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AGREEMENT AND PLAN OF MERGER
Among
HEALTH MANAGEMENT SYSTEMS, INC.,
CDR ACQUISITION CORP.
And
CDR ASSOCIATES, INC.
AND ITS PRINCIPAL SHAREHOLDERS
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TABLE OF CONTENTS
Page
RECITALS .....................................................................1
ARTICLE 1.
DEFINITIONS..........................................................1
1.1 Certain Definitions................................1
1.2 Other Definitions..................................3
ARTICLE 2.
THE MERGER...........................................................3
2.1 Effective Time of the Merger.......................3
2.2 Effects of the Merger..............................3
2.3 Effect on Capital Stock............................4
2.4 Exchange of Certificates...........................5
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF CDR................................6
3.1 Organization and Standing..........................6
3.2 Capital Structure..................................7
3.3 Equity Investments.................................7
3.4 Authority..........................................7
3.5 Governmental Consents..............................8
3.6 Financial Statements...............................8
3.7 Accounting Matters.................................9
3.8 Absence of Changes.................................9
3.9 Properties........................................11
3.10 Taxes.............................................12
3.11 Compliance with Law...............................12
3.12 Litigation........................................12
3.13 Material Agreements...............................13
3.14 Proprietary Rights................................14
3.15 Insurance.........................................15
3.16 No Conflict.......................................15
3.17 No Default........................................16
3.18 Brokers or Finders................................16
3.19 Certain Advances..................................16
3.20 Related Parties...................................16
3.21 Information Supplied..............................17
3.22 Employee Benefit Plans............................17
3.23 Labor Relations; Employees........................19
3.24 Compensation......................................20
3.25 Customers and Suppliers...........................20
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3.26 Bank Accounts..................................20
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF HMS AND SUB....................20
4.1 Organization...................................20
4.2 Capital Structure..............................20
4.3 Authority......................................21
4.4 Governmental Consents..........................21
4.5 SEC Documents..................................22
4.6 Information Supplied...........................22
4.7 No Conflict....................................23
4.8 Shares of Common Stock.........................23
4.9 Accounting Matters.............................24
4.10 No Prior Activities............................24
ARTICLE 5.
COVENANTS RELATING TO CONDUCT OF BUSINESS........................24
5.1 Ordinary Course................................24
5.2 Dividends; Changes in Stock....................24
5.3 Issuance of Securities.........................25
5.4 Governing Documents............................25
5.5 No Acquisitions................................25
5.6 No Dispositions................................25
5.7 Indebtedness...................................25
5.8 Benefit Plans, Etc.............................26
5.9 Accounting Practices...........................26
5.10 No Solicitation; Competing Transactions........26
5.11 Other Agreements...............................26
ARTICLE 6.
REGISTRATION RIGHTS..............................................26
6.1 Certain Definitions............................26
6.2 HMS to Register Shares.........................27
6.3 Associated Obligations of HMS..................27
6.4 Expenses.......................................29
6.5 Indemnification................................30
ARTICLE 7.
ADDITIONAL AGREEMENTS............................................32
7.1 Access to Information..........................32
7.2 Legal Conditions to the Merger.................32
7.3 Affiliates.....................................33
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7.4 CDR Shareholders' Approval.......................34
7.5 Dissenting Shares................................34
7.6 Blue Sky Laws....................................34
7.7 Non-Competition Agreements.......................34
7.8 Employee Benefits................................34
7.9 Stock Options at Closing.........................34
7.10 Communications...................................35
7.11 Delivery of Stock Certificates...................35
7.12 Parachute Payments...............................35
7.13 Notification of Certain Matters..................35
7.14 Tax Treatment....................................36
7.15 Wallingford Fee..................................36
7.16 Confirmation as to Accounting Treatment..........36
7.17 Nasdaq Listing...................................36
7.18 Sub Sole Stockholder's Approval..................36
7.19 CDR Minimum Net Cash.............................37
ARTICLE 8.
