Exhibit 10(ah)
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is entered into as
of July 14, 1997, by and among Merit Behavioral Care Corporation, a Delaware
corporation ("Parent"), Merit Merger Corp., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"), and CMG Health, Inc., a Maryland
corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company each have determined that it is in the best interests of their
respective stockholders for Merger Sub to merge with and into the Company upon
the terms and subject to the conditions of this Agreement (the "Merger"), and
such Boards of Directors have approved such Merger, pursuant to which each share
of common stock, par value $.00333 per share, of the Company ("Company Common
Stock") issued and outstanding immediately prior to the Effective Time of the
Merger, and each share of preferred stock, par value $.00333 per share, of the
Company ("Company Preferred Stock") issued and outstanding immediately prior to
the Effective Time, will be converted into the right to receive the
consideration set forth in Article III hereof;
WHEREAS, concurrently with the execution of this Agreement, and as an
inducement to Parent to enter into this Agreement, certain stockholders of the
Company have entered into Stockholder Support Agreements (the "Stockholder
Support Agreements") with the Company and Parent, pursuant to which such
stockholders have, among other things, represented that they will vote all
voting securities of the Company beneficially owned by them in favor of approval
and adoption of this Agreement and the transactions contemplated hereby and,
further, that they agree, among other things, to take any further actions as
stockholders as may be required to approve this Agreement and the transactions
contemplated hereby; and
WHEREAS, each of Parent, Merger Sub and the Company desires to make
certain representations, warranties, covenants and agreements in connection with
the Merger and to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing, and the mutual
representations, warranties, covenants and agreements contained herein, the
parties hereto do hereby agree as follows:
ARTICLE I.
THE MERGER
1.1. The Merger.
Subject to the terms and conditions set forth in this Agreement, and in
accordance with the Maryland General Corporation Law (the "MGCL") and the
General Corporation Law of the State of Delaware (the "DGCL"), Merger Sub shall
be merged with and into the Company at the Effective Time. As provided in and
subject to Section 1.4 hereof, following the Effective Time, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation") and shall succeed to and
assume all the rights and obligations of Merger Sub and the Company in
accordance with the MGCL. The Merger shall have the effect set forth in Section
3-114 of the MGCL and Section 252 of the DGCL.
1.2. The Closing.
(a) The closing of the Merger (the "Closing") will take place at 10:00 a.m.
Eastern Time as soon as practicable following the satisfaction or waiver of all
of the conditions set forth in Article XII hereof (the "Closing Date"), at the
offices of Xxxxxx & Xxxxxxx, New York, New York, unless another date or place is
agreed to in writing by the parties hereto.
(b) At the Closing, the Company shall deliver or cause to be delivered to Parent
the following:
(i) Officers' Certificate. (A) The certificate required to be delivered by the
Chief Executive Officer of the Company pursuant to Section 12.2(q) and (B) the
certificate required to be delivered by the Chief Financial Officer of the
Company pursuant to Section 12.2(r).
(ii) Certificates of Good Standing. (A) A certificate of good standing for the
Company from the State Department of Assessments and Taxation of the State of
Maryland; and (B) certificates of good standing (or equivalent certification)
for each of the entities listed in Sections 4.2(a) and 4.2(b) of the Company
Disclosure Schedule from their respective states of formation.
(iii) Secretary's Certificate. A certificate, executed by the Secretary of the
Company, dated as of the Closing Date, which certifies the continued
effectiveness without modification since the date hereof of resolutions adopted
by the members of the Board of Directors of the Company duly authorizing the
execution, delivery and performance of this Agreement, the other agreements
referred to herein and the transactions contemplated hereby and thereby, the
continued effectiveness without modification since the date hereof of
resolutions adopted by the stockholders of the Company duly approving the
Merger, and such other matters as may be reasonably requested by Parent.
(iv) Opinions of Counsel.
(A) Opinions of Skadden, Arps, Slate, Xxxxxxx & Xxxx (Illinois), counsel to the
Company, dated the Closing Date, addressing the matters set forth on Exhibit
1.2(b)(iv)(A).
(B) An opinion of Xxxx X. Xxxxxx, Esq., Vice President of Mergers and
Acquisitions and General Counsel of the Company, dated the Closing Date,
addressing the matters set forth on Exhibit 1.2(b)(iv)(B).
(v) Director Resignations. Resignations of all members of the Board of Directors
of the Company and each Company Subsidiary, effective as of the Closing.
(vi) Stockholders Agreement. An agreement entered into by and among the ACR
Beneficiaries, certain stockholders of Parent and Parent, effective as of the
Closing Date (the "Stockholders Agreement"), which Stockholders Agreement shall
be substantially in the form attached as Exhibit 1.2(b)(vi) hereto, fully
executed by such holders.
(vii) Escrow Agreement. An escrow agreement, dated as the Closing Date (the
"Escrow Agreement"), by and between the ACR Representative and NationsBank,
N.A., as escrow agent (the "Escrow Agent"), which Escrow Agreement shall be
substantially in the form of Exhibit 1.2(d)(vii) hereto, fully executed by the
parties thereto.
(c) At the Closing, Parent shall deliver or cause to be delivered to those
holders of the Exchanging Company Shares who have complied with Section 3.3 the
Merger Consideration set forth in clause (i) of Section 3.1(b) in immediately
available funds.
(d) At the Closing, Parent shall deliver or caused to be delivered to the
Company the following:
(i) Officers' Certificates. The certificates required to be delivered by the
Chief Executive Officers of Parent and Merger Sub pursuant to Section 12.3(f).
(ii) Certificate of Good Standing. Certificates of good standing for Parent and
Merger Sub from the Secretary of State of the State of Delaware.
(iii) Secretaries' Certificates. Certificates, executed by the Secretaries of
Parent and Merger Sub, dated as of the Closing Date, which certify the continued
effectiveness without modification since the date hereof of the resolutions
adopted by the directors of Parent and Merger Sub, respectively, duly
authorizing the execution, delivery and performance of this Agreement, the other
agreements referred to herein and the transactions contemplated hereby and
thereby, and such other matters as may be reasonably requested by the Company.
(iv) Stockholders Agreement. The Stockholders Agreement, fully executed by
Parent and those stockholders of Parent that are a party thereto.
(v) Opinion of Counsel. An opinion of Xxxxxxxx, Xxxxxx & Finger, special
Delaware counsel to Parent, dated the Closing Date, addressing the matters set
forth on Exhibit 1.2(d)(v).
(vi) Opinion of General Counsel. An opinion of Xxxxxxx X. Xxxxxxx, Esq.,
Executive Vice President -- Mergers & Acquisitions and General Counsel of
Parent, dated the Closing Date, addressing the matters set forth on Exhibit
1.2(d)(vi).
1.3. Effective Time.
Subject to the provisions of this Agreement, the parties shall file (i) articles
of merger (the "Maryland Articles of Merger") executed in accordance with the
relevant provisions of the MGCL and (ii) a certificate of merger (the "Delaware
Certificate of Merger") executed in accordance with the relevant provisions of
the DGCL and shall make all other filings or recordings required under the MGCL
and the DGCL on the Closing Date. The Merger shall become effective at the
latest of such time as (i) the Maryland Articles of Merger are duly filed with
the State Department of Assessments and Taxation of the State of Maryland, (ii)
the Delaware Certificate of Merger is filed with the Secretary of State of the
State of Delaware, or (iii) at such other time as the Company and Parent shall
agree should be specified in the Maryland Articles of Merger and the Delaware
Certificate of Merger (the "Effective Time").
1.4. Effect of the Merger.
When the Merger has been effected, the separate existence of Merger Sub shall
cease, the Surviving Corporation shall have all of the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of
a corporation organized under Maryland law, the Surviving Corporation shall
thereupon and thereafter possess all the rights, privileges, immunities and
franchises of a public as well as of a private nature of Merger Sub and the
Company (together, the "Constituent Corporations"); all property, real, personal
and mixed, and all debts due on whatever account, including subscriptions to
shares and all other choses in action, and all and every other interest, of or
belonging to or due each of the Constituent Corporations, shall be taken and
deemed to be transferred to and vested in the Surviving Corporation without
further act or deed. The Surviving Corporation shall thenceforth be responsible
and liable for all liabilities and obligations of each of the Constituent
Corporations so merged; and any claim existing or action or proceeding pending
by or against either of the Constituent Corporations may be prosecuted as if the
Merger had not taken place, or the Surviving Corporation may be substituted in
its place. Neither the rights of creditors nor any liens upon the respective
properties of the Constituent Corporations and the Surviving Corporation shall
be impaired by the Merger, all with the effect set forth in the MGCL and the
DGCL.
ARTICLE II.
CHARTER, BYLAWS, DIRECTORS AND
OFFICERS OF THE SURVIVING CORPORATION
2.1. Charter of the Surviving Corporation.
The charter of the Company, as in effect immediately prior to the Effective
Time, shall be the charter of the Surviving Corporation from and after the
Effective Time and until thereafter amended as provided by law.
2.2. Bylaws of the Surviving Corporation.
The Bylaws of the Company as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation from and after the Effective
Time and until thereafter altered, amended or repealed in accordance with the
laws of the State of Maryland, the charter of the Company and the said Bylaws.
2.3. Directors of the Surviving Corporation.
The Board of Directors of the Surviving Corporation shall be comprised of the
directors of Merger Sub immediately prior to the Effective Time until their
respective successors are duly elected and qualified. The Company shall cause
each member of its Board of Directors and of its subsidiaries, and each other
member of the Board of Directors of a Group Entity which is identified by Parent
in writing prior to the Effective Time, to tender his or her resignation prior
to the Effective Time, each such resignation to be effective as of the Effective
Time.
2.4. Officers of the Surviving Corporation.
The officers of the Company immediately prior to the Effective Time shall be the
officers of the Surviving Corporation until their respective successors are duly
elected and qualified.
ARTICLE III.
EFFECT OF THE MERGER ON CAPITAL STOCK
3.1. Effect on Capital Stock.
As of the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any shares of Company Common Stock or Company Preferred
Stock or any holder of shares of capital stock of Merger Sub:
(a) Capital Stock of Merger Sub. Each issued and outstanding share of capital
stock of Merger Sub shall be converted into and become one fully paid and
nonassessable share of common stock, par value $.00333 per share, of the
Surviving Corporation.
(b) Conversion of the Company Common Stock. Each issued and outstanding share of
Company Common Stock shall be converted into the right to receive, subject to
any applicable withholding taxes, the following (collectively, the "Merger
Consideration"):
(i) a cash amount equal to the Cash Price (as calculated below, subject to
recalculation pursuant to the terms of Section 3.3.1); and
(ii) provided that the holder of such share of Company Common Stock is a party
to the Stockholders Agreement, one (1) right to the additional consideration set
forth in Section 3.7 (each, an "Additional Consideration Right"); each holder of
an Additional Consideration Right being deemed herein an "ACR Beneficiary."
As used herein, the "Cash Price" shall be calculated as follows:
Cash Price = [$51,500,000 +.5 (AEPUO) + AEPFO + AEPVO - .5 (ADJ) - EA - EX]
M246 [.5 (UO) + CS + VO + FO]
The abbreviations used in the formula above shall have the following meanings:
ADJ shall be the amount designated as the "Adjustment Amount"
on Exhibit 3.1(b).
AEPFO shall be an amount equal to the aggregate exercise
prices of all Frozen Options.
AEPUO shall be an amount equal to the aggregate exercise
prices of all Unvested Options.
AEPVO shall be an amount equal to the aggregate exercise
prices of all Vested Options.
CS shall be the number of outstanding shares of Company Common
Stock immediately prior to the Effective Time, deeming the
Company Preferred Stock to have been converted into Company
Common Stock at a conversion rate of one share of Company
Common Stock for each share of Company Preferred Stock.
EA shall be an amount equal to $60,000 (the "Escrow Amount"),
which shall represent the amount deposited into the Escrow
Account pursuant to Section 10.6 hereof.
EX shall be the amount designated as the "Excess Amount" on
Exhibit 3.1(b).
FO shall be the number of shares of Company Common Stock for
which Stock Options issued under the 1996 Option Plan which
are not vested immediately prior to or at the Effective Time
but which, for a period of twelve months after the Effective
Time, are subject to vesting upon the happening of certain
events in accordance with the terms of the agreements and
instruments governing such Stock Options (each, a "Frozen
Option").
UO shall be the number of shares of Company Common Stock for
which Stock Options were granted in 1995 under the 1994 Option
Plan which are not vested immediately prior to the Effective
Time but which, upon the Effective Time, consistent with the
terms of the agreements and instruments governing such Stock
Options, have been vested by action of the Board of Directors
of the Company and, in accordance with Section 3.2 hereof,
converted into the right to receive the Merger Consideration
(each, an "Unvested Option").
VO shall be the number of shares of Company Common Stock for
which Stock Options which are either (i) vested immediately
prior to the Effective Time (without giving effect to the
Merger or the Stockholder Support Agreements) or (ii) vested
at the Effective Time pursuant to the terms of the 1996 Option
Plan (each, a "Vested Option").
(c) Conversion of the Company Preferred Stock. Each issued and outstanding share
of Company Preferred Stock shall be converted into the right to receive the
Merger Consideration such holder would have received if such holder had
converted its shares of Company Preferred Stock into Company Common Stock
immediately prior to the Effective Time. The conversion rate of the Company
Preferred Stock is and shall be one share of Company Common Stock for each share
of Company Preferred Stock.
(d) Status of the Shares. As of the Effective Time, all shares of Company Common
Stock and Company Preferred Stock shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any Company Common Stock or Company Preferred
Stock (collectively, "Exchanging Company Shares") shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration to be
paid in consideration therefor upon surrender of such certificate in accordance
with Section 3.3, without interest.
(e) Dissenters' Rights. Notwithstanding any provision of this Agreement to the
contrary, and subject to the provisions of the Stockholder Support Agreements,
any Exchanging Company Shares outstanding immediately prior to the Effective
Time held by a holder who has complied with the provisions of Sections
3-203(a)(1)(ii) and 3-203(a)(2) of the MGCL and as of the Effective Time has not
withdrawn or forfeited such right to such appraisal shall not be converted into
or represent a right to receive the Merger Consideration, but the holder thereof
shall only be entitled to such rights as are granted by the MGCL. If a holder of
Exchanging Company Shares who demands appraisal of those Exchanging Company
Shares under the MGCL shall effectively withdraw or forfeit (through failure to
perfect or otherwise) the right to appraisal, then, as of the Effective Time or
the occurrence of such event, whichever last occurs, those Exchanging Company
Shares shall be converted into and represent only the right to receive the
Merger Consideration as provided in Section 3.1(b)(i), without interest, upon
the surrender of the certificate or certificates representing those Exchanging
Company Shares. The Company shall give Parent (i) prompt notice of any written
demands for appraisal of any Exchanging Company Shares, attempted withdrawals of
such demands, and any other instruments served pursuant to the MGCL received by
the Company relating to stockholders' rights of appraisal and (ii) the
opportunity to direct all negotiations and proceedings with respect to demands
for appraisal under the MGCL. The Company shall not, except with the prior
written consent of Parent, voluntarily make any payment with respect to any
demands for appraisals of capital stock of the Company, offer to settle or
settle any such demands or approve any withdrawal of any such demands.
(f) Calculation of Cash Price. On the business day immediately preceding the
Closing Date, the Company's Chief Financial Officer shall deliver to Parent a
true, correct and complete statement of each of the items set forth in the
definition of Cash Price.
(g) Equity Rights. As used in this Agreement, "Equity Rights" shall mean any
options, warrants, rights of conversion (including under the Company Preferred
Stock) or agreements, arrangements or commitments (whether or not in writing)
obligating the Company (with or without consideration and whether or not
presently exercisable or convertible) to issue or sell shares of its capital
stock.
3.2. Stock Options.
(a) The Board of Directors of the Company (or the proper committee thereof), by
amendment of the appropriate Stock Option plan or by resolution of the Board of
Directors, as may be appropriate, shall cause, immediately prior to the
Effective Time, each unvested Stock Option (other than Frozen Options), which is
outstanding immediately prior to the Effective Time, without any action on the
part of the holder thereof, to become fully vested (in the case of all
outstanding Stock Options granted under the 1992 Option Plan, the 1994 Option
Plan and the 1995 Option Plan and those Stock Options granted under the 1996
Option Plan and listed in Attachment 4.4(2) of the Company Disclosure Schedule
in the columns headed "1996 Options" - "10%" or "COC") or canceled (in the case
of Stock Options granted under the 1996 Option Plan, which are not Frozen
Options and which are not referred to in the immediately preceding
parenthetical) pursuant to the terms thereof, and if vested, converted (along
with each otherwise Vested Option outstanding immediately prior to the Effective
Time) into the right to receive, less applicable withholding taxes and without
interest, (A) cash in an amount equal to the difference (if positive) between
(x) the Cash Price and (y) the exercise price of such option, provided, if the
difference between (x) the Cash Price and (y) the exercise price of such option
is zero or less, such option shall, immediately prior to the Effective Time, and
without any action on the part of the holder thereof, be canceled and no
consideration shall be issued in exchange therefor; and (B) if the holder of
such Stock Option becomes a party to the Stockholders Agreement, in respect of
each share of Company Common Stock which such holder had the right to acquire at
an exercise price per share of Company Common Stock which is less than the Cash
Price, one Additional Consideration Right. The Company shall pay amounts due to
the holders of Stock Options under this Section 3.2(a) immediately prior to the
Effective Time. As used herein, "Stock Option" shall mean stock options issued
pursuant to the CMG Health, Inc. Stock Option Plan, dated July 1, 1992 (the
"1992 Option Plan"), the CMG Health, Inc. Non-Qualified Stock Option Plan, dated
July 1, 1994 (the "1994 Option Plan"), the CMG Health, Inc. Non-Qualified
Non-Employee Director's Stock Option Plan, dated February 1, 1995 (the "1995
Option Plan"), and the Performance Equity Incentive Plan, amended and restated
as of November 1, 1996 (the "1996 Option Plan").
(b) If at any time during the twelve month period beginning at the Effective
Time, a Frozen Option shall have its vesting accelerated pursuant to the terms
of the 1996 Option Plan, such Frozen Option shall be converted, as of the date
of the event effecting such acceleration, into the right to receive, less
applicable withholding taxes and without interest, (A) cash in an amount equal
to the difference (if positive) between (x) the Cash Price and (y) the exercise
price of such Frozen Option, provided, if the difference between (x) the Cash
Price and (y) the exercise price of such Frozen Option is zero or less, such
Frozen Option shall, without any action on the part of the holder thereof, be
canceled and no consideration shall be issued in exchange therefor; and (B) if
the holder of such Frozen Option becomes a party to the Stockholders Agreement,
in respect of each share of Company Common Stock which such holder had the right
to acquire at an exercise price per share of Company Common Stock which is less
than the Cash Price, one Additional Consideration Right. The Surviving
Corporation shall pay amounts due to the each holder of Frozen Options under
this Section 3.2(b) within five (5) business days following the receipt by the
Surviving Corporation of an agreement, fully executed by such holder, releasing
the Surviving Corporation from any and all liabilities and obligations to such
holder arising under the 1996 Option Plan and providing that the consideration
to be paid such holder pursuant to this Section 3.2(b) constitutes full and
complete payment in respect of such holder's Frozen Options.
