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Exhibit 2
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ASSET PURCHASE AGREEMENT
by and among
HEALTH MANAGEMENT SYSTEMS, INC.,
CDR ASSOCIATES, INC.,
CDR ASSOCIATES, L.L.C.,
JOSEPH H. CZAJKOWSKI,
and
JEFFREY R. DONNELLY
Dated as of July 31, 2001
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TABLE OF CONTENTS
PAGE
I. TRANSFERS AND ANCILLARY AGREEMENTS.............................................................1
Section 1.01. Transfer of Assets.......................................................1
Section 1.02. Instruments of Conveyance and Transfer...................................4
Section 1.03. Nonassignable Contracts..................................................5
Section 1.04. Possession and Control...................................................5
Section 1.05. Ancillary Agreements.....................................................5
II. CLOSING, CONSIDERATION, ASSUMPTION OF LIABILITIES, ETC.........................................6
Section 2.01. Closing..................................................................6
Section 2.02. Consideration............................................................6
Section 2.03. Payment and Delivery to the Seller on the Closing Date...................7
Section 2.04. Identified Collected Medicaid Receivables; Collection Agent..............7
Section 2.05. Assumption of Specified Liabilities......................................8
Section 2.06. Liabilities Not Assumed by the Buyer.....................................8
Section 2.07. Retroactive Economic Effect to Transfer of Assets........................9
III. REPRESENTATIONS AND WARRANTIES................................................................10
Section 3.01. Representations and Warranties of HMS and the Seller....................10
Section 3.02. Representations and Warranties of the Buyer.............................17
Section 3.03. Representations and Warranties of Czajkowski and Donnelly...............18
IV. COVENANTS.....................................................................................19
Section 4.01. Covenants of HMS and the Seller.........................................19
Section 4.02. Covenants of Czajkowski, Donnelly and the Buyer.........................21
Section 4.03. Employee Matters........................................................22
V. CONDITIONS PRECEDENT..........................................................................23
Section 5.01. Conditions Precedent to Obligations of Czajkowski, Donnelly and the
Buyer ..................................................................23
Section 5.02. Conditions Precedent to Obligations of HMS and the Seller...............26
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..................................................29
Section 6.01. Survival of Representations.............................................29
(i)
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TABLE OF CONTENTS
(continued)
PAGE
Section 6.02. Statements as Representations...........................................29
Section 6.03. Indemnity...............................................................29
Section 6.04. Limitations on Indemnity................................................31
Section 6.05. Conditions of Indemnification...........................................31
Section 6.06. Certain Information.....................................................32
Section 6.07. Remedies Cumulative.....................................................32
VII. OTHER TRANSACTIONS SUBSEQUENT TO CLOSING......................................................32
Section 7.01. Further Assurances......................................................32
Section 7.02. Inspection and Preservation of Records, Etc.............................33
Section 7.03. Certain Tax Matters.....................................................33
Section 7.04. Use of Names............................................................34
VIII. TERMINATION...................................................................................34
Section 8.01. Termination.............................................................34
Section 8.02. Effect of Termination...................................................35
IX. MISCELLANEOUS.................................................................................35
Section 9.01. Bulk Transfer Laws......................................................35
Section 9.02. Expenses, Etc...........................................................35
Section 9.03. Publicity...............................................................35
Section 9.04. Execution in Counterparts...............................................36
Section 9.05. Notices.................................................................36
Section 9.06. Amendments, Supplements, Etc............................................37
Section 9.07. Entire Agreement........................................................37
Section 9.08. Applicable Law..........................................................37
Section 9.09. Binding Effect Benefits.................................................37
Section 9.10. Assignability...........................................................38
Section 9.11. Limited Purpose.........................................................38
(ii)
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INDEX TO EXHIBITS
Exhibit Description
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A Bill of Sale, Assignment and Assumption Agreement
B Exclusive Subcontracting Agreement
C Form of Subcontract
D Collateral Assignment of Contract Right
E Security Agreement
F Escrow Agreement
G Invoice Processing and Payment Procedures
H Form of Estoppel Certificate
(iii)
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INDEX TO SCHEDULES
Schedule Description
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1-A Tangible Personal Property
1-B Intellectual Property
1-C Identified Receivables
1-D Customer Contracts
1-E Vendor Contracts
1-F Other Contracts
1-G Real Estate and Equipment Leases
1-H Pro Forma Balance Sheet
1-I Excluded Contracts and Other Excluded Assets
1-J Non-Assignable Contracts
1-K Existing Medicaid Contracts
2-A Other Assumed Liabilities
3-A Consents and Approvals (the Seller)
3-B Financial Statements
3-C Certain Changes or Events
3-D Liens and Encumbrances
3-E List of Properties and Leases
3-F List of Licenses and Sublicenses
3-G List of Contracts
3-H List of Employees and Compensation Levels
3-I Litigation
3-J Labor Matters
3-K Employee Benefit Plans
3-L Consents and Approvals (the Buyer)
4-A Consents, Waivers and Approvals
4-B Confidentiality Agreement
7-A Allocation of Consideration
7-B Form 8594 Asset Acquisition Statement of Allocation
(iv)
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ASSET PURCHASE AGREEMENT, dated as of July 31, 2001, by and
among HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation ("HMS"), CDR
ASSOCIATES, INC, a Maryland corporation (the "Seller") and a wholly-owned
subsidiary of HMS, Joseph H. Czajkowski ("Czajkowski"), Jeffrey R. Donnelly
("Donnelly") and CDR ASSOCIATES, L.L.C, a Delaware limited liability company
(the "Buyer").
The Seller is engaged in the business of providing overpayment
auditing services to Medicaid agencies and commercial insurance clients; such
services involve onsite audits of credit balance and other accounts retained in
the patient accounting systems of health care providers resulting in the
identification, analysis, documentation and recovery of any accounts determined
to be overpaid by insurer clients (the "Business"). The Seller and HMS desire to
sell to the Buyer, and the Buyer desires to purchase from the Seller, the
Business and all of the tangible and intangible assets of the Business, and the
Buyer desires to assume certain specified liabilities, all as hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants herein contained, the parties hereby agree as follows:
I. TRANSFERS AND ANCILLARY AGREEMENTS
Section 1.01. Transfer of Assets. (a) On the terms and subject to the
conditions hereinafter set forth, on the Closing Date (as defined in Section
2.01 hereof), the Seller and/or HMS, as appropriate, shall sell, convey,
transfer, assign and deliver to the Buyer and the Buyer shall purchase from the
Seller and/or HMS, as appropriate, for the aggregate consideration set forth in
Article II hereof, the Business and all the existing assets and properties (of
every kind, nature and description, real, personal or mixed, tangible or
intangible and wherever situated, whether or not carried on the books of the
Seller) used exclusively in the Business, including, without limitation, the
assets described in Sections 1.01(a)(i) - (ix) hereof (said assets and
properties so to be sold, conveyed, transferred, assigned and delivered,
including, without limitation, the assets set forth below, being hereinafter
collectively called the "Assets"), but specifically excluding those assets
excluded pursuant to Section 1.01(c) below:
(i) all tangible personal property, equipment and inventories
(including, without limitation, all computer equipment (including all
personal computers and, to the extent assignable and transferable, all
software installed on such computers other than software applications
resident on the HMS network), telecommunications and audio/visual
equipment, terminals, printers, spare parts, supplies, equipment,
furniture, office furnishings and fixtures) located in the Seller's
offices in Bloomfield, Connecticut and Timonium, Maryland, including,
but not limited to, those items described in Schedule 1-A hereto;
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(ii) all patents, trademarks, trade names, service marks, the
registrations or applications therefor and the licenses and franchises,
together with the goodwill and the business appurtenant thereto, and
all copyrights and any copyright applications or registrations,
including, without limitation, brochures, sales literature, promotional
material and other selling material relating exclusively to the
Business (whether or not such materials bear the name, logo or symbol
of the Seller) (collectively, "Intellectual Property"), including, but
not limited to, those items described in Schedule 1-B hereto;
(iii) all accounts receivable, including, but not limited to,
invoiced receivables ("Invoiced Receivables") and work-in-process
receivables not yet invoiced ("BLD Receivables"), or other rights of
the Seller and HMS matured or unmatured, as appropriate, to receive
unpaid monies attributable to the operations of the Business and
existing as of the Closing Date, which shall include any right of HMS
to receive fees attributable to such receivables, (collectively,
together with the Invoiced Receivables and BLD Receivables, "Identified
Receivables"), including, but not limited to, all accounts receivable
of the Seller or HMS ("Identified Medicaid Receivables") attributable
to any work performed by the Seller and/or employees of the Seller
under any Medicaid contracts entered into by HMS with certain medicaid
insurers, for which the Seller either currently provides services or
acts as a subcontractor thereunder ("Existing Medicaid Contracts"),
including, but not limited to, those items described in Schedule 1-C
hereto;
(iv) copies of all papers, documents, instruments, books and
records, files, agreements, books of account and other records, to the
extent requested by the Buyer, by which any of the Assets might be
identified or enforced, or otherwise pertaining to the Assets or
relating exclusively to the Business that are located at the Seller's
offices in Bloomfield, Connecticut or Timonium, Maryland or, if not
located at one of the Seller's offices, at the office of HMS in New
York, New York (including, without limitation, customer invoices,
drafts and other documents and materials relating to customer
transactions) or elsewhere within the dominion or control of the Seller
or HMS;
(v) subject to Sections 1.03 and 1.04 hereof, all agreements,
commitments, purchase orders and arrangements ("Customer Contracts")
set forth in Schedule 1-D hereto pursuant to which the Seller agrees to
deliver any goods or provide any services to any customer;
(vi) subject to Sections 1.03 and 1.04 hereof, all agreements,
commitments and arrangements (hereinafter referred to as "Vendor
Contracts") set forth in Schedule 1-E hereto pursuant to which the
Seller obtains certain equipment, goods and services (including,
without limitation, all rights of the Seller under or pursuant to any
warranties, representations and guarantees made by suppliers of such
equipment, goods and services);
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(vii) the employment or consulting agreements, commitments and
arrangements with employees, including any and all non-compete
agreements with current and former employees, and all other agreements,
commitments and arrangements ("Other Contracts") set forth in Schedule
1-F hereto;
(viii) all interests, claims and rights (including security
deposits) of HMS or the Seller under (A) the two current office space
leases for the Seller's offices located in Bloomfield, Connecticut and
Timonium, Maryland, and (B) operating leases relating to any equipment
and software currently leased to the Seller and any and all maintenance
agreements relating to such equipment and software, each as set forth
on Schedule 1-G hereto; and
(ix) all claims and causes of action in favor of the Seller
relating to any of the assets described in clauses (i) - (viii) above
(except as excluded pursuant to Section 1.01(c) below).
(b) Without limiting the generality of the foregoing, the
Assets shall include all assets set forth on the pro forma balance sheet of the
Seller as of June 30, 2001 (the "Pro Forma Balance Sheet"), a copy of which is
annexed hereto as Schedule 1-H, prepared from the accounting records of the
Seller to reflect the assets and liabilities being sold to the Buyer hereunder,
and all such assets as may be acquired by the Seller after said date and that
would be included on a balance sheet prepared in like manner from such
accounting records as of the Closing Date, except any such assets that may be or
have been disposed of after said date in the ordinary course of business on a
basis consistent with past practice and except as set forth in Section 1.01(c)
below.