CONDITIONS PRECEDENT...............................................37
8.1 Conditions to Each Party's Obligations to
Effect the Merger.......................37
8.2 Conditions to Obligations of HMS and Sub.........38
8.3 Conditions to Obligations of CDR.................39
ARTICLE 9.
INVESTMENT REPRESENTATIONS OF THE PRINCIPALS.......................40
ARTICLE 10.
CLOSING............................................................40
10.1 Closing Date.....................................40
10.2 Filing Date......................................41
ARTICLE 11.
NON-COMPETITION AND NON-SOLICITATION...............................41
11.1 Statement of Intent..............................41
11.2 Definitions......................................41
11.3 Non-Competition..................................42
11.4 Non-Solicitation.................................43
11.5 Confidential Information.........................43
11.6 Remedies.........................................44
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ARTICLE 12.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS............44
ARTICLE 13.
PAYMENT OF EXPENSES..............................................44
ARTICLE 14.
TERMINATION, AMENDMENT AND WAIVER................................45
14.1 Termination....................................45
14.2 Effect of Termination..........................46
14.3 Amendment......................................46
14.4 Extension; Waiver..............................46
ARTICLE 15.
INDEMNIFICATION..................................................47
15.1 Indemnity by Principals........................47
15.2 Conditions of Indemnification..................47
15.3 Limitations on Liability of Principals.........48
ARTICLE 16.
GENERAL..........................................................48
16.1 Notices........................................48
16.2 Headings.......................................49
16.3 Counterparts...................................49
16.4 Binding Nature.................................49
16.5 Other Agreements...............................49
16.6 Good Faith.....................................49
16.7 Applicable Law.................................49
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Exhibit A - Articles of Incorporation of Surviving Corporation
Exhibit B - By-laws of Surviving Corporation
Exhibit C - List of Directors and Officers of Surviving
Corporation
Exhibit D - Form of Non-Competition Agreement
Exhibit E - Form of Opinion of Miles & Stockbridge
Exhibit F - Form of Opinion of Coleman & Rhine LLP
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is made and entered into as of the 29th day of April,
1996, by and among HEALTH MANAGEMENT SYSTEMS, INC., a New York corporation
("HMS"), CDR ACQUISITION CORP., a Maryland corporation and wholly-owned
subsidiary of HMS ("Sub"), CDR Associates, Inc., a Maryland corporation ("CDR"),
and the principal shareholders of CDR, whose names appear on the signature page
hereof (the "Principals").
RECITALS
A. The parties wish to provide for the merger (the "Merger") of Sub into CDR,
whereby it is contemplated that all shares of capital stock, $1.00 par value, of
CDR issued and outstanding ("CDR Capital Stock"), other than Dissenting Shares,
if any, as defined, will be converted into an aggregate of 460,000 shares of
common stock, par value $.01 per share, of HMS ("HMS Common") in accordance with
the Exchange Ratio set forth in Section 2.3(b) of this Agreement.
B. The parties hereto desire to set forth certain representations, warranties
and covenants made by HMS and Sub to CDR, and by CDR to HMS and Sub, and the
conditions precedent to the consummation of the Merger.
C. The Boards of Directors of HMS, Sub and CDR, respectively, have approved and
adopted this Agreement and the Merger as a plan of reorganization under the
provisions of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code");
NOW, THEREFORE, in consideration of the premises and of the mutual
provisions, agreements and covenants herein contained, HMS, Sub, CDR and the
Principals hereby agree as follows:
ARTICLE 1.
DEFINITIONS
1.1 Certain Definitions. The terms defined in this Section 1.1
shall, for all purposes of this Agreement, have the meanings herein specified,
unless the context expressly or by necessary implication otherwise requires:
(a) "CDR Shareholders" shall mean all holders of CDR Capital
Stock immediately prior to the Effective Time of the Merger.
(b) "CDR Shareholders' Meeting" shall mean the meeting, and
any adjournments thereof, of the holders of CDR Capital Stock called and
convened for the purpose of their consideration of and voting upon the
transactions contemplated by this Agreement and the
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Merger (the parties hereto agreeing that approval of this Agreement and the
Merger may instead be obtained by means of written consents in accordance with
Section 2-505 of the Corporations and Associations Article of the Annotated Code
of Maryland ("Maryland General Corporation Law").