3.3. Exchange of Certificates; Procedures.
(a) Immediately following the Effective Time, each record holder of any
certificate or certificates which, immediately prior to the Effective Time,
represented outstanding Exchanging Company Shares (the "Certificates") whose
Exchanging Company Shares were converted into the right to receive a portion of
the Merger Consideration shall be entitled to surrender its Certificates to
Parent for cancellation in exchange for the Merger Consideration and, subject to
receipt of such certifications as Parent may reasonably request, Parent hereby
agrees to cause such Merger Consideration to be paid to such person at such
time; provided, however, the rights represented by the Additional Consideration
Rights shall be uncertificated and be evidenced only by Section 3.7 hereof. The
Litigation Shares shall be issued to the ACR Beneficiaries at the Effective
Time, in the amounts and subject to the provisions set forth in Section 3.7(c)
hereof, and shall be delivered at the time and in the manner set forth in the
preceding sentence with respect to the right to receive Merger Consideration
generally. If any stockholder shall fail to surrender its Certificates promptly
following the Effective Time, Parent shall send to such stockholder notice of
the Merger and instructions for use in effecting the surrender of the
Certificates in exchange for the stockholder's pro rata share of the Merger
Consideration and the holder of such Certificates shall be entitled to receive
in exchange therefor solely the stockholder's pro rata share of the Merger
Consideration less any applicable stock transfer taxes (whether imposed on such
stockholder or on Parent) and such Certificates shall forthwith be canceled. No
interest shall be paid or accrued for the benefit of holders of the Certificates
on the consideration payable upon the surrender of the Certificates. It shall be
a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise be in proper form for transfer. Notwithstanding the
foregoing, no party hereto shall be liable to a holder of Exchanging Company
Shares for any cash or interest delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws. If any Certificates
shall not have been surrendered prior to two years after the Effective Time (or
immediately prior to such earlier date on which any payment in respect hereof
would otherwise escheat to or become the property of any governmental unit or
agency), the payment in respect of such Certificates shall, to the extent
permitted by applicable Law, become the property of the Surviving Corporation,
free and clear of all claims of interest of any person previously entitled
thereto and any holders of Certificates who have not theretofore complied with
this Article III shall thereafter look only to the Surviving Corporation for the
Merger Consideration with respect to the Exchanging Company Shares formerly
represented thereby to which such holders are entitled pursuant to this Article
III.
(b) From and after the Effective Time, there shall be no transfers on the share
transfer books of the Surviving Corporation of the Exchanging Company Shares
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
payment, they shall be canceled and exchanged for the Merger Consideration in
accordance with the procedures set forth in this Section 3.3 and Section 3.1.
3.3.1. Recalculation of Cash Price.
Upon the twelve month anniversary of the Effective Time, the Cash Price shall be
recalculated, treating as never having been outstanding each Frozen Option that
has subsequently been terminated or cancelled without consideration in
accordance with its terms, and any portion of the Cash Price not previously
distributed by the Surviving Corporation which would, based upon such
recalculation, have been originally due in respect of Vested Options and
Unvested Options (pursuant to Section 3.2) and Exchanging Company Shares
(pursuant to Section 3.3), shall be distributed (without interest and subject to
applicable withholding taxes) promptly by the Surviving Corporation in respect
of (i) each such Stock Option and (ii) each Exchanging Company Share entitled to
receive Merger Consideration pursuant to the terms hereof.
3.4. No Further Rights in Exchanging Company Shares. All Merger Consideration
received by any stockholder pursuant to this Agreement shall be deemed to have
been delivered and received in full satisfaction of all rights pertaining to
such stockholder's Exchanging Company Shares. At the Effective Time, the holders
of Certificates shall cease to have any rights with respect to such shares
(other than such rights as they may have as dissenting stockholders under the
MGCL), and their sole right shall be to receive the Merger Consideration.
Dissenting stockholders shall have the rights accorded by the MGCL.
3.5. Lost Certificates.
Notwithstanding the provisions of Section 3.3, in the event any Certificate
which immediately prior to the Effective Time represented outstanding Exchanging
Company Shares has been lost, stolen or destroyed (a "Lost Certificate"), upon
the making of an affidavit of that fact by the person claiming such Lost
Certificate to be lost, stolen or destroyed and an agreement to indemnify Parent
against any claim that may be made against it with respect to such Certificate,
Parent will deliver the Merger Consideration to which the Exchanging Company
Shares were entitled in respect of such Lost Certificate.
3.6. Withholding Rights.
Parent shall be entitled to deduct and withhold from the Merger Consideration or
Additional Consideration Rights otherwise payable pursuant to this Agreement to
any holder of Exchanging Company Shares or any Stock Options such amounts as
Parent is required to deduct and withhold with respect to the making of such
payment under the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder (the "IRC"), or any provisions of state, local or foreign
tax law. To the extent that amounts are so withheld by Parent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of the Exchanging Company Shares in respect of which such
deduction and withholding was made.
3.7. Additional Consideration Rights.
(a) General. Each Additional Consideration Right shall represent only a right to
receive:
(i) a cash payment (the "CHAMPUS Earn-Out Payment") from Parent, as provided and
subject to the terms set forth in Section 3.7(b).
(ii) a pro rata portion of 750,000 shares (the "Litigation Condition Shares") of
common stock, par value $.01 per share, of Parent ("Parent Common Stock"), as
provided and subject to the terms set forth in Section 3.7(c);
(iii) a pro rata portion of up to 750,000 shares of Parent Common Stock (the
"CHAMPUS Condition Shares" and together with the Litigation Condition Shares,
the "Parent Shares"), as provided and subject to the terms set forth in Section
3.7(d);
(iv) a cash payment (the "State Earn-Out Payment") from Parent, as provided and
subject to the terms set forth in Section 3.7(e);
(v) the pro rata right to receive amounts on deposit in the Escrow Account,
pursuant to the terms of the Escrow Agreement; and
(vi) a cash payment, as provided and subject to the terms set forth in Section
3.7(k).
(b) CHAMPUS Earn-Out Payment.
(i) The amount of any CHAMPUS Earn-Out Payment payable with respect to each
Additional Consideration Right shall be equal to the aggregate CHAMPUS Earn-Out
Payment payable, calculated as provided on Exhibit 3.7(b), divided by the total
number of Additional Consideration Rights outstanding (the "ACR Denominator") as
of the third business day prior to the date an Earn-Out Statement is first sent
to the ACR Beneficiaries; provided, however, that if the Earn-Out Payment Date
occurs prior to the twelve month anniversary of the Effective Time, (A) the ACR
Denominator shall be adjusted for purposes of calculating the amount of the
CHAMPUS Earn-Out Payment payable to each ACR Beneficiary pursuant to this
Section 3.7(b) by adding an amount equal to "FO" (as used in the definition of
Cash Price) to the ACR Denominator, and (B) if at any time from and after the
Earn-Out Payment Date, a Frozen Option shall have its vesting accelerated
pursuant to the terms of the 1996 Option Plan, such Frozen Option shall be
converted into the right to receive, if the holder of such Frozen Option is an
ACR Beneficiary, the amount payable with respect to each Additional
Consideration Right as calculated hereinabove, which shall be payable at the
time, and only if, a payment is due to such holder pursuant to Section 3.2(b).
Upon the twelve month anniversary of the Effective Time, any CHAMPUS Earn-Out
Payment not previously paid pursuant to the terms of this Section 3.7(b) shall
be paid to all ACR Beneficiaries, pro rata in accordance with the number of
Additional Consideration Rights held by each ACR Beneficiary.
(ii) Not later than the latest of (x) thirty (30) days following the date of
final resolution with respect to the bid price adjustment provisions of the
CHAMPUS Regions 3 and 4 request for proposals of claims paid during the data
collection period (i.e., the twelve (12) month period ended June 30, 1996) under
the CHAMPUS Regions 3 and 4 program (such final resolution being deemed to occur
upon (A) the acceptance by Choice Behavioral Health Partnership ("Choice") of
the bid price adjustment of the Office of CHAMPUS ("OCHAMPUS") either by (1) the
settlement of such bid price adjustment by Humana Military Healthcare Services,
Inc. ("Humana MHS") and OCHAMPUS, or (2) Humana MHS's decision not to, or
failure to timely, appeal such final bid price adjustment determination by
OCHAMPUS (which settlement or decision is accepted by Choice) or (B) Humana
MHS's proposal to limit the impact of such bid price adjustment determination
upon Choice (which proposal is accepted by Choice)), (y) the date Humana MHS and
Choice complete all risk sharing and other calculations required for Choice to
determine its profit generated from the CHAMPUS 3/4 Subcontract for the first
year of service delivery thereunder and reflecting the results to the bid price
adjustment described above and (z) April 30, 1998, Parent shall prepare and
deliver to the ACR Beneficiaries a statement (the "Earn-Out Statement") setting
forth the calculation of the CHAMPUS Earn-Out Payment calculated in accordance
with Exhibit 3.7(b). The amount of the CHAMPUS Earn-Out Payment reflected on the
Earn-Out Statement shall be paid by Parent to the ACR Beneficiaries not later
than the tenth business day following the date the Earn-Out Statement becomes
final under Section 3.7(b)(iii) (the "Earn-Out Payment Date"). As used in this
Agreement, "CHAMPUS 3/4 Subcontract" means that certain Subcontract for the
Comprehensive Management of the Delivery of Mental Health and Substance Abuse
Services dated July 28, 1995, among Humana MHS, the Company and FHC Options,
Inc. relating to that certain Request For Proposals MDA 906-94-R-002, under
which Choice operates.
(iii) The Surviving Corporation shall provide the ACR Representative and its
agents access, upon reasonable notice and during normal business hours, to the
books and records of the Surviving Corporation pertaining solely to the Earn-Out
Statement, provided that the ACR Representative and its agents execute
confidentiality agreements as may reasonably be requested by the Surviving
Corporation. If the ACR Representative shall have any objections to the Earn-Out
Statement, the ACR Representative shall deliver a complete and detailed written
statement describing its objections to Parent within 60 days after receiving the
Earn-Out Statement in question. The ACR Representative and Parent will use
reasonable efforts to resolve any objections to the Earn-Out Statement which are
timely raised by the ACR Representative as set forth herein. If any such
objections are resolved, they shall be confirmed in a writing signed by Parent
and the ACR Representative. If the parties do not obtain a final and complete
written, signed resolution within 30 days (which time period may be extended but
only by a writing signed by Parent and the ACR Representative) after Parent's
receipt of a written statement of objections, the ACR Representative and Parent
will select within 30 days thereafter an accounting firm mutually acceptable to
them to resolve by binding arbitration, with the aforesaid accounting firm
acting (as a firm) as the sole arbitrator, any remaining objections not
previously resolved in a writing signed by Parent and the ACR Representative.
The aforesaid accounting firm shall determine the procedures to be utilized by
it in resolving the remaining objections. If the ACR Representative and Parent
are unable to timely agree on the choice of an accounting firm, such accounting
firm will be selected by lot from a list of the six largest national accounting
firms remaining after excluding the regular outside accounting firms of Parent,
the Company (on the date hereof), each holder of more than 10% of the Additional
Consideration Rights and the ACR Representative. The determination of the
accounting firm as to the remaining objections will be set forth in writing and
when set forth in writing, designated as a "Final Determination" and signed by
the accounting firm. If such accounting firm thus determines that the ACR
Beneficiaries are entitled, under this Section 3.7(b), to a CHAMPUS Earn-Out
Payment in excess of that set forth in the Earn-Out Statement, Parent shall
promptly pay such amount, but Parent shall not be required to pay any interest
except as provided below in this clause (iii). In the event that the parties
submit any unresolved objections to an accounting firm for resolution as
provided in this clause (iii), the fees, charges and expenses of the accounting
firm shall (A) be borne by the ACR Beneficiaries (pro rata based upon the number
of such rights held) as a set-off to the CHAMPUS Earn-Out Payment if such
accounting firm determines that no amount in excess of the CHAMPUS Earn-Out
Payment set forth in the Earn-Out Statement is due to the ACR Beneficiaries, (B)
be borne equally by Parent and the ACR Beneficiaries if the CHAMPUS Earn-Out
Payment which such accounting firm determines to be due to the ACR Beneficiaries
does not exceed the CHAMPUS Earn-Out Payment reflected on the Earn-Out Statement
by more than 7.5%, or (C) be borne by Parent if the CHAMPUS Earn-Out Payment
which such accounting firm determines to be due to the holders exceeds the
CHAMPUS Earn-Out Payment reflected on such Earn-Out Statement by more than 7.5%.
For purposes of this Agreement, the Earn-Out Statement shall become final upon
the earliest to occur of (X) the expiration of the 60-day period described in
the second sentence of this Section 3.7(b)(iii) if the ACR Representative shall
not have delivered any written statement of objections to the Earn-Out Statement
to Parent within such period (or the date prior to such expiration on which the
ACR Representative accepts the Earn-Out Statement in writing), (Y) the date on
which the ACR Representative and Parent resolve in writing all objections, if
any, of the ACR Representative to the Earn-Out Statement timely delivered to
Parent, and (Z) the date on which the accounting firm determines and delivers to
Parent and the ACR Representative in a writing designated as a "Final
Determination" and signed by the accounting firm its resolution of all
objections not otherwise previously resolved in writing by the ACR
Representative and Parent. In the event the Final Determination results in an
amount due to the ACR Beneficiaries as the CHAMPUS Earn-Out Payment in excess of
that reflected on the Earn-Out Statement first delivered, the amount of the
CHAMPUS Earn-Out Payment shall be increased by an amount equal to the amount of
interest on the CHAMPUS Earn-Out Payment accruing from the 60th day after the
Earn-Out Statement was first delivered to the ACR Beneficiaries through the date
of payment, at a rate of interest equal to LIBOR (one month maturity) plus
1.875% per annum. Upon the Earn-Out Statement becoming final as aforesaid, such
Earn-Out Statement, including but not limited to the amount to be paid to each
ACR Beneficiary and the non-existence of any other ACR Beneficiaries entitled to
an Earn-Out Payment, shall be conclusive and binding on the ACR Representative,
Parent and each ACR Beneficiary, whether or not said ACR Beneficiary is
identified therein as being entitled to an Earn-Out Payment. Notwithstanding any
other provision of this Agreement, including but not limited to any provision
stating that remedies shall be cumulative and not exclusive, and as a condition
of the receipt of Additional Consideration Rights and the consideration which
may arise in respect thereof, this Section 3.7(b)(iii) provides the sole and
exclusive method for resolving any and all disputes of each and every nature
whatever that may arise between or among the parties, the ACR Beneficiaries, or
their representatives (including the ACR Representative) with respect to any
CHAMPUS Earn-Out Payment or the Earn-Out Statement. All parties hereto, the ACR
Beneficiaries and their representatives (including the ACR Representative)
hereby irrevocably waive, relinquish and surrender all rights to, and agree that
they will not attempt to, resolve any such dispute or disputes in any manner
other than as set forth in this Section 3.7(b)(iii), including but not limited
to through litigation. All parties hereto, the ACR Beneficiaries and their
representatives (including the ACR Representative) further agree that if one or
more of them should initiate any attempt to resolve any such dispute or disputes
in any manner other than the sole and exclusive manner set forth in this Section
3.7(b)(iii), said initiators shall pay and reimburse all fees, costs and
expenses incurred by anyone else as a result of, in connection with or related
to said attempt or attempts.
(iv) Payment of the CHAMPUS Earn-Out Payment shall be made by cashier's or
certified check or, if requested by a person entitled to receive payment, by
wire transfer of immediately available funds to an account specified by such
person.
(c) Litigation Condition Payment. At the Effective Time, each holder of an
Additional Consideration Right shall be entitled to receive, in respect of each
such Additional Consideration Right so held, a number of shares of Parent Common
Stock equal to (i) 750,000 (as adjusted pursuant to Section 3.7(g)) divided by
(ii) the ACR Denominator as of such date plus the number of Frozen Options;
provided, that any holder of aggregate Stock Options to acquire less than 20,000
shares of Company Common Stock immediately prior to the Effective Time shall, in
respect of the Additional Consideration Rights issuable in respect of such Stock
Options, be issued the Equivalent Cash Amount (as defined in Section 3.7(h)
below) in respect of each Litigation Condition Share which was to be issued to
such holder in respect of an Additional Consideration Right pursuant to Section
3.2 hereof. Such Litigation Condition Shares and any Equivalent Cash Amount
shall be issued or paid to the ACR Beneficiaries at the Effective Time in
respect of the Additional Conditional Rights. If at any time from and after the
Effective Time, a Frozen Option shall have its vesting accelerated pursuant to
the terms of the 1996 Option Plan, such Frozen Option shall be converted into
the right to receive, if the holder of such Frozen Option is an ACR Beneficiary,
the number of Litigation Condition Shares allocable to each Additional
Consideration Right as calculated hereinabove, which shall be issuable at the
time, and only if, a payment is due to such holder pursuant to Section 3.2(b).
Upon the twelve month anniversary of the Effective Time, any Litigation
Condition Shares not previously issued pursuant to the terms of this Section
3.7(c) shall be issued to all ACR Beneficiaries, pro rata in accordance with the
number of Additional Consideration Rights held by each ACR Beneficiary. To the
extent any Parent Share to be issued under Sections 3.7(c) or (d) is a
fractional share, at Parent's option, Parent shall either (i) issue such
fractional share, (ii) issue a whole Parent Share in lieu thereof or (iii) issue
cash in lieu thereof based upon the Equivalent Cash Amount.
(d) CHAMPUS 2/5 Condition Payment.