(c) Anything herein contained to the contrary notwithstanding,
the following assets and properties of the Seller are specifically excluded from
the Assets and shall be retained by the Seller:
(i) all cash or cash equivalents on hand, including bank
accounts and temporary cash or other investments;
(ii) rights under any Plan (as defined in Section 3.01(k)
hereof);
(iii) claims for refunds of Taxes (as defined in Section
3.01(n) hereof) and other governmental charges paid by the Seller or by
HMS on the Seller's behalf;
(iv) all accounts receivable of HMS and all intercompany
accounts receivable or other obligations owed by HMS or any of its
subsidiaries or affiliates, whether billed or unbilled as of the
Closing Date, other than the Identified Receivables listed in Schedule
1-C hereto and other than accounts receivable of HMS attributable to
work performed by the Buyer after the Closing Date with respect to any
Medicaid Contracts;
(v) claims or rights against third parties relating to
liabilities or obligations that are not assumed by the Buyer hereunder,
including, without
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limitation, claims or rights relating to periods prior to the Closing
Date under agreements for which the Buyer assumes only obligations
accruing subsequent thereto;
(vi) rights under any contracts listed on Schedule 1-I hereto
or under any contracts the Buyer has not agreed to assume pursuant to
Section 2.06 hereof;
(vii) except as otherwise specified in Section 1.01(a)(ii)
above, all rights owned or held by HMS or any of its subsidiaries or
affiliates in or to any trademarks, trade names, service marks, domain
names and copyrights, including, without limitation, those that consist
of or relate to the name "Health Management Systems Inc."(or any part
or derivative thereof), the logos of HMS, or the names of the products
and services that are not marketed and provided by the Seller, and any
registrations or applications for any of the foregoing;
(viii) all software applications currently used by the Seller
that are resident on the HMS computer network or on the Seller's
personal computers pursuant to license agreements held by HMS or the
Seller that are not transferable, including Microsoft Office; and
(ix) any other assets of any kind or nature listed on Schedule
1-I hereto.
Section 1.02. Instruments of Conveyance and Transfer. (a)
Subject to Sections 1.03 and 1.04 below, on the Closing Date the Seller and/or
HMS, as appropriate, shall execute and deliver to the Buyer:
(i) a bill of sale in the form of the Bill of Sale, Assignment
and Assumption Agreement annexed hereto as Exhibit A (the "Bill of
Sale"), transferring the Assets and the Assumed Liabilities (as defined
in Section 2.05 hereof) to the Buyer; and
(ii) any bills of sale, general warranty deeds, instruments of
assignment and other appropriate documents (collectively, the
"Additional Assignment Documents") as may be reasonably requested by
the Buyer in order to assign any of the contracts, licenses, leases and
similar agreements to be assigned to the Buyer pursuant to this
Agreement in the Bill of Sale, including, without limitation, the
Customer Contracts and Vendor Contracts, and to carry out the
intentions and purposes of this Agreement (it being expressly
understood that, notwithstanding anything to the contrary contained in
this Agreement, with respect to the Customer Contracts listed on
Schedule 1-D hereof, the Buyer shall be solely responsible for
obtaining any consents or approvals, if any, required to be obtained
from such customers to effectuate such assignments and HMS and the
Seller make no representations regarding the transferability thereof).
(b) Notwithstanding the terms of the Bill of Sale or any
Additional Assignment Documents delivered as provided above, the terms of this
Agreement shall control, including, without limitation, the provisions of
Sections 1.01, 1.03 and Article IV of this Agreement.
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Section 1.03. Nonassignable Contracts. Nothing in this Agreement or any
of the Ancillary Agreements shall be construed as an attempt or agreement to
assign:
(i) any contract, agreement, license, lease, sales order,
purchase order or other commitment (including, without limitation, any
commitments of customers of the Seller under letters of credit, bonds,
bank deposits or other financial instruments of which the Seller is the
beneficiary) that is nonassignable under applicable law, rules or
regulations or without the consent of the other party or parties
thereto unless such consent shall have been given, subject, however, to
the covenant of HMS and the Seller contained in Section 4.01(b) hereof;
or
(ii) any contract or claim set forth on Schedule 1-J hereof,
as to which all the remedies for the enforcement thereof enjoyed by the
Seller would not pass to the Buyer as an incident of the assignments
provided for by this Agreement.
HMS or the Seller shall notify the Buyer in writing at least five business days
prior to the Closing Date as to the identity of any such contract, agreement,
license, lease, claim or other commitment, other than the Customer Contracts set
forth on Schedule 1-D, that cannot be transferred to the Buyer on the Closing
Date. HMS and the Seller shall thereafter, at its or their own expense, use
commercially reasonable efforts, at the request and under the direction of the
Buyer, in the name of HMS, the Seller or otherwise as the Buyer shall specify
and as shall be permitted by law, to preserve the rights and obligations of the
Seller under such contract, agreement, license, lease, claim or other
commitment, including but not limited to the performance of contracted
obligations under any Customer Contracts, and to facilitate the collection of
any moneys due and payable, and to become due and payable, to the Seller with
respect to the same, and the Seller shall hold the same in trust for the benefit
of and shall pay the same over promptly to the Buyer.
Section 1.04. Possession and Control. Simultaneously with the
deliveries provided for in Section 1.02, the Seller shall put the Buyer in
actual possession and/or operating control, as applicable, of the Assets.
Section 1.05. Ancillary Agreements. In connection with the purchase and
sale of the Assets by the Buyer and the Buyer's operation of the Business from
and after the Closing Date, the parties hereto hereby covenant and agree to
enter into (or to cause their appropriate affiliates to enter into) on or prior
to the Closing Date each of the following agreements (collectively with the Bill
of Sale and the Additional Assignment Documents, the "Ancillary Agreements"):
(i) Exclusive Subcontracting Agreement between HMS and the
Buyer in the form annexed hereto as Exhibit B (the "Exclusive
Subcontracting Agreement");
(ii) a subcontract between HMS and the Buyer substantially in
the form annexed hereto as Exhibit C (each, a "Subcontract" and
collectively, the "Subcontracts") with respect to each of the Existing
Medicaid Contracts (all of
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which, including any and all amendments and supplements thereto and
renewals thereof, are listed on Schedule 1-K hereof), with such changes
as may be required by either the contract or the other party thereto,
by which HMS subcontracts the Buyer to perform certain auditing
functions under each of the Existing Medicaid Contracts and HMS agrees
to pay to the Buyer, as consideration therefor, the payments set forth
in each Subcontract when due and payable;
(iii) Collateral Assignment of Contract Right by HMS to the
Buyer in the form annexed hereto as Exhibit D (the "Collateral
Assignment") and UCC-1 financing statement relating to such Collateral
Assignment of Contract Right;
(iv) Security Agreement between HMS and the Buyer in the form
annexed hereto as Exhibit E (the "Security Agreement"), pursuant to
which HMS will grant to the Buyer a first lien security interest in all
HMS receivables arising under the Existing Medicaid Contract with the
State of Connecticut, to the extent of fees owed to CDR under the
Subcontract relating to said contract, and UCC-1 financing statement
relating to such Security Agreement; and
(v) Escrow Agreement between HMS, the Buyer and The Chase
Manhattan Bank, as escrow agent (the "Escrow Agent") in the form
annexed hereto as Exhibit F (the "Escrow Agreement").
Notwithstanding anything in this Section to the contrary, to the extent that any
provision of this Section conflicts with any provision of the Exclusive
Subcontracting Agreement or the Subcontract, the terms of the Exclusive
Subcontracting Agreement or the Subcontract shall control.
II. CLOSING, CONSIDERATION, ASSUMPTION OF LIABILITIES, ETC.
Section 2.01. Closing. The closing of the transactions contemplated by
this Agreement shall take place at the offices of Ballard Spahr Andrews &
Ingersoll, LLP at 300 East Lombard Street, Baltimore, Maryland on July 31, 2001,
or at such other place or on such other date as the parties may mutually agree
(such date and time of closing being herein called the "Closing Date") and for
all purposes shall be effective as of 11:59 p.m. Eastern Standard Time on such
date.
Section 2.02. Consideration. The aggregate consideration to be paid or
delivered by the Buyer for the Assets hereunder (the "Purchase Price"), subject
to the assumption of the Assumed Liabilities (as hereinafter defined), shall
consist of (a) $2,900,000 minus the dollar amount of the Assumed Liabilities
specified in clauses (b) and (d) of Section 2.05, to be determined prior to the
Closing Date, in cash, plus (b) the Buyer's agreement to make payments equal to
an aggregate amount of $280,000 pursuant to Section 2.04(b) hereof.
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Section 2.03. Payment and Delivery to the Seller on the Closing Date.
On the Closing Date, the Buyer shall pay to the Seller by wire transfer of
immediately available funds the amount calculated in accordance with the Section
2.02(a) above.
Section 2.04. Identified Collected Medicaid Receivables; Collection
Agent.
(a) As of the Closing Date, the Identified Medicaid
Receivables shall become an asset of the Buyer pursuant to Section 1.01(a)(iii)
hereof; however, HMS shall continue to collect such Identified Medicaid
Receivables from each of the Medicaid insurers and the Buyer hereby appoints HMS
to act as its collection agent for such purpose and HMS hereby accepts such
appointment. Promptly following the Closing Date, HMS shall send a written
notice to each of the Medicaid insurers that are parties to the Existing
Medicaid Contracts to inform them that as of the Closing Date, HMS has sold to
the Buyer the Identified Medicaid Receivables generated under such Existing
Medicaid Contract and that HMS shall continue to collect such receivables from
the Medicaid insurer on behalf of the Buyer.
(b) That portion of the Purchase Price described in Section
2.02(b) hereof shall be paid by the Buyer to the Seller in installments, as
follows:
Due Date Amount
-------- ------
October 30, 2001 $55,000
November 30, 2001 $75,000
December 30, 2001 $75,000
January 30, 2002 $75,000
=======
TOTAL $280,000
If the Buyer shall default in respect of its obligation to make any payment when
due as provided above, and such default shall not be cured within 15 days after
the Buyer's receipt of notice from HMS or the Seller, then during the
continuance of such default, at the election of HMS and in addition to any other
remedies HMS or the Seller has to obtain such payment, HMS may offset any monies
owed by HMS to CDR (including, without limitation, any amounts relating to
Identified Medicaid Receivables collected by HMS and any subcontracting fees
owed to CDR for services provided under any of the Medicaid contracts) by such
default amount.
Each of HMS, the Seller and the Buyer covenants and agrees to
follow the invoice processing and payment procedures set forth on Exhibit G
hereof (the "Procedures") and to at all times use all commercially reasonable
efforts in the ordinary course of business and in accordance with the Procedures
to collect all Identified Medicaid Receivables, provided, however, that neither
the Buyer, HMS, nor the Seller shall be obligated hereunder to institute any
legal action to collect any Identified Receivables.
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Except as set forth above, in no event shall the Seller be
entitled to any payments with respect to accounts receivable of the Seller
relating to services performed on or prior to the Closing Date or to any
accounts receivable of the Buyer, including, without limitation, Identified
Collected Receivables.
Section 2.05. Assumption of Specified Liabilities. On the Closing Date,
and as additional consideration for the purchase of the Assets, the Buyer shall
execute and deliver to the Seller and HMS an assumption agreement, in the form
included in the Bill of Sale, pursuant to which the Buyer shall assume and agree
to pay, perform and discharge when due the following, and only the following,
specified liabilities and obligations of the Seller or HMS (collectively, the
"Assumed Liabilities"):
(a) all obligations and liabilities to be incurred by HMS
and/or the Seller, as appropriate, on or after the Closing Date under the
Customer Contracts, Vendor Contracts and Other Contracts listed in Schedules
1-D, 1-E and 1-F hereto, respectively, and the real estate and equipment leases
listed in Schedule 1-G hereto (with all liability for any rents, lease payments
or other moneys due under such leases or contracts for any period commencing
prior to the Closing Date and ending thereafter to be allocated between the
Seller and the Buyer on a pro-rata basis such that the Seller is allocated all
liabilities that accrued prior to the Closing Date and the Buyer is allocated
all liabilities that accrued subsequent thereto);
(b) all current accounts payable of the Seller reflected on
the Pro Forma Balance Sheet (less any such liabilities that are paid or
discharged by the Seller or HMS between June 30, 2001 and the Closing Date);
(c) all current accounts payable incurred by the Seller in the
ordinary course of the Business incurred between June 30, 2001 and the Closing
Date; and
(d) all other liabilities listed on Schedule 2-A hereto,
whether or not reflected on the Pro Forma Balance Sheet.