(c) "Dissenting Shares" shall mean shares of CDR Capital Stock
which shall be owned by shareholders who shall duly perfect and pursue the
rights of objecting stockholders with respect to such shares in accordance with
Section 3-203 of the Maryland General Corporation Law.
(d) "Dissenting Shareholders" shall mean those shareholders of
CDR who are holders of and are entitled to Dissenting Shares.
(e) "Form S-3" shall mean the registration statement of HMS on
Form S-3 to be filed with the SEC immediately following the Closing Date, as
defined in Section 10.1 of this Agreement.
(f) "Material Adverse Effect" on any entity (or group of
entities taken as a whole) shall mean an effect that is materially adverse to
the consolidated financial condition, assets, liabilities, business or results
of operations of such entity (or, if with respect thereto, of such group of
entities taken as a whole).
(g) "Material Agreements," as used in relation to CDR, shall
have the meaning ascribed to such term in Section 3.12.
(h) "SEC" shall mean the Securities and Exchange Commission.
(i) "Subsidiary" means a corporation whose voting securities
are owned directly or indirectly by a "parent" corporation in such amounts as
are sufficient to elect at least a majority of the Board of Directors of the
Subsidiary.
(j) "Taxes" shall mean all taxes, charges, fees, levies or
other assessments including, without limitation, income, gross receipts, excise,
property, sales, withholding, social security, occupation, use, service,
license, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof whether computed on a separate, consolidated,
unitary, combined or any other basis; and such term shall include any interest,
fines, penalties or additional amounts attributable or imposed with respect to
any taxes, charges, fees, levies or other assessments.
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(k) "To the knowledge of CDR" shall mean the collective
knowledge of the Principals. "Knowledge" when used in this context shall mean,
as to the facts or circumstances represented: (i) actual knowledge of any one of
the Principals; and (ii) knowledge that any one of the Principals should
reasonably be expected to possess after due inquiry.
(l) "To the knowledge of HMS" shall mean the collective
knowledge of Paul J. Kerz and Gregory K. Schraer (collectively, the "HMS
Officers"), the President and Chief Executive Officer and the Principal
Accounting Officer, respectively, of HMS. "Knowledge" when used in this context
shall mean, as to the facts or circumstances represented: (i) actual knowledge
of any one of the HMS Officers; and (ii) knowledge that any one of the HMS
Officers should reasonably be expected to possess after due inquiry.
1.2 Other Definitions. In addition to the terms defined in
Section 1.1, certain other terms are defined elsewhere in this Agreement;
whenever such terms are used in this Agreement they shall have their respective
defined meanings, unless the context expressly or by necessary implication
otherwise requires.
ARTICLE 2.
THE MERGER
2.1 Effective Time of the Merger. Subject to the provisions of
this Agreement, a Certificate of Merger, together with all other required
certificates, shall be filed in accordance with the requirements of Section
3-107 of the Maryland General Corporation Law as soon as practicable on or after
the Closing Date. The Merger shall become effective upon the filing of such
certificate with the Maryland Department of Assessments and Taxation (the
"Effective Time of the Merger").
2.2 Effects of the Merger. At the Effective Time of the
Merger:
(a) the separate existence of Sub shall cease and Sub shall be
merged with and into CDR as the surviving corporation (the "Surviving
Corporation");
(b) the Articles of Incorporation and By-laws of the Surviving
Corporation shall be in the form attached to this Agreement as Exhibit A and
Exhibit B, respectively; and
(c) the persons listed on Exhibit C shall be the directors and
officers of the Surviving Corporation, and such officers shall
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continue to act as such and hold such offices in the Surviving Corporation,
until their respective successors are duly elected and qualified.