(i) Upon satisfaction of the CHAMPUS 2/5 Condition, each holder of an Additional
Consideration Right shall be entitled to receive, in respect of each such
Additional Consideration Right so held, a number of shares of Parent Common
Stock equal to (i) 750,000 (as adjusted pursuant to Section 3.7(g) or reduced
pursuant to Exhibit 3.7(d)) divided by (ii) the ACR Denominator; provided, that
any holder of aggregate Stock Options to acquire less than 20,000 shares of
Company Common Stock immediately prior to the Effective Time shall, in respect
of the Additional Consideration Rights issuable in respect of such Stock
Options, be issued the Equivalent Cash Amount in respect of each CHAMPUS
Condition Share which was to be issued to such holder pursuant to this
subsection. Such CHAMPUS Condition Shares and any Equivalent Cash Amount shall
be issued or paid to the ACR Beneficiaries (A) subject to clause (B), upon the
latest of (1) thirty (30) days following satisfaction of the CHAMPUS 2/5
Condition, (2) ten business days following the date on which the Share
Adjustment becomes final pursuant to Section 3.7(g)(ii) hereof with respect to
any pending Share Adjustment, upon the terms and subject to the restrictions set
forth in the Stockholders Agreement, or (3) ten business days following the date
on which the CHAMPUS 2/5 Statement becomes final, or (B) in the event the
CHAMPUS 2/5 Condition is satisfied prior to the Effective Time, such CHAMPUS
Condition Shares and any Equivalent Cash Amount shall be issued or paid to the
ACR Beneficiaries at the Effective Time in respect of the Additional Conditional
Rights if the parties are then in agreement as to the CHAMPUS 2/5 Statement;
provided, however, that if the CHAMPUS Condition Shares are issued prior to the
twelve month anniversary of the Effective Time, (A) the ACR Denominator shall be
adjusted for purposes of calculating the number of CHAMPUS Condition Shares
issuable to each ACR Beneficiary pursuant to this Section 3.7(d) by adding an
amount equal to "FO" (as used in the definition of Cash Price) to the ACR
Denominator, and (B) if at any time from and after the issuance of the CHAMPUS
Condition Shares, a Frozen Option shall have its vesting accelerated pursuant to
the terms of the 1996 Option Plan, such Frozen Option shall be converted into
the right to receive, if the holder of such Frozen Option is an ACR Beneficiary,
the number of CHAMPUS Condition Shares allocable to each Additional
Consideration Right as calculated hereinabove, which shall be at the time, and
only if, a payment is due to such holder pursuant to Section 3.2(b). Upon the
twelve month anniversary of the Effective Time, any CHAMPUS Condition Shares not
previously issued pursuant to the terms of this Section 3.7(d) shall be issued
to all ACR Beneficiaries pro rata in accordance with the number of Additional
Consideration Rights held by each ACR Beneficiary. As used herein, the "CHAMPUS
2/5 Condition" shall have the meaning set forth on Exhibit 3.7(d).
(ii) The Surviving Corporation shall provide the ACR Representative and its
agents access, upon reasonable notice and during normal business hours, to the
books and records of the Surviving Corporation pertaining solely to any
adjustments (the "CHAMPUS 2/5 Adjustments") made to the number of CHAMPUS
Condition Shares to be issued pursuant to the calculations set forth on Exhibit
3.7(d), provided that the ACR Representative and its agents execute
confidentiality agreements as may reasonably be requested by the Surviving
Corporation. If the ACR Representative shall have any objections to the CHAMPUS
2/5 Adjustments, the ACR Representative shall deliver a complete and detailed
written statement describing its objections to Parent within 60 days after
receiving written notice from Parent of the CHAMPUS 2/5 Adjustments in question.
The ACR Representative and Parent will use reasonable efforts to resolve any
objections to the CHAMPUS 2/5 Adjustments which are timely raised by the ACR
Representative as set forth herein. If any such objections are resolved, they
shall be confirmed in a writing signed by Parent and the ACR Representative. If
the parties do not obtain a final and complete written, signed resolution within
30 days (which time period may be extended but only by a writing signed by
Parent and the ACR Representative) after Parent's receipt of a written statement
of objections, the ACR Representative and Parent will select within 30 days
thereafter an accounting firm mutually acceptable to them to resolve by binding
arbitration, with the aforesaid accounting firm acting (as a firm) as the sole
arbitrator, any remaining objections not previously resolved in a writing signed
by Parent and the ACR Representative. The aforesaid accounting firm shall
determine the procedures to be utilized by it in resolving the remaining
objections. If the ACR Representative and Parent are unable to timely agree on
the choice of an accounting firm, such accounting firm will be selected by lot
from a list of the six largest national accounting firms remaining after
excluding the regular outside accounting firms of Parent, the Company (on the
date hereof), each holder of more than 10% of the Additional Consideration
Rights and the ACR Representative. The determination of the accounting firm as
to the remaining objections will be set forth in writing and when set forth in
writing, designated as a "Final Determination" and signed by the accounting
firm. If such accounting firm thus determines that the ACR Beneficiaries are
entitled, under this Section 3.7(d), to a number of CHAMPUS Condition Shares in
excess of that set forth in Parent's written notice of CHAMPUS 2/5 Adjustments,
Parent shall promptly pay such amount. In the event that the parties submit any
unresolved objections to an accounting firm for resolution as provided in this
clause (ii), the fees, charges and expenses of the accounting firm shall (A) be
borne by the ACR Beneficiaries (pro rata based upon the number of such rights
held) as a set-off to the number of CHAMPUS Condition Shares issuable if such
accounting firm determines that no amount in excess of the number of CHAMPUS
Condition Shares set forth in Parent's written notice of CHAMPUS 2/5 Adjustments
is due to the ACR Beneficiaries, (B) be borne equally by Parent and the ACR
Beneficiaries if the number of CHAMPUS Condition Shares which such accounting
firm determines to be due to the ACR Beneficiaries does not exceed the number
reflected on Parent's written notice of CHAMPUS 2/5 Adjustments by more than
7.5%, or (C) be borne by Parent if the number of CHAMPUS Condition Shares which
such accounting firm determines to be due to the holders exceeds the number
reflected on Parent's written notice of CHAMPUS 2/5 Adjustments by more than
7.5%. For purposes of this Agreement, the CHAMPUS 2/5 Adjustments shall become
final upon the earliest to occur of (X) the expiration of the 60-day period
described in the second sentence of this Section 3.7(d)(ii) if the ACR
Representative shall not have delivered any written statement of objections to
the CHAMPUS 2/5 Adjustments to Parent within such period (or the date prior to
such expiration on which the ACR Representative accepts the CHAMPUS 2/5
Adjustments in writing), (Y) the date on which the ACR Representative and Parent
resolve in writing all objections, if any, of the ACR Representative to the
CHAMPUS 2/5 Adjustments timely delivered to Parent, and (Z) the date on which
the accounting firm determines and delivers to Parent and the ACR Representative
in a writing designated as a "Final Determination" and signed by the accounting
firm its resolution of all objections not otherwise previously resolved in
writing by the ACR Representative and Parent. In the event the Final
Determination results in a number of CHAMPUS Condition Shares issuable to the
ACR Beneficiaries as a result of the satisfaction of the CHAMPUS 2/5 Condition
in excess of that reflected on the written notice of CHAMPUS 2/5 Adjustments
first delivered by Parent, the amount of CHAMPUS Condition Shares issuable to
the ACR Beneficiaries shall be increased by an amount equal to the difference
between (1) the number set forth in the Final Determination and (2) the number
set forth on Parent's written notice of CHAMPUS 2/5 Adjustments, in both cases,
with respect to the aggregate number of CHAMPUS Condition Shares issuable. Upon
the number of CHAMPUS Condition Shares issuable and any CHAMPUS 2/5 Adjustments
becoming final as aforesaid, such number of CHAMPUS Condition Shares issuable
and any CHAMPUS 2/5 Adjustments, including but not limited to the number of
CHAMPUS Condition Shares to be issued to each ACR Beneficiary and the
non-existence of any other ACR Beneficiaries entitled to receive CHAMPUS
Condition Shares, shall be conclusive and binding on the ACR Representative,
Parent and each ACR Beneficiary, whether or not said ACR Beneficiary is
identified therein as being entitled to receive CHAMPUS Condition Shares.
Notwithstanding any other provision of this Agreement, including but not limited
to any provision stating that remedies shall be cumulative and not exclusive,
and as a condition of the receipt of Additional Consideration Rights and the
consideration which may arise in respect thereof, this Section 3.7(d)(ii)
provides the sole and exclusive method for resolving any and all disputes of
each and every nature whatever that may arise between or among the parties, the
ACR Beneficiaries, or their representatives (including the ACR Representative)
with respect to any CHAMPUS Condition Shares or CHAMPUS 2/5 Adjustments. All
parties hereto, the ACR Beneficiaries and their representatives (including the
ACR Representative) hereby irrevocably waive, relinquish and surrender all
rights to, and agree that they will not attempt to, resolve any such dispute or
disputes in any manner other than as set forth in this Section 3.7(d)(ii),
including but not limited to through litigation. All parties hereto, the ACR
Beneficiaries and their representatives (including the ACR Representative)
further agree that if one or more of them should initiate any attempt to resolve
any such dispute or disputes in any manner other than the sole and exclusive
manner set forth in this Section 3.7(d)(ii), said initiators shall pay and
reimburse all fees, costs and expenses incurred by anyone else as a result of,
in connection with or related to said attempt or attempts.
(e) State Contract Earn-Out Payment.
(i) The amount of any State Earn-Out Payment payable with respect to each
Additional Consideration Right shall be equal to the aggregate State Earn-Out
Payment payable, calculated as provided on Exhibit 3.7(e), divided by the total
number of Additional Consideration Rights outstanding as of the third business
day prior to the date a State Earn-Out Statement is first sent to the ACR
Beneficiaries.
(ii) Not later than December 31, 1998, Parent shall prepare and deliver to the
ACR Beneficiaries a statement (the "State Earn-Out Statement") setting forth the
calculation of the State Earn-Out Payment calculated in accordance with Exhibit
3.7(e). The amount of the State Earn-Out Payment reflected on the State Earn-Out
Statement shall be paid by Parent to the ACR Beneficiaries not later than the
tenth business day following the date the State Earn-Out Statement becomes final
under Section 3.7(e)(iii) (the "State Payment Date"). As used in this Agreement,
"State Contract" means Contract No. 97-331-74069-0 between the Montana State
Department of Public Health and Human Services and Montana Community Partners,
Inc. and CMG Health, Inc. and Care Coalition of Montana, Inc. for managed mental
health care, dated as of December 23, 1996.
(iii) The Surviving Corporation shall provide the ACR Representative and its
agents access, upon reasonable notice and during normal business hours, to the
books and records of the Surviving Corporation pertaining solely to the State
Earn-Out Statement, provided that the ACR Representative and its agents execute
confidentiality agreements as may reasonably be requested by the Surviving
Corporation. If the ACR Representative shall have any objections to the State
Earn-Out Statement, the ACR Representative shall deliver a complete and detailed
written statement describing its objections to Parent within 60 days after
receiving the State Earn-Out Statement in question. The ACR Representative and
Parent will use reasonable efforts to resolve any objections to the State
Earn-Out Statement which are timely raised by the ACR Representative as set
forth herein. If any such objections are resolved, they shall be confirmed in a
writing signed by Parent and the ACR Representative. If the parties do not
obtain a final and complete written, signed resolution within 30 days (which
time period may be extended but only by a writing signed by Parent and the ACR
Representative) after Parent's receipt of a written statement of objections, the
ACR Representative and Parent will select within 30 days thereafter an
accounting firm mutually acceptable to them to resolve by binding arbitration,
with the aforesaid accounting firm acting (as a firm) as the sole arbitrator,
any remaining objections not previously resolved in a writing signed by Parent
and the ACR Representative. The aforesaid accounting firm shall determine the
procedures to be utilized by it in resolving the remaining objections. If the
ACR Representative and Parent are unable to timely agree on the choice of an
accounting firm, such accounting firm will be selected by lot from a list of the
six largest national accounting firms remaining after excluding the regular
outside accounting firms of Parent, the Company (on the date hereof), each
holder of more than 10% of the Additional Consideration Rights and the ACR
Representative. The determination of the accounting firm as to the remaining
objections will be set forth in writing and when set forth in writing,
designated as a "Final Determination" and signed by the accounting firm. If such
accounting firm thus determines that the ACR Beneficiaries are entitled, under
this Section 3.7(e), to a State Earn-Out Payment in excess of that set forth in
the State Earn-Out Statement, Parent shall promptly pay such amount, but Parent
shall not be required to pay any interest except as provided below in this
clause (iii). In the event that the parties submit any unresolved objections to
an accounting firm for resolution as provided in this clause (iii), the fees,
charges and expenses of the accounting firm shall (A) be borne by the ACR
Beneficiaries (pro rata based upon the number of such rights held) as a set-off
to the State Earn-Out Payment if such accounting firm determines that no amount
in excess of the State Earn-Out Payment set forth in the State Earn-Out
Statement is due to the ACR Beneficiaries, (B) be borne equally by Parent and
the ACR Beneficiaries if the State Earn-Out Payment which such accounting firm
determines to be due to the ACR Beneficiaries does not exceed the State Earn-Out
Payment reflected on the State Earn-Out Statement by more than 7.5%, or (C) be
borne by Parent if the State Earn-Out Payment which such accounting firm
determines to be due to the holders exceeds the State Earn-Out Payment reflected
on such State Earn-Out Statement by more than 7.5%. For purposes of this
Agreement, the State Earn-Out Statement shall become final upon the earliest to
occur of (X) the expiration of the 60-day period described in the second
sentence of this Section 3.7(e)(iii) if the ACR Representative shall not have
delivered any written statement of objections to the State Earn-Out Statement to
Parent within such period (or the date prior to such expiration on which the ACR
Representative accepts the State Earn-Out Statement in writing), (Y) the date on
which the ACR Representative and Parent resolve in writing all objections, if
any, of the ACR Representative to the State Earn-Out Statement timely delivered
to Parent, and (Z) the date on which the accounting firm determines and delivers
to Parent and the ACR Representative in a writing designated as a "Final
Determination" and signed by the accounting firm its resolution of all
objections not otherwise previously resolved in writing by the ACR
Representative and Parent. In the event the Final Determination results in an
amount due to the ACR Beneficiaries as the State Earn-Out Payment in excess of
that reflected on the State Earn-Out Statement first delivered, the amount of
the State Earn-Out Payment shall be increased by an amount equal to the amount
of interest on the State Earn-Out Payment accruing from the 60th day after the
State Earn-Out Statement was first delivered to the ACR Beneficiaries through
the date of payment, at a rate of interest equal to LIBOR (one month maturity)
plus 1.875% per annum. Upon the State Earn-Out Statement becoming final as
aforesaid, such State Earn-Out Statement, including but not limited to the
amount to be paid to each ACR Beneficiary and the non-existence of any other ACR
Beneficiaries entitled to a State Earn-Out Payment, shall be conclusive and
binding on the ACR Representative, Parent and each ACR Beneficiary, whether or
not said ACR Beneficiary is identified therein as being entitled to a State
Earn-Out Payment. Notwithstanding any other provision of this Agreement,
including but not limited to any provision stating that remedies shall be
cumulative and not exclusive, and as a condition of the receipt of Additional
Consideration Rights and the consideration which may arise in respect thereof,
this Section 3.7(e)(iii) provides the sole and exclusive method for resolving
any and all disputes of each and every nature whatever that may arise between or
among the parties, the ACR Beneficiaries, or their representatives (including
the ACR Representative) with respect to any State Earn-Out Payment or the State
Earn-Out Statement. All parties hereto, the ACR Beneficiaries and their
representatives (including the ACR Representative) hereby irrevocably waive,
relinquish and surrender all rights to, and agree that they will not attempt to,
resolve any such dispute or disputes in any manner other than as set forth in
this Section 3.7(e)(iii), including but not limited to through litigation. All
parties hereto, the ACR Beneficiaries and their representatives (including the
ACR Representative) further agree that if one or more of them should initiate
any attempt to resolve any such dispute or disputes in any manner other than the
sole and exclusive manner set forth in this Section 3.7(e)(iii), said initiators
shall pay and reimburse all fees, costs and expenses incurred by anyone else as
a result of, in connection with or related to said attempt or attempts.
(iv) Payment of the State Earn-Out Payment shall be made by cashier's or
certified check or, if requested by a person entitled to receive payment, by
wire transfer of immediately available funds to an account specified by such
person.
(f) Additional Consideration Rights Generally.
(i) The Additional Consideration Rights are personal to each initial holder
thereof and shall not be transferable for any reason other than (A) to an
Affiliate of such holder, (B) to another holder of Additional Consideration
Rights or (C) by operation of law or by will or the laws of descent and
distribution. Any attempted transfer of an Additional Consideration Right by any
holder thereof (other than as permitted by the immediately preceding sentence)
shall be null and void. Additional Consideration Rights shall not possess any
attributes of common stock or other security and shall not entitle the holders
of the Additional Consideration Rights to any rights of any kind other than as
specifically set forth in this Agreement.
(ii) As a condition to the receipt of any Additional Consideration Rights, each
ACR Beneficiary has duly appointed Xxxx X. Xxxxxxxxxx as its designated
representative (together with any designee of Xxxx X. Xxxxxxxxxx (or his
properly designated successor), acceptable to Parent in its reasonable
discretion (provided that any representative of Humana Inc. shall be deemed
acceptable to Parent), the "ACR Representative") and as such ACR Beneficiary's
attorney-in-fact, to act on such ACR Beneficiary's behalf and to take any and
all actions required or permitted to be taken by the ACR Representative under
this Agreement. Parent and the Company shall be entitled to rely upon as being
binding upon each ACR Beneficiary any document or other paper believed by Parent
or the Company, respectively, to be genuine and correct and to have been signed
or sent by the ACR Representative, and neither Parent or the Company shall be
liable to any of ACR Beneficiaries for any action taken or omitted to be taken
by Parent or the Company, respectively, in such reliance. All fees and expenses
of the ACR Representative and its agents shall be paid by the ACR Beneficiaries.
Neither Parent nor the Company shall in any event incur any liability for (i)
any such fees or expenses or (ii) any losses, damages or expenses incurred by
any ACR Beneficiary arising from or related to any action (or failure to act) by
the ACR Representative.
(g) Adjustment of Share Amounts.
(i) In the event that, prior to the issuance of the Parent Shares under Sections
3.7(c) or 3.7(d), the outstanding shares of Parent Common Stock are hereafter
changed into or exchanged for a different number or kind of shares or other
securities of Parent or of another corporation, by reason of reorganization,
merger, consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, appropriate and equitable adjustments (each,
a "Share Adjustment") shall be made by the Board of Directors of Parent to the
number and kind of the Parent Shares issuable to the ACR Beneficiaries, prior to
the issuance thereof, pursuant to Sections 3.7(c) and 3.7(d). Parent shall give
the ACR Representative prompt notice of the number and kind of adjustments which
have been made.
