Company and the Subsidiaries owns or leases all
------
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset
is free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
No asset of the Company (tangible or intangible) is subject to any Security
Interest.
2.11 Owned Real Property. None of the company or any Subsidiary owns or
-------------------
has owned any real property.
2.12 Intellectual Property.
---------------------
(a) Each of the Company and the Subsidiaries owns, or has valid
licenses to, or otherwise possesses legally enforceable rights to use, all
patents, trademarks, trade names, service marks, copyrights, trade secrets, and
any applications for such patents, trademarks, trade names, service marks and
copyrights, schematics, technology, know-how, and tangible or intangible
proprietary information or materials, applicable to or that are used in its
business as currently conducted or planned to be conducted (collectively,
"Company Intellectual Property").
(b) Section 2.12(b) of the Company Disclosure Schedule hereto sets
forth (i) a complete and correct list of all registered trademarks, trade names,
service marks, service names, and brand names; all material unregistered
trademarks, trade names, service marks, service names and brand names; all
patents and registered copyrights; and all applications for the foregoing, if
any, (setting forth the registration, issue or serial number of the same and a
description of the same) applicable to or used in the businesses of and owned
by, the Company or any Subsidiary; and
-14-
(ii) the owner of such intellectual property listed in clause (i) and any
registration thereof or application therefor. Except pursuant to the Company
Customer Contracts (as defined below), neither the Company nor any Subsidiary
has granted any licenses to third parties with respect to any of the foregoing.
(c) All Company Intellectual Property claimed to be owned by the
Company or its Subsidiaries is owned free and clear of all liens, security
interests, encumbrances and claims, of any kind or nature, including without
limitation, claims or rights of employees, agents, consultants, inventors,
customers, licensees or other parties involved in the development, creation,
marketing, maintenance, enhancement or licensing thereof. Neither the Company
nor any Subsidiary is currently in receipt of, or has any knowledge of, any
notice of any violation of, and neither the Company nor any Subsidiary is
violating, in any respect, the rights of others in any trademark, trade name,
service xxxx, copyright, patent, trade secret, know-how or other intangible
asset.
(d) Section 2.12(d) of the Company Disclosure Schedule contains a
complete and accurate list of all computer software represented or claimed by
the Company or any of its Subsidiaries to be owned by the Company or such
Subsidiary ("Company Owned Software") other than immaterial Company Owned
Software, which list specifies which of the Company and the Subsidiaries is the
owner thereof. The Company or one of the Subsidiaries has title to the Company
Owned Software, free and clear of all liens, security interests, encumbrances
and claims, including without limitation, claims or rights of employees, agents,
consultants, inventors, customers, licensees or other parties involved in the
development, creation, marketing, maintenance, enhancement or licensing of such
computer software. Except for commercially available, over-the-counter "shrink-
wrap" software, the Company Owned Software is not dependent on any Company
Licensed Software (as defined in Subsection (e) below) in order to operate fully
in the manner in which it is intended. No Company Owned Software has been
published or disclosed to any other parties except pursuant to contracts
requiring such other parties to keep the Company Owned Software confidential and
except where such disclosures were both incidental and immaterial. To the
knowledge of the Company, no such other party has breached any such obligation
of confidentiality.
(e) Section 2.12(e) of the Company Disclosure Schedule contains a
complete and accurate list of all software (other than commercially available
over-the-counter "shrink-wrap" software and immaterial Company Licensed
Software) under which the Company or any Subsidiary is a licensee, lessee or
otherwise has obtained the right to use (the "Company Licensed Software").
Section 2.12(e) of the Company Disclosure Schedule states with respect to any
items disclosed thereon the duration of the applicable license. The Company and
each of the Subsidiaries are in compliance in all material respects with all
applicable provisions of such agreements, except where instances of non-
compliance would not, in the aggregate, have a Company Material Adverse Effect.
None of the
-15-
Company Licensed Software has been incorporated into or made a part of any
Company Owned Software or any other Company Licensed Software by the Company or
Subsidiary. Neither the Company nor any Subsidiary has published or disclosed
any Company licensed Software to any other party except in accordance with and
as permitted by any license, lease or similar agreement relating to such Company
Licensed Software. No party to whom the Company or a Subsidiary has disclosed
Company Licensed Software has, to the knowledge of the Company, breached any
obligation of confidentiality imposed on them by the Company or a Subsidiary
relating thereto.
(f) The Company and the Subsidiaries are in compliance with the
owner's terms and conditions for all commercially available over-the-counter,
shrink-wrap software used by the Company or the Subsidiaries except as set forth
in Section 2.12(f) of the Company Disclosure Schedule.
(g) The Company Owned Software and Company Licensed Software and
commercially available over-the-counter "shrink-wrap" software constitute all
software used in the businesses of the Company and the Subsidiaries
(collectively, the "Company Software"), other than immaterial Company Owned
Software and immaterial Company Licensed Software.
(h) The transactions contemplated herein will not cause a breach or
default under any licenses, leases or similar agreements relating to the Company
Software or impair the Company's or any Subsidiary's ability to use the Company
Software in the same manner after the Merger as such computer software is
currently used by the Company or the Subsidiaries except as set forth in Section
2.12(h) of the Company Disclosure Schedule.
(i) The Company has rights to all Intellectual Property developed for
it by all persons, firms or entities that have provided the Company or any
Subsidiary, within the past five (5) years, with any computer systems design
services, computer programming services, or any other program or product
development services.
(j) Neither the Company nor any of the Subsidiaries has received
notice of being named in any suit, action or proceeding filed with any
Governmental Entity which involves a claim of infringement of any intellectual
property right of any third party that has not been finally resolved, nor has
the Company or any of the Subsidiaries received notice of any such claim of
infringement. The manufacturing, marketing, licensing or sale of the products
or performance of the service offerings of the Company and the Subsidiaries do
not infringe any intellectual property right of any third party; and to the
knowledge of the Company and the Subsidiaries, the Company Intellectual Property
rights of the Company and the Subsidiaries are not being infringed by
activities, products or services of any third party except as set forth in
Section 2.12(j) of the Company Disclosure Schedule.
-16-
(k) None of the Company and the Subsidiaries has taken or failed to
take any actions under the law of any foreign jurisdiction where the Company or
a Subsidiary has marketed or licensed Company Software that would materially
restrict or limit the ability of the Company or any Subsidiary to protect, or
prevent it from protecting, its ownership interests in, confidentiality rights
of, and rights to market, license, modify or enhance, the Company Software.
2.13 Real Property Leases. Section 2.13 of the Company Disclosure Schedule
--------------------
lists and describes briefly all real property leased or subleased to the Company
or any Subsidiary and lists the term of such lease, any extension and expansion
options, and the rent payable thereunder. The Company has delivered to the
Buyer correct and complete copies of the leases and subleases (as amended to
date) listed in Section 2.13 of the Company Disclosure Schedule. With respect
to each lease and sublease listed in Section 2.13 of the Company Disclosure
Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect prior to the Closing;
(c) no party to the lease or sublease is in breach or default, and no
event has occurred which, with notice or lapse of time, would constitute a
breach or default or permit termination, modification, or acceleration
thereunder;
(d) there are no disputes, oral agreements or forbearance programs in
effect as to the lease or sublease;
(e) neither the Company nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold;
(f) all facilities leased or subleased thereunder are supplied with
utilities and other services necessary for the operation of said facilities; and
(g) to the knowledge of the Company, the owner of the facility leased
or subleased has good and clear record and marketable title to the parcel of
real property, free and clear of any Security Interest, easement, covenant or
other restriction, except for recorded easements, covenants, and other
restrictions which do not impair the Intended Uses, occupancy or value of the
property subject thereto.
2.14 Contracts. Section 2.14 of the Company Disclosure Schedule lists the
---------
following written arrangements (including
-17-
without limitation written agreements) to which the Company or any Subsidiary is
a party:
(a) any written arrangement (or group of related written arrangements)
for the lease of personal property from or to third parties providing for lease
payments in excess of $2,000 per month;
(b) any written arrangement (or group of related written arrangements)
for the purchase or sale of raw materials, commodities, supplies, products or
other personal property or for the furnishing or receipt of services (i) which
calls for performance over a period of more than one year, (ii) which involves
more than the sum of $60,000, or (iii) in which the Company or any Subsidiary
has granted distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party;
(c) any written arrangement establishing a partnership or joint
venture;
(d) any written arrangement based in any manner upon the sales,
purchases, receipts, revenues, income or profits of the Company or any
Subsidiary;
(e) any written arrangement restricting the Company or any Subsidiary
from carrying on its business anywhere in the world;
(f) any written arrangement for joint product development with any
party, other than Company Customer Contracts;
(g) any written arrangements with vendors of material equipment
purchased by the Company or any Subsidiary as reseller of equipment, other than
purchase orders in the ordinary course of business;
(h) any written franchise arrangement, marketing arrangement, royalty
arrangement that requires payments or results in recurring revenues and with
respect to each such arrangement, Section 2.14 of the Company Disclosure
Schedule sets forth or describes the aggregate royalties or similar payment paid
or payable thereunder by the Company or any Subsidiary as of the date hereof;
(i) any written arrangement as of the date of this Agreement (or group
of related written arrangements) under which it has created, incurred, assumed,
or guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than $60,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(j) any written arrangement as of the date of this Agreement relating
to the evaluation of the Company by any other
-18-
company, person or entity who was or is considering acquiring all or a
significant part of the Company's business by acquisition, merger, joint venture
or otherwise;
(k) any written arrangement (other than those described in the Company
Reports) involving any of the Company Stockholders or their affiliates, as
defined in Rule 12b-2 under the Exchange Act ("Affiliates"); and
(l) any written arrangement under which the consequences of a default
or termination could have a Company Material Adverse Effect.
The Company has delivered to the Buyer a correct and complete copy of each
written arrangement (as amended to date) listed in Section 2.14 of the Company
Disclosure Schedule. With respect to each written arrangement so listed: (i)
the written arrangement is legal, valid, binding and enforceable and in full
force and effect; (ii) the written arrangement will continue to be legal, valid,
binding and enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect prior to the Closing;
and (iii) except as described in Section 2.14 of the Company Disclosure Schedule
under the heading "Known Defaults," the Company and the Subsidiaries are not,
and to the knowledge of the Company, no third party is in breach or default, and
no event has occurred which with notice or lapse of time would constitute a
breach or default or permit termination, modification, or acceleration, under
the written arrangement. To the knowledge of the Company, neither the Company
nor any Subsidiary is a party to any oral contract, agreement or other
arrangement which, if reduced to written form, would be required to be listed in
Section 2.14 of the Company Disclosure Schedule under the terms of this Section
2.14.
2.15 Accounts Receivable. All accounts receivable of the Company and the
-------------------
Subsidiaries reflected on the Most Recent Company Financial Statements are valid
receivables subject to no setoffs or counterclaims and are current and are
collectible, net of the applicable reserve for bad debts on the Most Recent
Company Financial Statements except as set forth in Section 2.15 of the Company
Disclosure Schedule. All accounts receivable reflected in the financial or
accounting records of the Company that have arisen since the Most Recent Fiscal
Quarter End are valid receivables subject to no setoffs or counterclaims and are
collectible, net of a reserve for bad debts in an amount proportionate to the
reserve shown on the Most Recent Company Financial Statements.