2.3 Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any shares of the issued and outstanding shares of CDR Capital Stock:
(a) Cancellation of CDR Stock Owned by HMS or CDR. All shares
of CDR Capital Stock, if any, that are owned directly or indirectly by HMS, CDR
or any Subsidiary of HMS or CDR, shall be canceled, and no stock of HMS or other
consideration shall be delivered in exchange therefor.
(b) Conversion of CDR Capital Stock. Other than shares to be
canceled pursuant to Section 2.3(a), Dissenting Shares and fractional shares as
provided in Section , each share of CDR Capital Stock issued and outstanding
immediately prior to the Effective Time of the Merger shall be converted,
without any action on the part of the holders thereof, into 460 shares
(hereinafter, the "Exchange Ratio") of issued and outstanding HMS Common. An
aggregate of 460,000 shares of HMS Common will be issued in the Merger if all
1,000 shares of CDR Capital Stock outstanding prior to the Effective Time of the
Merger are converted into shares of HMS Common.
(c) Adjustments of Exchange Ratio. If, after the date of this
Agreement, (i) the outstanding shares of HMS Common shall have been changed into
a different number of shares or a different class by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment or (ii) HMS shall declare or pay any dividend or make any
distribution of cash or property (including but not limited to securities,
rights, etc.) in respect of its shares of capital stock, in either case with a
record date of such transaction or event, or other circumstances, such that the
persons who receive HMS Common issued in the Merger do not participate equally
and ratably in such change, split-up, exchange, dividend, distribution, etc.,
the Exchange Ratio shall be correspondingly adjusted so as to preserve, as
nearly as may be, the economic consequences of the Merger.
(d) Dissenters' Rights of CDR Shareholders. Any Dissenting
Shares shall not be converted into HMS Common but shall be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the Maryland General Corporation Law. CDR
shall give HMS prompt notice of any demand received by CDR for the right to
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receive payment of the fair market value for the CDR shares, and HMS shall have
the right to participate in all negotiations and proceedings with respect to
such demand. CDR agrees that, except with the prior written consent of HMS, or
as required under the Maryland General Corporation Law, CDR will not voluntarily
make any payment with respect to, or settle or offer to settle, any such demand
for appraisal. Each Dissenting Shareholder who, pursuant to Section 3-203 of the
Maryland General Corporation Law, becomes entitled to payment of the value of
shares of CDR Capital Stock shall receive payment therefor (but only after the
value therefor shall have been agreed upon or finally determined pursuant to
such provisions). In the event of the legal obligation, after the Effective Time
of the Merger, to deliver shares of HMS Common to any Dissenting Shareholder who
shall have failed to make an effective demand for appraisal or shall have lost
his status as a Dissenting Shareholder, HMS shall issue and deliver, upon
surrender by such Dissenting Shareholder of his certificate or certificates
representing shares of CDR Capital Stock, the shares of HMS Common to which such
Dissenting Shareholder is then entitled under this Section , and Section 3-206
of the Maryland General Corporation Law.
(e) Fractional Shares. No fractional shares of HMS Common
shall be issued, and the number of shares of such stock to which each holder of
shares of CDR Capital Stock shall be entitled by reason of the Merger shall be
rounded up or down to the nearest whole share.
(f) Conversion of Sub Capital Stock. Each share of Sub capital
stock issued and outstanding immediately prior to the Effective Time of the
Merger shall be converted, without any action on the part of the holder thereof,
into one share of issued and outstanding capital stock of the Surviving
Corporation.
2.4 Exchange of Certificates.
(a) Exchange Procedures. HMS shall use its best effort to
deliver at the Closing Date, but in any event no later than three (3) business
days thereafter, to each holder of record of a certificate or certificates
representing outstanding shares of CDR Capital Stock (the "Certificates"), a
Letter of Transmittal or similar instrument for use in effecting the surrender
of the Certificates in exchange for HMS Common pursuant to Section 2.3
hereunder. Upon surrender to HMS of a Certificate for cancellation after the
Effective Time of the Merger, the holder of such Certificate shall be entitled
to receive in exchange therefor the number of shares of HMS Common to which the
holder of CDR Capital Stock is entitled pursuant to Section of this Agreement
and is
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represented by the Certificate so surrendered. The Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of CDR
Capital Stock which is not registered in the transfer records of CDR, the
appropriate number of shares of HMS Common may be delivered to a transferee if
the Certificate representing the right to receive such HMS Common is presented
to HMS and accompanied by all documents required to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid. Until surrendered as contemplated by this Section 2.4, each Certificate
shall be deemed at any time after the Effective Time of the Merger to represent
the right to receive upon such surrender the number of shares of HMS Common as
provided by Section and the provisions of the Maryland General Corporation Law.