(ii) Parent shall provide the ACR Representative and its agents access upon
reasonable notice and during normal business hours to the books and records of
Parent pertaining solely to the Share Adjustment. If the ACR Representative
shall have any objections to any Share Adjustment, the ACR Representative shall
deliver a complete and detailed written statement describing its objections to
Parent within 60 days after receiving the notice of the Share Adjustment
required pursuant to Section 3.7(g)(i), above. The ACR Representative and Parent
will use reasonable efforts to resolve any objections to the Share Adjustment
which are timely raised by the ACR Representative as set forth herein. If any
such objections are resolved, they shall be confirmed in a writing signed by
Parent and the ACR Representative. If the parties do not obtain a final and
complete written, signed resolution within 30 days (which time period may be
extended but only by a writing signed by Parent and the ACR Representative)
after Parent's receipt of a written statement of objections, the ACR
Representative and Parent will select within 45 days thereafter an accounting
firm mutually acceptable to them to resolve by binding arbitration, with the
aforesaid accounting firm acting (as a firm) as the sole arbitrator, any
remaining objections not previously resolved in a writing signed by Parent and
the ACR Representative. The aforesaid accounting firm shall determine the
procedures to be utilized by it in resolving the remaining objections. If the
ACR Representative and Parent are unable to timely agree on the choice of an
accounting firm, such accounting firm will be selected by lot from a list of the
six largest national accounting firms remaining after excluding the regular
outside accounting firms of Parent, the Company (on the date hereof), each
holder of more than 10% of the Additional Consideration Rights and the ACR
Representative. The determination of the accounting firm as to the remaining
objections will be set forth in writing and when set forth in writing,
designated as a "Final Determination," and signed by the accounting firm. If
such accounting firm thus determines that the ACR Beneficiaries are entitled,
under this Section 3.7(g), to a number or kind of shares or other securities of
Parent other than as contemplated by the Share Adjustment, Parent shall promptly
authorize and issue or authorize for future issuance the number and kind of
shares or securities to which the ACR Beneficiaries are entitled. In the event
that the parties submit any unresolved objections to an accounting firm for
resolution as provided in this clause (ii), the fees, charges and expenses of
the accounting firm shall (A) be borne by the ACR Beneficiaries (pro rata based
upon the number of Additional Consideration Rights held) as a set-off to the
number of Parent Shares issued or issuable to the ACR Beneficiaries (based upon
the Equivalent Cash Amount at the time of the issuance of Parent Shares) in the
event such accounting firm determines that the Share Adjustment, as determined
by Parent pursuant to Section 3.7(g)(i), is appropriate, (B) be borne equally by
Parent and the ACR Beneficiaries (by the same method of set-off) if such
accounting firm determines that the Share Adjustment requires modification so as
to increase the number of shares or other securities of Parent to be issued or
issuable to the ACR Beneficiaries by less than or equal to 7.5% (calculated as a
percentage of the number of shares of Parent Common Stock comprising the Share
Adjustment), or (C) be borne by Parent if such accounting firm determines that
the Share Adjustment requires modification so as to increase the number of
shares or other securities of Parent to be issued or issuable to the ACR
Beneficiaries by more than 7.5% (calculated as a percentage of the number of
shares of Parent Common Stock comprising the Share Adjustment). For purposes of
this Agreement, the Share Adjustment shall become final upon the earliest to
occur of (X) the expiration of the 60-day period described in the second
sentence of this Section 3.7(g)(ii) if the ACR Representative shall not have
delivered any written statement of objections to the Share Adjustment to Parent
within such period (or the date prior to such expiration on which the ACR
Representative accepts the Share Adjustment in writing), (Y) the date on which
the ACR Representative and Parent resolve in writing all objections, if any, of
the ACR Representative to the Share Adjustment timely delivered to Parent, and
(Z) the date on which the accounting firm determines and delivers to Parent and
the ACR Representative in a writing designated as a "Final Determination" and
signed by the accounting firm its resolution of all objections not otherwise
previously resolved in writing by the ACR Representative and Parent. Upon the
Share Adjustment becoming final as aforesaid, such Share Adjustment, including
but not limited to the amount to be paid to each ACR Beneficiary and the
non-existence of any other ACR Beneficiaries entitled to a Share Adjustment,
shall be conclusive and binding on the ACR Representative, Parent and each ACR
Beneficiary, whether or not said ACR Beneficiary is identified therein as being
entitled to a Share Adjustment. Notwithstanding any other provision of this
Agreement, including but not limited to any provision stating that remedies
shall be cumulative and not exclusive, and as a condition of the receipt of
Parent Shares and the consideration which may arise in respect thereof, any
dispute that may arise between or among the parties, the ACR Beneficiaries, or
their representatives (including the ACR Representative) with respect to any
Share Adjustment shall be governed and resolved solely and exclusively by this
Section 3.7(g)(ii). All parties hereto, the ACR Beneficiaries and their
representatives hereby irrevocably waive, relinquish and surrender all rights
to, and agree that they will not attempt to, resolve any such dispute or
disputes in any manner other than as set forth in this Section 3.7(g)(ii),
including but not limited to through litigation. All parties hereto, the ACR
Beneficiaries and their representatives further agree that if one or more of
them should initiate any attempt to resolve any such dispute or disputes in any
manner other than the sole and exclusive manner set forth in this Section
3.7(g)(ii), said initiators shall pay and reimburse all fees, costs and expenses
incurred by anyone else as a result of, in connection with or related to said
attempt or attempts. Upon the Share Adjustment becoming final as aforesaid, such
determination with respect to the Share Adjustment, including but not limited to
the number and kind of shares of Parent Common Stock issued or issuable to each
ACR Beneficiary, shall be conclusive and binding on the ACR Representative,
Parent and each ACR Beneficiary, whether or not said ACR Beneficiary is
identified therein as being entitled to a Share Adjustment.
(h) Determination of Equivalent Cash Amount. The "Equivalent Cash Amount" with
respect to each Parent Share shall be an amount established by the Board of
Directors of Parent, in good faith, as the fair market value of a Parent Share
as of the date of its issuance to the ACR Beneficiaries.
(i) Escrow Arrangement. The ACR Representative shall be entitled to withdraw
funds necessary to perform his duties on behalf of the ACR Beneficiaries
hereunder from the Escrow Account, in the amounts set forth in and subject to
the provisions of the Escrow Agreement.
(j) Parent's Acceleration Rights. On any date subsequent to the Effective Time,
upon not less than five (5) business days' notice and notwithstanding the
occurrence of any event or fulfillment of any condition (or failure thereof to
occur or be fulfilled), Parent may elect to (i) issue any or all of the shares
of Parent Common Stock constituting the CHAMPUS Condition Shares to the ACR
Beneficiaries (to the extent such shares have not, as of such date, been issued
to the ACR Beneficiaries), and (ii) pay an amount equal to the maximum amount
that could then be paid out under Section 3.7(l), were a payment to then be made
under Sections 3.7(b) and 3.7(e), in full satisfaction of the CHAMPUS Earn-Out
Payment and the State Earn-Out Payment (to the extent such amounts have not, as
of such date, been paid to the ACR Beneficiaries).
(k) Unpaid Severance Amount. Each Additional Consideration Right shall also
represent the right to receive an amount, if any, equal to one-half (.5)
multiplied by the aggregate Unpaid Severance Amount, divided by the total number
of Additional Consideration Rights outstanding as of the third business day
prior to the Unpaid Severance Amount Payment Date. The "Unpaid Severance Amount"
shall mean that portion of the payments described under clause (v) of Exhibit
3.1(b) which, on the first anniversary of the Effective Time, has not yet been
paid and is not then payable (unless the obligation to pay such amount is then
being contested, in which case such amount shall be deemed to have been paid as
severance until it is thereafter finally determined that such amount is not
payable as severance, at which time (or within 10 business days thereafter) such
amount shall be deemed to be an Unpaid Severance Amount, and shall be paid as
provided in this Section 3.7(k)). The "Unpaid Severance Amount Payment Date"
shall mean the 15th day (or, if such day is not a business day, the next
succeeding business day) following the first anniversary of the Effective Time.
(l) Payment Limitation. Notwithstanding anything to the contrary in this
Agreement, in no event shall Parent be required to pay to the ACR Beneficiaries
more than $23,500,000 in total under Sections 3.7(b) and 3.7(e). Accordingly, if
at any time the payment of an amount to the ACR Beneficiaries under Section
3.7(b) or 3.7(e) hereof would, when added to the aggregate amounts previously
paid under either of said Sections, exceed $23,500,000, then any such excess
amount shall be retained by Parent (such reduction being applied to the ACR
Beneficiaries pro rata based upon the number of Additional Consideration Rights
held by each ACR Beneficiary) and not paid to the ACR Beneficiaries.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub as
follows, subject to qualification by the specific disclosures set forth in the
written statement signed by the Chief Executive Officer of the Company and
delivered by the Company to Parent at least three (3) business days prior to the
date hereof (the "Company Disclosure Schedule"), which disclosure shall
expressly reference the representations and warranties so qualified:
4.1. Organization, Existence and Good Standing.
The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland and has all necessary corporate
power to own, operate or lease the properties and assets owned, operated or
leased by it and to carry on its business as presently conducted, except where
failure to so qualify or be in good standing would not have a Material Adverse
Effect (as defined in Section 13.7 hereof) with respect to the Company. The
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction in which the character of its properties and
assets owned, operated or leased by it or the nature of its activities makes
such qualification necessary, except for such failures which, when taken
together with all other such failures, would not have a Material Adverse Effect
on the Company. The Company has heretofore made available to Parent complete and
correct copies of its charter and Bylaws, each of the foregoing as amended to
the date of this Agreement.
4.2. Subsidiaries and Affiliated Partnerships.
(a) Section 4.2(a) of the Company Disclosure Schedule lists all Subsidiaries of
the Company (individually, a "Company Subsidiary," and collectively, the
"Company Subsidiaries"). As used herein, "Subsidiary" shall mean any corporation
in which the Company, directly or indirectly, beneficially owns any Equity
Interest.
(b) Set forth in Section 4.2(b) of the Company Disclosure Schedule is a list of
all general partnerships in which a general partner is the Company, a Company
Subsidiary or another Company Partnership (individually, a "Company Partnership"
and collectively, the "Company Partnerships"), and any limited liability company
in which the Company, a Company Subsidiary or a Company Partnership is a member
or manager (a "Company LLC"). The Company Partnerships and the Company LLCs are
collectively referred to herein as the "Company Other Entities" and the Company,
the Company Subsidiaries and the Company Other Entities are collectively
referred to herein as "Group Entities." Company Other Entities which are not
Affiliates of the Company are referred to herein as "Unaffiliated Entities."
(c) Other than the Group Entities, there are no corporations, partnerships,
joint ventures, associations or other entities in which any Group Entity owns,
of record or beneficially, any direct or indirect equity or other interest or
any right (contingent or otherwise) to acquire the same. Except as set forth in
Section 4.2(d) of the Company Disclosure Schedule, no Group Entity is a member
of (nor is any part of its business of any Group Entity collectively conducted
through) any partnership, joint venture or similar arrangement.
(d) Section 4.2(d) of the Company Disclosure Schedule sets forth the
jurisdiction of incorporation, organization or formation of each Group Entity;
its authorized capital stock or other equity interests; the number and type of
its issued and outstanding shares of capital stock, partnership interests or
limited liability company interests ("Equity Interest"); and the current
ownership by each Group Entity of any Equity Interests (collectively, the
"Company Equity Interests"). Except as set forth in Section 4.2(d) of the
Company Disclosure Schedule, the Company Equity Interests are owned free and
clear of all security interests, pledges, mortgages, liens, charges, adverse
claims of ownership, voting restrictions, limitations on transfer or proxies or
use or other encumbrances of any kind (collectively, "Encumbrances"). All of the
Company Equity Interests have been duly authorized and validly issued and are
fully paid and non-assessable and were not issued in violation of any preemptive
rights; except as set forth in Section 4.2(d) of the Company Disclosure
Schedule, there are no options, warrants or rights of conversion or other
rights, agreements, arrangements or commitments relating to the Equity Interests
of any Group Entity obligating any Group Entity, as applicable, to issue or sell
any of its Equity Interests.
4.3. Organization, Existence and Good Standing of the Company Subsidiaries and
the Company Other Entities.
(a) Each Company Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of its respective state of incorporation.
Each Company Subsidiary has all necessary corporate power to own, lease or
operate its properties and assets owned, leased or operated by it and to carry
on its business as presently conducted. Each Company Subsidiary is duly
qualified as a foreign corporation to do business, and is in good standing, in
each jurisdiction in which the character of properties and assets owned,
operated or leased by it or the nature of its activities makes such
qualification necessary, except for such failures which, when taken together
with all other such failures, would not have a Material Adverse Effect with
respect to the Company. True and complete copies of the certificate of
incorporation or by-laws of each Company Subsidiary, each as amended to the date
of this Agreement, have been heretofore made available to Parent.
(b) Each Company Partnership has been duly formed, is validly existing and is in
good standing under the laws of its respective state of organization and has all
necessary power to own, lease or operate its property and assets owned, leased
or operated by it and to carry on its business as presently conducted. Each
Company Partnership is duly qualified as a foreign partnership to do business in
each jurisdiction in which the character of properties and assets owned,
operated or leased by it or the nature of its activities makes such
qualification necessary, except for such failures which, when taken together
with all other such failures, would not have a Material Adverse Effect with
respect to the Company. True and complete copies of the partnership agreement
and other organizational documents of each Company Partnership, each as amended
to the date of this Agreement, have been heretofore made available to Parent.
(c) Each Company LLC is a limited liability company duly formed, validly
existing and in good standing under the laws of its respective state of
organization. Each Company LLC has all necessary power to own, lease or operate
its property and assets owned, leased or operated by it and to carry on its
business as presently conducted. Each Company LLC is duly qualified as a foreign
limited liability company to do business in each jurisdiction in which the
character of properties and assets owned, operated or leased by it or the nature
of its activities makes such qualification necessary, except for such failures
which, when taken together with all other such failures, would not have a
Material Adverse Effect with respect to the Company. True and complete copies of
the articles of organization, operating agreement and other organizational
documents of each Company LLC, each as amended to the date of this Agreement,
have been heretofore made available to Parent.
4.4. Company Capital Stock. The Company's authorized capital stock consists of
57,000,000 shares of capital stock, comprised of 36,000,000 shares of Class A
Voting Common Stock, par value $.00333 per share, and 12,000,000 shares of Class
B Non-Voting Common Stock, par value $.00333 per share, of which 9,000,000 and
5,266,122 shares, respectively, are issued and outstanding on the date hereof,
and 9,000,000 shares Company Preferred Stock, comprised of 6,000,000 shares
designated as Class A Convertible Preferred Stock, par value $.00333 per share,
and 3,000,000 shares designated as Class B Convertible Preferred Stock, par
value $.00333 per share, of which 4,537,815 and 2,632,152 shares, respectively,
are issued and outstanding on the date hereof. All of the issued and outstanding
shares of Company Common Stock and Company Preferred Stock are duly and validly
issued, fully paid and nonassessable and were not issued in violation of any
preemptive rights. The owners of all issued and outstanding shares of Company
Common Stock and Company Preferred Stock, together with number, class and series
of such stock held by such stockholder as of the date hereof, are set forth in
Section 4.4 of the Company Disclosure Schedule. The holders of all outstanding
Equity Rights, and number of such Equity Rights so held as of the date hereof,
are set forth in Section 4.4 of the Company Disclosure Schedule. Except as set
forth in Section 4.4 of the Company Disclosure Schedule, there are no voting
trusts, stockholders agreements, proxies or other similar agreements in effect
with respect to the voting or transfer of the Company Common Stock or Company
Preferred Stock. There is no liability for dividends declared or accumulated but
unpaid with respect to any of the shares of Company Common Stock or Company
Preferred Stock. Set forth in Section 4.4 of the Company Disclosure Schedule is
a true and complete listing of each Vested Option, each Unvested Option, and
each Frozen Option, and the holders thereof, the terms of vesting with respect
to each such Unvested Option, the exercise price of each Stock Option listed,
and the Stock Option plan under which each Stock Option listed was issued (and
any restatements, amendments or supplements to any such plans prior to the date
hereof).
4.5. Power and Authority.
(a) The Company has all necessary corporate power and authority to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby, and has taken all action required by Law, its charter,
Bylaws or otherwise, to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated hereby
(other than the Stockholder Approvals, as defined in Section 4.5(b)). This
Agreement has been duly executed and delivered by the Company and, assuming this
Agreement constitutes a valid and binding obligation of Parent and Merger Sub,
as the case may be, constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms except that the
enforcement hereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
(b) The Company has duly noticed a meeting of holders of all outstanding shares
of the Company Common Stock and Company Preferred Stock, pursuant to Section
2-504 of the MGCL, which meeting is scheduled to take place on or about July 29,
1997, for the purpose of obtaining the approval and adoption of (i) with respect
to the Company Common Stock and Company Preferred Stock, holders of not less
than a majority of the Company Class A Common Stock and the Company Preferred
Stock, voting together as a single class, and (ii) with respect to the Company
Preferred Stock, holders of not less than sixty percent (60%) of such shares
voting together as a class, in each case, with respect to this Agreement, the
Merger and the transactions contemplated hereby and thereby (the approval and
adoption described in this Section 4.5(b) being herein referred to as the
"Stockholder Approvals").
4.6. Legal Proceedings.
(a) Except as set forth in Section 4.6(a) of the Company Disclosure Schedule,
there is no claim, action, suit, arbitration, litigation, governmental
investigation or other proceeding (each, an "Action") pending against any Group
Entity or its properties or business, or the transactions contemplated by this
Agreement. To the knowledge of the Company, except as set forth in Section
4.6(a) of the Company Disclosure Schedule, there is no Action threatened against
any Group Entity or its properties or business, or the transactions contemplated
by this Agreement, which is reasonably likely to have a Material Adverse Effect
on the Group Entities, taken as a whole. None of the Group Entities or their
respective assets or properties is subject to any material order, judgment,
injunction, decree, stipulation or determination entered by or with any
government, governmental or regulatory authority, board, agency or other entity,
or any court, tribunal or judicial body, whether federal, state or local (each,
a "Governmental Authority"). No Group Entity has received any opinion or
memorandum from internal or outside legal counsel to the effect that it is
exposed, from a legal standpoint, to any liability that is reasonably likely to
have a Material Adverse Effect on such Group Entity. Section 4.6(a) of the
Company Disclosure Schedule sets forth all closed litigation matters involving
amounts in dispute in excess of $100,000 to which any Group Entity was a party
during the three years preceding the Closing, the date such litigation was
commenced and concluded, and the nature of the resolution thereof (including
amounts paid in settlement or judgment).
(b) The Company has provided outside counsel to Parent complete and candid
access to all members of the Board of Directors, officers, employees and agents
of the Company with knowledge pertaining to the matters in connection with the
litigation which is the subject of the complaint as previously filed of Vista of
Montana, Inc. filed in the action captioned Vista of Montana, Inc. v. Department
of Administration of the State of Montana and the Department of Public Health
and Human Services of the State of Montana and Montana Community Partners, Inc.,
(Case No.: BDV97-192), and complete access to all Company documentation material
thereto. The Company has not failed and will not fail to disclose any
information or documentation which is known to the Company and which is material
to such counsel's analysis of the claims in such litigation and the Company has
caused the members of its Board of Directors, officers, employees and agents to
cooperate fully in such analysis and to make full disclosure of all facts and
information which is known to the Company and which is material to such
analysis.
(c) The Company has retained the firm of Piper & Marbury, L.L.P. ("Piper &
Marbury") as its legal counsel in the litigation pending in the United States
District Court for the Southern District of New York captioned: Xxxxxx X.
Xxxxxxxx, M.D., et al. v. CMG Health, et al., 96 Cir. 198 (KMW) ("Xxxxxxxx").
The Company has provided Piper & Marbury complete and candid access to all
members of the Board of Directors, officers, employees and agents of the Company
with knowledge pertaining to the matters which are the subject of the Xxxxxxxx
litigation and complete access to all Company documentation pertinent to the
Xxxxxxxx litigation. The Company has not failed and will not fail to disclose
any information or documentation which is known to the Company and which is
material to Piper & Marbury's analysis of the claims in Xxxxxxxx and it has
caused and will cause the members of its Board of Directors, officers, employees
and agents to cooperate fully in such analysis and to make full disclosure of
all facts and information which is known to the Company and which is material to
such analysis.