2.16 Powers of Attorney. There are no outstanding powers of attorney
------------------
executed on behalf of the Company or any Subsidiary except as set forth in
Section 2.16 of the Company Disclosure Schedule.
2.17 Insurance. The Company has delivered the Buyer a correct and complete
---------
summary of each insurance policy (including fire, theft, casualty, general
liability, workers compensation, business
-19-
interruption, environmental, product liability and automobile insurance policies
and bond and surety arrangements) to which the Company or any Subsidiary has
been a party, a named insured, or otherwise the beneficiary of coverage at any
time within the past three years. With respect to each such policy in effect as
of the date of this Agreement: (i) each such insurance policy is enforceable and
in full force and effect; (ii) such policy will continue to be enforceable and
in full force and effect immediately following the Closing in accordance with
the terms thereof as in effect prior to the Closing; (iii) neither the Company
nor any Subsidiary is in breach or default (including with respect to the
payment of premiums or the giving of notices) under such policy, and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default or permit termination, modification or acceleration, under
such policy; and (iv) neither the Company nor any Subsidiary has received any
notice from the insurer disclaiming coverage or reserving rights with respect to
a particular claim or such policy in general. Neither the Company nor any
Subsidiary has incurred any material loss, damage, expense or liability covered
by any such insurance policy for which it has not properly asserted a claim
under such policy. Each of the Company and the Subsidiaries is covered by
insurance in scope and amount customary and reasonable for the businesses in
which it is engaged.
2.18 Litigation. Section 2.18 of the Company Disclosure Schedule
----------
identifies, and contains a brief description of, (a) any unsatisfied judgment,
order, decree, stipulation or injunction and (b) any claim, complaint, action,
suit, proceeding, hearing or investigation of, in or before any Governmental
Entity or before any arbitrator to which the Company or any Subsidiary is a
party or, to the knowledge of the Company and the Subsidiaries, is threatened to
be made a party.
2.19 Company Customer Contracts.
--------------------------
(a) Section 2.19(a) of the Company Disclosure Schedule sets forth a
list of all written arrangements (including without limitation written
agreements) as of the date of this Agreement and as of the Closing Date, as
updated by Section 4.5, to which the Company or any Subsidiary is a party with
any customer of the Company or any Subsidiary (the "Company Customer
Contracts"), and states with respect to each such contract, (i) the name of the
customer of the Company or any Subsidiary which is party to the contract, (ii)
the date of the contract and each material change or modification thereto, (iii)
whether or not all products licensed or intended to be licensed under such
contract have been accepted by the customer that is a party to such contract, as
of the date of this Agreement and as of the Effective Time, and (iv) the name or
other description of each product not so accepted.
(b) The Company has delivered to the Buyer true and complete copies of
all Company Customer Contracts.
-2-
(c) Except as disclosed on Section 2.19(c) of the Company Disclosure
Schedule under the heading "Known Customer Contract Defaults", the Company and
its Subsidiaries are not, and to the knowledge of the Company, no third party is
in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default or permit termination, modification,
or acceleration, under any of the Company Customer Contracts.
(d) Except as disclosed on Section 2.19(d) of the Company Disclosure
Schedule, none of the Company Customer Contracts contains any term or provision
granting an ownership interest (other than a license) in any Company Owned
Software to any person.
(e) Neither the Company nor any Subsidiary has any obligation or
liability under any oral contract, agreement or other arrangement with a
customer of the Company or any Subsidiary which, if reduced to written form,
would be required to be listed in Section 2.19(a) of the Company Disclosure
Schedule.
2.20 Employees. The Company has delivered to the Buyer a true and complete
---------
list of all employees and officers of the Company and each Subsidiary, along
with the position as set forth in Section 2.20 of the Company Disclosure
Schedule as of the date of this Agreement. Each such employee has entered into
confidentiality and assignment of inventions agreement with the Company or a
Subsidiary, a copy of which has previously been delivered to the Buyer. To the
knowledge of the Company and its Subsidiaries, as of the date of this Agreement
and as of the date of Closing, except as updated by Section 4.5, no key employee
or group of employees has any plans to terminate employment with the Company or
any Subsidiary. Neither the Company nor any Subsidiary is a party to or bound
by any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company and the Subsidiaries have no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Company or any Subsidiary.
2.21 Employee Benefits.
-----------------
(a) Section 2.21(a) of the Company Disclosure Schedule contains a
complete and accurate list of all material Employee Benefit Plans (as defined
below), including unwritten Employee Benefit Plans, maintained, or contributed
to, by the Company, any Subsidiary, or any ERISA Affiliate (as defined below).
For purposes of this Agreement, "Employee Benefit Plan" means any "employee
pension benefit plan" (as defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), and any other written or
oral plan, agreement or arrangement involving direct or indirect compensation
(other than regular salary or wages paid in the Ordinary Course of
-21-
Business and not paid pursuant to an employment agreement), including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation. For purposes of this Agreement, "ERISA Affiliate" means any
entity which is a member of (i) a controlled group of corporations (as defined
in Section 414(b) of the Code), (ii) a group of trades or businesses under
common control (as defined in Section 414(c) of the Code), or (iii) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes the Company
or a Subsidiary. Complete and accurate copies of (i) all Employee Benefit Plans
which have been reduced to writing, (ii) any existing written summaries of all
unwritten Employee Benefit Plans, (iii) all related trust agreements, insurance
contracts and summary plan descriptions, and (iv) all annual reports filed on
IRS Form 5500, 5500C or 5500R for the last five plan years for each Employee
Benefit Plan, have been delivered to the Buyer. Each Employee Benefit Plan has
been administered in all material respects in accordance with its terms and each
of the Company, the Subsidiaries and the ERISA Affiliates has in all material
respects met its obligations with respect to such Employee Benefit Plan and has
made all required contributions thereto. The Company and all Employee Benefit
Plans are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits payable in
the normal operation of the Employee Benefit Plans and proceedings with respect
to qualified domestic relations orders), suits or proceedings against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
(c) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
-22-
(e) At no time has the Company, any Subsidiary or any ERISA Affiliate
been obligated to contribute to any "multi-employer plan" (as defined in Section
400 1(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code and insurance conversion privileges under state law.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related
to a "voluntary employee's beneficiary association" within the meaning of
Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 2.21(j) of the Company Disclosure Schedule discloses each:
(i) agreement with any director, executive officer or other key employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company or any Subsidiary of the nature of any of the transactions
contemplated by this Agreement, (B) providing any term of employment or
compensation guarantee or (C) providing severance benefits or other benefits
after the termination of employment of such director, executive officer or key
employee; (ii) agreement, plan or arrangement under which any person may receive
payments from the Company or any Subsidiary that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of such
person's "parachute payment" under Section 280G of the Code; and (iii) agreement
or plan binding the Company or any Subsidiary, including without limitation any
stock option plan, stock appreciation right plan, restricted stock plan, stock
purchase plan, severance benefit plan, or any Employee Benefit 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.
-23-
2.22 Environmental Matters.
---------------------
(a) Each of the Company and the Subsidiaries has complied with all
applicable Environmental Laws (as defined below). There is no pending or, to
the knowledge of the Company and the Subsidiaries, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Company or any Subsidiary. For
purposes of this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law relating to the
environment or occupational health and safety, including without limitation any
statute, regulation or order pertaining to (i) treatment, storage, disposal,
generation and transportation of industrial, toxic or hazardous substances or
solid or hazardous waste; (ii) air, water and noise pollution; (iii) groundwater
and soil contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine sanctuaries and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels and containers;
(vii) underground and other storage tanks or vessels, abandoned, disposed or
discarded barrels, containers and other closed receptacles; (viii) health and
safety of employees and other persons; and (ix) manufacture, processing, use,
distribution, treatment, storage, disposal, transportation or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or oil or petroleum products or solid or hazardous waste. As used above, the
terms "release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Compensation, Liability and Response Act of
1980 ("CERCLA").
(b) There have been no releases of any Materials of Environmental
Concern (as defined below) into the environment at any parcel of real property
or any facility formerly or currently owned, operated or controlled by the
Company or a Subsidiary. With respect to any such releases of Materials of
Environmental Concern, the Company or such Subsidiary has given all required
notices to Governmental Entities (copies of which have been provided to the
Buyer). Neither the Company nor any Subsidiary is aware of any releases of
Materials of Environmental Concern at parcels of real property or facilities
other than those owned, operated or controlled by the Company or a Subsidiary
that could reasonably be expected to have an impact on the real property or
facilities owned, operated or controlled by the Company or a Subsidiary. For
purposes of this Agreement, "Materials of Environmental Concern" means any
chemicals, pollutants or contaminants, hazardous substances (as such term is
defined under CERCLA), solid wastes and hazardous wastes (as such terms are
defined under the federal Resources Conservation and Recovery Act), toxic
materials, oil or
-24-
petroleum and petroleum products, or any other material subject to regulation
under any Environmental Law.
(c) Set forth in Section 2.22(c) of the Company Disclosure Schedule is
a list of all environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Company or a
Subsidiary (whether conducted by or on behalf of the Company or a Subsidiary or
a third party, and whether done at the initiative of the Company or a Subsidiary
or directed by a Governmental Entity or other third party) which were issued or
conducted during the past five years and which the Company has possession of or
access to. Complete and accurate copies of each such report, or the results of
each such investigation or audit, have been provided to the Buyer.
(d) Set forth in Section 2.22(d) of the Company Disclosure Schedule is
a list of all of the solid and hazardous waste transporters and treatment,
storage and disposal facilities that have been utilized by the Company or a
Subsidiary since November 19, 1980. Neither the Company nor any Subsidiary is
aware of any material environmental liability of any such transporter or
facility.
2.23 Legal Compliance. Each of the Company and the Subsidiaries, and the
----------------
conduct and operations of their respective businesses, are in compliance with
each law (including rules and regulations thereunder) of any federal, state,
local or foreign government, or any Governmental Entity, which (a) affects or
relates to this Agreement or the transactions contemplated hereby or (b) is
applicable to the Company or such Subsidiary or business, except for any
violation of or default under a law referred to in clause (b) above which
reasonably may be expected not to have a Company Material Adverse Effect.
2.24 Permits. The Company and each Subsidiary has all permits, licenses,
-------
registrations, certificates, orders or approvals from any Governmental Entity
relating to the operation of the Company's or any Subsidiary's business and the
occupancy of its leased real property (including without limitation those issued
or required under Environmental Laws, by the United States Food and Drug
Administration, and those relating to the occupancy or use of owned or leased
real property) ("Permits") that are material to the operation of the Company's
or any Subsidiary's business. Such Permits are the only Permits that are
required for the Company and the Subsidiaries to conduct their respective
businesses as presently conducted or as proposed to be conducted, except for
those the absence of which would not have a Company Material Adverse Effect.
Each such Permit is in full force and effect and, to the best of the knowledge
of the Company or any Subsidiary, no suspension or cancellation of such Permit
is threatened and there is no basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in full force and
effect following the Closing.
-25-
2.25 Certain Business Relationships With Affiliates. No Affiliate of
----------------------------------------------
the Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
has any claim or cause of action against the Company or any Subsidiary, or (c)
owes any money to the Company or any Subsidiary. Section 2.25 of the Company
Disclosure Schedule describes any transactions or relationships between the
Company and any Affiliate thereof which are reflected in the statements of
operations of the Company included in the Financial Statements.