To the extent that any of the Assumed Liabilities described in clauses (b) or
(d) above are not paid by the Buyer to the appropriate payee set forth on the
Pro Forma Balance Sheet or Schedule 2-A before December 31, 2001, the Buyer
shall pay to HMS or the Seller on or prior to such date an amount equal to the
aggregate amount of all such Assumed Liabilities not paid as aforesaid.
Section 2.06. Liabilities Not Assumed by the Buyer. The Buyer is not
assuming any liabilities of the Seller or of HMS other than the Assumed
Liabilities specifically set forth in Section 2.05 above. The Buyer shall not be
deemed to have assumed any other liabilities or obligations of the Seller or HMS
whatsoever including, without limitation, any of the following specified
liabilities ("Excluded Liabilities"):
(i) any liabilities or obligations of the Seller that arise
under the terms of a contract, agreement, license, lease, sales order,
purchase order or other
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commitment that shall not be assigned as contemplated by Section
1.01(c)(vi) of this Agreement;
(ii) any liabilities or obligations of the Seller under any
Plan (as defined in Section 3.01(k) hereof);
(iii) any intercompany accounts payable of the Seller;
(iv) any obligation of the Seller or HMS under any employment
or consulting agreements or arrangements with employees or independent
contractors of the Seller, including, without limitation, any
obligation to make bonus payments to any employees; and
(v) except as provided in Section 7.03 below, any liabilities
or obligations of the Seller for federal, state, local and foreign
income and franchise Taxes (as defined in Section 3.01(n) hereof).
Section 2.07. Retroactive Economic Effect to Transfer of Assets. As
part of the inducement for the parties hereto to enter into this Agreement, the
parties hereto agree to give economic effect to the sale and transfer of the
Assets as of the opening of business on July 1, 2001 (the "Effective Date"), by
providing for an adjustment in the consideration to be paid pursuant to Section
2.02 hereof as set forth below.
(i) As soon as practicable, but no later than 45 days after
the Closing Date, HMS shall deliver to the Buyer a calculation (the
"Closing Adjustment Calculation") of the net cash operating income or
loss (before Taxes) resulting from the conduct of the Business, and/or
relating to the Assets or the Assumed Liabilities, during the period
commencing on the Effective Date and continuing through the close of
business on the Closing Date (the "Interim Period"). The Closing
Adjustment Calculation shall be prepared on a cash basis and otherwise
consistent with the financial statements referred to in Section 3.01(e)
hereof; provided, however, that no expenses explicitly agreed to be
paid by the Seller pursuant to any provision hereof, including, without
limitation, Sections 4.01(b) and 9.02, shall be treated as an expense
for purposes of such computation, regardless of when such expenses may
have been incurred by the Seller.
(ii) Promptly following receipt of the Closing Adjustment
Calculation, the Buyer shall review the same and notify HMS in writing
of its acceptance of, or objections to, the Closing Adjustment
Calculation, together with a summary of the reasons therefor and
adjustments which, in the Buyer's view, are necessary to eliminate such
objections. HMS and the Buyer shall use reasonable efforts to resolve
any such objections and, if necessary, shall retain an independent
accounting firm to review and resolve any remaining differences and to
deliver a written report to HMS and the Buyer setting forth its
determination of the adjustments, if any, to the Closing Adjustment
Calculation necessary to accurately reflect the net operating income or
loss (before Taxes) resulting from the conduct of the Business during
the Interim Period.
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(iii) Within five days after either the acceptance by HMS and
the Buyer of the Closing Adjustment Calculation or the receipt by HMS
and the Buyer of the report prepared by independent accountants
pursuant to cause (ii) above, the Seller shall pay to the Buyer an
amount equal to the net cash operating income (before Taxes), or the
Buyer shall so pay to the Seller an amount equal to the net cash
operating loss (before Taxes), in either case resulting from the
conduct of the Business during the Interim Period, in accordance with
the Closing Adjustment Calculation agreed to by HMS and the Buyer or as
adjusted in accordance with the report prepared by independent
accountants pursuant to clause (ii) above.
III. REPRESENTATIONS AND WARRANTIES
Section 3.01. Representations and Warranties of HMS and the Seller. HMS
and the Seller jointly and severally represent and warrant to the Buyer,
Czajkowski and Donnelly as follows:
(a) Organization, Qualification, Etc. Each of the Seller and
HMS is a corporation duly organized, validly existing and in good standing under
the laws of the State of Maryland and the State of New York, respectively, and
is duly licensed or qualified to do business as a foreign corporation in each of
the jurisdictions in which it is required to be so licensed or qualified with
respect to the operations of its business, except where the failure to be so
licensed or qualified would not have a material adverse effect on the financial
condition or operations of the Business. The Seller and HMS have all requisite
corporate power and authority to own, operate and lease the Assets and to carry
on the Business as it is now being conducted. Each of the Seller and HMS has all
requisite corporate power and authority to execute and deliver this Agreement
and each of the Ancillary Agreements to which it is a party and to perform its
obligations hereunder and thereunder.
(b) Authorization of Agreements. The execution and delivery by
each of HMS and the Seller of this Agreement and the Ancillary Agreements to
which it is a party and the consummation by HMS and the Seller of the
transactions contemplated hereby and thereby have been duly authorized by all
requisite corporate action. This Agreement and each Ancillary Agreement to which
either HMS or the Seller is a party has been, or is contemporaneously herewith
being, duly executed and delivered in accordance with this Agreement and
constitute the legal, valid and binding obligations of HMS and the Seller,
enforceable in accordance with their respective terms.
(c) Effect of Agreements. The execution and delivery by each
of HMS and the Seller of this Agreement and the Ancillary Agreements to which it
is a party and the performance by HMS and the Seller of their respective
obligations hereunder and thereunder will not (i) violate any provision of law
or any order of any court or other agency of government, (ii) violate the
Certificate of Incorporation or By-laws of either HMS or the Seller, (iii)
violate any judgment, award or decree of any court or any other agency of
government, (iv) violate any indenture, agreement or other instrument to which
either HMS or the Seller is a party, or by which HMS, the Seller or
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any of the Assets is bound or affected, or conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under, any
such indenture, agreement or other instrument, except for restrictions on the
assignability of any such agreement or other instrument listed or described on
Schedule 3-A hereof and for which any required consent for assignment has not
been obtained as of the Closing Date, or (v) result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
whatsoever upon any of the Assets, except in the case of (i), (iii) or (iv)
above, where any such violation, conflict, breach or default would not, singly
or in the aggregate, have a material adverse effect on the financial condition
or operations of the Business or the ability of HMS or the Seller to performs
its respective obligations under this Agreement or any of the Ancillary
Agreements.
(d) Consents and Approvals. To the best knowledge of HMS and
the Seller, except as set forth on Schedule 3-A hereto, no consent, approval or
authorization of, or declaration, filing or registration with, or notice to, or
order or action of, any court, administrative agency or other governmental
authority or any other person or entity is required to be made or obtained by
either HMS or the Seller or any of their subsidiaries or affiliates in
connection with the execution and delivery by HMS and the Seller of this
Agreement and the Ancillary Agreements to which either is a party or the
performance by HMS and the Seller of the obligations of HMS and the Seller
incurred hereunder or thereunder.
(e) Financial Statements. HMS and the Seller have furnished to
the Buyer the unaudited balance sheet and statements of operations for the
Seller as of, and for the quarter ended, June 30, 2001 (the "Financial
Statements"), a copy of which is attached hereto as Schedule 3-B. The Financial
Statements were derived from the Seller's books and records as maintained by the
Seller in the ordinary course of business and the Statements fairly present the
information they purport to present for the periods indicated. The Financial
Statements have been prepared in accordance with generally accepted accounting
principles in the United States for interim financial information, and
accordingly exclude certain footnotes and are subject to year-end adjustments.
The Financial Statements include information that is based on management's
estimates of the operating results of the Seller. The Financial Statements have
not been audited but have been prepared in a manner consistent with the internal
accounting policies of HMS.
(f) Absence of Certain Changes or Events. Since June 30, 2001,
except as otherwise set forth in Schedule 3-C hereto and except for the
transactions contemplated hereby, the Seller has not:
(i) operated any business other than the Business;
(ii) failed to maintain all Assets and all other properties
deemed reasonably necessary for the conduct of the Business in good
repair, order and condition, consistent with past practices;
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(iii) failed to maintain ordinary levels of inventories,
supplies and prepaid expenses (replenishing inventories and supplies
and making all prepayments when and as required consistent with past
practice);
(iv) failed to maintain its books of account and records in
the usual, regular and ordinary manner, on a basis consistent with past
practice, use commercially reasonable efforts to comply with all laws
applicable to it or perform all its material obligations without
default;
(v) failed to maintain its collections and payment policies in
the usual, regular and ordinary manner, on a basis consistent with past
practice, or accelerated or deferred any income or expense item in a
manner inconsistent with past practice;
(vi) incurred any obligation or liability (whether fixed,
absolute, accrued, contingent, known or unknown, or otherwise, of any
kind or nature whatsoever), except normal trade or business obligations
incurred in the ordinary course of business and consistent with past
practice and except in connection with this Agreement and the
transactions contemplated hereby;
(vii) discharged or satisfied any material lien, security
interest or encumbrance or paid any obligation or liability (fixed or
contingent) of any kind or nature whatsoever, other than in the
ordinary course of business and consistent with past practice;
(viii) mortgaged, pledged or subjected to any lien, security
interest or other encumbrance any of the Assets (other than mechanic's,
materialman's and similar statutory liens arising as a matter of law
and purchase money security interests arising in the ordinary course of
business between the date of delivery and payment);
(ix) transferred, leased or otherwise disposed of any of the
Assets except for a fair consideration in the ordinary course of
business and consistent with past practice or, except in the ordinary
course of business and consistent with past practice, acquired any
assets or properties;
(x) cancelled or compromised any debt or claim, except in the
ordinary course of business and consistent with past practice;
(xi) waived or released any rights of material value, except
in any case for a fair consideration in the ordinary course of business
and consistent with past practice;
(xii) transferred or granted any rights under any concessions,
leases, licenses, sublicenses, agreements, patents, inventions,
trademarks, trade names, service marks or copyrights or with respect to
any know-how, except in the ordinary course of business and consistent
with past practice;
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(xiii) made or granted any wage or salary increase applicable
to any group or classification of employees generally, entered into any
employment relationship with, or made any loan to, or entered into any
material transaction of any other nature with, any officer or employee;
(xiv) entered into any transaction, contract or commitment,
except (x) contracts listed on Schedule 3-C hereto, (y) this Agreement,
the Ancillary Agreements and the transactions contemplated hereby and
thereby and (z) as permitted by Section 4.01(a) hereof;
(xv) suffered any casualty loss or damage (whether or not such
loss or damage shall have been covered by insurance);
(xvi) surrendered, had revoked or otherwise terminated or had
terminated any material license, permit or other approval,
authorization or consent from any court, administrative agency or other
governmental authority; or
(xvii) entered into any agreement to take any action
prohibited by this Section 3.01(f).
(g) Title to Properties, Absence of Liens and Encumbrances.
Except as set forth in Schedule 3-D hereto, the Seller and/or HMS, as
appropriate, has good title to all the Assets, free and clear of all liens,
charges, pledges, security interests or other encumbrances of any nature
whatsoever, except for customary statutory liens for Taxes not yet due and other
similar statutory liens for amounts not yet due. The Assets are not subject to
(i) any offset or adjustment for fees that may be recovered by a client of HMS
and/or the Seller, as appropriate, relating to any fees collected by the Seller
or collected by HMS and paid to the Seller prior to the Closing Date, or (ii)
any fee sharing agreements or arrangements of any kind or nature by and between
the Seller and HMS, or otherwise, other than the Buyer's share of fees with
respect to BLD Receivables owed to Mitchell &Titus LLP pursuant to the
Subcontract Agreement dated August 28, 1998 and fees owed to Renaissance Health
Care Consulting pursuant to the letter agreement dated July 2, 1999, correct and
complete copies of each of which have been supplied to the Buyer prior to the
date hereof.