4.7. Financial Statements.
The Company has heretofore furnished to Parent copies of the following financial
statements: (a) the audited Consolidated Balance Sheets of the Company as of
December 31, 1995 and 1996, and the audited Consolidated Statements of
Operations, Stockholders' Equity, and Cash Flows for each of the years in the
three year period ended December 31, 1996 (the "Latest Statement Date"),
together with the notes thereto (the "Latest Company Financial Statements"), and
the unqualified opinion of Ernst & Young LLP, the Company's independent
auditors, and (b) the Consolidated Balance Sheet of the Company and the
Consolidated Statement of Operations for each month ended between the Latest
Statement Date and May 31, 1997 (collectively with the Latest Company Financial
Statements, the "Company Financial Statements"). The Company Financial
Statements fairly present the consolidated financial position, consolidated
results of operations and consolidated cash flows of the Company as of the dates
and for the periods indicated therein. Each of the Company Financial Statements
has been prepared in accordance with generally accepted accounting principles
("GAAP") (applied on a consistent basis except as disclosed in the footnotes
thereto) and, with respect to financial statements referred to in clause (b) of
the first sentence of this Section 4.7, subject to normal year-end adjustments
and the absence of footnotes. The "Supplemental Schedules" set forth in Section
4.7 of the Company Disclosure Schedule fairly present, in accordance with GAAP,
the results of operations and variances in revenue for each of the items
described therein, for each month during the period from January 1, 1996 through
May 31, 1997. The Subsequent Company Financial Statements, delivered pursuant to
Section 8.1(h), will fairly present the consolidated financial position,
consolidated results of operations and consolidated cash flows of the Company as
of the dates and for the periods indicated therein, and the Subsequent
Supplemental Schedules, also delivered pursuant to Section 8.1(h), will fairly
present, in accordance with GAAP, the results of operations and variances in
revenue for each of the items described therein, for each month during the
period covered by the Subsequent Company Financial Statements. Each of the
Subsequent Company Financial Statements will be prepared in accordance with GAAP
(applied on a consistent basis except as disclosed in the footnotes thereto),
subject to normal year-end adjustments and the absence of footnotes.
4.8. No Undisclosed Liabilities.
Neither the Company nor any other Group Entity has any liabilities or
obligations of any nature, whether accrued, absolute, fixed or contingent,
except (i) to the extent reflected and accrued for or fully reserved against in
the Company Financial Statements, (ii) for liabilities disclosed in Section 4.8
of the Company Disclosure Schedule, (iii) for liabilities and obligations not
required under GAAP to be disclosed on the balance sheets included in the
Company Financial Statements or in the financial footnotes thereto, or (iv) for
liabilities and obligations which have arisen after the Latest Statement Date in
the ordinary course of business consistent with past custom and practice (in
each case of this clause (iv), none of which is a liability resulting from
breach of contract, breach of warranty, tort, infringement claim or lawsuit).
4.9. No Violation.
Except as set forth in Section 4.9 of the Company Disclosure Schedule, neither
the execution and delivery of this Agreement nor the consummation by the Company
of the transactions contemplated hereby will (a) violate, conflict with or
result in any breach of any provision of the respective organizational documents
of any Group Entity, (b) violate any order, decree, injunction, judgment,
ruling, law, statute, regulation, rule or other determination of any
Governmental Authority (collectively, "Laws") applicable to any Group Entity,
(c) require the giving of notice to any party to a Material Contract or accord
any such party the right to modify a Material Contract, or (d) conflict with or
result in a breach of any provision of, or constitute a material default (or an
event which, with notice or lapse of time or both, would constitute a material
default) under or give to others any rights of termination, amendment,
acceleration, suspension, revocation or cancellation of, or result in any
Encumbrance on the shares of Company Common Stock or Company Preferred Stock or
the properties or assets of the Company, the Company Subsidiaries or the Company
Other Entities pursuant to (i) any material agreement, contract or other
instrument binding upon any Group Entity or (ii) any material License (as
defined in Section 4.15) held by any Group Entity.
4.10. Material Contracts.
(a) Section 4.10(a) of the Company Disclosure Schedule sets forth (grouped by
each clause of this Section 4.10(a)) the following contracts (collectively,
along with each Lease and each other contract which is material to the Group
Entities, taken as a whole, or the conduct of its business or the absence of
which would have a Material Adverse Effect on the Company, "Material Contracts")
in effect as of the date of this Agreement to which any Group Entity is a party:
(i) any contract (excluding any customer, provider or employment contract) that
the Company reasonably anticipates will, in accordance with its terms, involve
aggregate annual payments after the date hereof by any Group Entity of more than
$100,000 and that is not cancelable without liability within 60 days;
(ii) any contract, note or other instrument with any customer of the Company;
(iii) each provider contract or other contract with an individual, facility,
program or entity rendering professional health care services as a contractor to
any Group Entity under which $100,000 has been paid in calendar year 1996 or is
reasonably likely to be paid in calendar year 1997 and that is not cancelable
without payment to a third party or liability within 90 days;
(iv) any employment or consulting contracts (including without limitation any
arrangements or obligations with respect to severance, change in control or
termination pay) with any member of the Board of Directors, officer or employee
of any Group Entity;
(v) all partnership, joint venture or similar contracts of any Group Entity;
(vi) any note, loan, letter of credit, contract relating to indebtedness for
borrowed money or capitalized leases, or other contract in respect of which any
Group Entity is obligated in any way to provide funds in respect of, or to
guarantee or assume, any debt, obligation or dividend of any person or entity
involving aggregate obligations of the Group Entities of more than $50,000;
(vii) any indemnity arrangement arising in connection with any sale or
disposition of assets (other than sales of assets in the ordinary course of
business);
(viii) any acquisition or disposition contracts of any Group Entity under which
a party thereto remains obliged to pay monies or perform;
(ix) all contracts with any Governmental Authority or with any labor union;
(x) contracts for capital expenditures requiring payments by any Group Entity
after the date hereof in excess of $100,000 for any single project;
(xi) all patent, trademark, service xxxx, trade name, copyright and franchise
licenses, royalty agreements or similar contracts;
(xii) any material contracts relating to the licensure or ownership of the
hardware or software utilized in any Group Entity's information systems; and
(xiii) each contract to which any Group Entity is a party (i) limiting the right
of any Group Entity prior to or after the Closing Date, or Parent or any of its
subsidiaries or Affiliates at or after the Closing Date, (A) to engage in, or to
compete with any person in, any business, including each contract or agreement
containing exclusivity provisions restricting the geographical area in which, or
the method by which, any business may be conducted by any Group Entity prior to
or after the Closing Date, or Parent or any of its subsidiaries or Affiliates
after the Closing Date or (B) to solicit any customer, client or patient or (ii)
containing "most favored nations" or similar provisions affecting the pricing
terms of contracts to which it is a party.
The Company has made available to Parent true and complete copies of all written
Material Contracts (including all amendments thereto). Without limiting the
generality of the foregoing, the Company has provided to Parent a true and
complete copy of the amendment to its existing contract with Physician Health
Services ("PHS") relating to the Connecticut Medicaid business, extending the
terms of such existing contract through December 31, 1998. Set forth in Section
4.10(a)(xiv) of the Company Disclosure Schedule is a true and complete list of
base compensation as reported on Form W-2 for each person disclosed as being the
beneficiary of a contract or obligation pursuant to Section 4.10(a)(iv) hereof,
since and including calendar year 1991, or with respect to any person whose
employment with the Company commenced subsequent to 1991, since and including
the first calendar year of such person's employment.
(b) Each Material Contract which is a customer contract, and each other material
contract of any Group Entity which is a customer contract which would have been
required to be disclosed in Section 4.10(a) of the Company Disclosure Schedule
had such contract been entered into prior to the date of this Agreement, is in
full force and effect and is a legal, valid and binding obligation, and there is
not (i) any material default (or any event which, with the giving of notice or
lapse of time or both, would be a material default) by any Group Entity or, to
the knowledge of the Company, any other party, in the timely performance of any
obligation to be performed or paid under any such Material Contract or any such
other material contract, (ii) to the Company's knowledge, any threat of
cancellation or termination of any such Material Contract or other such material
contract, (iii) any contract that has been canceled or otherwise terminated
within the last 12 months which would have been such a Material Contract had
such contract not been canceled or terminated, or (iv) to the Company's
knowledge, any material amendment to any such Material Contract, which amendment
has been entered into or became effective in the last twelve months, except, in
each case, as specifically described in Section 4.10(b) of the Company
Disclosure Schedule.
(c) Each Material Contract which is not a customer contract, and each other
material contract of any Group Entity which is not a customer contract and which
would have been required to be disclosed in Section 4.10(a) of the Company
Disclosure Schedule had such contract been entered into prior to the date of
this Agreement, is in full force and effect and is a legal, valid and binding
obligation, and there is (i) no material default (or any event which, with the
giving of notice or lapse of time or both, would be a material default) by any
Group Entity or, to the knowledge of the Company, any other party, in the timely
performance of any obligation to be performed or paid under any such Material
Contract or any such other material contract, or (ii) to the knowledge of the
Company, no threat of cancellation or termination of any such Material Contract
or other such material contract, except, in each case, as specifically described
in Section 4.10(c) of the Company Disclosure Schedule.
(d) As used herein, (1) "contract" means any written agreement and any legally
binding oral agreement, commitment or arrangement and (2) "customer contract"
means a contract with a customer of any Group Entity.
4.11. Compliance With Law; Consents and Authorizations.
(a) Except as set forth in Section 4.11(a) of the Company Disclosure Schedule,
each Group Entity has, in all material respects, operated its business in
compliance with applicable Law and it and its business are not in material
violation of any Law applicable to such Group Entity.
(b) No consent, authorization, license, approval, order or permit of, or
declaration, filing or registration with, or notification to, any Governmental
Authority or any other third party, is required to be made or obtained by any
Group Entity or any stockholder thereof in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby, except (i) as set forth in Section 4.11(b) of
the Company Disclosure Schedule; (ii) pursuant to applicable requirements, if
any, of the MGCL, the DGCL and the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act
of 1974, as amended (the "HSR Act"); (iii) the Stockholder Approvals; or (iv) as
would not, if not so obtained, (A) have a Material Adverse Effect upon the Group
Entities, taken as a whole or (B) prevent or materially interfere with the
consummation of the transactions contemplated hereby.
(c) The representations and warranties in this Section 4.11 shall be deemed not
to cover matters which are expressly subject to the representations and
warranties set forth in Section 4.15 hereof.
4.12. Insurance.
(a) Section 4.12(a) of the Company Disclosure Schedule lists all of the Group
Entities' insurance policies or binders covering the assets, employees and
operations of the Group Entities as of the date hereof, showing the insurers,
limits, type of coverage, annual premiums, deductibles and expiration dates. All
such policies or binders are in full force and effect. In the case of
professional liability, medical malpractice and errors and omissions, Section
4.12(a) of the Company Disclosure Schedule sets forth such information for each
policy or binder held by any Group Entity since January 1, 1991. Section 4.12(a)
of the Company Disclosure Schedule also describes each pending claim under the
professional liability, medical malpractice or errors and omissions policies. To
the Company's knowledge, no Group Entity that is not an Unaffiliated Entity is
in default with respect to any provision contained in any such policy or binder,
which default would compromise the coverage under any such policy or binder.
Attached to Section 4.12(a) of the Company Disclosure Schedule are copies of all
letters from each Group Entity's insurance providers concerning the provider's
acceptance, denial or qualification of coverage for any pending claims which may
be subject to such provider's insurance coverage.
(b) The business policy of the Group Entities with respect to the requirements
for each individual or entity rendering professional health care services as an
employee of or contractor to any Group Entity for professional liability or
medical malpractice insurance is set forth in Section 4.12(b) of the Company
Disclosure Schedule.
4.13. Tax Matters.
The Group Entities have timely filed with the appropriate tax authorities all
tax returns required to be filed by or on behalf of the Group Entities, and such
tax returns are true, complete and correct in all material respects, and the
Group Entities have paid all material Taxes and any other charges, whether or
not shown to be due and owing on such tax returns. The Group Entities have
withheld and paid in full on a timely basis or accrued as a liability on the
balance sheet of the Group Entities as of the Closing Date all material Taxes
required to be withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party.
The Group Entities have not received written notice of, and the Company has no
knowledge of, any action, suit, proceeding, audit, claim, deficiency or
assessment pending with respect to any Taxes. There are no outstanding waivers
of statute of limitations with respect to any tax return or report of the Group
Entities and no request for such waiver is pending. No claim has been made by an
authority in a jurisdiction where a Group Entity does not file tax returns that
the Group Entity may be subject to taxation by the jurisdiction. The Group
Entities have not made, are not obligated to make and will not become obligated
under any contract entered into prior to or contemporaneously with the Closing
to make any payments, separately or in the aggregate, that will be nondeductible
under Section 280G of the IRC or subject to excise tax to the recipient under
Section 4999 of the IRC. Except for the group of which Company and its
Subsidiaries are presently members, none of Company or any of its Subsidiaries
have ever been a member of an affiliated group of corporations, within the
meaning of Section 1504 of the IRC. The Company has not filed a consent pursuant
to Section 341(f) of the IRC or agreed to have Section 341(f)(2) of the IRC
apply to any disposition of any asset owned by it or any of its Subsidiaries.
The Company and its Subsidiaries have no deferred intercompany transactions or
other deferred items of income or gain. The Company is not a personal holding
company within the meaning of Section 542 of the IRC. Neither the Company nor
any of its Subsidiaries is a party to or is bound by any tax-indemnity,
tax-sharing, or tax-allocation agreement. The Company Financial Statements
include all reserves for matters concerning Taxes as are required under GAAP.
Since December 31, 1995, no Group Entity has made or rescinded any express or
deemed election relating to Taxes, settlement or compromise of any claim,
action, suit, litigation, proceeding, arbitration, investigation, audit or
controversy relating to Taxes, or made any change in any methods of reporting
income or deductions for federal income Tax purposes from those employed in the
preparation of the federal income Tax returns, as amended, for the taxable year
ending December 31, 1995, except as may be required by applicable Law.
4.14. Employee Benefit Plans.
(a) Except as set forth in Section 4.14(a) of the Company Disclosure Schedule,
no Group Entity has established or maintains, is obligated to make contributions
to or under, or otherwise to participate in, or has any liability or obligations
with respect to (i) any bonus, stock option, stock purchase, stock appreciation,
phantom stock or other type of incentive compensation plan, program, agreement,
policy, commitment, contract or arrangement (whether or not set forth in a
written document), (ii) any pension, profit-sharing, retirement or other plan,
program or arrangement, or (iii) any other employee benefit plan, fund or
program, including, but not limited to, those described in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder ("ERISA"). All such plans (individually, a
"Plan" and, collectively, the "Plans") have been operated and administered, in
all material respects, in accordance with, as applicable, ERISA, the IRC, Title
VII of the Civil Rights Act of 1964, as amended, the Equal Pay Act of 1967, as
amended, the Age Discrimination in Employment Act of 1967, as amended, and the
related rules and regulations adopted by those federal agencies responsible for
the administration of such laws. No act or failure to act by any Group Entity
has resulted in a "prohibited transaction" (as defined in ERISA and in Section
4975 of the IRC) with respect to the Plans that is not subject to a statutory or
regulatory exception or in any breach of fiduciary duty under Title I of ERISA.
No Group Entity has previously made, is currently making, or is obligated in any
way to make, any contributions to, or has any liability or obligations with
respect to, any multiemployer plan within the meaning of Section 3(37) or
Section 4001(a)(3) of ERISA or any pension plan which is subject to Section 412
of the IRC or Title IV of ERISA. Other than as set forth in Section 4.14(a) of
the Company Disclosure Schedule, no Group Entity has any obligation, under any
Plan or otherwise, to provide any employee or former employee with any
postretirement, medical, life or other welfare benefit, except as required by
Section 4980B of the IRC. The Internal Revenue Service has issued, with respect
to each Plan and each related trust agreement, annuity contractor other funding
instrument which is intended to be qualified and tax-exempt under the provisions
of Sections 401(a) and 501(a) of the IRC, respectively, a favorable
determination letter with respect to such qualification and tax-exempt status
for all periods from the effective date of each Plan to date. The Company has no
knowledge of any facts which exist or any events which have occurred that would
adversely effect such qualification and tax-exempt status. All contributions
required to be made to any Plan by any Group Entity have been made when due on a
timely basis. No Group Entity is or at any time has been a member of a
"controlled group of corporations" with or under "common control" with any
corporation or any trades or businesses other than with one or more Group
Entities. With the exception of the Employee Assistance Service, Inc. Employee
Assistance Program, all Plans set forth in Section 4.14(a)(6) of the Company
Disclosure Schedule are terminable on not more than 60 days' notice without
liability.
(b) True and complete copies of each of the following documents have been made
available by the Company with respect to each Plan: (i) each Plan document (and,
if applicable, related trust agreements) and all amendments thereto, all written
interpretations thereof and written descriptions thereof which have been
distributed to the employees of any Group Entity, (ii) for the three (3) most
recent Plan years, Annual Reports on Form 5500 Series filed with any
governmental agency for each Plan which is subject to such filing requirement
and (iii) the most recent determination letter issued by the Internal Revenue
Service for each Plan which is intended to be qualified under Section 401(a) of
the IRC.
(c) Section 4.14(c) of the Company Disclosure Schedule sets forth, opposite the
name of each employee of the Company who may be eligible to receive severance
payments under the Company's severance policy, an agreement (whether oral or
written) with the Company or otherwise, the amount of such severance to which
the applicable employee may be entitled.
4.15. Licenses; Accreditation and Regulatory Approvals.
To the Company's knowledge, the Group Entities hold all material licenses,
permits, franchises, certificates of need and other governmental or regulatory
authorizations and approvals which are needed or required by Law with respect to
their businesses, operations and facilities as they are currently owned or
presently conducted (collectively, the "Licenses"). All such material Licenses
are in full force and effect and each Group Entity is in compliance in all
material respects with all conditions and requirements of the Licenses and with
all rules and regulations relating thereto, except as set forth in Section 4.15
of the Company Disclosure Schedule. No such License has been revoked,
conditioned or restricted except as for customary conditions or restrictions or
as can be cured by a Group Entity within the period allowed by the applicable
Governmental Authority for such cure without having a Material Adverse Effect
upon the Company or its business, and no Action is pending, or to the Company's
knowledge, threatened which in any way challenges the validity of, or seeks to
revoke, condition or restrict any such License. Except as set forth in Section
4.15 of the Company Disclosure Schedule, no transfer of any material License is
necessary to allow the Surviving Corporation to continue after the Effective
Time to operate the Company's facilities as presently operated.