2.26 Brokers' Fees. Except as disclosed on Section 2.26 of the Company
-------------
Disclosure Schedule, neither the Company nor any Subsidiary has any liability or
obligation to pay any fees or commissions to any broker, finder or agent with
respect to the transactions contemplated by this Agreement.
2.27 Books and Records. The minute books and other similar records of the
-----------------
Company and each Subsidiary contain true and complete records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
and each Subsidiary accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of the
Company or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices.
2.28 Customers and Suppliers. No material supplier of the Company or any
-----------------------
Subsidiary has indicated within the past year that it will stop, or decrease the
rate of, supplying materials, products or services to them and no material
customer of the Company or any Subsidiary has indicated within the past year
that it will stop, or decrease the rate of, buying, leasing or licensing
materials, products or services from them. Section 2.28 of the Company
Disclosure Schedule sets forth a list of (a) each customer that accounted for
more than 1% of the consolidated revenues of the Company during the last full
fiscal year or the interim period through the Most Recent Fiscal Quarter End and
the amount of revenues accounted for by such customer during each such period
and (b) each supplier that is the sole supplier of any significant product or
component to the Company or a Subsidiary.
2.29 Pooling. To the best knowledge of the Company, neither the Company
-------
nor any of its Affiliates has through the date of this Agreement taken or agreed
to take any action that would prevent the Company and the Buyer from accounting
for the business combination to be effected by the Merger as a "pooling of
interests" in conformity with GAAP.
-26-
2.30 Company Action.
--------------
(a) The Board of Directors of the Company, at a meeting duly called
and held, has by the unanimous vote of all directors present (i) determined that
the Merger is fair and in the best interests of the Company and its
stockholders, (ii) adopted this Agreement in accordance with the provisions of
the Washington Act, and (iii) directed that this Agreement and the Merger be
submitted to the Company Stockholders for their adoption and approval and
resolved to recommend that Company Stockholders vote in favor of the adoption of
this Agreement and the approval of the Merger.
(b) The financial advisors to the Company have delivered to the
Company an opinion, dated the date hereof, to the effect that the terms of the
Merger are fair to the Company Stockholders from a financial point of view and
will deliver to the Buyer as soon as it is received a copy of such opinion in
the form reduced to writing and signed by the Company's financial advisor dated
the date of this Agreement.
2.31 Rights Plan. The Company has adopted the amendment to the Company's
-----------
Rights Agreement set forth on Exhibit A subject only to the execution of such
------- -
amendment by the Rights Agent (as defined therein).
2.32 Disclosure. No representation or warranty by the Company contained in
----------
this Agreement, and no statement contained in the Company Disclosure Schedule or
any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Company pursuant to this Agreement, and no
other statement made by the Company or any of its representatives in connection
with this Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. The Company has disclosed to the
Buyer all material information relating to the business of the Company or any
Subsidiary or the transactions contemplated by this Agreement.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
Each of the Buyer and the Transitory Subsidiary represents and warrants to
the Company as follows:
3.1 Organization, Qualification and Corporate Power. Each of the Buyer
-----------------------------------------------
and the Transitory Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. Each of
the Buyer and the Transitory Subsidiary is duly qualified to conduct business
and is in good standing under the laws of each jurisdiction in which the
-27-
nature Of its businesses or the ownership or leasing of its properties requires
such qualification, except where the failure to be so qualified individually or
in the aggregate would not have a Buyer Material Adverse Effect (as defined
below). As used herein, the term "Buyer Material Adverse Effect" shall mean any
change or effect that, individually or when taken together with all other such
changes or effects that have occurred prior to the date of determination of the
occurrence of the Buyer Material Adverse Effect, is or is reasonably likely to
be materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of the Buyer, taken as a whole, or
that is or is reasonably likely to have a material adverse effect on the ability
of the Parties to consummate the transactions contemplated by this Agreement;
provided, however, that a Buyer Material Adverse Effect shall not include any
changes that are the effect of or result exclusively from economic factors
affecting the medical information software industry generally. The Buyer has
all requisite corporate power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it. The Buyer
has furnished to the Company true and complete copies of its Articles of
Incorporation and bylaws, each as amended and as in effect on the date hereof.
The Buyer is not in default under or in violation of any provision of its
Articles of Incorporation or bylaws.
3.2 Capitalization. The authorized capital stock of the Buyer as of the
--------------
date of this Agreement consists of 55,000,000 shares of stock, of which
50,000,000 shares are designated Common Stock, par value $0.01 per share and
5,000,000 are designated Preferred Stock, par value $0.01 per share. Of the
total authorized Common Stock, 21,016,535 shares were issued and outstanding and
no shares were held in the treasury of the Buyer as of February 26, 1997. No
material change in the capitalization of the Buyer has occurred between February
26, 1997 and the date of this Agreement. For purposes of the foregoing
sentence, the issuance of shares of Buyer Common Stock upon the exercise of
outstanding options or pursuant to the terms of the Buyer's 1995 Employee Stock
Purchase Plan shall not be considered to be a "material change in
capitalization." All of the issued and outstanding shares of Buyer Common Stock
are duly authorized, validly issued, fully paid, nonassessable and free of all
preemptive rights. All of the Merger Shares will be, when issued in accordance
with this Agreement, duly authorized, validly issued, fully paid, nonassessable
and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Transitory
----------------------------
Subsidiary has all requisite corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and thereunder.
The execution and delivery of this Agreement by the Buyer and the Transitory
Subsidiary and the performance of this Agreement, the consummation of the
transactions contemplated hereby and thereby by the Buyer and the Transitory
Subsidiary have been duly and validly authorized by all necessary corporate
action on the part of the Buyer and Transitory
-28-
Subsidiary. This Agreement has been duly and validly executed and delivered by
the Buyer and the Transitory Subsidiary and constitutes a valid and binding
obligation of the Buyer and the Transitory Subsidiary, enforceable against them
in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable
----------------
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act, the Xxxx-Xxxxx-Xxxxxx Act and the filing of the Articles of Merger
as required by the Washington Act, neither the execution and delivery of this
Agreement, nor the consummation by the Buyer or the Transitory Subsidiary of the
transactions contemplated hereby or thereby, will (a) conflict or violate any
provision of the Articles of Incorporation or bylaws of the Buyer or the
Transitory Subsidiary, (b) require on the part of the Buyer or the Transitory
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, other than any filing, permit, authorization, consent
or approval which if not obtained or made would not have a Buyer Material
Adverse Effect, (c) conflict with, result in breach of, constitute (with or
without due notice or lapse of time or both) a default under, result in the
acceleration of, create in any party any right to accelerate, terminate, modify
or cancel, or require any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which the Buyer or Transitory Subsidiary is a party or by
which either is bound or to which any of their assets are subject, other than
any conflict, breach, default, acceleration, termination, modification or
cancellation which individually or in the aggregate would not have a Buyer
Material Adverse Effect or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or the Transitory Subsidiary
or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously furnished
--------------------------------
to the Company complete and accurate copies, as amended or supplemented, of its
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as
filed with the SEC, (b) proxy statement relating to stockholders (whether annual
or special) since November 17, 1995, (c) all other reports or registration
statements, other than Registration Statements on Form S-8, filed by the Buyer
with the SEC since November 17, 1995, (d) all other reports filed by the Buyer
under Section 13 of the Exchange Act with the SEC since November 17, 1995 and
(e) the Most Recent Financial Statements (such financial statements, annual
reports, proxy statements, registration statements and filings, together with
any amendments or supplements thereto, are collectively referred to herein as
the "Buyer Reports"). The Buyer Reports (except for the Most Recent Financial
Statements) constitute all of the documents required to be filed by the Buyer
under Section 13 of the Exchange Act with the SEC since November 17, 1995. As
of their respective dates, the Buyer Reports
-29-
did not contain 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. The audited financial statements and unaudited interim financial
statements of the Buyer included in the Buyer Reports (i) comply or will comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, (ii) have
been prepared or will be prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange Act), (iii)
fairly present the consolidated financial condition, results of operations and
cash flows of the Buyer as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and records of the
Buyer, including the financial statements of the Buyer as of December 31, 1996
which have been provided to the Company and which shall be substantially
identical to the audited financial statements to be filed by the Buyer with the
SEC as part of its Annual Report on Form 10-K for the fiscal year ended December
31, 1996.
3.6 Absence of Material Adverse Changes. Since December 31, 1996, there
-----------------------------------
has not been any Buyer Material Adverse Effect.
3.7 No Undisclosed Liabilities. Except as disclosed in the Buyer Reports,
--------------------------
the Buyer has no liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities shown on the Most Recent Financial Statements,
(b) liabilities which have arisen since the Most Recent Fiscal Quarter End in
the Ordinary Course of Business, (c) contractual liabilities incurred in the
Ordinary Course of Business which are not required by GAAP to be reflected on a
balance sheet, (d) liabilities incurred in connection with this Agreement, and
(e) other liabilities that are not reasonably likely to have a Buyer Material
Adverse Effect.
3.8 Intellectual Property. The Buyer owns, or is licensed or otherwise
---------------------
possesses legally enforceable rights to use, all trademarks, trade names,
service marks, copyrights, and any application for such trademarks, trade names,
service marks and copyrights, know-how, computer software programs or
applications, and tangible or intangible proprietary information or material
that are necessary to conduct the business of the Buyer as currently conducted,
subject to such exceptions that would not be reasonably likely to have a Buyer
Material Adverse Effect.
3.9 Litigation. Except as described in the Buyer Reports filed prior to
----------
the date hereof, there is no action, suit or proceedings, claim, arbitration or
investigation against the Buyer pending or as to which the Buyer has received
any written notice of
-30-
assertion, which, individually or in the aggregate, is reasonably likely to have
a Buyer Material Adverse Effect.
3.10 Environmental Matters. Except as disclosed in the Buyer Reports filed
---------------------
prior to the date hereof and except for such matters that, individually or in
the aggregate, are not reasonably likely to have a Buyer Material Adverse
Effect: (a) the Buyer complied with all applicable Environmental Laws; (b) the
properties currently owned or operated by the Buyer (including soils,
groundwater, surface water, buildings or other structures) are not contaminated
with any Hazardous Substances; (c) the properties formerly owned or operated by
were not contaminated with Hazardous Substances during the period of ownership
or operation by the Buyer; (d) the Buyer is not subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (e)
The Buyer has not been associated with any release or threat of release of any
Hazardous Substance; (f) the Buyer has not received notice, demand, letter,
claim or request for information alleging that the Buyer may be in violation of
or liable under any Environmental Law; (g) the Buyer is not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or is subject to any indemnity or other agreement with any third party relating
to liability under any Environmental Law or related to Hazardous Substances; and
(h) there are no circumstances or conditions involving the Buyer that could
reasonably be expected to result in any claims, liability, investigations, costs
or restrictions on the ownership, use of transfer of any property pursuant to
any Environmental Law.
3.11 Legal Compliance. The Buyer and the conduct and operations of its
----------------
business are in compliance with each law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Buyer or its
business, except for any violation of or default under a law referred to in
clause (b) above which reasonably may be expected not to have a Buyer Material
Adverse Effect.