Except as set forth on Schedule 3-D hereto, all leases of real
or personal property of the Seller to be assigned to the Buyer hereunder are
valid and binding in accordance with their respective terms and there is not
under any of such leases any existing default, or any condition, event or act
which with notice or lapse of time or both would constitute such a default, nor
would consummation of the transactions contemplated hereby result in a default
or any such condition, event or act, which, in any such case, would have a
material adverse effect on the financial condition or operations of the
Business.
(h) Lists of Properties, Contracts, Employees and Other Data.
(i) Annexed hereto as Schedule 3-E is a list setting forth, as of the date
specified on such Schedule, (A) all real property owned by the Seller, or owned
by HMS and used
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exclusively in the Business, and (B) all leases of real or personal property to
which the Seller is a party, either as lessee or lessor, or to which property
HMS is a party and which is used exclusively in the Business.
(ii) Annexed hereto as Schedule 3-F is a list setting forth,
as of the date specified on such Schedule, all licenses and sublicenses
granted by or to the Seller and all other agreements to which the
Seller is a party that relate, in whole or in part, to any Intellectual
Property used exclusively in the Business, whether owned by the Seller
or any affiliate thereof.
(iii) Annexed hereto as Schedule 3-G is a list setting forth,
as of the date specified on such Schedule, all contracts,
understandings and commitments (including, without limitation, powers
of attorney, mortgages, indentures and loan agreements or obligations
for borrowed money including, without limitation, guarantees), whether
oral or written, to which the Seller is a party or to which the Seller
or any of its assets or properties are subject and which are not
specifically referred to in (i) or (ii) above, provided that there need
not be listed in Schedule 3-G hereto any contracts, understandings or
commitments under purchase orders with customers, sales contracts,
supply contracts with suppliers and other such commitments incurred in
the ordinary course of business and consistent with past practice other
than any such contract, understanding or commitment which is a contract
or group of related contracts that involve payments exceeding $10,000
per annum in amount.
(iv) Annexed hereto as Schedule 3-H is a list setting forth,
as of the date specified on such Schedule, the names and current base
salaries of all employees (including temporary employees) of the Seller
(the "Employees").
(v) Except as disclosed in Schedules 3-E, 3-F, 3-G or 3-H, to
the best knowledge of HMS and the Seller, there is no claim that any
contract referred to in any of these Schedules is not valid and
enforceable in accordance with its terms for the periods stated
therein, and there does not exist under any such contract any existing
default or event of default or event which with notice or lapse of time
or both would constitute a default that might reasonably be expected to
have a material adverse effect on the financial condition or operations
of the Business.
(i) Litigation. Except as set forth in Schedule 3-I hereto,
there are no actions, suits or proceedings involving claims by or against HMS or
the Seller relating to the Business or any of the Assets that are pending or, to
the best knowledge of HMS and the Seller, threatened against HMS or the Seller,
at law or in equity, or before or by any foreign, federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality. To the best knowledge of HMS and the Seller, and except as set
forth in Schedule 3-I hereto, there are no orders, judgments or decrees of any
court or governmental agency with respect to which the Seller or HMS has been
named or is a party that apply, in whole or in part, relating to the Business or
any of the Assets, and there are no matters listed in Schedule 3- I, nor are
there any other actions, suits or proceedings, that, if decided against HMS or
the Seller, would materially
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adversely affect the ability of HMS or the Seller, as the case may be, to
perform its obligations under this Agreement or any of the Ancillary Agreements
to which either is a party.
(j) Collective Bargaining Agreements; Labor Controversies;
Etc. Neither HMS, the Seller nor any affiliate thereof is a party to any
collective bargaining agreement with respect to any of the Employees. Except as
set forth in Schedule 3-J hereto, each of HMS and the Seller is in compliance in
all material respects with all applicable laws respecting health and
occupational safety, employment and employment practices, terms and conditions
of employment and wages and hours with respect to the Employees. There are no
controversies between HMS or the Seller and any of the Employees that might
reasonably be expected to have a material adverse effect on the financial
condition or operations of the Business, or any unresolved labor union
grievances or unfair labor practice or labor arbitration proceedings pending,
or, to the best knowledge of HMS and the Seller, threatened against the Seller
or HMS, and, to the best knowledge of HMS and the Seller, there are no
organizational efforts currently being made or threatened involving any of such
Employees.
(k) Employee Benefit Plans. Schedule 3-K hereto lists each
employee benefit plan within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA") maintained by HMS or the Seller
or to which HMS or the Seller contributes or is required to contribute, in which
any Employee participates or to which the Seller could have any liability (a
"Plan"). HMS and the Seller have complied and currently are in compliance in all
material respects, both as to form and operation, with the provisions of ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"), applicable to
each Plan. To the best knowledge of HMS and the Seller, no event has occurred,
and there exists no condition or set of circumstances which has resulted in, or
which could result in, the imposition of any material liability on the Seller
under ERISA, the Code or other applicable law with respect to any Plan
maintained for the benefit of the Employees. There exist no unfunded pension
plan liabilities with respect to either the Seller or HMS relating to any of the
Employees.
(l) Intellectual Property. The Intellectual Property listed in
Schedule 1-B hereto and the licenses and sublicenses listed in Schedule 3-F
hereto constitute all the Intellectual Property and proprietary rights,
respectively, that are owned or claimed by HMS, the Seller or any affiliate
thereof that are used exclusively in connection with the Business as it is
currently conducted, other than such proprietary rights of the Seller that
relate to the name "Health Management Systems, Inc.", or any parts or
derivatives of such name, or the logos of HMS. To the best knowledge of HMS and
the Seller, the Seller owns or has valid rights to use all such Intellectual
Property, and the rights licensed pursuant to such licenses or sublicenses,
without conflict with the rights of others and, to the best knowledge of HMS and
the Seller, there are no patents, licenses, franchises or other intellectual
property or property rights of HMS or the Seller that are not included in the
Assets but that are necessary to the continued conduct by the Buyer following
the Closing Date of the Business as conducted prior to the Closing Date. No
person has made or, to the best knowledge of HMS and the Seller, threatened to
make, any claims
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that the Seller is in violation of or infringing upon any such proprietary
rights of any third party.
(m) Use of Real Property. The owned and leased real properties
listed in Schedule 3-E hereto are used and operated in material compliance and
conformity with all applicable leases, contracts, commitments, licenses and
permits. Neither HMS nor the Seller has received notice of any material
violation of any applicable zoning or building regulation, ordinance or other
law, order, regulation or requirement relating to the conduct of the Business or
to the Assets and, to the best knowledge of HMS and the Seller, there is no such
violation.
(n) Taxes. The Seller, or HMS on the Seller's behalf, has
timely paid or will pay, all Taxes, and all interest and penalties due thereon
and payable by it for any period (or any portion thereof) ending on or before
the Closing Date. For the purposes of this Agreement, "Taxes" shall mean all
federal, state, local and foreign taxes (including, without limitation, all net
income, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, estimated, stamp, occupation, property
or other taxes) imposed by any taxing authority (domestic or foreign) together
with any interest and penalties relating thereto.
(o) Compliance with Law. Neither HMS nor the Seller (i) is in
default with respect to any order of any court, governmental authority or
arbitration board or tribunal to which it is a party or is subject, (ii) is in
violation of any laws, ordinances, governmental rules or regulations to which it
is subject, or (iii) has failed to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the conduct of the Business or
the ownership of any of the Assets, except, in each such case, for such default,
violation or failure to obtain as would not have a material adverse effect on
the financial condition or operations of the Business.
(p) No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by HMS and the
Seller with the Buyer and its representatives without the intervention of any
person as a result of any act of HMS and the Seller in such manner as to give
rise to any valid claim against any of the parties hereto for a brokerage
commission, finder's fee or other like payment.
(q) No Additional Representations. Neither the Buyer,
Czajkowski nor Donnelly have made any representations or warranties, whether
express or implied, regarding any matter, other than the representations and
warranties set forth in this Agreement, in the Ancillary Agreements and in the
certificates delivered pursuant hereto and thereto.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF HMS AND THE SELLER CONTAINED
HEREIN, HMS AND THE SELLER DISCLAIM ALL WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR USE OR PURPOSE.
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Section 3.02. Representations and Warranties of the Buyer. The Buyer
hereby represents and warrants to HMS and the Seller as follows:
(a) Organization, Qualification, Etc. The Buyer is a limited
liability company duly formed, validly existing and in good standing under the
laws of the State of Delaware and is, or will within a reasonable time after the
Closing Date be, duly licensed or qualified to do business as a foreign limited
liability company in each jurisdiction in which it is required to be so licensed
or qualified, except where the failure to be so licensed or qualified would not
have a material adverse effect on the assets, financial condition or results of
operations of the Buyer. The Buyer has all requisite power and authority to
acquire, own, lease and operate the Assets and to conduct the Business to be
conveyed to it hereunder, and to execute and deliver this Agreement and each of
the Ancillary Agreements to which it is a party and to perform its respective
obligations hereunder and thereunder.
(b) Authorization of Agreements. The execution, delivery and
performance by the Buyer of this Agreement and the Ancillary Agreements to which
it is a party and the consummation by the Buyer of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate or other
actions. This Agreement and each of the Ancillary Agreements to which the Buyer
is a party has been, or is contemporaneously herewith being, duly executed and
delivered in accordance with this Agreement and constitute the legal, valid and
binding obligations of the Buyer, enforceable in accordance with their
respective terms.
(c) Effect of Agreements. The execution and delivery by the
Buyer of this Agreement and the Ancillary Agreements to which it is a party, and
the performance by the Buyer of each of its obligations hereunder and
thereunder, will not (i) violate any provision of law or any order of any court
or any other agency of government, in each case applicable to the Buyer, (ii)
violate the Certificate of Formation or the limited liability company operating
agreement of the Buyer, (iii) violate any judgment, award or decree of any court
or any other agency of government applicable to the Buyer, (iv) violate any
indenture, agreement or other instrument to which the Buyer is a party or by
which the Buyer or its properties or assets is bound, or conflict with, result
in a breach of or constitute (with due notice or lapse of time or both) a
default under, any such indenture, agreement or other instrument, or (v) result
in the creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of the Buyer, except in the case
of (i), (iii) and (iv) above, where any such violation, conflict, breach or
default would not, singly or in the aggregate, have a material adverse effect on
the assets, financial condition or results of operations of the Buyer.
(d) Consents and Approvals. Except as set forth in Schedule
3-L hereto, no consent, approval or authorization of, or declaration, filing or
registration with, or notice to, or order or action of, any court,
administrative agency or other governmental authority or any other person or
entity is required to be made or obtained by the Buyer in connection with the
execution and delivery by the Buyer of this Agreement and the
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Ancillary Agreements or the consummation by the Buyer of the obligations of the
Buyer incurred hereunder or thereunder.
(e) Availability of Funds. The Buyer has a firm financing
commitment sufficient to enable it to consummate the transactions contemplated
hereby. A true and correct copy of such commitment has been provided to the
Seller. The financing so required is referred to in this Agreement as the
"Financing". As of the date hereof, the Buyer does not have any reason to
believe that any of the conditions to the Financing will not be satisfied or
that the Financing will not be available to the Buyer on a timely basis to
consummate the transactions contemplated hereby.
(f) No Brokers. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on by the Buyer with
HMS and the Seller and their representatives without the intervention of any
person as a result of any act of the Buyer in such manner as to give rise to any
valid claim against any of the parties hereto for a brokerage commission,
finder's fee or other like payment, except for a fee to be paid by the Buyer to
Wallingford Capital, Inc. The Buyer shall indemnify and hold HMS and the Seller
harmless from any obligation to pay such fee to Wallingford Capital, Inc.