4.16. Absence of Certain Changes or Events.
Except as set forth in Section 4.16 of the Company Disclosure Schedule, since
the Latest Statement Date to the date of this Agreement there has not been:
(a) any material damage, destruction or loss (whether or not covered by
insurance) with respect to any material assets of any Group Entity;
(b) any change by any Group Entity in its accounting methods, principles or
practices, other than such changes required by GAAP;
(c) any (i) increase in the compensation payable or to become payable to any
member of the Board of Directors, officer or employee, except for increases in
salary or wages payable or to become payable in the ordinary course of business
and consistent with past practice to employees of such Group Entity who are not
members of the Board of Directors or officers of such Group Entity; (ii) grant
of any severance or termination pay (other than pursuant to the normal severance
policy of such Group Entity as in effect on the date of this Agreement) to, or
entry into any employment or severance agreement with, any member of the Board
of Directors, officer or employee; or (iii) promise of an increase in the
benefits under, or the establishment or amendment of, any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan (except as may be contractually required
under Law), or promise of any other increase in the compensation payable or to
become payable to members of the Board of Directors, officers or employees of
any Group Entity, except for increases in salaries or wages payable or to become
payable in the ordinary course of business and consistent with past practice to
employees of any Group Entity who are not members of the Board of Directors or
officers of any Group Entity and that in the aggregate have not resulted in or
will not result in a material increase in the benefits or compensation expense
of any Group Entity;
(d) any transaction or contract material to the Group Entities taken as a whole,
or any commitment to do the same, entered into by any Group Entity (other than
in the ordinary course of business and consistent with past practice) or any
material changes in the customary method of operations of any Group Entity,
including, without limitation, practices and policies relating to marketing,
selling and pricing;
(e) any transfer, Encumbrance, lease, sublease, license or other disposition by
any Group Entity of any of its assets and any action described in Section 8.2(f)
hereof, other than in the ordinary course of business and consistent with past
practice and not material in the aggregate;
(f) any writing down, in accordance with GAAP and consistent with past practice,
of the value of any inventories or accounts receivable or any revaluation by any
Group Entity of any of its assets or any cancellation or writing off as
worthless and uncollectable of any debt, note or account receivable by any Group
Entity, or any waiver by any Group Entity of a right of substantial value;
(g) to the Company's knowledge, any cancellation, termination, waiver,
modification, release or relinquishment by any party (including a Group Entity)
to a Material Contract (excluding customer contracts), or, to the Company's
knowledge, any receipt by any Group Entity of notice that any such Material
Contract to which any Group Entity is a party has been or will be canceled, or
that any services provided or to be provided thereunder by any Group Entity will
be discontinued;
(h) any individual capital expenditure by any Group Entity or commitment to make
such capital expenditure in excess of $25,000, except in the ordinary course of
business and consistent with past practice;
(i) any payment or incurring of liability to pay any Taxes, assessments, fees,
penalties, interest or other governmental charges other than those arising and
discharged or to be discharged in the ordinary course of business and consistent
with past practice;
(j) any loans, advances or capital contributions made by any Group Entity to, or
investments by any such party in, any person or entity (other than another
wholly-owned Group Entity, as to which the uses of the transferred cash or
property are not subject to restrictions greater than those imposed prior to
such transfer), including, without limitation, to any employee, officer or
member of the Board of Directors of any Group Entity;
(k) any incurring or guarantee of indebtedness by any Group Entity or commitment
to incur or guarantee indebtedness, or of liabilities (except in the ordinary
course of business), by any Group Entity exceeding $50,000 in the aggregate,
other than as described in Section 4.16(h), above, and other than as may be
incurred in the ordinary course of business under the revolving credit agreement
for working capital purposes;
(l) any failure to maintain the Group Entity plant, property and equipment in
good repair and operating condition, ordinary wear and tear excepted;
(m) any failure to pay any creditor any material amount owed to such creditor,
or to discharge any material obligation, when such payment or discharge is due
or within 30 days of such date, except where such obligation is contested in
good faith by a Group Entity;
(n) any declaration, setting aside or payment of dividends or distributions in
respect of any Equity Interests of any Group Entity (other than to a
wholly-owned Group Entity, as to which the uses of the transferred cash or
property are not subject to restrictions greater than those imposed prior to
such transfer) or any redemption, purchase or other acquisition of any Equity
Interests or other securities of any Group Entity;
(o) any issuance by any Group Entity of any share of capital stock, bond, note,
option, warrant or other corporate security (other than option exercises for
Company Common Stock), or other action described in Section 8.2(d) hereof;
(p) any acquisition of assets by any Group Entity of any corporation,
partnership or other business organization or division thereof, or any other
action described in Section 8.2(e) hereof;
(q) any (i) reorganization or recapitalization of any Group Entity other than
the Company; or (ii) split, combination or reclassification of any of the
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for, shares of capital
stock, of any Group Entity other than the Company;
(r) a Material Adverse Change with respect to the Company; or
(s) any authorization, approval, agreement or commitment by any Group Entity to
take any action described in clauses (a) through (q) above.
4.17. Personal Property; Information Systems.
(a) The Group Entities collectively own, have a valid leasehold interest in, or
have legal right to use, all of the tangible personal property necessary to
carry on the business of the Group Entities as presently conducted, free and
clear of all Encumbrances except for (i) Encumbrances for inchoate mechanics'
and materialmens' liens for construction in progress and workmens', repairmens',
warehousemens' and carriers' liens arising in the ordinary course of business,
(ii) Encumbrances for Taxes not yet payable, (iii) Encumbrances arising out of,
under, or in connection with, this Agreement and (iv) Encumbrances set forth in
Section 4.17 of the Company Disclosure Schedule arising in connection with the
Company's revolving credit agreement (collectively, "Permitted Encumbrances").
(b) The operating and applications computer programs and data bases ("Software")
which the Group Entities currently use or have available for use are adequate
and sufficient to service their existing customers on the date hereof through
the end of the current term of the contracts with such customers. All such
Software is owned outright by a Group Entity or, if not owned by a Group Entity,
a Group Entity has the right to use the same pursuant to valid licenses
therefor. None of the Software owned by a Group Entity and, to the Company's
knowledge, none of the Software licensed by a Group Entity, infringes upon or
violates any patent, copyright, trade secret or other property right of any
other Person.
(c) The central processing units, monitors, printers and other computer-related
hardware ("Hardware") which the Group Entities currently use or have available
for use are adequate and sufficient to service their existing customers on the
date hereof through the end of the current term of the contracts with such
customers. All such Hardware is owned outright by a Group Entity or, if not
owned by a Group Entity, a Group Entity has the right to use the same pursuant
to valid licenses therefor.
4.18. Real Property.
(a) No Group Entity owns any real property.
(b) Section 4.18(b) of the Company Disclosure Schedule lists each parcel of real
property leased by each Group Entity, as tenant (collectively, "Leased Real
Property"), together with a description of the approximate square footage of
each parcel of Leased Real Property and the initial and renewal terms under the
applicable Lease with respect to each parcel of Leased Real Property. Except as
set forth in Section 4.18(b) of the Company Disclosure Schedule, each Group
Entity party to the respective leases for the Leased Real Property (the
"Leases") (i) has a valid and subsisting leasehold interest in each Lease, (ii)
has not subleased or assigned any interest in any such Lease and (iii) has not
received any written notice of material default under any such Lease which is
still in effect.
4.19. Customers.
Section 4.10(a)(ii) of the Company Disclosure Schedule contains a complete and
accurate list, as of the date of this Agreement, of each customer of each Group
Entity, and the amount of revenue generated for each such customer during the
twelve month period ended December 31, 1996 and during the four-month period
ended April 30, 1997. No Group Entity has received any notice, and the Company
has no knowledge, that any customer of any Group Entity has ceased, or will
cease, to use the services of such Group Entity, or that any customer of any
Group Entity has reduced, or will reduce, the use of such services at any time
or has threatened to do so. Except as set forth in Sections 4.10(a) and (b) of
the Company Disclosure Schedule, no Group Entity has received notice from any
existing customer of any Group Entity requesting, nor does the Company have
knowledge of an intention by any existing customer to request, that any Group
Entity xxxxx xxxxx concessions, rebates or reductions on products or services
provided by such Group Entity, or any other modification of any contract with a
Group Entity that has had, or could reasonably be expected to have, a Material
Adverse Effect upon the economic benefits of the relationship with such customer
(collectively, "Customer Modifications"). Section 4.19 of the Company Disclosure
Schedules sets forth the Company's treatment (i.e., deferral, expensing and
amortization) during the fiscal years 1995 and 1996 and the period ending April
30, 1997 of start-up costs for each customer contract listed in Section
4.10(a)(ii) of the Company Disclosure Schedule.
4.20. Receivables; IBNR Claims.
The accounts receivable of any Group Entity reflected on the Consolidated
Balance Sheet as of May 31, 1997 have arisen in the ordinary course of business
and represent bona fide claims of a Group Entity against debtors for sales made,
services performed or other charges arising on or before the date hereof, are
not subject to valid claims of set-off or other defenses or counterclaims, and,
subject to the reserves therefor set forth on such balance sheet (which have
been recorded on a consistent basis in a manner consistent with GAAP), will be
collectible in the ordinary course of business, without resort to litigation or
extraordinary collection activity. All items which are required by GAAP to be
reflected as accounts receivable on the Latest Company Financial Statements and
the Consolidated Balance Sheet as of May 31, 1997 and the books and records of
any Group Entity are so reflected. The reserves for "incurred but not reported"
claims ("IBNR Claims") reflected on the Company Financial Statements for the
fiscal year ended December 31, 1996 and the month ended immediately preceding
the Closing Date are and will be adequate and sufficient, and were determined in
accordance with the Company's customary internal accounting practices with
respect to reserves for IBNR Claims. Set forth in Section 4.20 of the Company
Disclosure Schedule is the Company's IBNR "cushion" as of May 31, 1997, as well
as changes in such IBNR "cushion" during the period commencing on January 1,
1997 and ending on May 31, 1997.
4.21. Transactions with Affiliates.
Except as disclosed in Section 4.21 of the Company Disclosure Schedule, from the
Latest Statement Date to the date of this Agreement, there have been no material
transactions, contracts or arrangements between any Group Entity, on the one
hand, and (i) the Company or any of its Affiliates (other than a wholly-owned
Group Entity, except any transaction which will result in any cash or property
transferred in any such transaction becoming more restricted as to use or
disposition than it was prior to such transaction), (ii) any member of the Board
of Directors or officer of the Company or any of its Affiliates, (iii) any
holder of Company Equity Interests or (iv) any member of the immediate family of
any individual described in (i), (ii) or (iii), on the other hand. As used in
this Agreement, "Affiliate" means, when used with respect to a specified party,
another party that, either directly or indirectly through one or more
intermediaries, controls or is controlled by or is under common control with the
party specified.
4.22. Restricted Cash.
Except as set forth in Section 4.22 of the Company Disclosure Schedule, there
are no regulatory or contractual restrictions on the ability of any Group Entity
to freely transfer its cash and cash equivalents.
4.23. Commissions and Fees.
The Company has not employed any investment banker, broker, finder, consultant
or intermediary in connection with the transactions contemplated by this
Agreement which would be entitled to any investment banking, brokerage, finder's
or similar fees or commissions in connection with this Agreement or the
transactions contemplated hereby payable by the Company, except for the fees of
Xxxxxxx Xxxxx & Co. as set forth on Exhibit 3.1(b) hereto.
4.24. Environmental Matters.
No Group Entity is currently Handling, nor in the past has Handled, any
Materials of Environmental Concern in any material quantity at, on or from any
property or facility owned, leased, operated or occupied by any of them,
including any previously owned, leased, operated or occupied property or
facility. To the Company's knowledge, no Group Entity is the subject of any
federal, state, local or foreign investigation, and no Group Entity has received
any written notice or claim, or entered into any negotiations or agreements with
any third party, relating to any liability or remedial action or potential
liability or remedial action under Environmental Laws, and there are no pending
or, to the Company's knowledge, threatened actions, suits or proceedings against
or affecting the Group Entities, or their properties, assets or operations, in
connection with any such Environmental Laws that if adversely determined, might
result in any Material Adverse Change in the Group Entities. There are no past
or present Environmental Conditions that are, to the Company's knowledge, likely
to form the basis of any claim under existing law against them which might
result in any Material Adverse Change of the Group Entities. The term "Handling"
or "Handled" means the production, use, generation, storage, treatment,
recycling, disposal, discharge, release, processing, distribution, transport or
other handling or disposition of any kind. The term "Environmental Laws" means
all federal, state, local or foreign statutes, ordinances, regulations, rules,
judgments, orders, notice requirements, court decisions, agency guidelines or
principles of law, as they may be hereinafter amended from time to time, that
(i) regulate or relate to the protection, investigation, remediation or clean-up
of the environment or the Handling of any Material of Environmental Concern, the
preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resource, or the health and safety of persons
or property (including without limitation occupational safety and health), or
(ii) impose or create liability or responsibility with respect to any of the
foregoing. The term "Environmental Condition" means any occurrence, fact or
other condition at any location in, on, about or beneath any property owned,
leased, operated or otherwise occupied by any Group Entity, including any
previously owned, leased or occupied property, resulting from, relating to or
arising out of the presence, emission, exposure, migration, dispersal or
threatened release, spill, leak, escape into the environment, or Handling of any
Material of Environmental Concern. The term "Material of Environmental Concern"
means any substance that is regulated by or forms the basis for liability under
any applicable Environmental Laws.
4.25. Labor Matters.
No Group Entity is a party to any labor agreement with respect to its employees
with any labor organization, group or association nor, to the knowledge of the
Company, within the last year, have there been attempts to organize. Except as
set forth in Section 4.25 of the Company Disclosure Schedule, there is no
complaint, charge or claim pending or, to the knowledge of the Company,
threatened against any Group Entity with any Governmental Authority, arising out
of, in connection with, or otherwise relating to the employment by any Group
Entity of any individual.
4.26. Disclosure.
None of the representations, warranties or statements by the Company in this
Agreement contains or will contain any untrue statement of a material fact, or
omits or will omit to state any material fact necessary to make the statements
or facts contained herein not misleading. To the Company's knowledge, there is
no fact in existence which has, or is reasonably likely to have, a Material
Adverse Effect on the Company or the due performance by the Company of its
obligations hereunder, which has not been expressly set forth in this Agreement,
or in the other documents described herein.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
OF MERGER SUB AND PARENT
Merger Sub and Parent, jointly and severally, hereby represent and
warrant to the Company as follows:
5.1. Organization. Existence and Capital Stock.
Merger Sub is a corporation duly organized and validly existing and is in good
standing under the laws of the State of Delaware. The authorized capital of
Merger Sub consists of l,000 shares of common stock, par value $.01 per share
("Merger Sub Common Stock"), all of which shares are issued and registered in
the name of Parent.
5.2. Power and Authority.
Merger Sub has all necessary corporate power and authority to execute, deliver
and perform this Agreement and to consummate the transactions contemplated
hereby, and has taken all action required by Law, its charter, Bylaws or
otherwise, to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby. The
execution and delivery of this Agreement by Merger Sub, performance of its
obligations hereunder and consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Merger Sub and Parent. This Agreement has been duly executed and delivered by
Merger Sub and, assuming this Agreement constitutes a valid and binding
obligation of the Company, constitutes a valid and binding obligation of Merger
Sub, enforceable against Merger Sub in accordance with its terms except that the
enforcement hereof may be limited by (a) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding in equity or at law).
5.3. Consents and Approvals; No Violation.
Neither the execution and delivery of this Agreement nor the consummation by
Merger Sub of the transactions contemplated hereby will (a) violate, conflict
with or result in any breach of any provision of the charter or Bylaws of Merger
Sub, (b) violate any Laws applicable to Merger Sub, (c) conflict with or result
in a breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default) under or give
to others any rights of termination, amendment, acceleration, suspension,
revocation or cancellation of, or result in any Encumbrance on the properties or
assets of Merger Sub pursuant to, (i) any material agreement, contract or other
instrument binding upon Merger Sub or (ii) any material license, franchise,
permit or other similar authorization held by Merger Sub or (d) require any
consent, approval or authorization of, notice or declaration to, or filing or
registration with, any Governmental Authority, except (1) pursuant to applicable
requirements, if any, of the MGCL, the DGCL and the HSR Act, or (2) as would
not, if not so obtained, (A) have a Material Adverse Effect upon Merger Sub or
(B) prevent or materially interfere with the consummation of the transactions
contemplated hereby.
5.4. Legal Proceedings.
On the date hereof, there are no Actions pending or, to Merger Sub's knowledge,
threatened against, Merger Sub, at law or in equity, relating to the Merger.
5.5. No Prior Activities.
Merger Sub is not a party to any material agreements and has not conducted any
activities other than in connection with the organization of Merger Sub, the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. Merger Sub has no subsidiaries.
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to the Company as follows:
6.1. Organization. Existence and Good Standing.
Parent is a corporation duly organized and validly existing and is in good
standing under the laws of the State of Delaware. Parent has all necessary
corporate power to own its properties and assets and to carry on its business as
presently conducted and is duly qualified to do business and is in good standing
in all jurisdictions in which the character of the property owned, leased or
operated or the nature of the business transacted by it makes qualification
necessary, except where the failure to be in good standing or qualify would not
have a Material Adverse Effect on Parent.
6.2. Power and Authority.
Parent has all necessary corporate power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated hereby
and has taken all corporate actions required to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby. The execution and delivery of this Agreement
has been approved by the Board of Directors of Parent. This Agreement has been
duly executed and delivered by Parent and Merger Sub and, assuming this
Agreement constitutes a valid and binding obligation of the Company, constitutes
a valid and binding obligation of Parent and Merger Sub, enforceable against
Parent and Merger Sub in accordance with its terms except that the enforcement
hereof may be limited by (a) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at law).
6.3. Financing.
Parent has provided true and complete copies of all commitment letters for the
benefit of Parent (the "Commitment Letters") relating to the Merger and the
transactions contemplated thereby. The financing outlined in the Commitment
Letters is sufficient, assuming funding of such amounts, to pay the portion of
the Merger Consideration payable under Section 3.1(b)(i) in connection with the
transactions contemplated hereby.
6.4. Legal Proceedings.
On the date hereof, there are no Actions pending or, to Parent's knowledge,
threatened against Parent, at law or in equity, relating to the Merger.
6.5. Consents and Approvals; No Violation.
Neither the execution and delivery of this Agreement nor the consummation by
Parent of the transactions contemplated hereby will (a) violate, conflict with
or result in any breach of any provision of the respective organizational
documents of Parent, (b) violate any Law applicable to Parent, (c) conflict with
or result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or give to others any rights of termination, amendment, acceleration,
suspension, revocation or cancellation of, or result in any Encumbrance on the
shares of Parent's capital stock or the properties or assets of Parent pursuant
to, (i) any material agreement, contract or other instrument binding upon Parent
or (ii) any material license, franchise, permit or other similar authorization
held by Parent, or (d) require any consent, approval or authorization of, notice
or declaration to, or filing or registration with, any Governmental Authority,
except (1) pursuant to applicable requirements, if any, of the MGCL, the DGCL
and the HSR Act, or (2) as would not, if not so obtained, (A) have a Material
Adverse Effect upon Parent or (B) prevent or materially interfere with the
consummation of the transactions contemplated hereby.