3.12 Disclosure. No representation or warranty by the Buyer contained in
----------
this Agreement, and no statement contained in any document, certificate or other
instrument delivered to, or to be delivered by or on behalf of, the Buyer
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact or omit or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading.
-31-
ARTICLE IV.
COVENANTS
4.1 Best Efforts. Each of the Parties shall use its best efforts, to the
------------
extent commercially reasonable, to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement; provided, however, that notwithstanding anything in this
Agreement to the contrary, the Buyer shall not be required to sell or dispose of
or hold separately (through a trust or otherwise) any assets or businesses of
the Buyer or its Affiliates.
4.2 Notices and Consents. Each of the Company, the Transitory Subsidiary
--------------------
and the Buyer shall use its respective best efforts to obtain, at its expense,
all such waivers, permits, consents, approvals or other authorizations from
third parties and Governmental Entities, and to effect all such registrations,
filings and notices with or to third parties and Governmental Entities, as may
be required by or with respect to the Company, respectively, in connection with
the transactions contemplated by this Agreement (including without limitation,
with respect to the Company, those listed in Section 2.4 or Section 2.24 of the
Company Disclosure Schedule).
4.3 Special Meeting Prospectus/Proxy Statement and Registration Statement.
---------------------------------------------------------------------
(a) The Buyer and the Company shall jointly prepare, and the Company
shall file with the SEC under the Exchange Act, preliminary proxy materials for
the purpose of soliciting proxies from Company Stockholders to vote in favor of
the adoption of this Agreement (including without limitation the matters
referred to in Article VI) and the approval of the Merger at a special meeting
of Company Stockholders to be called and held for such purpose (the "Company
Special Meeting"), and in connection with the meeting of the Buyer's
stockholders to consider the issuance of the Merger Shares pursuant to the
Merger and certain other actions which may include increasing the authorized
number of shares of Buyer Common Stock and the authorized number of shares
available for issuance under the Buyer's option plans (the "Buyer Special
Meeting"). Such proxy materials shall be in the form of a prospectus/proxy
statement to be used for the purpose of offering the Merger Shares to Company
Stockholders and for the purpose of soliciting proxies from the Buyer's
stockholders and soliciting such proxies from Company Stockholders (such
prospectus/proxy statement, together with any accompanying letter to
stockholders, notice of meeting and form of proxy, shall be referred to herein
as the "Prospectus/Proxy Statement"). The Company, with the assistance of the
Buyer, shall promptly respond to any SEC comments on the Prospectus/Proxy
Statement and shall otherwise use its best efforts to resolve as promptly as
practicable all SEC comments to the satisfaction of the SEC.
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(b) Promptly following the resolution to the satisfaction of the SEC
of all SEC comments on the Prospectus/Proxy Statement (or the expiration of the
ten-day period under Rule 14a-6(a) under the Exchange Act, if no SEC comments
are received by such date), (i) the Company shall distribute the
Prospectus/Proxy Statement to its stockholders and, pursuant thereto, shall call
the Company Special Meeting in accordance with the Washington Act and solicit
proxies from Company Stockholders to vote in favor of the adoption of this
Agreement and the approval of the Merger at the Company Special Meeting, and
(ii) the Buyer shall distribute the Prospectus/Proxy Statement to its
stockholders and, pursuant thereto, shall call the Buyer Special Meeting in
accordance with the Washington Act and solicit proxies from Buyer's stockholders
to vote in favor of the adoption of this Agreement and the approval of the
Merger at the Buyer Special Meeting.
(c) Promptly following the resolution to the satisfaction of the SEC
of all SEC comments on the Prospectus/Proxy Statement (or the expiration of the
ten-day period under Rule 14a-6(a) under the Exchange Act, if no SEC comments
are received by such date), the Buyer shall file with the SEC under the
Securities Act a Registration Statement on Form S-4 (the "Registration
Statement"), which shall include the Prospectus/Proxy Statement as a part
thereof. The Buyer, with the assistance of the Company, shall promptly respond
to any SEC comments on the Registration Statement and shall otherwise use its
best efforts to cause the Registration Statement to be declared effective as
promptly as practicable. The Buyer shall also take any and all such actions as
may be necessary or as it may deem advisable for the purpose of complying with
all applicable state securities laws in connection with the offering and
issuance of the Merger Shares.
(d) The Company shall comply with all applicable provisions of and
rules under the Exchange Act and all applicable provisions of the Washington Act
in the preparation, filing and distribution of the Prospectus/Proxy Statement,
the solicitation of proxies thereunder, and the calling and holding of the
Company Special Meeting. Without limiting the foregoing, the Company shall
ensure that the Prospectus/Proxy Statement does not, as of the date on which it
is distributed to Company Stockholders, and as of the date of the Special
Meeting, contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading (provided that the
Company shall not be responsible for the accuracy or completeness of any
information furnished by the Buyer in writing for inclusion in the
Prospectus/Proxy Statement).
(e) The Buyer shall comply with all applicable provisions of and rules
under the Securities Act and state securities laws in the preparation and filing
of the Registration Statement and the offering and issuance of the Merger
Shares. Without limiting the foregoing, the Buyer shall ensure that the
Registration Statement does not, as of its effective date, contain
-33-
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 not misleading
(provided that the Buyer shall not be responsible for the accuracy or
completeness of any information relating to the Company or any other information
furnished by the Company in writing for inclusion in the Registration Statement
or the Prospectus/Proxy).
(f) The Company, acting through its Board of Directors, shall include
in the Prospectus/Proxy Statement the recommendation of its Board of Directors
that the Company Stockholders vote in favor of the adoption of this Agreement
and the approval of the Merger, and shall otherwise use its best efforts to
obtain the Requisite Stockholder Approval. Notwithstanding the foregoing, the
obligations set forth in this paragraph (f) shall not apply (and the Board of
Directors shall be permitted to modify or withdraw any such recommendation
previously made) if (i) the Company receives a bona fide written offer, subject
only to customary conditions (excluding any financing condition), for an
acquisition of all or substantially all of the Company on terms more favorable
in the aggregate, from a financial point of view, to Company Stockholders than
the terms of the Merger (a "Higher Offer") and (ii) the Board of Directors of
the Company determines in good faith, after consultation with outside legal
counsel, that the fiduciary duties of the Board of Directors under applicable
law prohibit it from fulfilling the foregoing obligations.
(g) Xxxxxxx X. Xxxxxxx and Xxxxxx X. Xxxxx each agree to execute and
deliver an irrevocable proxy to Xxxxx X. Sample, Xxxxxxx X. Xxxxxx, Xxxxx
Xxxxxxxx, or any of them, to vote all shares of Buyer Common Stock that are
beneficially owned by him, or for which he has voting authority, in favor of the
approval of the issuance of the Merger Shares; provided however that nothing in
this subparagraph shall affect any individual's obligations to act in a manner
to exercise such individual's fiduciary duties as a director.
(h) Xxxxxxx X. Xxxxxx, Xxxxx X. Sample and Xxxx X. Xxxxxxx each agree
to execute and deliver an irrevocable proxy to Xxxxxxx X. Xxxxxxx, Xxxxxx X.
Xxxxx, Xxxx X. Xxxx, or any of them, to (i) vote all Company Shares that are
beneficially owned by him, or for which he has voting authority, in favor of the
adoption of this Agreement and the approval of the Merger and (ii) otherwise use
his best efforts to obtain the Requisite Stockholder Approval; provided however
that nothing in this subparagraph shall affect any individual's obligations to
act in a manner to exercise such individual's fiduciary duties as a director, if
applicable.
4.4 Xxxx-Xxxxx-Xxxxxx Act. Each of the Parties shall promptly file any
---------------------
Notification and Report Forms and related material that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the Xxxx-Xxxxx-Xxxxxx Act, shall use is best
efforts to obtain an early termination of the applicable
-34-
waiting period, and shall make any further filings or information submissions
pursuant thereto that may be necessary, proper or advisable.
4.5 Operation of Company Business. Except as contemplated by this
-----------------------------
Agreement or expressly set forth on Schedule 4.5 hereof, during the period from
the date of this Agreement to the Effective Time, unless earlier terminated
pursuant to Section 6.1 hereof, the Company shall (and shall cause each
Subsidiary to) conduct its operations in the Ordinary Course of Business and in
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use all reasonable efforts to preserve intact its current
business organization, keep its physical assets in good working condition, keep
available the services of its current officers and employees and preserve its
relationships with customers, suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall not be impaired in
any material respect. Without limiting the generality of the foregoing, prior
to the Effective Time, unless earlier terminated pursuant to Section 6.1 hereof,
neither the Company nor any Subsidiary shall, without the written consent of the
Buyer:
(a) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) or authorize the issuance, sale
or delivery of, or redeem or repurchase, any stock of any class or any other
securities or any rights, warrants or options to acquire any such stock or other
securities (except pursuant to the exercise of Options outstanding on the date
hereof or the grant of Options under the Company Option Plans consistent with
past practice to newly hired employees, which Options shall represent in the
aggregate the right to acquire no more than the average number of Company Shares
subject to Options granted in the comparable period of time during the preceding
12-month period), or amend any of the terms of any such convertible securities
or Options;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any debt not currently outstanding
(including obligations in respect of capital leases); assume, guarantee, endorse
or otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement of the type described in
Section 2.21(j) or (except for normal increases in the Ordinary Course of
Business or making severance payments to non-
-35-
officers pursuant to the terms of severance agreements existing on the date
hereof and disclosed on the Disclosure Schedule or consistent with past
practice) increase in any manner the compensation or fringe benefits of, or
materially modify the employment terms of, its directors, officers or employees,
generally or individually, or pay any benefit not required by the terms in
effect on the date hereof of any existing Employee Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) amend its charter or bylaws;
(g) change in any material respect its accounting methods, principles
or practices, except insofar as may be required by a generally applicable change
in GAAP;
(h) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets or subject any
such assets to any Security Interest;
(j) sell, assign, transfer or license any Intellectual Property, other
than in the Ordinary Course of Business;
(k) enter into, amend, terminate, take or omit to take any action that
would constitute a violation of or default under, or waive any rights under, any
material contract or agreement;
(l) make or commit to make any capital expenditure in excess of
$125,000 per item;
(m) make any election or give any consent under the Code or the tax
statutes of any state or other jurisdiction or make any termination, revocation
or cancellation of any such election or any consent or compromise or settle any
claim for past or present tax due;
(n) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied; or
(o) agree in writing or otherwise to take any of the foregoing
actions.
-36-
The Company further agrees to forward to the attention of the Chief Financial
Officer of the Buyer true and complete copies of each Company Customer Contract
signed by the Company after the date hereof within ten days of the date such
Company Customer Contract is signed by the Company. The list of Customer
Contracts set forth on Section 2.19 of the Company Disclosure Schedule shall be
deemed to be updated to include any Company Customer Contract received by the
Chief Financial Officer of the Buyer pursuant to the provisions of the foregoing
sentence. The Company further agrees to promptly forward to the attention of
the Chief Financial Officer of the Buyer the name and position of any key
employee or group of employees which has any plans to terminate employment with
the Company or any Subsidiary if the Company has or obtains knowledge of such
plans after the date hereof. Section 2.20 of the Company Disclosure Schedule
shall be deemed to be updated to include any disclosure received by the Chief
Financial Officer of the Buyer pursuant to the provisions of the foregoing
sentence.