(g) No Additional Representations. The Buyer acknowledges that
HMS and the Seller have made no representations or warranties, whether express
or implied, regarding any matter, other than the representations and warranties
set forth in this Agreement, in the Ancillary Agreements and in the certificates
delivered pursuant hereto and thereto.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF THE BUYER CONTAINED HEREIN, THE
BUYER DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY.
Section 3.03. Representations and Warranties of Czajkowski and
Donnelly. Czajkowski and Donnelly jointly and severally represent and warrant to
HMS and the Seller as follows:
(a) Valid and Binding Obligations. This Agreement and each of
the Ancillary Agreements to which Czajkowski or Donnelly is a party has been, or
is contemporaneously herewith being, duly executed and delivered in accordance
with this Agreement and constitute the respective legal, valid and binding
obligations of Czajkowski and Donnelly, enforceable in accordance with their
respective terms.
(b) Effect of Agreements. The execution and delivery by
Czajkowski and Donnelly of this Agreement and the Ancillary Agreements to which
each is a party, and the performance by each of Czajkowski and Donnelly of each
of his respective obligations hereunder and thereunder, will not (i) violate any
provision of law or any order of any court or any other agency of government
applicable to either of them, (ii) violate any judgment, award or decree of any
court or any other agency of government
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relating to him, (iii) violate any indenture, agreement or other instrument to
which Czajkowski or Donnelly is a party or by which either of them or his
respective properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default under, any
such indenture, agreement or other instrument, or (iv) result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of Czajkowski or Donnelly, except in the case of
(i), (ii) and (iii) above, where any such violation, conflict, breach or default
would not, singly or in the aggregate, have a material adverse effect on the
assets, financial condition or results of operations of the Buyer.
(c) Current Business of the Seller. Czajkowski and Donnelly
acknowledge that they are both currently responsible for the conduct of the
Business and are familiar with the assets, financial condition and results of
operations of the Business and that (i) they are not aware of any fact or
circumstance that would result in or constitute a failure of a condition to the
obligations of the Buyer, Czajkowski or Donnelly, or a breach of any
representation, warranty or covenant of HMS or the Seller with respect to the
Business, contained in or made pursuant to this Agreement, and (ii) they have
complied in all material respects with all of the policies and directives of HMS
and the Seller in managing the Business throughout the period commencing
November 1, 2000.
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES OF CZAJKOWSKI AND DONNELLY
CONTAINED HEREIN, CZAJKOWSKI AND DONNELLY DISCLAIM ALL WARRANTIES, EXPRESS,
IMPLIED OR STATUTORY.
IV. COVENANTS
Section 4.01. Covenants of HMS and the Seller. (a) HMS and the Seller
agree that, at all times between the date hereof and the Closing Date, unless
the Buyer and the Seller shall otherwise agree in writing (which agreement shall
not be unreasonably withheld), the Seller shall:
(i) operate no business other than the Business and shall
operate the Business only in the usual, regular and ordinary manner
and, to the extent consistent with such operations, use commercially
reasonable efforts to preserve its current business organization intact
in all material respects, keep available the services of all of its
officers and employees and preserve its present relationships with all
material customers of, and all other persons having material business
dealings with, the Seller;
(ii) maintain all Assets and all other properties deemed
reasonably necessary for the conduct of the Business in good repair,
order and condition, consistent with past practices, reasonable wear
and tear excepted;
(iii) maintain ordinary levels of inventories, supplies and
prepaid expenses (replenishing inventories and supplies and making all
prepayments when and as required consistent with past practice);
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(iv) maintain its books of account and records in the usual,
regular and ordinary manner, on a basis consistent with past practice,
and use commercially reasonable efforts to comply with all laws
applicable to it and perform all its material obligations without
default;
(v) maintain its collections and payment policies in the
usual, regular and ordinary manner, on a basis consistent with past
practice, and not seek to accelerate or defer any income or expense
item in a manner inconsistent with past practices;
(vi) notwithstanding clause (i) of this Section 4.01(a), not
make or agree to make (A) any capital expenditure in excess of $1,000
or (B) any other expenditure in excess of $10,000; and
(vii) not (A) incur any material obligation or liability
(fixed or contingent), except normal trade or business obligations
incurred in the ordinary course of business and consistent with past
practice and except in connection with this Agreement and the
transactions contemplated hereby; (B) discharge or satisfy any lien,
security interest or encumbrance or pay any obligation (fixed or
contingent), other than in the ordinary course of business and
consistent with past practice; (C) mortgage, pledge or subject to any
lien, security interest or encumbrance any of the Assets (other than
mechanic's, materialman's and similar statutory liens arising in the
ordinary course of business and purchase money security interests
arising in the ordinary course of business between the date of delivery
and payment); (D) transfer, lease or otherwise dispose of any of the
Assets except for a fair consideration in the ordinary course of
business and consistent with past practice or, except in the ordinary
course of business and consistent with past practice, acquire any
assets or properties; (E) cancel or compromise any debt or claim,
except in the ordinary course of business and consistent with past
practice; (F) waive or release any rights of material value or
surrender, cause to be revoked or otherwise terminate any material
license, permit or other approval, authorization or consent from any
court, administrative agency or other governmental authority; (G)
transfer or grant any material rights under any concessions, leases,
licenses, sublicenses, agreements, patents, inventions, trademarks,
trade names, service marks, or copyrights or with respect to any
know-how; (H) make or grant any wage or salary increase applicable to
any group or classification of its employees, enter into any employment
relationship with, or make any loan to, or enter into any material
transaction of any other nature with, any officer or employee of the
Seller; or (I) enter into any other transaction, contract or
commitment, except in the ordinary course of business, consistent with
past practice and not in violation of any other provision of this
Section.
(b) Prior to the Closing Date, the Seller and/or HMS, as
appropriate, shall, with the Buyer's cooperation, but at the expense of the
Seller, promptly apply for or otherwise seek and use commercially reasonable
efforts to obtain all authorizations, consents, waivers and approvals as may be
required in connection with the assignment of
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those contracts, agreements, licenses, leases and other commitments to be
assigned to the Buyer pursuant to this Agreement that are set forth on Schedule
4-A hereof.
(c) Between the date hereof and the Closing Date, neither HMS
nor the Seller shall enter into any transaction, make any agreement or
commitment, or take any action, that would result in any of the representations,
warranties or covenants of HMS or the Seller contained in this Agreement not
being true and correct in any material respect at and as of the time immediately
after the occurrence of such transaction, event or action.
(d) The Seller and/or HMS, as appropriate, shall enter into
the instruments of conveyance and transfer referred to in Section 1.02 above.
(e) On the Closing Date, the Seller shall change its name to a
name bearing no resemblance to its current name and not including the initials
"CDR". HMS and the Seller hereby consent to the Buyer's use of the name "CDR
Associates" and any derivation thereof, and agree to execute any additional
document, upon request from the Buyer, that may be necessary to enable the Buyer
to use the name "CDR Associates" or any derivation thereof.
(f) On the Closing Date, HMS shall execute and deliver to the
Buyer completed estoppel certificates substantially in the form attached hereto
as Exhibit H with respect to each Existing Medicaid Contract (the "Estoppel
Certificates").
Section 4.02. Covenants of Czajkowski, Donnelly and the Buyer. (a)
Between the date hereof and the Closing Date, the Buyer and each of its
representatives shall cooperate fully with HMS and the Seller and its
representatives with respect to the investigation by the Buyer and its
representatives of the Business so as to minimize any disruption to the Business
that may result from such investigation.
(b) Between the date hereof and the Closing Date, (i) neither
Czajkowski, Donnelly nor the Buyer shall enter into any transaction or make any
agreement or commitment, or take any action, that would result in any of the
representations, warranties or covenants of the Buyer contained in this
Agreement not being true and correct in any material respect at and as of the
time immediately after the occurrence of such transaction, event or action, and
(ii) neither Czajkowski nor Donnelly, in their capacity as employees of the
Seller, shall, without the express direction of HMS or the Seller, enter into
any transaction or make any agreement or commitment, or take any action, that
would result in any of the representations, warranties or covenants of HMS or
the Seller contained in this Agreement not being true and correct in any
material respect at and as of the time immediately after the occurrence of such
transaction, event or action.
(c) Between the date hereof and the Closing Date, Czajkowski,
Donnelly and the Buyer shall cooperate with the Seller in its efforts to obtain
the authorizations, consents, waivers and approvals referred to in Section
4.01(b) above.
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(d) Czajkowski, Donnelly and the Buyer shall keep all
information obtained from HMS and the Seller confidential in accordance with the
terms of the confidentiality agreement entered into by HMS, Czajkowski and
Donnelly on January 1, 2001, a copy of which is attached hereto as Schedule 4-B
(the "Confidentiality Agreement").
(e) Czajkowski, Donnelly or the Buyer shall notify the Seller
immediately upon any amendment to, or modification of the terms of, the
Financing commitment described in Section 3.02(e) above to the extent that any
such amendment or modification would adversely affect the transactions
contemplated hereby.
(f) Czajkowski and Donnelly, in their capacity as employees of
the Seller, will comply in all material respects with all of the Seller's
policies and directives in managing the Business prior to the Closing Date and
will not take any action outside the ordinary course of business, including,
without limitation, the acceleration or deferral of any income or expense item
in a matter inconsistent with past practices.
Section 4.03. Employee Matters. (a) The Buyer agrees that effective as
of the Closing Date, it will offer to employ all Employees listed in Schedule
3-H.
(b) For purposes of Section 4.03(a), the term "offer to
employ" shall mean, with respect to any Employee other than Donnelly, Czajkowski
or Jeffrey D. Dawson ("Dawson"), (x) with respect to base salary, "at least
equal" to the salary currently being paid to such Employee by the Seller and (y)
with respect to position, "substantially the same duties in the same functional
area" as the position currently held by such Employee with the Seller, it being
understood and agreed, however, that nothing in this Section 4.03 shall require
the Buyer to maintain the organizational structure of the Business in effect on
the date hereof.
(c) Except to the extent included in the Assumed Liabilities,
neither the Buyer, Czajkowski nor Donnelly shall be bound by any of the terms or
provisions provided in any employment contract or agreement entered into by HMS
or the Seller with any of the Employees, including, without limitation, the
letter agreements dated February 14, 2000 from HMS addressed to Severn Anderson,
Shane Shrader, David Tikiob, Jeffrey Friday, Todd Weitzel, Steven Nusbaum,
Dawson and Gail Whitmore, nor shall the Buyer, Czajkowski or Donnelly assume any
of the liabilities or obligations of HMS or the Seller accruing on or after the
Closing Date under any such contracts or agreements. As of the Closing Date,
Czajkowski and Donnelly agree to resign from any and all positions that any of
them may hold with, including as officers of, HMS or the Seller. In addition,
the parties agree that any and all employment agreements, contracts or
arrangements between the Seller, HMS and each of Czajkowski and Donnelly,
including, without limitation, the employment agreements dated May 1, 1997, are
hereby terminated and of no further force and effect.
(d) Notwithstanding clause (c) above, HMS and/or the Seller
shall continue to pay any premiums required to maintain coverage under the Cigna
medical plans and the Prudential HealthCare dental plans until July 31, 2001 for
all Employees
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who are covered by such plans as of the Closing Date and who accept the Buyer's
offer of employment. The Buyer shall reimburse HMS and/or the Seller, as
appropriate, for all premiums relating to the period between the Effective Date
and July 31, 2001.
(e) On the Closing Date, any and all covenants not to compete
entered into by Donnelly, Czajkowski or Dawson with either HMS or the Seller,
shall be extinguished, terminated and released. Donnelly, Czajkowski and Dawson
hereby agree not to compete with any business of HMS other than the Business.
HMS and the Seller hereby agree not to compete with the Business as operated by
the Buyer following the Closing Date (i) in the Medicaid marketplace in
accordance with and to the extent provided in the Exclusive Subcontracting
Agreement; and (ii) in the insurance company marketplace for a period of three
years after the Closing Date.