6.6. Parent Capital Stock.
Parent's authorized capital stock consists of 40,000,000 shares of Parent Common
Stock, of which 28,559,800 shares are issued and outstanding on the date hereof,
and 1,000,000 shares of preferred stock, par value $.01 per share ("Parent
Preferred Stock"), of which no shares are issued and outstanding on the date
hereof. Such shares constitute all of the issued and outstanding shares of
capital stock of Parent. All of the issued and outstanding shares of Parent
Common Stock are duly and validly issued, fully paid and nonassessable and were
not issued in violation of any preemptive rights. All of the Parent Shares, if
and when issued in accordance with Section 3.7 hereof, will be duly and validly
issued, fully paid and nonassessable, and will not be issued in violation of any
preemptive rights. Parent has authorized options to acquire 9,561,000 shares of
Parent Common Stock under its 1995 Stock Purchase and Option Plan for Employees
of Merit Behavioral Care Corporation and Subsidiaries and its 1996 Employee
Stock Option Plan of Merit Behavioral Care Corporation, of which options to
acquire not more than 7,000,000 shares of Parent Common Stock are issued and
outstanding on the date hereof.
6.7. SEC Documents; No Material Adverse Change.
The Parent has filed all forms, reports, statements and other documents required
to be filed by it with the Securities and Exchange Commission ("SEC") since
March 20, 1996 (such forms, reports, statements and other documents are referred
to herein as the "Parent SEC Documents"). The Parent SEC Documents filed by
Parent with the SEC prior to and after the date of this Agreement (i) complied,
or will comply, when filed, in all material respects with the applicable
requirements of GAAP, the Securities Act of 1933, as amended, the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder, and
(ii) did not, or will not, when filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Since December 31,
1996, there has been no Material Adverse Change with respect to Parent not
disclosed in the Parent SEC Documents.
ARTICLE VII.
ACCESS TO INFORMATION AND DOCUMENTS
7.1. Access to Information.
Between the date hereof and the Closing Date, the Company will, and will cause
each Group Entity (other than an Unaffiliated Entity) and their respective
officers, stockholders, employees, accountants, counsel, financial advisors and
other representatives (collectively, the "Company Parties") to provide Parent
and its Affiliates, officers, employees, stockholders, subsidiaries, counsel,
accountants, financing sources, financial advisors and other representatives
(collectively, the "Parent Representatives") full access, at reasonable times,
to all the properties, documents, contracts, personnel files and other records
of the Company Parties and shall furnish the Parent Representatives with access
to the employees of such Company Parties and copies of such documents and with
such information with respect to the affairs of such Company Parties as the
Parent Representatives may from time to time reasonably request. Each Company
Party will disclose and make available to the Parent Representatives all books,
contracts, accounts, personnel records, letters of intent, papers, records,
communications with Governmental Authorities and other documents relating to the
business and operations of such Company Party. All information disclosed by any
Company Party shall be deemed to be "Confidential Information" under the terms
of the Confidentiality Agreement dated March 28, 1997, between the Company and
Parent (the "Confidentiality Agreement"). No investigation pursuant to this
Section 7.1 shall affect any representations or warranties of the parties herein
or the conditions to the obligations of the parties hereto.
ARTICLE VIII.
COVENANTS OF THE COMPANY
8.1. Affirmative Covenants.
Unless otherwise expressly contemplated by this Agreement, or consented to in
writing by Parent, the Company hereby covenants and agrees to, the Company
hereby covenants and agrees to cause each Group Entity other than an
Unaffiliated Entity to, and the Company hereby covenants and agrees to use its
best efforts to cause each Unaffiliated Entity to, between the date hereof and
the Effective Time:
(a) operate the business of such Group Entity only in the usual, regular and
ordinary course consistent with past practice;
(b) use reasonable efforts to preserve intact the business organization and
assets, maintain the rights and franchises, retain the services of the
respective officers, key employees and consultants, and maintain the
relationships with the respective customers and suppliers of the business of
such Group Entity;
(c) maintain and keep the properties and assets of such Group Entity in as good
repair and condition as at present in all material respects, ordinary wear and
tear excepted;
(d) keep in full force and effect insurance and bonds comparable in amount and
scope of coverage to that currently maintained by such Group Entity;
(e) perform in all material respects all obligations required to be performed
under all Material Contracts, leases, contracts and documents relating to or
affecting the assets, properties or operations of such Group Entity;
(f) comply with and perform in all material respects all obligations and duties
imposed by all applicable Laws;
(g) maintain the books, accounts and records of such Group Entity in the usual,
regular and ordinary manner on a basis consistent with past practice;
(h) deliver to Parent, within fifteen (15) business days after the end of each
calendar month, an unaudited, consolidated balance sheet, statement of
operations, statement of stockholders' equity and cash flow statement for the
Company for such month just ended (the "Subsequent Company Financial
Statements"), schedules showing the results of operations and variances in
revenue for each of the items set forth therein (the "Subsequent Supplemental
Schedules"), and within 45 days after the end of each fiscal quarter, an
unaudited, condensed balance sheet, statement of operations, statement of
stockholders' equity and cash flow statement for the Company for such fiscal
quarter just ended;
(i) notify Parent of any material Action commenced by or against such Group
Entity or any Actions commenced or threatened which relate to the transactions
contemplated by this Agreement;
(j) consult with Parent as to additional expenditures with respect to any Group
Entity's information systems exceeding $100,000 in the aggregate;
(k) through its Board of Directors, recommend to the holders of Company Common
Stock at the meeting noticed as described in Section 4.5(b) hereof and scheduled
to occur on or about July 29, 1997, approval of the Merger, this Agreement and
the transactions contemplated thereby and hereby, and take all other necessary
and appropriate action to properly notice and convene such meeting and obtain
the Stockholder Approvals. In connection with such meeting, the Company shall
provide to Parent and its counsel drafts of, and accept (pursuant to the
reasonable requests of Parent), Parent's comments on and revisions to, the
disclosure materials to be provided to the holders of Company Common Stock and
Company Preferred Stock in connection with such meeting;
(l) obtain the approval described in Section 12.2(m), at the meeting noticed as
described in Section 4.5(b) hereof and scheduled to occur on or about July 29,
1997; and
(m) use reasonable efforts, in connection with the payment described in Section
9.2, to arrange for evidence of the full and complete satisfaction of the debt
owed to NationsBank, N.A. and the release of any related guarantees (the
"Existing Debt"), which satisfaction and release shall occur at the Effective
Time.
8.2. Negative Covenants.
Unless otherwise expressly contemplated by this Agreement, consented to in
writing by Parent or disclosed in Section 8.2 of the Company Disclosure
Schedule, the Company hereby covenants and agrees not to, the Company hereby
covenants and agrees not to permit any Group Entity other than an Unaffiliated
Entity to, and the Company hereby covenants and agrees to use its best efforts
to cause each Unaffiliated Entity not to, do any of the following between the
date hereof and the Effective Time:
(a) (i) increase the compensation payable or to become payable to any member of
the Board of Directors or Board of Managers, officer or employee, except for
increases in salary or wages payable or to become payable in the ordinary course
of business and consistent with past practice to employees of such Group Entity
who are not members of the Board of Directors or Board of Managers or officers
of such Group Entity; (ii) grant any severance or termination pay (other than
pursuant to the normal severance policy of such Group Entity as in effect on the
date of this Agreement) to, or enter into any employment or severance agreement
with, any member of the Board of Directors or Board of Managers, officer or
employee; or (iii) grant, promise an increase in benefits under, establish or
amend, or pay any bonus, insurance, deferred compensation, pension, retirement,
profit sharing, stock option (including, without limitation, the granting of
stock options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other similar employee benefit plans or arrangements
in respect of members of the Board of Directors or Board of Managers, officers
or employees of such Group Entity, except to the extent that such Group Entities
are, on the date hereof, contractually obligated or required by Law to do so;
(b) declare, set aside or pay any dividend on, or make or incur any obligation
to make any other distribution in respect of, outstanding Equity Interests of
such Group Entity or effect any other payment or distribution to the holders of
Company Equity Interests, except any dividend or distribution to a wholly-owned
Group Entity of the respective Group Entity which will result in the cash or
other property so transferred becoming more restricted as to use or disposition
than it was prior to such dividend or distribution;
(c) (i) redeem, purchase or otherwise acquire any shares of capital stock or
other equity interests or any securities or obligations convertible or
exchangeable for any shares of capital stock or other equity interests, or any
options, warrants or conversion or other rights to acquire any shares of the
capital stock, equity interests or any such securities or obligations, in each
case of such Group Entity; (ii) effect any reorganization or recapitalization;
or (iii) split, combine or reclassify any of the capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of or in substitution for, shares of capital stock, in each case of such Group
Entity;
(d) issue, deliver, award, grant or sell, or authorize or propose the issuance,
delivery, award, grant or sale (including the grant of any Encumbrances,
limitations on voting rights or other encumbrances) of, any shares of any class
of capital stock or other equity interests (including shares held in treasury),
any securities convertible into or exercisable or exchangeable for any such
shares or other equity interests, or any rights, warrants or options to acquire,
any such shares or other equity interests, of such Group Entity (except for the
issuance of shares of Company Common Stock upon exercise of options outstanding
on the date hereof) or amend or otherwise modify the terms of any such rights,
warrants or options, the effect of which shall be favorable to the holders
thereof;
(e) 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, or otherwise acquire or agree to acquire any
assets of any other person (other than the purchase of assets from suppliers or
vendors in the ordinary course of business and consistent with past practice);
(f) sell, lease, exchange, mortgage, pledge, transfer or otherwise dispose of,
or agree (or solicit any inquiries or proposals or enter into any discussions or
negotiations) to sell, lease, exchange, mortgage, pledge, transfer or otherwise
dispose of, any of the properties or assets of such Group Entity (including,
without limitation, any Equity Interest in a Group Entity) or cancel, release or
assign any indebtedness owed to or any claims held by such Group Entity, except
for dispositions of immaterial assets in the ordinary course of business and
consistent with past practice;
(g) propose or adopt any amendments to the articles of organization or bylaws or
equivalent organizational documents of such Group Entity, other than as
contemplated by Article II hereof;
(h) (i) change any methods of accounting in effect at December 31, 1996, (ii)
make or rescind any express or deemed election relating to Taxes, settle or
compromise any claim, action, suit, litigation, proceeding, arbitration,
investigation, audit or controversy relating to Taxes, or change any methods of
reporting income or deductions for federal income Tax purposes from those
employed in the preparation of the federal income Tax returns for the taxable
year ending December 31, 1995, except as may be required by applicable Law or
(iii) file any income or franchise tax returns without first submitting such
returns to Parent for its review, and unless Parent provides its prior written
consent, which consent shall not be unreasonably withheld, file its 1996 federal
and state income tax returns prior to the fifth business day before the due date
of such returns, with extensions;
(i) incur any indebtedness for borrowed money or purchase money indebtedness
(other than in connection with the acquisition of fixed assets in the ordinary
course of business which do not exceed $100,000 in the aggregate), or assume,
guarantee, endorse or otherwise become responsible for indebtedness of any other
person, or make any loans or advances to any person;
(j) enter into any contract material to the Company;
(k) terminate, modify or amend any Material Contract, Lease, License, or other
contract or commitment, except in the ordinary course of business and not
involving a material increase in liability or reduction in revenue, settle or
otherwise resolve any financial issue, claim or adjustment under any such
Material Contract, Lease, License, or other contract or commitment (including,
without limitation, any resolution or settlement of the bid price adjustment of
OCHAMPUS described in Section 3.7(b)(ii) hereof), or make any payment or effect
any modification to any Material Contract, Lease or License in connection with
obtaining any consent or approval necessitated by the transactions contemplated
hereby (other than payments and modifications which, individually, and in the
aggregate, are immaterial);
(l) enter into any material transactions, agreements, or arrangements between
such Group Entity, on the one hand, and (i) the Company or any of its Affiliates
(other than wholly-owned Group Entities, except any transaction which will
result in any cash or property transferred in any such transaction becoming more
restricted as to use or disposition than it was prior to such transaction), (ii)
any member of the Board of Directors or Board of Managers or officer of the
Company or any of its Affiliates (other than wholly-owned Group Entities, except
any transaction which will result in any cash or property transferred in any
such transaction becoming more restricted as to use or disposition than it was
prior to such transaction), (iii) any holder of Company Equity Interests or (iv)
any member of the immediate family of any individual described in (i), (ii) or
(iii) on the other hand;
(m) settle or compromise any Action (i) for any amount in excess of $100,000 or
(ii) that involves any commitment or arrangement which has, or is reasonably
likely to have, a material effect on the prospects, operations, results of
operations, assets or condition (financial or otherwise) of the Group Entities,
taken as a whole;
(n) make any payment in respect of any component of the Adjustment Amount
described on Exhibit 3.1(b) in excess of the amount specified for such component
on such Exhibit; or
(o) agree, authorize, approve or commit in writing or otherwise to do any of the
foregoing.
Notwithstanding the foregoing, the Company's actions and payments required under
Section 3.2 and the payment of the amounts set forth on Exhibit 3.1(b) shall not
be prohibited by the terms of this Section 8.2.
8.3. CHAMPUS 2/5 Subcontract.
The Company covenants that the definitive subcontract between Humana MHS and the
Company, dated June 26, 1997, relating to the provision of behavioral health
managed care services by the Company on behalf of Humana MHS with respect to
CHAMPUS Regions 2 and 5 (the "CHAMPUS 2/5 Subcontract"), attached hereto as
Exhibit 8.3, represents a legal, valid and binding agreement of the Company and
is in full force and effect as of the date hereof.
8.4. No Solicitations.
From the date hereof until the earlier of the Effective Time or the termination
of this Agreement in accordance with its terms (the "Acquisition Exclusivity
Period"), the Company hereby covenants and agrees not to, and agrees to cause
each other Group Entity other than an Unaffiliated Entity not to, permit any of
the members of their respective Boards of Directors or Board of Managers, or any
of their respective stockholders, officers, members, agents, advisors, counsel
or representatives (collectively, "Representatives") to, directly or indirectly,
(a) solicit or entertain any inquiries or proposals or enter into or continue
any discussion, negotiations or agreements relating to the sale or other
disposition of the Company (whether through a merger, reorganization, stock
purchase or otherwise) or its assets, properties, business or operations (a
"Proposed Acquisition") to or with any person or entity other than Parent or (b)
provide any assistance or any information to any person or entity other than
Parent relating to any Proposed Acquisition. The Company agrees that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties (other than Parent) heretofore
conducted, or the provision by the Company or any Group Entity (other than an
Unaffiliated Entity) or their respective Representatives of information to any
party (other than Parent) to which information heretofore has been provided. If,
after the date hereof, the Company or any Group Entity (other than an
Unaffiliated Entity) receives any such inquiry or proposal or request for
information, or offer to discuss or negotiate any Proposed Acquisition, the
Company will immediately provide notice thereof to Parent.
ARTICLE IX.
COVENANTS OF THE PARENT AND MERGER SUB
9.1. Financing.
Parent will use its reasonable efforts to obtain the financing necessary for the
consummation of the transactions contemplated hereby from a bank or banks or
other institutional lenders. The Company shall cooperate with, and provide all
necessary assistance to, Parent in connection with Parent's financing
contemplated under the Commitment Letters.
9.2. Existing Debt.
Parent shall, subject to the provisions of Section 9.1 and the Company's
fulfillment of its covenant in Section 8.1(m), at the Effective Time pay to
NationsBank, N.A. an amount required to fully and completely satisfy, retire and
release the Existing Debt.
ARTICLE X.
COVENANTS OF THE COMPANY, PARENT AND MERGER SUB
10.1. Public Disclosures.
Parent and the Company will consult with each other before issuing any press
release or otherwise making any public statement with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, including
as may be required by applicable Law or requirements of the SEC.
10.2. Notification of Certain Matters.
The Company shall give prompt notice to Parent, and Parent shall give prompt
notice to the Company, of (i) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time and (ii) any
material failure of the Company or Parent, as the case may be, or of any
Affiliate thereof, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that no such notification shall affect the representations or warranties of the
parties or the conditions to the obligations of the parties hereunder.
10.3. Other Actions.
None of the Company, Parent and Merger Sub shall knowingly or intentionally take
any action, or omit to take any action, if such action or omission would, or
reasonably might be expected to, result in any of its representations and
warranties set forth herein being or becoming untrue in any material respect, or
in any of the conditions to the Merger set forth in this Agreement not being
satisfied, or (unless such action or omission is required by applicable Law)
which would materially and negatively affect the ability of the Company or
Parent to obtain any consents or approvals required for the consummation of the
Merger or which would otherwise materially impair the ability of the Company or
Parent to consummate the Merger in accordance with the terms of this Agreement
or materially delay such consummation, in each case without consent of the other
party.
10.4. Regulatory and Other Authorizations; Consents.
Each party hereto shall use its commercially reasonable efforts to (a) take, or
cause to be taken, all appropriate action, and do, or cause to be done, all
things necessary, proper or advisable under applicable Law or otherwise to
promptly consummate and make effective the transactions contemplated by this
Agreement and (b) obtain all authorizations, consents, orders and approvals of,
and to give all notices to and make all filings with, all Governmental
Authorities and other third parties that may be or become necessary for its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement including, without limitation, those consents set forth in
Section 4.11(b) of the Company Disclosure Schedule. Each party will cooperate
fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals, giving such notices, and making
such filings. In connection with obtaining such consents from third parties,
neither party shall be required to make payments, commence litigation or agree
to modifications of the terms thereof (other than payments and modifications
which individually, and in the aggregate, are immaterial), and no material
modification shall be made to any contract, agreement or other commitment of any
Group Entity without the prior written consent of Parent. Each party hereto
agrees to make an appropriate filing of a Notification and Report Form pursuant
to the HSR Act with respect to the transactions contemplated hereby as soon as
practicable following the date hereof and to supply promptly any additional
information and documentary material that may be requested pursuant to the HSR
Act. The parties hereto agree not to take any action that will have the effect
of unreasonably delaying, impairing or impeding the receipt of any required
authorizations, consents, orders or approvals. Prior to making any application
or filing with any Governmental Authority or other person or entity in
connection with this Agreement, the Company, on the one hand, and Parent, on the
other hand, shall provide the other with drafts thereof and afford the other a
reasonable opportunity to comment on such drafts. Without limiting the
generality of the preceding sentences, each of Parent and the Company agrees to
cooperate and use all commercially reasonable efforts to vigorously contest and
resist any action, suit, proceeding or claim, and to have vacated, lifted,
reversed or overturned any injunction, order, judgment or decree (whether
temporary, preliminary or permanent), that delays, prevents or otherwise
restricts the consummation of the Merger or any other transaction contemplated
by this Agreement, and to take any and all actions as may be required by
Governmental Authorities as a condition to the granting of any such necessary
approvals or as may be required to avoid, vacate, lift, reverse or overturn any
injunction, order, judgment, decree or regulatory action (provided, however,
that in no event shall any party hereto take, or be required to take, any action
that would have a Material Adverse Effect on Parent or the Group Entities).
Notwithstanding the foregoing, in no event shall Parent be required at any time
from the date hereof through and following the Effective Time to dispose of the
assets, or divest the businesses, of Parent, any Group Entity or any of their
respective Affiliates.