4.5A Operation of Buyer Business. Except as contemplated by this
---------------------------
Agreement, during the period from the date of this Agreement to the Effective
Time, unless earlier terminated pursuant to Section 6.1 hereof, the Buyer shall
not acquire or agree to acquire, by merging or consolidating with, by purchasing
an equity interest in or a portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, which would materially delay or prevent the
consummation of the transactions contemplated by this Agreement.
4.6 Full Access. Each of the Company and the Buyer shall (and shall cause
-----------
their respective Subsidiaries to) permit representatives of the other Party to
have full access (at all reasonable times, and in a manner so as not to
substantively interfere with the normal business operations of the such other
Party) to all premises, properties, financial and accounting records, contracts,
other records and documents, and personnel, of or pertaining to the Company or
the Buyer, and their respective Subsidiaries, as the case may be. Each Party
agrees that any nonpublic information obtained pursuant to this Section 4.6 will
be held in confidence and treated as "Confidential Information" under the letter
agreement between the Buyer and the Company dated November 27, 1996 (the
"Confidentiality Agreement").
4.7 Notice of Breaches. The Company shall promptly deliver to the Buyer
------------------
written notice of any event or development that would (a) render any statement,
representation or warranty of the Company in this Agreement (including the
Company Disclosure Schedule) inaccurate or incomplete in any material respect,
or (b) constitute or result in a breach by the Company of, or a failure by the
Company to comply with, any agreement or covenant in this Agreement applicable
to such party. The Buyer or the Transitory Subsidiary shall promptly deliver to
the Company written notice of any event or development that would (i) render any
statement, representation or warranty of the Buyer or the Transitory Subsidiary
in this
-37-
Agreement inaccurate or incomplete in any material respect, or (ii) constitute
or result in a breach by the Buyer or the Transitory Subsidiary of, or a failure
by the Buyer or the Transitory Subsidiary to comply with, any agreement or
covenant in this Agreement applicable to such party. No such disclosure shall
be deemed to avoid or cure any such misrepresentation or breach.
4.8 Exclusivity.
-----------
(a) The Company shall not, and the Company shall use its best efforts
to cause its Affiliates and each of its officers, directors, employees,
representatives and agents not to, directly or indirectly, (i) encourage,
solicit, initiate, engage or participate in discussions or negotiations with any
person or entity (other than the Buyer) concerning any merger, consolidation,
sale of material assets, tender offer, recapitalization, accumulation of Company
Shares, proxy solicitation or other business combination involving the Company,
any Subsidiary or any division of the Company or any Subsidiary or (ii) provide
any non-public information concerning the business, properties or assets of the
Company or any Subsidiary to any person or entity (other than the Buyer).
(b) Notwithstanding the foregoing, the Company may furnish or cause to
be furnished non-public information concerning the business, properties or
assets of the Company or a Subsidiary to any other person or entity, and may
engage in discussions or negotiations with another person or entity, if in
either case (i) such person or entity has submitted a Higher Offer to the
Company prior to the Special Meeting and (ii) the Board of Directors of the
Company determines in good faith, after consultation with outside legal counsel,
that the fiduciary duties of the Board of Directors under applicable law so
require.
(c) The Company shall immediately notify the Buyer of, and shall
disclose to the Buyer the name of the offeror, price and material terms or
provisions of any offer or proposal to make or consider an offer of the nature
described in this Section 4.8.
4.9 Agreements from Certain Affiliates of the Company. Concurrently with
-------------------------------------------------
the execution of this Agreement, the Company shall deliver to the Buyer a list
of all persons or entities who are at such time Affiliates of the Company (the
"Company Affiliates"). In order to help ensure that the Merger will be
accounted for as a "pooling of interests", that the issuance of Merger Shares
will comply with the Securities Act and that the Merger will be treated as a
tax-free reorganization, the Company shall use its best efforts to cause each
Company Affiliate to execute and deliver to the Buyer, prior to the distribution
of the Prospectus/Proxy Statement in accordance with Section 4.3(b), a written
agreement substantially in the form attached hereto as Exhibit B (the "Affiliate
---------
Agreement"). If any Company Affiliate fails to execute and deliver an Affiliate
Agreement, the Buyer shall be entitled to place appropriate legends on the
certificates
-38-
evidencing the Merger Shares to be issued to such person or entity and any other
shares of Buyer Common Stock issued to such person or entity upon exercise of an
Option, and to issue appropriate stock transfer instructions to the transfer
agent for the Buyer Common Stock, to the effect that (a) such shares may only be
sold, transferred or otherwise disposed of, and the holder thereof may only
reduce his or its interest in or risk relating to such shares, after financial
results covering at least 30 days of combined operations of the Company and the
Buyer after the Effective Time shall have been publicly released, and (b) such
shares may be sold publicly only in compliance with Rule 145 under the
Securities Act.
4.10 Listing of Merger Shares. The Buyer shall use its best efforts to
------------------------
list the Merger Shares on the Nasdaq National Market prior to the Effective
Time.
4.11 Rights Agreement. The Company shall cause the amendment to the
----------------
Company's Rights Agreement set forth on Exhibit A to become effective as soon as
---------
practicable after the date of this Agreement. The Company shall not redeem the
Company's Rights, or amend or modify the Company's Rights Agreement (other than
to delay the Distribution Date (as defined therein) or take any action permitted
under this Agreement), or terminate the Company's Rights Agreement, prior to the
Effective Time unless required to do so by order of a court of competent
jurisdiction.
4.12 Pooling Accounting. From and after the date hereof and until the
------------------
Effective Time, neither the Company nor the Buyer, nor any of their respective
Subsidiaries, shall knowingly take any action that is reasonably likely to
jeopardize the treatment of the Merger as a "pooling of interests" for
accounting purposes.
4.13 Company Equity Plans.
--------------------
(a) At the Effective Time, each outstanding Option to purchase Company
Shares (a "Company Stock Option") under the Company Option Plans, whether vested
or unvested, shall be deemed to constitute an option to acquire, on the same
terms and conditions as were applicable under such Company Stock Option, the
same number shares of Buyer Common Stock as the holder of such Company Stock
Option would have been entitled to receive pursuant to the Merger had such
holder exercised such option in full immediately prior to the Effective Time
(rounded downward to the nearest whole number), at a price per share (rounded
upward to the nearest whole cent) equal to (y) the aggregate exercise price for
the Company Shares purchasable pursuant to such Company Stock Option immediately
prior to the Effective Time divided by (z) the number of full shares of Buyer
Common Stock deemed purchasable pursuant to such Company Stock Option in
accordance with the foregoing.
(b) No later than the date the Company first gives notice to the
Company Stockholders of the Company Special Meeting, the Company shall deliver a
notice to each holder of outstanding
-39-
Company Stock Option of the effect of the Merger on such Options and shall
advise participants of the federal tax consequences of the assumption of Company
Option Plans by the Buyer. As soon as practicable after the Effective Time, the
Buyer shall deliver to the participants in Company Option Plans appropriate
notice setting forth such participants' rights pursuant thereto and the grants
pursuant to Company Option Plans shall continue in effect on the same terms and
conditions (subject to the adjustments required by this Section 4.13 after
giving effect to the Merger).
(c) Buyer shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buyer common Stock for delivery under
Company Option Plans assumed in accordance with this Section 4.13. As soon as
practicable after the Effective Time, Buyer shall file a registration statement
on Form S-8 (or any successor or other appropriate forms), or another
appropriate form with respect to the shares of Buyer Common Stock subject to
such options and shall use its best efforts to maintain the effectiveness of
such registration statement or registration statements (and maintain the current
status of the prospectus or prospectuses contained therein) for so long as such
options remain outstanding.
(d) The Board of Directors of the Company shall, prior to or as of the
Effective Time, take all necessary actions, pursuant to and in accordance with
the terms of the Company Option Plans and the instruments evidencing the Company
Stock Options, to provide for the conversion of the Company Stock Options into
options to acquire Buyer Common Stock in accordance with this Section 4.13. The
Company hereby certifies that no consent of the holders of the Company Stock
Options is required in connection with such conversion.
(e) The Board of Directors of the Company shall, prior to or as of the
Effective Time, take appropriate action to approve the deemed cancellation of
the Company Stock Options for purposes of Section 16(b) of the Exchange Act.
The Board of Directors of the Buyer shall, prior to or as of the Effective Time,
take appropriate action to approve the deemed grant of options to purchase Buyer
Common Stock under the Company Stock Options (as converted pursuant to this
Section 4.13) for purposes of Section 16(b) of the Exchange Act.
(f) The Company shall not credit any additional funds to any
participant's payroll account under the Company Purchase Plan subsequent to the
Effective Time.
4.14 Representations of Principal Stockholders. Each of the Buyer and the
-----------------------------------------
Company will use reasonable efforts to cause each of its principal stockholders
who is the beneficial owner of five percent (5%) or more of its common stock to
cooperate with counsel to the Buyer and the Company to assist them in preparing
the tax opinions called for herein.
-40-
4.15 Directors' and Officers' Liability Insurance; Indemnification.
-------------------------------------------------------------
(a) For a period of three years after the Effective Time, the Buyer
shall cause the Surviving Corporation to maintain (to the extent available in
the market) in effect a directors' and officers' liability insurance policy
covering those persons who are currently covered by the Company's directors' and
officers' liability insurance policy or policies (copies of which have been
heretofore delivered to the Buyer) with respect to actions taken in their
capacities as directors and officers of the Company with coverage in an amount
at least equal to the Company's existing coverage; provided that in no event
shall the Buyer or the Surviving Corporation be required to expend in excess of
two hundred percent (200%) of the annual premium currently paid by the Company
for such coverage (currently, approximately $45,000 per year). For a period of
three years after the Effective Time, the Buyer shall agree that any of the
Company's directors and officers who subsequently become directors or officers
of the Buyer shall be covered by the directors' liability insurance, if any,
applicable to the then current directors and officers of the Buyer.
(b) The Buyer agrees that, to the extent allowed by applicable law,
all rights to indemnification (including advancement of expenses) existing on
the date hereof in favor of the present officers and directors of Company prior
to the Effective Time as provided in Company's Articles of Incorporation or
bylaws and indemnification agreements shall survive the Merger and continue in
full force and effect for a period of six years following the Effective Time.
4.16 Relocation of Facilities. The Buyer agrees that after the Effective
------------------------
Time, it will use its best efforts to cause the Surviving Corporation to
maintain the former Company operations in the general area of Seattle,
Washington, for a period of at least one year. The Parties acknowledge the
timing and location of any possible relocation could be affected by lease
terminations and/or opportunities and/or unplanned business events or
occurrences. This Section 4.16 is not intended to confer upon any person, other
than the Parties to this Agreement, any rights or remedies hereunder.