(f) On the Closing Date, any and all covenants not to compete
entered into by any of the Employees with HMS and/or the Seller, shall be
assigned and transferred by HMS and/or the Seller, as appropriate, to the Buyer,
and all rights of HMS and/or the Seller shall be terminated and extinguished,
without any representation from HMS or the Seller as to their transferability or
enforceability.
V. CONDITIONS PRECEDENT
Section 5.01. Conditions Precedent to Obligations of Czajkowski,
Donnelly and the Buyer. The obligations of Czajkowski, Donnelly and the Buyer
under this Agreement are subject, at the option of Czajkowski, Donnelly and the
Buyer, to the satisfaction at or prior to the Closing Date of each of the
following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of HMS and the Seller contained in this Agreement
or in any certificate or document delivered to the Buyer pursuant hereto shall
be true and correct in all material respects on and as of the Closing Date as
though made at and as of that date, and, unless the Closing Date shall occur on
the date hereof, HMS and the Seller shall have delivered to the Buyer a
certificate to such effect.
(b) Compliance with Covenants. Each of HMS and the Seller
shall have performed and complied in all material respects with all terms,
agreements, covenants and conditions of this Agreement to be performed or
complied with by either of them prior to the Closing Date, and, unless the
Closing Date shall occur on the date hereof, HMS and the Seller shall have
delivered to the Buyer a certificate to that effect.
(c) Opinions of Counsel for HMS and the Seller. The Buyer
shall have received the favorable opinion of Reboul, MacMurray, Hewitt, Maynard
& Kristol, counsel for HMS and the Seller, dated the Closing Date, in form and
substance satisfactory to the Buyer and its counsel, to the effect that:
(i) Each of HMS and the Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and Maryland, respectively, and each is licensed or
qualified to do business as a foreign corporation in each jurisdiction
in which it is required to be so licensed or
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qualified, except where the failure to be so licensed or qualified
would not have a material adverse effect on its assets, financial
condition or results of operations. HMS and the Seller each have all
requisite corporate power and authority to own, operate and lease its
properties, to carry on its business as it is now being conducted and
to execute and deliver this Agreement and the Ancillary Agreements to
which it is a party and to perform its obligations hereunder and
thereunder.
(ii) The execution and delivery by HMS and the Seller of this
Agreement and each of the Ancillary Agreements to which either is a
party and the consummation by HMS and the Seller of the transactions
contemplated hereby and thereby have been duly authorized by all
requisite corporate action. This Agreement and each Ancillary Agreement
to which either HMS or the Seller is a party has been duly and validly
executed and delivered and constitute the legal, valid and binding
obligations of HMS and the Seller, enforceable against HMS and the
Seller in accordance with their respective terms, except (A) as the
enforceability hereof or thereof may be limited by bankruptcy,
insolvency, fraudulent transfer, fraudulent conveyance, moratorium,
reorganization or other similar laws relating to or affecting
creditors' rights generally from time to time in effect, and (B) that
such enforceability is subject to general principles of equity and to
the discretion of the court before which any proceedings may be
brought, regardless of whether at a proceeding in equity or law.
(iii) The execution and delivery by HMS and the Seller of this
Agreement and each of the Ancillary Agreements to which either is a
party and the performance by each of HMS and the Seller of its
obligations hereunder and thereunder will not violate the Certificate
of Incorporation or By-laws of either HMS or the Seller, or, to the
best knowledge of such counsel, any judgment, award or decree or any
indenture, agreement or other instrument to which HMS or the Seller is
a party or by which HMS or the Seller or any of the properties or
assets of HMS or the Seller is bound, or, to the best knowledge of such
counsel, conflict with, result in a material breach of or constitute
(with due notice or lapse of time or both) a material default under,
any such indenture, agreement or other instrument, except for
restrictions on the assignability of any such agreement or other
instrument listed or described on Schedule 3-A hereof and for which any
required consent for assignment has not been obtained as of the Closing
Date.
In rendering such opinion, counsel for HMS and the Seller shall be entitled to
rely on certificates of fact by officers of HMS and the Seller and their
subsidiaries and affiliates, and certificates of government officials.
(d) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby or which would, if adversely decided, have a material
adverse effect on the financial condition or operations of the Business, any of
the Assets or the ability of HMS or the Seller, as the case may be,
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to perform its obligations under this Agreement or any of the Ancillary
Agreements to which either is a party.
(e) Assignments of Contracts and Consents. The Seller and/or
HMS, as appropriate, shall have obtained all the authorizations, consents,
waivers and approvals required in connection with the Subcontracts relating to
the Existing Medicaid Contracts with the states of Connecticut, Maryland, Ohio
and New Jersey.
(f) Governmental Approvals. The Seller shall have obtained all
the approvals, authorizations, consents or orders or actions of or filings with
any court, administrative agency or other governmental authority required for
the execution, delivery or performance of this Agreement or the Ancillary
Agreements that are set forth on Schedule 3-A hereto.
(g) Ancillary Agreements. Each of HMS and the Seller shall
have executed and delivered the Ancillary Agreements to which it is a party, and
each such Ancillary Agreement shall be in full force and effect as of the
Closing Date, assuming execution and delivery thereof by the other parties
thereto.
(h) Estoppel Certificates. HMS shall have executed and
delivered to the Buyer the completed Estoppel Certificates.
(i) Financing. The Buyer shall have arranged the Financing
substantially on the terms contemplated by the commitment provided to the
Seller, unless the failure to arrange the Financing was the result of a failure
by Czajkowksi, Donnelly or the Buyer to perform any covenant or condition
contained therein or herein or the inaccuracy of any representation or warranty
of Czajkowksi, Donnelly or the Buyer.
(j) Supporting Documents. On or prior to the Closing Date,
Buyer and its counsel shall have received copies of the following supporting
documents:
(i) (A) copies of the Articles of Incorporation of the Seller,
and all amendments thereto, certified as of a recent date by the
Maryland State Department of Assessments and Taxation and (B)
certificates of the Maryland State Department of Assessments and
Taxation dated as of a recent date as to the due incorporation and good
standing of the Seller;
(ii) a certificate of the Secretary or an Assistant Secretary
of the Seller dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the By-laws of the Seller, as in
effect on the date of the adoption of the resolutions referred to in
clause (B) below and on the date of such certification; (B) that
attached thereto is a true and complete copy of the resolutions adopted
by the Board of Directors of the Seller, authorizing the execution,
delivery and performance of this Agreement and the Ancillary Agreements
and that all such resolutions are still in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements; (C) that
the Articles of Incorporation of the Seller has not been amended since
the date of the certificate
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referred to in clause (A) of paragraph (i) above; and (D) the
incumbency and specimen signature of each officer of the Seller
executing this Agreement and the Ancillary Agreements and any
certificate or instrument furnished pursuant hereto or thereto, and a
certification by another officer of the Seller as to the incumbency and
signature of the officer signing the certificate referred to in this
paragraph (ii); and
(iii) a certificate of the Secretary or an Assistant Secretary
of HMS dated the Closing Date and certifying: (A) that attached thereto
is a true and complete copy of the resolutions adopted by the Board of
Directors of HMS, authorizing the execution, delivery and performance
of this Agreement and the Ancillary Agreements and that all such
resolutions are still in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated by
this Agreement and the Ancillary Agreements; and (B) the incumbency and
specimen signature of each officer of HMS executing this Agreement and
the Ancillary Agreements and any certificate or instrument furnished
pursuant hereto or thereto, and a certification by another officer of
HMS as to the incumbency and signature of the officer signing the
certificate referred to in this paragraph (iii); and
(iv) such additional supporting documents and other
information with respect to the operations and affairs of the Seller and HMS, as
appropriate, as the Buyer and its counsel may reasonably request.
(k) All Proceedings to Be Satisfactory. All corporate and
other proceedings to be taken by HMS or the Seller in connection with the
transactions contemplated hereby and all documents incident thereto shall be
reasonably satisfactory in form and substance to the Buyer and its counsel, and
the Buyer and said counsel shall have received all such counterpart originals or
certified or other copies of such documents as it or they may reasonably
request.
(l) Absence of Certain Changes or Events. Since June 30, 2001,
except for the transactions contemplated hereby, the Seller shall not have
suffered any material adverse change in assets, financial condition or results
of operations.
Section 5.02. Conditions Precedent to Obligations of HMS and the
Seller. The obligations of HMS and the Seller under this Agreement are subject,
at the option of HMS and the Seller, to the satisfaction at or prior to the
Closing Date of each of the following conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Czajkowski, Donnelly and the Buyer contained
in this Agreement or in any certificate or document delivered to the Seller
pursuant hereto shall be true and correct in all material respects on and as of
the Closing Date as though made at and as of that date, and, unless the Closing
Date shall occur on the date hereof, Czajkowski, Donnelly and the Buyer shall
have delivered to the Seller a certificate to such effect.
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(b) Compliance with Covenants. Czajkowski, Donnelly and the
Buyer shall have performed and complied in all material respects with all the
respective terms, agreements, covenants and conditions of this Agreement to be
performed or complied with by each of them at or prior to the Closing Date, and,
unless the Closing Date shall occur on the date hereof, each of Czajkowski,
Donnelly and the Buyer shall have delivered to the Seller a certificate to that
effect.
(c) Opinion of Counsel for the Buyer. HMS and the Seller shall
have received the favorable opinion of Davis & Campbell L.L.C., counsel for the
Buyer, dated the Closing Date, in form and substance satisfactory to HMS and the
Seller and their counsel, to the effect that:
(i) The Buyer is a limited liability company duly formed,
validly existing and in good standing under the laws of the State of
Delaware and is, or will within a reasonable time after the Closing
Date be, licensed or qualified to do business as a foreign limited
liability company in each jurisdiction in which it is required to be so
licensed or qualified with respect to the operations of the Buyer,
except where the failure to be so licensed or qualified would not have
a material adverse effect on the assets, financial condition or results
of operations of the Buyer. The Buyer has all requisite power and
authority to acquire, own, lease and operate the Assets to be conveyed
to the Buyer, to conduct the Business, and to execute and deliver this
Agreement and each of the Ancillary Agreements to which it is a party
and to perform its obligations hereunder and thereunder.
(ii) The execution, delivery and performance by the Buyer of
this Agreement and each of the Ancillary Agreements to which it is a
party and the consummation by the Buyer of the transactions
contemplated hereby and thereby have been duly authorized by all
requisite corporate action. This Agreement and each of the Ancillary
Agreements to which the Buyer is a party has been duly and validly
executed and delivered and constitute the legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance
with their respective terms, except (A) as the enforceability hereof or
thereof may be limited by bankruptcy, insolvency, fraudulent transfer,
fraudulent conveyance, moratorium, reorganization or other similar laws
relating to or affecting creditors' rights generally from time to time
in effect, and (B) that such enforceability is subject to general
principles of equity and to the discretion of the court before which
any proceedings may be brought, regardless of whether at a proceeding
in equity or law.
(iii) The execution and delivery by the Buyer of this
Agreement and the Ancillary Agreements to which it is a party and the
performance by the Buyer of its respective obligations hereunder and
thereunder will not violate the Certificate of Formation or Limited
Liability Company Agreement of the Buyer or, to the best knowledge of
such counsel, any judgment, award or decree or any indenture, agreement
or other instrument to which the Buyer is a party or by which the Buyer
or their properties or assets is bound, or, to the best knowledge of
such counsel, conflict with, result in a material breach of or
constitute (with due notice
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or lapse of time or both) a material default under, any such indenture,
agreement or other instrument.
In rendering such opinion, counsel for the Buyer shall be entitled to rely on
certificates of fact by Czajkowski, Donnelly and officers of the Buyer and
certificates of government officials.