10.5. Employee Transition Matters.
The parties hereto shall address certain matters concerning employees of Group
Entities as provided on Exhibit 10.5.
10.6. Escrow Agreement.
Pursuant to the terms of the Escrow Agreement, Parent shall have deposited an
amount equal to the Escrow Amount into the Escrow Account (as defined in the
Escrow Agreement).
ARTICLE XI.
TERMINATION, AMENDMENT AND WAIVER
11.1. Termination.
This Agreement may be terminated at any time prior to the Effective Time:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated on or before the 75th day
after the date hereof , unless the failure to consummate the Merger is the
result of a willful and material breach of this Agreement by the party seeking
to terminate this Agreement or further, in the case of the Company, any breach
of a Stockholder Support Agreement by any stockholder which is a party thereto;
(ii) if any Governmental Authority shall have issued an order, decree or ruling
or taken any other action permanently enjoining, restraining or otherwise
prohibiting the Merger and such order, decree, ruling or other action shall have
become final and nonappealable;
(iii) in the event of a breach by the other party of any representation,
warranty, covenant or other agreement contained in this Agreement which (A)
would give rise to the failure of a condition set forth in Article XII and (B)
has not been cured within 30 days after the giving of written notice to the
breaching party of such breach (a "Material Breach") (provided that the
terminating party is not then in Material Breach of any representation,
warranty, covenant or other agreement contained in this Agreement); or
(iv) in the event that (A) all of the conditions to the obligation of such party
to effect the Merger set forth in Section 12.1 shall have been satisfied and (B)
any condition to the obligation of such party to effect the Merger set forth in
Section 12.2 (in the case of Parent) or Section 12.3 (in the case of the
Company) is not capable of being satisfied prior to the end of the period
referred to in Section 11.1(b)(i); or
(c) by Parent, in the event of a breach by a stockholder of any representation,
warranty, covenant or other agreement contained in a Stockholder Support
Agreement which cannot be or has not been cured within 30 days after the giving
of written notice to the breaching stockholder of such breach.
11.2. Effect of Termination.
In the event of termination of this Agreement as provided in Section 11.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of any party, other than the provisions of Sections
7.1 and 11.3 and this Section 11.2, and except to the extent that such
termination results from the willful and material breach by a party of any of
its representations, warranties, covenants or other agreements set forth in this
Agreement.
11.3. Expenses and Fees.
With the exception of the expenses and fees set forth on Exhibit 3.1(b) hereto
to be paid by the Company, all costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
ARTICLE XII.
CONDITIONS TO CLOSING
12.1. Mutual Conditions.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction, at or prior to the Closing Date, of the following
conditions (any of which may be waived in writing by Parent and the Company):
(a) None of Parent, Merger Sub or the Company nor any of their respective
subsidiaries shall be subject to any order, decree or injunction by a
Governmental Authority which prevents or materially delays the consummation of
the Merger.
(b) No statute, rule, regulation, order, decree, judgment, injunction,
stipulation or determination shall have been enacted by any Governmental
Authority that makes the consummation of the Merger and any other transaction
contemplated hereby illegal.
12.2. Conditions to Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Closing Date, of the following conditions (any of which may be
waived by Parent or Merger Sub):
(a) Each of the agreements of the Company to be performed at or prior to the
Closing Date pursuant to the terms hereof shall have been duly performed in all
material respects, and the Company shall have performed, in all material
respects, all of the acts required to be performed by it at or prior to the
Closing Date by the terms hereof.
(b) The representations and warranties of the Company set forth in this
Agreement that are qualified as to materiality shall be true and correct, and
those that are not so qualified shall be true and correct in all material
respects, as of the date of this Agreement and as of the Closing as though made
at and as of such time, except to the extent such representations and warranties
expressly relate to an earlier date (in which case such representations and
warranties that are qualified as to materiality shall be true and correct, and
those that are not so qualified shall be true and correct in all material
respects, as of such earlier date).
(c) The applicable waiting period under the HSR Act shall have expired or been
terminated; and, except as set forth in Section 4.11(b) of the Company
Disclosure Schedule, all consents and approvals of Governmental Authorities
necessary for consummation of the transactions contemplated hereby and all
consents and approvals set forth on Section 4.11(b) of the Company Disclosure
Schedule shall have been obtained.
(d) Neither Parent nor Merger Sub nor any of their respective Affiliates shall
be subject to any (i) Action brought by any third party challenging the
transactions contemplated hereby which would, if decided adversely to Parent or
any Group Entity, have a Material Adverse Effect on Parent or the Group
Entities, in either case, taken as a whole, on or after the Effective Time, or
(ii) order, decree or injunction by a Governmental Authority which would impose
any material limitation on the ability of Parent effectively to exercise full
rights of ownership of, or control over, the common stock of the Surviving
Corporation or any material portion of the assets or business of the Group
Entities, taken as a whole.
(e) Parent and/or Merger Sub shall have obtained the financing set forth in the
Commitment Letters on the terms set forth in such Commitment Letters and other
terms reasonably acceptable to Parent, and such financing has been funded on
such terms.
(f) The Stockholder Support Agreements shall be in full force and effect in
accordance with their terms. The parties to the Stockholder Support Agreements
shall have performed and complied with all covenants and agreements required to
be performed or complied with therein by such parties.
(g) Holders of not more than 5% (excluding outstanding shares of Company Common
Stock and Company Preferred Stock held by Xxxxxx X. Xxxx, M.D.) of the
outstanding shares of Company Common Stock and Company Preferred Stock shall
have filed with the Company a written objection to the Merger meeting the
requirements of Section 3-203(a)(1) of the MGCL with respect to their shares of
Company Common Stock or Company Preferred Stock.
(h) From the date of this Agreement until the Effective Time, there shall not
have occurred any Material Adverse Change with respect to the Company.
(i) (1) Each of the agreements listed in Exhibit 12.2(i)(1) shall have been
terminated without cost or liability to Parent, Merger Sub or any Group Entity,
and shall be of no further force or legal effect; and (2) the agreements listed
in Exhibit 12.2(i)(2) shall remain in full force and effect, without any
assertion by Humana Inc. of any breach or default thereunder.
(j) The CHAMPUS 2/5 Subcontract shall not have been terminated by Humana.
(k) [intentionally omitted].
(l) Parent or one of its subsidiaries shall have been provided reasonable access
to each of the customers of the Company set forth on Exhibit 12.2(l) hereto, and
Parent shall have received verbal or written confirmation reasonably
satisfactory to Parent from each such customer that such customer will not
terminate or modify in any material respect its business relationship with the
Company as a result of the consummation of the transactions contemplated by this
Agreement.
(m) The Stockholder Approvals shall have been obtained.
(n) Parent shall have received, for the months of June 1997 and July 1997, each
of the Subsequent Company Financial Statements and the Subsequent Supplemental
Schedules for such months.
(o) The payment of the amounts set forth in clause (iv) of the definition of
"Adjustment Amount" in Exhibit 3.1(b) hereto shall have been approved by the
Company's stockholders in accordance with Section 280G of the IRC.
(p) The Employment and Consulting Agreement, dated as of the date hereof,
between the Company and Xx. Xxxx X. Xxxxxxxxxx shall have become and shall
remain effective as of the Closing Date, and the Letter Agreement, dated as of
the date hereof, between the Company and Dr. Xxxxxxxx Xxx shall have become and
shall remain effective as of the Closing Date.
(q) Parent and Merger Sub shall have been furnished with a certificate, executed
by the Chief Executive Officer of the Company, dated the Closing Date,
certifying in such detail as Parent and Merger Sub may reasonably request as to
the fulfillment of the conditions set forth in Xxxxxxxx 00.0(x), (x), (x), (x),
(x), (x), (x), (x), (x) and (o).
(r) Parent and Merger Sub shall have been furnished with a certificate, executed
by the Chief Financial Officer of the Company, dated the Closing Date,
certifying in such detail as Parent and Merger Sub may reasonably request as to
the fulfillment of the conditions set forth in paragraphs 1, 2(D) and 2(F) of
Exhibit 13.7.
(s) The holders of Stock Options identified on Exhibit 12.2(s) shall have
delivered to Parent and the Company consents to the treatment of their Stock
Options in accordance with Section 3.2.
12.3. Conditions to Obligations of the Company.
The obligations of the Company to consummate the Merger and the other
transactions contemplated hereby shall be subject to the satisfaction, at or
prior to the Closing Date, of the following conditions (any of which may be
waived by the Company):
(a) Each of the agreements of Parent and Merger Sub to be performed at or prior
to the Closing Date pursuant to the terms hereof shall have been duly performed,
in all material respects, and Parent and Merger Sub shall have performed, in all
material respects, all of the acts required to be performed by them at or prior
to the Closing Date by the terms hereof.
(b) The representations and warranties of Parent and Merger Sub set forth in
Article V shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date. The representations and warranties of
Parent set forth in Article VI of this Agreement that are qualified as to
materiality shall be true and correct, and those that are not so qualified shall
be true and correct in all material respects, as of the date of this Agreement
and as of the Closing Date as though made at and as of such time, except to the
extent such representations and warranties expressly relate to an earlier date
(in which case such representations and warranties that are qualified as to
materiality shall be true and correct, and those that are not so qualified shall
be true and correct in all material respects, as of such earlier date).
(c) From the date of this Agreement until the Effective Time, there shall not
have occurred any Material Adverse Change with respect to Parent and its
Affiliated subsidiaries, taken as a whole.
(d) The Stockholder Approvals shall have been obtained.
(e) The applicable waiting period under the HSR Act shall have expired or been
terminated.
(f) The Company shall have been furnished with certificates, executed by the
Chief Executive Officers of Parent and Merger Sub, dated the Closing Date,
certifying in such detail as the Company may reasonably request as to the
fulfillment of the conditions set forth in Sections 12.3(a), (b) and (c).
ARTICLE XIII.
MISCELLANEOUS
13.1. Nonsurvival of Representations and Warranties.
None of the representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time.
13.2. Scope of Representations and Warranties.
The Company shall not be deemed to have made to Parent any representation or
warranty other than as expressly made by the Company in Article IV hereof.
Without limiting the generality of the foregoing, and notwithstanding any
otherwise express representations and warranties made by the Company in Article
IV hereof, the Company makes no representation or warranty to Parent with
respect to (a) any projections, estimates or budgets heretofore delivered or
made available to Parent of future revenues, expenses or expenditures, future
results of operations and other similar projections or estimates or (b) any
other information or documents made available to Parent or its counsel,
accountants, or advisors with respect to the Group Entities, except as expressly
covered by a representation and warranty contained in Article IV hereof.
13.3. Notices.
Any communications required or desired to be given hereunder shall be deemed to
have been properly given if sent by hand delivery or by facsimile and overnight
courier to the parties hereto at the following addresses, or at such other
address as either party may advise the other in writing from time to time:
If to the Company:
CMG Health, Inc.
00 Xxxxxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxxx, Ph.D.
Facsimile: (000) 000-0000
with a copy to:
CMG Health, Inc.
00 Xxxxxxxxxx Xxxxx
Xxxxxx Xxxxx, Xxxxxxxx 000000
Attention: Xxxx X. Xxxxxx, Esq.
Vice President of Mergers and Acquisitions
and General Counsel
Facsimile: (000) 000-0000
and
Xxxxxxx X. Xxxxxx, Esq.
Skadden, Arps, Slate, Xxxxxxx
& Xxxx (Illinois)
000 Xxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
If to Parent or Merger Sub:
Merit Behavioral Care Corporation
Xxx Xxxxxxx Xxxxx
Xxxx Xxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Esq.
Executive Vice President --
Mergers & Acquisitions and General Counsel
Facsimile: (000) 000-0000
with a copy to:
Xxxx X. Xxxxxxxx, Esq.
Xxxxxx & Xxxxxxx
Xxxxx Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxxxxx 00000
Facsimile: (000) 000-0000
All such communications shall be deemed to have been delivered on the date of
hand delivery or facsimile transmission, or on the next business day following
the deposit of such communications with the overnight courier.
13.4. Further Assurances.
Each party hereby agrees to perform any further acts and to execute and deliver
any documents which may be reasonably necessary to carry out the provisions of
this Agreement.
13.5. Governing Law.
The Laws of the State of Delaware shall govern the interpretation, validity and
performance of the terms of this Agreement, regardless of the law that might be
applied under principles of conflicts of law. Any suit, action or proceeding by
a party hereto with respect to this Agreement, or any judgment entered by any
court in respect of any thereof, may be brought in any state or federal court of
competent jurisdiction in the State of Delaware, and each party hereto hereby
submits to the exclusive jurisdiction of such courts for the purpose of any such
suit, action, proceeding or judgment. By the execution and delivery of this
Agreement, (i) Parent and Merger Sub each appoints The Corporation Trust
Company, at its office in Wilmington, Delaware, as its agent upon which process
may be served in any such suit, action or proceeding and (ii) the Company
appoints Skadden, Arps, Slate, Xxxxxxx & Xxxx LLP, at its office at Xxx Xxxxxx
Xxxxxx, X.X. Xxx 000, Xxxxxxxxxx, Xxxxxxxx 00000-0000, as its agent upon which
process may be served in any such suit, action or proceeding. Service of process
upon such agent, together with notice of such service given to a party hereto in
the manner provided in Section 13.3 hereof, shall be deemed in every respect
effective service of process upon it in any suit, action or proceeding. Nothing
herein shall in any way be deemed to limit the ability of a party hereto to
serve any such writs, process or summonses in any other manner permitted by
applicable Law. Each party hereto hereby irrevocably waives any objections which
it may now or hereafter have to the laying of the venue of any suit, action or
proceeding arising out of or relating to this Agreement brought in any state or
federal court of competent jurisdiction in the State of Delaware, and hereby
further irrevocably waives any claim that any such suit, action or proceeding
brought in any such court has been brought in any inconvenient forum. No suit,
action or proceeding against a party hereto with respect to this Agreement may
be brought in any court, domestic or foreign, or before any similar domestic or
foreign authority other than in a court of competent jurisdiction in the State
of Delaware, and each party hereto hereby irrevocably waives any right which it
may otherwise have had to bring such an action in any other court, domestic or
foreign, or before any similar domestic or foreign authority.
13.6. Knowledge.
As used herein, "knowledge," "to the knowledge," "to the best knowledge," or any
similar phrase shall be deemed to refer to the actual knowledge of the Chief
Executive Officer, Chief Operating Officer, Chief Financial Officer and General
Counsel of that party and all persons reporting directly to any such officer,
after due inquiry by each such officer and person reporting directly to such
officer regarding the business of the Group Entities or of Parent, as
applicable.
13.7 "Material Adverse Effect" or "Material Adverse Change".
"Material Adverse Change" or "Material Adverse Effect" means, when used in
connection with a party, any change, effect, event or occurrence that has, or is
reasonably likely to have, individually or in the aggregate, a material adverse
impact on the business, prospects, operations, results of operations, assets or
condition (financial or otherwise) of such party and its subsidiaries taken as a
whole. As used in this Section 13.7, "subsidiary" means any entity which is a
Significant Subsidiary of such party as such term is defined in Regulation S-X
of the SEC. Without limiting the generality of the foregoing, and
notwithstanding anything else to the contrary in this Agreement, a Material
Adverse Change will be deemed to have occurred, and a Material Adverse Effect
shall be deemed to exist, with respect to the Company, in the event that any of
the events or circumstances set forth on Exhibit 13.7 shall have occurred or be
deemed to have occurred, or any Group Entity or Parent receives notice, or
otherwise has knowledge, that any of the events or circumstances set forth on
Exhibit 13.7 shall exist or have occurred (subject to the exceptions set forth
on Exhibit 13.7).
For purposes of this Agreement, the term "tax" or "taxes" (whether or not
capitalized) shall mean all taxes, charges, fees, stamp taxes and duties,
levies, penalties or other assessment, together with any interest and any
penalties, additions to tax or additional amounts imposed by any United States
federal, state, local or foreign taxing authority, including, but not limited
to, income, gross receipts, use, employment, profits, capital stock, premium,
minimum and alternative minimum, excise, property, sales, transfer, franchise,
payroll, withholding, Social Security or other taxes, including any interest,
penalties or additions attributable thereto. For purposes of this Agreement, the
term "tax return" shall mean any return, report, information return or other
document (including any related or supporting information) with respect to
Taxes.
13.8. Captions.
The captions or headings in this Agreement are made for convenience and general
reference only and shall not be construed to describe, define or limit the scope
or intent of the provisions of this Agreement.
13.9. Integration of Company Disclosure Schedule and Exhibits.
The Exhibits and the Company Disclosure Schedule attached to this Agreement are
integral parts of this Agreement as if fully set forth herein.
13.10. Entire Agreement; No Third-Party Beneficiaries.
This instrument, including the Company Disclosure Schedule and all Exhibits
attached hereto, together with the Confidentiality Agreement, contains the
entire agreement of the parties and supersedes any and all prior or
contemporaneous agreements between the parties, written or oral, with respect to
the transactions contemplated hereby. This Agreement is for the sole benefit of
the parties hereto, their permitted assigns and the ACR Beneficiaries, and
nothing herein, express or implied, is intended to or shall confer upon any
other person or entity any legal or equitable right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
13.11. Counterparts.
This Agreement may be executed in several counterparts, each of which, when so
executed, shall be deemed to be any original, and such counterparts shall,
together, constitute and be one and the same instrument.
13.12. Binding Effect.
This Agreement shall be binding on, and shall inure to the benefit of, the
parties hereto, and their respective successors and assigns, and no other person
shall acquire or have any right under or by virtue of this Agreement. No party
may assign any right or obligation hereunder without the prior written consent
of the other parties.
13.13. Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule or law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
13.14. Waivers and Amendments.
This Agreement may be amended or modified, and the terms and conditions hereby
may be waived, only by a written instrument signed by the parties hereto or, in
the case of a waiver, by the party waiving compliance; provided, however, that
there shall be no amendment or change to the provisions hereof which by Law
requires further approval by the stockholders of the Company, without such
further approval. No delay on the part of any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
waiver on the part of any party of any right, power or privilege hereunder, nor
any single or partial exercise of any other right, power or privilege hereunder,
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies which any party may
otherwise have at Law or in equity.
13.15. Specific Performance.
The parties hereto agree that irreparable damage would occur in the event any
provision of this Agreement required to be performed prior to the Closing was
not performed in accordance with the terms hereof and that, prior to the
Closing, the parties shall be entitled to specific performance of the terms
hereof, in addition to any other remedy at Law or in equity.
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement and Plan of Merger to be executed by their respective duly authorized
officers, and have caused their respective corporate seals to be hereunto
affixed, all as of the day and year first above written.
CMG HEALTH, INC.
/s/ Xxxx X. Xxxxxxxxxx
By
----------------------------------------
a duly authorized signatory
MERIT BEHAVIORAL CARE CORPORATION
/s/ Xxxxxxx X. Xxxxxxx
By
----------------------------------------
a duly authorized signatory
MERIT MERGER CORP.
/s/ Xxxxxxx X. Xxxxxxx
By
----------------------------------------
a duly authorized signatory