4.17 Company Savings Plan. Prior to the Closing, the Company shall
--------------------
determine whether any participant in the Company Savings Plan received an
insufficient matching contribution as a result of the failure to comply with the
terms of the Company Savings Plan in effect in 1994. At the Closing, the
Company shall provide Buyer with a certification that either (i) no participant
received an insufficient matching contribution; or (ii) any shortfall in
matching contributions was eligible to be corrected and was corrected fully
pursuant to the Administrative Policy Regarding Self Correction of the Internal
Revenue Service; or (iii) any shortfall in matching contributions is eligible to
be corrected and either (x) was corrected fully pursuant to the Voluntary
Compliance
-41-
Resolution Program of the Internal Revenue Service, and an appropriate
compliance statement was issued by the Internal Revenue Service or (y) an
appropriate application for a compliance statement was submitted to the Internal
Revenue Service.
ARTICLE V.
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
--------------------------------------
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) (i) this Agreement and the Merger shall have received the
Requisite Stockholder Approval by the Company Stockholders and (ii) the issuance
of the Merger Shares shall have received the approval of the stockholders of the
Buyer;
(b) all applicable waiting periods (and any extensions thereof) under
the Xxxx-Xxxxx-Xxxxxx Act shall have expired or otherwise been terminated;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and remain in effect;
(d) (i) no action, suit or proceeding shall be pending or threatened
by any Governmental Entity wherein an unfavorable judgment, order, decree,
stipulation or injunction would (a) prevent consummation of any of the
transactions contemplated by this Agreement, (b) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (c)
affect adversely the right of the Buyer to own, operate or control any of the
assets and operations of the Surviving Corporation and the Subsidiaries
following the Merger, and no such judgment, order, decree, stipulation or
injunction shall be in effect, (ii) no action, suit or proceeding shall be
pending or threatened before any Governmental Entity, or before any arbitrator
pursuant to an agreement to arbitrate, by any party other than a Governmental
Entity in which it is reasonably likely that an unfavorable judgment, order,
decree, stipulation or injunction would result and in which such judgment,
order, decree, stipulation or injunction would (a) prevent consummation of any
of the transactions contemplated by this Agreement, (b) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation or (c) affect adversely the right of the Buyer to own, operate or
control any of the assets and operations of the Surviving Corporation and the
Subsidiaries following the Merger, and no such judgment, order, decree,
stipulation or injunction shall be in effect; and
-42-
(e) the Merger Shares shall have been authorized for listing on the
Nasdaq National Market upon official notice of issuance.
5.2 Conditions to Obligations of the Buyer and the Transitory Subsidiary.
--------------------------------------------------------------------
The obligation of each of the Buyer and the Transitory Subsidiary to consummate
the Merger is subject to the satisfaction of the following additional
conditions:
(a) the Company and the Subsidiaries shall have obtained all of the
waivers, permits, consents, approvals or other authorizations, and effected all
of the registrations, filings and notices, referred to in Section 4.2 (with
respect to the Company and any of its Subsidiaries);
(b) the representations and warranties of the Company set forth in
Article II shall be true and complete when made on the date hereof and shall be
true and complete as of the Effective Time as if made as of the Effective Time,
except for representations and warranties made as of a specific date, which
shall be true and complete as of such date, and except where failures of
representations to be true and complete, individually or in the aggregate, have
not had a Company Material Adverse Effect;
(c) the Company shall have performed or complied with in all material
respects its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Effective Time;
(d) the Company shall have delivered to the Buyer and the Transitory
Subsidiary a certificate (without qualification) to the effect that each of the
conditions specified in clauses (a)(i), (b) and (d) of Section 5.1 and clauses
(a) through (c) of this Section 5.2 is satisfied in all respects;
(e) the Buyer shall have received a "cold comfort" letter dated as of
a date not more than two days prior to the date that the Registration Statement
is declared effective and shall have received a subsequent similar letter dated
as of a date not more than two days prior to the Effective Time, from KPMG Peat
Marwick LLP, auditors for the Company, addressed to the Buyer and the Company in
a customary form reasonably satisfactory to the Buyer;
(f) the Buyer shall have received a letter from Ernst & Young LLP,
auditors for the Buyer, in a form reasonably satisfactory to the Buyer, dated
the Closing Date, to the effect that the Buyer shall be entitled to treat the
Merger as a "pooling of interests" for accounting purposes as provided for in
Accounting Principles Board Opinion No. 16 (it is a condition for Ernst & Young
LLP to deliver such letter that it receives a letter from KPMG Peat Marwick LLP
addressing "pooling of interests" treatment of the Merger);
-43-
(g) the Buyer shall have received an opinion from Xxxx and Xxxx LLP,
in a form reasonably satisfactory to the Buyer, dated the Closing Date, based
upon certain factual representations of the Company, the Transitory Subsidiary
and the Buyer reasonably requested by such counsel, to the effect that the
Merger will constitute a reorganization for federal income tax purposes within
the meaning of Section 368(a) of the Code;
(h) all actions to be taken by the Company in connection with the
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Buyer and the Transitory Subsidiary;
(i) (i) The Company Rights Agreement shall have been terminated or the
rights under the Company Rights Agreement shall not have become non-redeemable,
exercisable, distributed or triggered and (ii) the holders of the Company's
capital stock shall have no rights under the Company's Rights Agreement as a
result of the transactions contemplated by this Agreement; and
(j) the Buyer and the Transitory Subsidiary shall have received from
counsel to the Company an opinion with respect to the matters set forth in
Exhibit C attached hereto, addressed to the Buyer and the Transitory Subsidiary
---------
and dated as of the Closing Date.
5.3 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Buyer and the Transitory Subsidiary shall have obtained all of
the waivers, permits, consents, approvals or authorization, and effected all of
the registrations, filings and notices referred to in Section 4.2 (with respect
to the Buyer and the Transitory Subsidiary);
(b) the representations and warranties of the Buyer and the Transitory
Subsidiary set forth in Article III shall be true and complete when made on the
date hereof and shall be true and complete as of the Effective Time as if made
as of the Effective Time, except for representations and warranties made as of a
specific date, which shall be true and complete as of such date, and except for
representations and warranties made as of a specific date, which shall be true
and complete as of such date, except where failures of representations to be
true and complete, individually or in the aggregate, have not had a Buyer
Material Adverse Effect;
(c) each of the Buyer and the Transitory Subsidiary shall have
performed or complied with its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective Time;
-44-
(d) each of the Buyer and the Transitory Subsidiary shall have
delivered to the Company a certificate (without qualification) to the effect
that each of the conditions specified in clauses (a)(ii), and (e) of Section 5.1
(insofar as they relate to the Buyer or the Transitory Subsidiary) and clauses
(a), (b) and (c) of this Section 5.3 is satisfied in all respects;
(e) the Company shall have received an opinion from Xxxxxx Pepper and
Shefelman, in a form reasonably satisfactory to the Company, dated the Closing
Date, based upon certain factual representations of the Company, the Transitory
Subsidiary and the Buyer reasonably requested by such counsel, to the effect
that the Merger will constitute a reorganization for federal income tax purposes
within the meaning of Section 368(a) of the Code and no Company Stockholder who
received Merger Shares in exchange for Company Shares in the Merger shall
recognize taxable gain or loss upon such exchange;
(f) all actions to be taken by the Buyer and the Transitory Subsidiary
in connection with the consummation of the transactions contemplated hereby and
all certificates, opinions, instruments and other documents required to effect
the transactions contemplated hereby shall be reasonably satisfactory in form
and substance to the Company;
(g) the Buyer shall have received a letter from Ernst & Young LLP,
auditors for the Buyer, in a form reasonably satisfactory to the Buyer, dated
the Closing Date, to the effect that the Buyer shall be entitled to treat the
Merger as a "pooling of interests" for accounting purposes as provided for in
Accounting Principles Board Opinion No. 16 (it is a condition for Ernst & Young
LLP to deliver such letter that it receives a letter from KPMG Peat Marwick LLP
addressing "pooling of interests" treatment of the Merger); and
(h) the Company shall have received from the General Counsel of the
Buyer and the Transitory Subsidiary an opinion with respect to the matters set
forth in Exhibit D attached hereto, addressed to the Company and dated as of the
---------
Closing Date.
ARTICLE VI.
TERMINATION
6.1 Termination of Agreement. The Parties may terminate this Agreement
------------------------
prior to the Effective Time (whether before or after Requisite Stockholder
Approval or approval of the Buyer's stockholders) as provided below:
(a) the Parties may terminate this Agreement by mutual written
consent;
-45-
(b) the Buyer may terminate this Agreement by giving written notice to
the Company in the event the Company is in breach, and the Company may terminate
this Agreement by giving written notice to the Buyer and the Transitory
Subsidiary in the event the Buyer or the Transitory Subsidiary is in breach, of
any representation, warranty or covenant contained in this Agreement which has
either (i) a Company Material Adverse Effect, in the event of a termination by
the Buyer or (ii) a Buyer Material Adverse Effect, in the event of a termination
by the Company, and in each case, and such breach is not remedied within 10 days
of delivery of written notice thereof;
(c) any Party may terminate this Agreement by giving written notice to
the other Parties at any time after (i) the Company Stockholders have voted on
whether to approve this Agreement and the Merger in the event this Agreement and
the Merger failed to receive the Requisite Stockholder Approval or (ii) the
holders of the Buyer Common Stock have voted on whether to approve this
Agreement and the Merger in the event this Agreement and the Merger failed to
receive the approval of a majority of the shares of Buyer Common Stock entitled
to vote thereon;
(d) the Buyer may terminate this Agreement by giving written notice to
the Company if the Closing shall not have occurred on or before the 180th day
following the date of this Agreement by reason of the failure of any condition
precedent under Section 5.1 or 5.2 hereof (unless the failure results primarily
from a breach by the Buyer or the Transitory Subsidiary of any representation,
warranty or covenant contained in this Agreement);
(e) the Company may terminate this Agreement by giving written notice
to the Buyer and the Transitory Subsidiary if the Closing shall not have
occurred on or before the 180th day following the date of this Agreement by
reason of the failure of any condition precedent under Section 5.1 or 5.3 hereof
(unless the failure results primarily from a breach by the Company of any
representation, warranty or covenant contained in this Agreement);
(f) the Buyer or the Company may terminate this Agreement if (i) the
Board of Directors of the Company withdraws its recommendation of the Merger or
modifies such recommendation in a manner adverse to the Buyer as permitted by
the provisions of Section 4.3(f) or (ii) the Board of Directors of the Company
has not withdrawn its recommendation of the Merger or modified such
recommendation in a manner adverse to the Buyer as permitted by the provisions
of Section 4.3(f) and the Company Stockholders fail to adopt this Agreement and
approve the Merger at the Special Meeting (or at any adjournment thereof); or
(g) the Company may terminate this Agreement on or before the date of
the Company Special Meeting by giving written notice to the Buyer and the
Transitory Subsidiary upon the circumstances set forth in Section 1.5 (a)(iii).
-46-
6.2 Effect of Termination. If any Party terminates this Agreement
---------------------
pursuant to Section 6.1,all obligations of the Parties hereunder shall terminate
without any liability of any Party to any other Party (except for any liability
of any Party for breaches of this Agreement and except as set forth in Section
6.3 and Section 8.11) provided, however, that the confidentiality provisions
contained in the Confidentiality Agreement shall survive any such termination.