(d) Supporting Documents. On or prior to the Closing Date, HMS
and the Seller and their counsel shall have received copies of the following
supporting documents:
(i) (A) copies of the Certificate of Formation of the Buyer,
and all amendments thereto, certified as of a recent date by the
Secretary of State of the State of Delaware, and (B) a certificate of
the Secretary of State of the State of Delaware dated as of a recent
date as to the due organization and good standing of the Buyer; and
(ii) a certificate of the President or other authorized person
of the Buyer dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the limited liability company
operating agreement of the Buyer as in effect on the date of the
adoption of the resolutions referred to in clause (B) below and on the
date of such certification; (B) that attached thereto is a true and
complete copy of the consents of members of the Buyer authorizing the
execution, delivery and performance of this Agreement and each of the
Ancillary Agreements to which it is a party and that such consents are
still in full force and effect and are all the consents executed in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements; (C) that the Certificate of Formation of the
Buyer has not been amended since the date of the certificate referred
to in clause (A) of paragraph (i) above; and (D) the incumbency and
specimen signature of each officer of the Buyer executing this
Agreement and the Ancillary Agreements and any certificate or
instrument furnished pursuant hereto and thereto, and a certification
by another member, officer or authorized person of the Buyer as to the
incumbency and signature of the officer signing the certificate
referred to in this paragraph (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Buyer as
the Seller or its counsel may reasonably request.
(e) Ancillary Agreements. The Buyer shall have executed and
delivered the Ancillary Agreements to which it is a party, and each such
Ancillary Agreement shall be in full force and effect as of the Closing Date,
assuming execution and delivery thereof by the other parties thereto.
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(f) Legal Actions or Proceedings. No legal action or
proceeding shall have been instituted or threatened seeking to restrain,
prohibit, invalidate or otherwise affect the consummation of the transactions
contemplated hereby.
(g) Governmental Approvals. No approval, authorization,
consent or order or action of or filing with any court, administrative agency or
other governmental authority shall have been required for the execution and
delivery, or shall be required for the performance, of this Agreement or the
Ancillary Agreements, other than as shall have been obtained or completed on or
prior to the Closing Date, except where failure to obtain such approval,
authorization, consent or order would not have a material adverse effect on the
financial condition or operations of the Business.
(h) All Proceedings to Be Satisfactory. All proceedings to be
taken by Czajkowski, Donnelly and the Buyer in connection with the transactions
contemplated hereby and all documents incident thereto shall be reasonably
satisfactory in form and substance to HMS and the Seller and their counsel, and
HMS and the Seller and said counsel shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
VI. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 6.01. Survival of Representations. Subject to the terms and
conditions of this Article VI as set forth below, all representations and
warranties made by any party hereto in this Agreement or pursuant hereto shall
survive for a period of twelve months following the Closing Date.
Section 6.02. Statements as Representations. All representations and
warranties contained herein, including, without limitation, in any Exhibit or
Schedule attached hereto, or in any certificate delivered pursuant hereto, shall
be deemed representations and warranties within the meaning of Section 6.01
hereof.
Section 6.03. Indemnity. (a) Subject to the terms and conditions of
this Article VI, HMS and the Seller hereby jointly and severally agree to
indemnify, defend and hold the Buyer, its affiliates and subsidiaries and their
respective members, directors, officers and employees, including Czajkowski and
Donnelly (collectively, the "Buyer Indemnified Group"), harmless from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and reasonable attorneys' fees and expenses (collectively,
"Damages"), asserted against, resulting to, imposed upon or incurred by any
member of the Buyer Indemnified Group by reason of or resulting from:
(i) a breach of any representation or warranty of HMS or the
Seller contained in or made pursuant to this Agreement or any Ancillary
Agreement;
(ii) a breach of any covenant of HMS or the Seller contained
in or made pursuant to this Agreement or any Ancillary Agreement,
including, without limitation, those set forth in Sections 2.04, 4.01
and 4.03 hereof;
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(iii) any and all liabilities or obligations of, or claims
against, imposed on, or sought to be imposed on, HMS or the Seller
(whether absolute, accrued, contingent or otherwise and whether a
contractual, or any other type of liability, obligation or claim), now
or hereinafter existing but other than the Assumed Liabilities; and
(iv) any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) in respect of (A) any of the actions,
suits or proceedings or threatened actions, suits or proceedings
described on Schedule 3-I hereof, or (B) any action, suit or proceeding
commenced after the Closing Date to the extent based upon an event
occurring or a claim arising prior to the Closing Date, except for any
such event or claim of which Czajkowski or Donnelly had knowledge that
was not communicated to HMS or the Seller prior to the Closing Date.
(b) Subject to the terms and conditions of this Article VI,
the Buyer hereby agrees to indemnify, defend and hold HMS, the Seller and their
respective directors, officers and employees (collectively, the "Seller
Indemnified Group") harmless from and against all Damages asserted against,
resulting to, imposed upon or incurred by any member of the Seller Indemnified
Group by reason of or resulting from:
(i) a breach of any representation or warranty of Czajkowski,
Donnelly or the Buyer contained in or made pursuant to this Agreement;
and
(ii) a breach of any covenant of Czajkowski, Donnelly or the
Buyer contained in or made pursuant to this Agreement; and
(iii) the failure of the Buyer to pay, perform and discharge
when due any of the Assumed Liabilities.
(c) Subject to the terms and conditions of this Article VI,
Czajkowski and Donnelly jointly and severally hereby agree to indemnify, defend
and hold the Seller Indemnified Group harmless from and against all Damages
asserted against, resulting to, imposed upon or incurred by any member of the
Seller Indemnified Group by reason of or resulting from:
(i) a breach of any representation or warranty of Czajkowski
or Donnelly set forth in Section 3.03 hereof; and
(ii) a breach of any covenant of Czajkowski, Donnelly or the
Buyer set forth in Sections 2.04, 4.02 or 4.03 hereof.
(d) The obligation of HMS and the Seller to indemnify the
Buyer Indemnified Group under Section 6.03(a)(i) shall terminate and be of no
further force and effect in respect of claims asserted more than twelve months
after the Closing Date.
(e) The obligation of Czajkowski, Donnelly and the Buyer to
indemnify the Seller Indemnified Group under Sections 6.03(b)(i) and 6.03(c)(i)
shall
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terminate and be of no further force and effect in respect of claims asserted
more than twelve months after the Closing Date.
(f) Any indemnification obligations payable hereunder shall be
offset by any applicable insurance or other reimbursement payments received or
Tax benefits realized by the Buyer Indemnified Group or the Seller Indemnified
Group, as the case may be, with respect to such obligation.
Section 6.04. Limitations on Indemnity. Notwithstanding anything in
this Article VI to the contrary, (i) the aggregate liability of HMS and the
Seller pursuant to Section 6.03(a)(i) hereof shall not exceed $3,200,000; (ii)
the aggregate liability of the Buyer pursuant to Section 6.03(b)(i) hereof and
of Czajkowski and Donnelly pursuant to Section 6.03(c)(i) hereof shall not
exceed $400,000; (iii) neither HMS nor the Seller shall be obligated to
indemnify Czajkowski, Donnelly or the Buyer and hold them harmless against
Damages caused by a breach of any representation or warranty of HMS or the
Seller covered by Section 6.03(a)(i) hereof unless the aggregate amount of such
Damages to Czajkowski, Donnelly or the Buyer shall exceed $50,000, and (iv)
Czajkowski, Donnelly and the Buyer shall not be obligated to indemnify HMS or
the Seller and hold them harmless against Damages caused by a breach of any
representation or warranty of Czajkowski, Donnelly or the Buyer covered by
Section 6.03(b)(i) hereof unless the aggregate amount of such Damages to HMS or
the Seller shall exceed $50,000; it being understood and agreed by the parties
hereto that any claim or claims for indemnification that alone or in the
aggregate exceed the $50,000 threshold amount referred to above may be brought
by any party, but only the amount of such claims in excess of such threshold
amount shall be owed under Article VI hereof, the threshold amount being
intended to be deducted from the aggregate amount of claims for indemnification
hereunder.
Section 6.05. Conditions of Indemnification. The respective obligations
and liabilities of HMS and the Seller and Czajkowski, Donnelly and the Buyer
(the "indemnifying party") to the Buyer Indemnified Parties and the Seller
Indemnified Parties, respectively (the "party to be indemnified"), under Section
6.03 hereof with respect to claims resulting from the assertion of liability by
third parties shall be subject to the following terms and conditions:
(a) within 20 days after receipt of notice of commencement of
any action or the assertion in writing of any claim by a third party, the party
to be indemnified shall give the indemnifying party written notice thereof
together with a copy of such claim, process or other legal pleading, or, if
applicable, a summary of such assertion, and the indemnifying party shall have
the right to undertake the defense thereof by representatives of its own
choosing;
(b) in the event that the indemnifying party, by the 30th day
after receipt of notice of any such claim (or, if earlier, by the tenth day
preceding the day on which an answer or other pleading must be served in order
to prevent judgment by default in favor of the person asserting such claim),
does not elect to defend against such claim, the party to be indemnified will
(upon further notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on
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behalf of and for the account and risk of the indemnifying party, subject to the
right of the indemnifying party to assume the defense of such claim at any time
prior to settlement, compromise or final determination thereof. In any event,
the indemnifying party shall be given at least 15 days prior written notice to
the effectiveness of any such proposed settlement or compromise;
(c) anything in this Section 6.05 to the contrary
notwithstanding (i) if there is a reasonable probability that a claim may
materially and adversely affect the indemnifying party other than as a result of
money damages or other money payments, the indemnifying party shall have the
right, at its own cost and expense, to compromise or settle such claim, but (ii)
the indemnifying party shall not, without the prior written consent of the party
to be indemnified, settle or compromise any claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the party to be indemnified a release from all
liability in respect of such claim; and
(d) in connection with any such indemnification, the
indemnified party will cooperate in all reasonable requests of the indemnifying
party.
Section 6.06. Certain Information. The Buyer and the Seller agree to
furnish or cause to be furnished to each other (at reasonable times and at the
expense of the party requesting such information) upon request as promptly as
practicable such information (including access to books and records) and
assistance as is reasonably necessary for the preparation, review and audit of
financial statements, the preparation, review, audit and filing of any Tax
return, the preparation for any audit or the prosecution or defense of any
claim, suit or proceeding relating to any proposed adjustment. Information
needed by the Buyer or the Seller to calculate any relevant Tax matter or
liability that does not appear on returns to which it has access may be provided
by a letter from a firm of independent certified public accountants.
Section 6.07. Remedies Cumulative. The remedies provided herein shall
be cumulative and shall not preclude assertion by any party hereto of any rights
to injunctive relief or the seeking of any other equitable remedies against any
other party hereto, provided, however, that the remedies for monetary damages
provided herein shall be exclusive and shall preclude assertion by any party
hereto of any other rights for monetary damages.
VII. OTHER TRANSACTIONS SUBSEQUENT TO CLOSING
Section 7.01. Further Assurances. At any time and from time to time on
and after the Closing Date:
(i) HMS and the Seller, as appropriate, shall, at the request
of the Buyer and at the Seller's expense, deliver or cause to be
delivered to the Buyer any records, documents and data possessed by the
Seller and not previously delivered to the Buyer to which the Buyer is
entitled pursuant to Section 1.01(a) hereof;
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(ii) HMS and the Seller, as appropriate, shall, at the request
of the Buyer, execute and deliver or cause to be executed and delivered
all such deeds, assignments, consents, documents and further
instruments of transfer and conveyance, and take or cause to be taken
all such other actions, as the Buyer may reasonably deem necessary or
desirable in order to fully and effectively vest in the Buyer, or to
confirm the Buyer's title to and possession of, the Assets or to assist
the Buyer in exercising rights with respect thereto which the Buyer is
entitled to exercise pursuant to the terms of this Agreement;
(iii) HMS and the Seller shall cooperate, and cause their
accountants to cooperate, with the Buyer in the preparation of any
post-closing balance sheets or other financial statements to be
prepared in connection with the transactions contemplated by this
Agreement; and
(iv) the Buyer shall, at the Seller's expense, execute and
deliver or cause to be executed and delivered such further instruments
and take or cause to be taken such further actions as the Seller may
reasonably deem necessary or desirable to carry out the terms and
provisions of this Agreement.
Section 7.02. Inspection and Preservation of Records, Etc. (a) On and
after the Closing Date, the Buyer shall permit the Seller or its representatives
and agents at reasonable times during business hours to inspect all the files,
books, records and accounts held by the Buyer, as well as access to, and the
cooperation of, any employee having knowledge of the information therein
contained, if such inspection, access and cooperation are reasonably necessary
for the defense by the Seller of any litigation relating to the Business prior
to the Closing Date.
(b) The Buyer shall not dispose of any business records for as
long as the applicable Tax statute of limitations remains open, provided that,
after such time, the Buyer shall give the Seller written notice of its intention
to dispose of any part thereof, specifying the items to be disposed of in
reasonable detail, and Buyer shall not dispose of any such items for at least 70
days following receipt of such notice by the Seller. The Seller may, within a
period of 60 days from receipt of any such notice, notify the Buyer of its
desire to retain one or more of the items to be disposed of. The Buyer shall,
upon receipt of such a notice from the Seller, deliver to the Seller, at the
Seller's expense, the items specified therein. Anything in this Section 7.02 to
the contrary notwithstanding, except as may be required by applicable law or the
express provisions of this Agreement (subject to provisions reasonably requested
by the Buyer to prevent nondisclosure), the Buyer shall not be required to
deliver to the Seller any proprietary information unless the Buyer has received
reasonable assurances from the Seller that the Seller will maintain the
confidential and proprietary nature of any such information.
Section 7.03. Certain Tax Matters. (a) All transfer, documentary,
sales, use, recording, filing, stamp and other similar transaction Taxes or fees
("Transaction Taxes") imposed upon or incurred by either of the parties hereto
in connection with this Agreement and the transactions contemplated hereby shall
be borne solely by the Buyer.
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HMS, the Seller and the Buyer agree to cooperate in any endeavor to effect a
reduction in any such Transaction Taxes.
(b) The Buyer shall be responsible for and shall pay any and
all Taxes with respect to the Assets and the Business relating to all periods
(i) commencing prior to and ending on or after the Effective Date, and (ii)
commencing after the Effective Date; it being understood and agreed that,
notwithstanding the foregoing, in the case of any and all Taxes with respect to
the Assets and the operations of the Seller, Buyer shall be responsible for and
shall pay only the portion of any and all such Taxes relating to any Tax period
(or portion thereof) commencing at or after the Effective Date. The portion of
such Taxes relating to any Tax period (or portion thereof) shall be determined
based upon a closing of the books with respect to the Assets and the operations
of the Seller at the Effective Date.
(c) For all federal, state, local and foreign income and
franchise Tax purposes, the Buyer and the Seller agree to allocate the
consideration described in Sections 2.02, 2.04 and 2.05 hereof among the Assets
in the manner specified in Schedule 7-A hereto. After the Closing Date, the
Seller and the Buyer shall act in accordance with such allocation statements and
other similar forms in the filing of all Tax returns (including, without
limitation, filing Form 8594 Asset Acquisition Statement of Allocation in the
form attached as Schedule 7-B hereto with its Federal income tax return for the
taxable year that includes the Closing Date) and in the course of any Tax audit,
Tax review or Tax litigation relating hereto. If any federal, state, local or
foreign taxing authority challenges such allocation, the party receiving notice
of such challenge shall give the other prompt written notice of such challenge,
and the parties shall cooperate in good faith in responding to it in order to
preserve the effectiveness of the allocation.
Section 7.04. Use of Names. The Buyer shall have the royalty-free right
to use any materials used by the Seller that bear the name "Health Management
Systems, Inc" or any derivatives thereof if such materials (i) were included in
the Assets or (ii) were contracted for by the Seller prior to the Closing Date;
provided, however, that such right shall expire three months after the Closing
Date, and further provided that the Buyer's use of such materials is not
misleading to third parties such that they believe that the Seller continues to
be responsible for the Business after the Closing Date.
VIII. TERMINATION
Section 8.01. Termination. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by the Buyer, if the conditions set forth in Section 5.01
shall not have been complied with or performed in any material respect and such
noncompliance or nonperformance shall not have been waived, cured or eliminated
(or by its nature cannot be cured or eliminated) by the Seller on or before
August 31, 2001; or
(b) by the Seller, if the conditions set forth in Section 5.02
shall not have been complied with or performed in any material respect and such
noncompliance
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or nonperformance shall not have been waived, cured or eliminated (or by its
nature cannot be cured or eliminated) by the Buyer on or before August 31, 2001;
or
(c) by the Buyer or the Seller, in the event the Closing Date
has not occurred on or prior to the close of business on August 31, 2001 or such
later date as the parties hereto may agree in writing (unless such event has
been caused by the breach of this Agreement by the party seeking such
termination).
Section 8.02. Effect of Termination. In the event of the termination of
this Agreement, whether pursuant to Section 8.01 hereof or otherwise, this
Agreement shall thereafter become void and have no effect, and neither party
hereto shall have any liability to any other party hereto or its stockholders or
directors or officers in respect thereof, except as provided in Sections 9.02
and 9.03 hereof or pursuant to Paragraph 7 of the Confidentiality Agreement,
except that nothing herein shall relieve any party from liability for any
willful breach hereof.
IX. MISCELLANEOUS
Section 9.01. Bulk Transfer Laws. Subject to the provisions of Section
6.03 hereof, the Buyer hereby waives compliance by the Seller with any
applicable bulk transfer laws, including, without limitation, the bulk transfer
provisions of the Uniform Commercial Code of any state, or any similar statute,
and all bulk sales tax provisions in all states, with respect to the
transactions contemplated hereby, and the Seller hereby agrees to indemnify the
Buyer and to hold the Buyer harmless from and against any Damages asserted by
any creditor of the Seller against the Buyer for non-compliance by the Seller or
the Buyer with bulk transfer laws and bulk sales tax provisions that may be
applicable to the sale or transfer of the Assets hereunder, except to the extent
Buyer would be otherwise liable for such amounts pursuant to the terms of this
Agreement.
Section 9.02. Expenses, Etc. Whether or not the transactions
contemplated by this Agreement are consummated, HMS and the Seller, on the one
hand, and Czajkowski, Donnelly and the Buyer, on the other hand, shall not have
any obligation to pay any of the fees and expenses of the other party incident
to the negotiation, preparation and execution of this Agreement, including the
fees and expenses of counsel, accountants, investment bankers and other experts.
HMS and the Seller, on the one hand, and Czajkowski, Donnelly and the Buyer, on
the other hand, will indemnify the other and hold the other harmless from and
against any claims for finder's fees or brokerage commissions in relation to or
in connection with such transactions as a result of any agreement or
understanding between such indemnifying party and any third party.
Section 9.03. Publicity. Neither Czajkowski, Donnelly or the Buyer
shall publish any public announcement, statement or interview (in each case
whether oral or written) regarding the transactions contemplated hereby, unless
HMS agrees to such announcement in advance in writing. Nothing contained herein
shall prevent the Buyer from at any time furnishing any information to any
government authority or from
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disclosing any information required by law, provided that the disclosing party
provides prior written notice to HMS of its intention to disclose such
information.
Section 9.04. Execution in Counterparts. This Agreement may be executed
in one or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
Section 9.05. Notices. All notices that are required or may be given
pursuant to the terms of this Agreement shall be in writing and shall be
sufficient in all respects if delivered by hand or by national overnight courier
service or mailed by registered or certified mail (postage prepaid), or by
facsimile confirmed by registered or certified mail (postage prepaid), addressed
as follows:
If to HMS or the Seller, to:
Health Management Systems, Inc..
401 Park Avenue South
New York, NY 10016
Attention: Mr. William Miller
Facsimile: (212) 857-5973
with a copy to:
Reboul, MacMurray, Hewitt, Maynard & Kristol
45 Rockefeller Plaza
New York, NY 10111
Attention: Robert A. Schwed, Esq.
Facsimile: (212) 841-5725
If to Czajkowski, Donnelly or the Buyer, to:
c/o CDR Associates, L.L.C.
9690 Deereco Road, Suite 300
Timonium, Maryland 21093
Attention: Jeffrey R. Donnelly
Facsimile: (410) 561-7070
with a copy of all notices to Czajkowski or Donnelly to:
Ballard Spahr Andrews & Ingersoll, LLP
300 East Lombard Street
Baltimore, MD 21202
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Attention: Susan L. Spence, Esq.
Facsimile: (410) 528-5650
and a copy of all notices to the Buyer to:
Davis & Campbell, L.L.C.
401 Main Street
Suite 1600
Peoria, Illinois 61602-1241
Attention: Robert J. Coletta, Esq.
Facsimile: (309) 673-1690
or such other address or addresses as the Seller, on the one hand, or Buyer, on
the other hand, shall have designated by notice to the other in writing.
Section 9.06. Amendments, Supplements, Etc. At any time this Agreement
may be amended or supplemented by such additional agreements, articles or
certificates as may be determined by the parties hereto to be necessary,
desirable or expedient to further the purposes of this Agreement, or to clarify
the intention of the parties hereto, or to add to or modify the covenants, terms
or conditions hereof or to effect or facilitate any governmental approval or
acceptance of this Agreement or to effect or facilitate the filing or recording
of this Agreement or the consummation of any of the transactions contemplated
hereby. Any such instrument must be in writing and signed by HMS, the Seller,
Czajkowski, Donnelly and the Buyer.
Section 9.07. Entire Agreement. This Agreement, its Exhibits and
Schedules including, without limitation, the Ancillary Agreements and the
documents executed on the Closing Date in connection herewith, constitute the
entire agreement among the parties hereto with respect to the subject matter
hereof and supersede all prior agreements and understandings, oral and written,
between the parties hereto with respect to the subject matter hereof. No
representation, warranty, promise, inducement or statement of intention has been
made by any party which is not embodied in this Agreement or such other
documents, and neither HMS and the Seller, on the one hand, nor Czajkowski,
Donnelly and the Buyer, on the other hand, shall be bound by, or be liable for,
any alleged representation, warranty, promise, inducement or statement of
intention not embodied herein or therein.
Section 9.08. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
Section 9.09. Binding Effect Benefits. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, nothing in this Agreement, expressed or implied, is intended to
confer on any person other than the
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parties hereto or their respective successors and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
Section 9.10. Assignability. Neither Czajkowski, Donnelly nor the Buyer
shall assign this Agreement nor any of their rights hereunder without the prior
written consent of HMS. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, and no other person shall have any right,
benefit or obligation under this Agreement as a third party beneficiary or
otherwise.
Section 9.11. Limited Purpose. HMS, the Seller and the Buyer
acknowledge and agree that Donnelly and Czajkowski are executing this Agreement
solely for the purpose of giving the representations and warranties contained in
Section 3.03 hereof, making the covenants and agreements set forth in Sections
4.02, 4.03(c) and 4.03(e) hereof, providing the limited indemnity set forth in
Section 6.03(c) hereof, as limited by Section 6.04 hereof, and for no other
purpose. Except as set forth in Sections 3.03 and 6.03(c), as limited by Section
6.04 hereof, neither Donnelly nor Czajkowski have any liability hereunder.
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IN WITNESS WHEREOF, this Asset Purchase Agreement has been
duly executed and delivered by the duly authorized officers of HMS, the Seller
and the Buyer and, for the limited purpose set forth in Section 9.11 hereof, by
Donnelly and Czajkowski, as of the date first above written.
HEALTH MANAGEMENT SYSTEMS, INC. ("HMS")
By /s/ Robert M. Holster
Name: Robert M. Holster
Title: President
CDR ASSOCIATES, INC. (the "Seller")
By /s/ Robert M. Holster
Name: Robert M. Holster
Title: President
CDR ASSOCIATES, L.L.C. (the "Buyer")
By /s/ Jeffrey R. Donnelly
Name: Jeffrey R. Donnelly
Title: President
/s/ Joseph H. Czajkowski
Joseph H. Czajkowski
/s/ Jeffrey R. Donnelly
Jeffrey R. Donnelly