6.3 Termination Fees. Notwithstanding the foregoing, in the event of the
----------------
termination of this Agreement by the Buyer or the Company pursuant to Section
6.1(f)(i), the Company shall, immediately upon such termination, pay to the
Buyer in cash a termination fee in the amount of $6,000,000 plus an amount equal
to all of the Buyer's out-of-pocket expenses incurred in connection with the
transactions contemplated by this Agreement (including without limitation fees
and expenses of legal counsel, investment bankers and accountants) whether
incurred before or after the date of this Agreement ("Buyer Expenses") up to a
maximum aggregate amount of Buyer Expenses of $1,500,000. Notwithstanding the
foregoing, in the event of the termination of the Agreement by the Buyer or the
Company pursuant to Section 6.1(f)(ii), the Company shall immediately upon such
termination, pay to the Buyer in cash an amount equal to the Buyer Expenses up
to a maximum aggregate amount of Buyer Expenses of $1,500,000.
ARTICLE VII.
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------------------------------------- ----------------
Affiliates.........................................2.14(k)
Affiliate Agreement....................................4.9
Articles of Merger.....................................1.1
Buyer.........................................Introduction
Buyer Common Stock...............................1.5(a)(i)
Buyer Current Price............................1.5(a)(iii)
Buyer Expenses.........................................6.3
Buyer Material Adverse Effect..........................3.1
Buyer Reports..........................................3.5
Buyer Special Meeting...............................4.3(a)
Buyer Stock Value...............................1.5(a)(ii)
CERCLA.............................................2.22(a)
Certificates........................................1.7(a)
Closing................................................1.2
Closing Date...........................................1.2
Code..........................................Introduction
Company.......................................Introduction
Company Affiliates.....................................4.9
-47-
Company Customer Contracts.........................2.19(a)
Company Disclosure Schedule.....................Article II
Company Financial Statements...........................2.6
Company Intellectual Property......................2.12(a)
Company Licensed Software..........................2.12(e)
Company Material Adverse Effect........................2.1
Company Option Plans..................................1.10
Company Owned Software.............................2.12(d)
Company Purchase Plan.................................1.10
Company Rights.........................................2.2
Company Rights Agreement...............................2.2
Company Reports........................................2.6
Company Savings Plan..................................1.10
Company Shares...................................1.5(a)(i)
Company Special Meeting.............................4.3(a)
Company Software...................................2.12(g)
Company Stockholder.................................1.6(a)
Company Stock Option...............................4.13(a)
Composite Common Stock.........................1.5(a)(iii)
Composite Index Change.........................1.5(a)(iii)
Confidential Information...............................4.6
Confidentiality Agreement..............................4.6
Conversion Ratio.................................1.5(a)(i)
Dissenting Shares...................................1.6(a)
Effective Time.........................................1.1
Employee Benefit Plan..............................2.21(a)
Environmental Law..................................2.22(a)
ERISA..............................................2.21(a)
ERISA Affiliate....................................2.21(a)
Exchange Act...........................................2.4
Exchange Agent.........................................1.3
GAAP...................................................2.6
Governmental Entity....................................2.4
Xxxx-Xxxxx-Xxxxxx Act..................................2.4
Higher Offer........................................4.3(f)
Index Floor Price..............................1.5(a)(iii)
Intended Uses......................................2.13(g)
Materials of Environmental Concern.................2.22(b)
Merger.................................................1.1
Merger Shares....................................1.5(a)(i)
Most Recent Company Financial Statements...............2.6
Most Recent Fiscal Quarter End.........................2.7
Options................................................2.2
Ordinary Course of Business............................2.4
Party.........................................Introduction
Permits...............................................2.24
Prospectus/Proxy Statement..........................4.3(a)
Recapitalization.................................1.5(a)(i)
Registration Statement..............................4.3(c)
Requisite Stockholder Approval.........................2.3
SEC....................................................2.6
Securities Act.........................................2.2
Security Interest......................................2.4
Subsidiary.............................................2.4
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Surviving Corporation..................................1.1
Taxes...............................................2.9(a)
Tax Returns.........................................2.9(a)
Transitory Subsidiary.........................Introduction
Washington Act.........................................1.1
ARTICLE VIII.
MISCELLANEOUS
8.1 Press Releases and Announcements. No Party shall issue any press
--------------------------------
release or public disclosure relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by law or regulation (in which case the disclosing Party shall advise the other
Parties and provide them with a copy of the proposed disclosure prior to making
the disclosure).
8.2 No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that the provisions in
Article I concerning issuance of the Merger Shares are intended for the benefit
of the Company Stockholders and the provisions of Section 4.15 are intended for
the benefit of the Company officers and directors.
8.3 Entire Agreement. This Agreement (including the documents referred to
----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, with respect to the subject matter hereof; provided that the
Confidentiality Agreement shall remain in full force and effect until the
Effective Time and shall survive termination of this Agreement.
8.4 Succession and Assignment. This Agreement shall be binding upon and
-------------------------
inure to the benefit of and be enforceable by the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of its rights, interests, or obligations hereunder without the
prior written approval of the other Parties; provided that the Transitory
Subsidiary may assign its rights, interests and obligations hereunder to the
Buyer or a Subsidiary of the Buyer.
8.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Headings. The Section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
-49-
8.7 Notices. All notices, requests, demands, claims, and other
-------
communications hereunder shall be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly delivered two
business days after it is sent by registered or certified mail, return receipt
requested, postage prepaid, or one business day after it is sent via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
If to the Company:
Phamis, Inc.
0000 Xxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxxxx, 00000-0000
Attn: President
Copy to: Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxx Pepper & Shefelman
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
If to the Buyer or the Transitory Subsidiary:
IDX Systems Corporation
0000 Xxxxxxxxx Xxxx
P.O. Box 1070
Burlington, Vermont 05402-1070
Attn: President
Copy to:
Xxxxxx X. Xxxxx, Xx.,
IDX Systems Corporation
0000 Xxxxxxxxx Xxxx
P.O. Box 1070
Burlington, Vermont 05402-1070
Any Party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.
8.8 Governing Law. Except with respect to the corporate governance of the
-------------
Company, this Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Vermont without giving effect to any choice or
conflict law (whether of the State of Vermont or any other jurisdiction) that
-50-
would cause the application of the laws of any jurisdiction other than the State
of Vermont.
8.9 Amendments and Waivers. The Parties may mutually amend any provision
----------------------
of this Agreement at any time prior to the Effective Time; provided, however,
that any amendment effected subsequent to the Requisite Stockholder Approval
shall be subject to any restrictions contained in applicable law. No amendment
of any provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
8.10 Severability. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8.11 Expenses. Except as set forth in Section 6.3, each of the Parties
--------
shall bear its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby.
8.12 Specific Performance. Each of the Parties acknowledges and agrees
--------------------
that one or more of the other Parties would be damaged irreparably in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the
Parties agrees that the other Parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions of
Section 8.13), in addition to any other remedy to which it may be entitled, at
law or in equity.
-51-
8.13 Submission to Jurisdiction. Each of the Parties (a) submits to
--------------------------
the jurisdiction of any state or federal court sitting in Vermont in any action
or proceeding arising out of or relating to this Agreement, (b) agrees that all
claims in respect of the action or proceeding may be heard and determined in any
such court, and (c) agrees not to bring any action or proceeding arising out of
or relating to this Agreement in any other court unless injunctive relief is
being sought and the Party seeking injunctive relief desires to seek it in
another jurisdiction. Each of the Parties waives any defense of inconvenient
forum to the maintenance of any action or proceeding so brought and waives any
bond, surety or other security that might be required of any other Party with
respect thereto. Any Party may make service on another Party by sending or
delivering a copy of the process to the Party to be served at the address and in
the manner provided for the giving of notices in Section 8.7. Nothing in this
Section 8.13, however, shall affect the right of any Party to serve legal
process in any other manner permitted by law.
8.14 Construction. The language used in this Agreement shall be deemed to
------------
be the language chosen by the Parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any Party. Any
reference to any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated thereunder, unless
the context requires otherwise.
8.15 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
---------------------------------------
identified in this Agreement are incorporated herein by reference and made a
part hereof.
8.16 Nonsurvival of Representations, Warranties and Agreements. None of
---------------------------------------------------------
the representations, warranties and agreements contained in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Closing
and the Effective Time, except for the agreements contained in Sections 1.4,
1.6, 1.7, 1.8, 1.9, 4.11, 4.13, 4.15, 4.16, 6.2, 6.3, and the agreements of the
Affiliates of the Company delivered pursuant to Section 4.9.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
IDX SYSTEMS CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Title: President
----------------------------------
-52-
PENGUIN ACQUISITION CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------
Title: President
----------------------------------
PHAMIS, INC.
By: /s/ Xxxxx X. Sample
----------------------------------
Title: CEO
----------------------------------
-53-
AMENDMENT TO RIGHTS AGREEMENT
This is an AMENDMENT (the "Amendment"), to the Rights Agreement, dated as
of July 29, 1996 (the "Rights Agreement") between PHAMIS, Inc. (the "Company"),
and First Interstate Bank of Washington, N.A., (the "Rights Agent").
WHEREAS, the Rights Agreement specifies the terms of the Rights (as defined
therein); and
WHEREAS, the Company and the Rights Agent desire to amend the Rights
Agreement in accordance with Section 26 of the Rights Agreement;
NOW THEREFORE, in consideration of the premises and mutual agreements set
forth in the Rights Agreement and this Amendment, the parties hereby agree as
follows:
1. Section 3 of the Rights Agreement is amended to add a new Section 3(d)
at the end thereof as follows:
"Notwithstanding any other provision of this Agreement, neither the
execution of the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of March ___, 1997 and as amended from time to time, among the
Company, IDX Systems Corporation ("IDX"), and a wholly owned subsidiary of
IDX, nor the consummation of the Merger or grant of proxies provided for
therein in accordance with the terms of the Merger Agreement, will cause a
Stock Acquisition Date or a Distribution Date to occur or cause an event
set forth in Section 11(a)(ii) or Section 13 hereof to occur."
2. The term "Agreement" as used in the Rights Agreement shall be deemed
to refer to the Rights Agreement as amended hereby.
3. This Amendment shall be effective as of this date and, except as set
forth herein, the Rights Agreement shall remain in full force and effect and
shall be otherwise unaffected hereby.
4. This Amendment may be executed in two counterparts, each of which
shall be deemed an original, but both of which together shall constitute one and
the same instrument.
DATED as of March ___, 1997.
PHAMIS, Inc.
By:______________________________________
Name:_____________________________
Title:____________________________
-1-
FIRST INTERSTATE BANK OF WASHINGTON, N.A.
By:______________________________________
Name:_____________________________
Title:____________________________
-2-
Exhibit B
---------
AFFILIATE'S AGREEMENT
March 25, 1997
IDX Systems Corporation
0000 Xxxxxxxxx Xxxx
P.O. Box 1070
Xxxxxxxxxx, Xxxxxxx 00000
Dear Sirs:
An Agreement and Plan of Merger dated as of March 25, 1997 (the
"Agreement") has been entered into by and among IDX Systems Corporation (the
"Buyer" or "IDX"), Penguin Acquisition Corporation (the "Transitory Subsidiary")
and PHAMIS, Inc. (the "Company" or "PHAMIS"). The Agreement provides for the
merger of the Transitory Subsidiary with and into the Company (the "Merger").
In accordance with the Agreement, the Company Shares (as defined in this
Agreement) owned by the undersigned at the Effective Time (as defined in the
Agreement) shall be converted into shares of common stock, $.01 par value per
share, of the Buyer (the "Buyer Common Stock"), as described in the Agreement.
In consideration of the mutual agreements, provisions and covenants set
forth in the Agreement and hereinafter in this agreement, the undersigned
represents and agrees as follows:
1. Pooling Requirements.
--------------------
(a) The undersigned will not sell, transfer or otherwise dispose of,
or reduce his or its interest in or risk relating to, any Buyer Common Stock
issued to the undersigned pursuant to the Merger, or any Buyer Common Stock
issued to the undersigned upon exercise of any employee stock options or
warrants, until after such time as the Buyer has published (within the meaning
of Accounting Series Release No. 130, as amended, of the Securities and Exchange
Commission) financial results covering at least 30 days of combined operations
of the Company and the Buyer.
(b) For a period commencing 30 days prior to the Effective Time of the
Merger and ending on the earlier of the Effective Time of the Merger or the
termination of the Agreement, the undersigned will not sell, transfer or
otherwise dispose of, or reduce his or its interest in or risk relating to, any
shares of Company Shares presently owned or subsequently acquired by the
undersigned.
2. Rule 145. The undersigned will not offer, sell, pledge, transfer or
--------
otherwise dispose of any of the shares of Buyer Common
Stock issued to the undersigned in the Merger unless at such time either: (i)
such transaction shall be permitted pursuant to the provisions of Rule 145 under
the Securities Act of 1933 (the "Securities Act"), (ii) the undersigned shall
have furnished to the Buyer an opinion of counsel, satisfactory to the Buyer, to
the effect that no registration under the Securities Act would be required in
connection with the proposed offer, sale, pledge, transfer or other disposition;
or (iii) a registration statement under the Securities Act covering the proposed
offer, sale, pledge, transfer or other disposition shall be effective under the
Securities Act.
3. Legend. The undersigned understands that all certificates
------
representing the Buyer Common Stock deliverable to the undersigned pursuant to
the Merger shall, until the occurrence of one of the events referred to in
Section 2 above, bear a legend substantially as follows:
"The shares represented by this certificate may not be offered, sold,
pledged, transferred or otherwise disposed of except in accordance
with the requirements of the Securities Act of 1933, as amended, and
the other conditions specified in the Affiliates Agreement dated as of
March __, 1997 between the holder of this certificate and IDX, a copy
of which Agreement may be inspected by the holder of the certificate
at ____________________ or furnished by IDX to the holder of this
certificate upon written request and without charge."
The Buyer, in its discretion, may cause stop transfer orders to be placed
with its transfer agent with respect to the certificates for the shares of Buyer
Common Stock which are required to bear the foregoing legend.
4. Tax Matters.
-----------
(a) The undersigned acknowledges that the Merger is intended to
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
(b) The undersigned acknowledges that the Merger will not qualify as a
reorganization within the meaning of Section 368(a) of the Code unless the
current PHAMIS shareholders indirectly maintain a continuity of interest in the
business of PHAMIS by holding shares of IDX stock following the Merger. The
undersigned further acknowledges that this continuity-of-interest requirement
will be applied to the PHAMIS shareholders as a group and that, therefore, the
disposition by any other PHAMIS shareholder of PHAMIS stock prior to the Merger
or IDX stock during or after the Merger (including a disposition of shares by
dissenters to the Merger and a disposition of fractional shares for cash may
require that, in order to ensure that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of
-2-
the Code, the undersigned retain more shares of stock than otherwise would be
necessary if the continuity-of-interest requirement were applied to each PHAMIS
shareholder individually.
(c) The undersigned has not sold, exchanged, transferred, disposed of,
or received any shares of PHAMIS stock in contemplation of the Merger, and the
undersigned has no present intent to sell, exchange, transfer, dispose of, or
receive any shares of PHAMIS stock in contemplation of (but not in) the Merger;
nor has the undersigned entered into any discussions or negotiations with regard
to the possible sale, exchange, transfer, disposition, or receipt of any such
shares.
(d) The undersigned is not subject to any obligation to sell,
exchange, transfer, or dispose of all or any of the shares of IDX stock to be
received in the Merger, and the undersigned has not entered into any discussions
or negotiations with regard to the possible sale, exchange, transfer, or
disposition of all or any of such shares. The undersigned has no plan or intent
to sell, exchange, transfer, or dispose of all or any of the shares of IDX stock
to be received in the Merger, and the undersigned has no plan or intent to
engage in any transaction or arrangement that would reduce the undersigned's
risk of ownership in any way, including, without limitation, a short sale,
hedging transaction, or otherwise, with respect to all or any of such shares.
(e) The undersigned does not intend to take a position on any federal,
state, local, or other tax return that is inconsistent with the treatment of the
Merger as a reorganization within the meaning of Section 368(a) of the Code.
5. Miscellaneous.
-------------
(a) This agreement shall be governed by and construed in accordance
with the laws of the State of Vermont.
(b) This agreement shall be binding on the undersigned's successors
and assigns, including his heirs, executors and administrators.
The undersigned has carefully read this agreement and discussed its
requirements, to the extent the undersigned believed necessary, with its counsel
or counsel for the Buyer.
Very truly yours,
____________________________________________
Signature
____________________________________________
Print Name
-3-
ACCEPTED:
IDX
By: _________________________
Title: ______________________
Dated: ______________________
-4-
Exhibit C
---------
Form of Opinion of Counsel to the Company
-----------------------------------------
1. The Company is a corporation duly organized and validly existing under
the laws of the state of its incorporation. The Company has all requisite
corporate power and authority to carry on the businesses in which it has engaged
and to own and use the properties owned and used by it.
2. The authorized capital stock of the Company consists of 29,000,000
shares, par value $.0025, consisting of 25,000,000 shares of common stock and
4,000,000 shares of preferred stock. Of the preferred stock, 8,000 shares have
been designated as Series A Junior Participating Preferred Stock. All of the
issued and outstanding shares of capital stock of the Company are duly
authorized, validly issued, fully paid, nonassessable and free of all statutory
and, to the best of such counsel's knowledge other, preemptive rights. Except
as set forth on the Company Disclosure Schedule or as contemplated by the
Agreement, to the best of such counsel's knowledge, there are no outstanding or
authorized options, warrants, rights, contracts, calls, puts, rights to
subscribe, conversion rights or other agreements or commitments to which the
Company is a party or which are binding upon the Company providing for the
issuance, disposition or acquisition of any of its capital stock. All of the
issued and outstanding shares of capital stock of the Company were issued in
compliance with the registration requirements (or valid exemptions therefrom)
under the Securities Act.
3. The Company has all requisite corporate power and authority to execute
and deliver the Agreement and to perform its obligations thereunder. The
execution and delivery of the Agreement and the performance of the Agreement and
the consummation of the transactions contemplated thereby have been duly and
validly authorized by all necessary corporate action (including the Requisite
Stockholder Approval) on the part of the Company. The Agreement has been duly
and validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, subject to bankruptcy, insolvency and similar laws affecting the
rights of creditors generally.
4. Except as set forth in the Disclosure Schedule, neither the execution
and delivery by the Company of the Agreement, nor the consummation by the
Company of the transactions contemplated thereby, (i) conflicts with or violates
any provision of the Articles of Incorporation or bylaws of the Company, (ii)
requires on the part of the Company or any Subsidiary any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (iii) to
the best knowledge of such counsel, conflicts with, results in a breach of,
constitutes (with or without due
notice or lapse of time or both) a default under, results in the acceleration
of, creates in any party the right to accelerate, terminate, modify or cancel or
requires any notice, consent or waiver under, any contract, lease, license or
other agreement or instrument filed as an exhibit to the Company Reports, (iv)
to the best knowledge of such counsel, results in the imposition of any Security
Interest upon any assets of the Company or any Subsidiary or (v) violates any
statute, rule or regulation, or any order, writ, injunction or decree known to
such counsel, that is applicable to the Company, any Subsidiary or any of their
properties or assets (other than federal or state securities laws).
5. To the knowledge of such counsel, and except as set forth in Section
2.18 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries (i) is subject to any unsatisfied judgment, order, decree,
stipulation or injunction or (ii) is a party to, or, is threatened to be made a
party to any complaint, action, suit, proceeding, hearing or investigation of or
in any court or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator that would have a Company Material Adverse
Effect.
6. Upon the filing of the Articles of Merger with the Secretary of State
of Washington, the Merger will be effective under Washington law.
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Exhibit D
---------
Form of Opinion of General Counsel to the Buyer
and the Transitory Subsidiary
-----------------------------------------------
1. Each of the Buyer and the Transitory Subsidiary is a corporation
validly existing under the laws of the state of its incorporation. As to the
Transitory Subsidiary, such opinions shall be based upon the opinion of
Washington Counsel and the opinion of General Counsel to the Buyer will disclaim
expertise in the area of Washington law. The Buyer has all requisite corporate
power and authority to carry on the business in which it is engaged and to own
and use the properties owned and used by it.
2. The authorized capital stock of the Buyer consists of 55,000,000
shares of stock, of which 50,000,000 shares are designated Common Stock, par
value $0.01 per share, and 5,000,000 shares are designated Preferred Stock, par
value $0.01 per share. All of the issued and outstanding shares of Buyer Common
Stock are duly authorized, validly issued, fully paid, and nonassessable. All
of the Merger Shares will be, when issued in accordance with the Agreement, duly
authorized, validly issued, fully paid and nonassessable.
3. Each of the Buyer and the Transitory Subsidiary has all requisite
corporate power and authority to execute and deliver the Agreement and to
perform its obligations thereunder. The execution and delivery of the Agreement
and the performance of the Agreement and the consummation of the transactions
contemplated thereby have been duly and validly authorized by all necessary
corporate action on the part of the Buyer and the Transitory Subsidiary. The
Agreement been duly and validly executed and delivered by the Buyer and the
Transitory Subsidiary and constitute valid and binding obligations of the Buyer
and the Transitory Subsidiary, enforceable against the Buyer and the Transitory
Subsidiary in accordance with their terms, subject to bankruptcy, insolvency and
similar laws affecting the rights of creditors generally.
4. Except as set forth in the Agreement, neither the execution and
delivery of the Agreement, nor the consummation of the transactions contemplated
thereby, (i) conflicts with or violates any provision of the Articles of
Incorporation or bylaws of the Buyer or the Transitory Subsidiary, (ii) requires
on the part of the Buyer or the Transitory Subsidiary any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (iii) to
the best knowledge of such counsel, conflicts with, results in a breach of,
constitutes (with or without due notice or lapse of time or both) a default
under, or requires any notice, consent or waiver under, any contract, lease,
license or other agreement or instrument filed as an Exhibit to the Buyer
Reports, or (iv) violates any statute, rule or regulation, or any order, writ,
injunction or decree known to such counsel, that is
applicable to the Buyer or the Transitory Subsidiary or any of their properties
or assets (other than federal or state securities law).
5. To the knowledge of such counsel, neither the Buyer nor any of its
Subsidiaries (i) is subject to any unsatisfied judgment, order, decree,
stipulation or injunction or (ii) is a party to, or, is threatened to be made a
party to any complaint, action, suit, proceeding, hearing or investigation of or
in any court or administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator that would have a Buyer Material Adverse
Effect.
-2-