(b) No Further Ownership Rights in CDR Capital Stock. All HMS
Common delivered upon the surrender for exchange of shares of CDR Capital Stock
in accordance with the terms hereof shall be deemed to have been delivered in
full satisfaction of all rights pertaining to such shares of CDR Capital Stock.
There shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of CDR Capital Stock which were
outstanding immediately prior to the Effective Time of the Merger. If, after the
Effective Time of the Merger, Certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article 2.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF CDR
CDR represents and warrants to HMS and Sub as of the date
hereof and as of the Closing Date as follows:
3.1 Organization and Standing. CDR is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation, and has the full power and authority
(corporate and otherwise) to carry on its business in the places and as it is
now being conducted and to own and lease the properties and assets which it now
owns or leases. CDR is now, and will at Closing be, duly qualified and/or
licensed to transact business and in good standing as a foreign corporation in
all jurisdictions listed on Schedule 3.1 attached hereto, and the character of
the property owned or leased by CDR and the nature of the business conducted by
it do not require such qualification and/or licensing in any other jurisdiction
where the failure to do so would have a Material Adverse Effect on CDR.
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3.2 Capital Structure. The authorized capital stock of CDR
consists of 5,000 shares of CDR Capital Stock, of which 1,000 shares (consisting
of 500 shares of Class A common stock and 500 shares of Class B common stock)
are issued and outstanding. All of the issued and outstanding CDR Capital Stock
is owned of record and beneficially by the Principals as set forth on Schedule
3.2 attached hereto. All of the outstanding shares of CDR Capital Stock were
issued in compliance with applicable federal and state securities laws, and no
further registration, qualification or other compliance under such securities
laws is required. All of the outstanding shares of CDR Capital Stock are validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, CDR's Articles of Incorporation or By-laws or any agreement
to which CDR or any Principal is a party or is bound. Except for the foregoing,
there are no equity securities of any class of CDR or any security exchangeable
or convertible into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. There are no options, warrants, calls, rights,
commitments or agreements of any character to which CDR is a party or by which
it is bound obligating CDR to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock of CDR or obligating CDR
to grant, extend or enter into any such option, warrant, call, right, commitment
or agreement. Except as set forth in Schedule 3.2 attached hereto, there are no
voting trusts or other agreements or understandings with respect to the shares
of capital stock of CDR.
3.3 Equity Investments. Except as set forth on Schedule 3.3
attached hereto, CDR does not own directly or indirectly, any equity interest in
any corporation, partnership, joint venture, trust or other business entity.
3.4 Authority. CDR has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of this
Agreement by the shareholders of CDR, to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of CDR, subject to such approval by the shareholders
of CDR. This Agreement has been duly executed and delivered by CDR and, subject
to such approval by the shareholders of CDR, constitutes a valid and binding
obligation of CDR, enforceable against CDR in accordance with its terms, except
as such terms may be (i) limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
(including fraudulent transfer laws), and (ii) subject to general principles of
equity, including without limitation, concepts of materiality, reasonableness,
good faith and fair
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dealing (regardless of whether such enforceability is considered in a proceeding
in equity or at law). Subject to satisfaction of the conditions set forth in
Sections and , the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under (i) any
provision of the Articles of Incorporation or By-laws of CDR or (ii) any
Material Agreement or permit, license, judgment, order, statute, rule or
regulation applicable to CDR or its properties or assets, other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which individually or in the aggregate would not have a Material Adverse Effect
on CDR.
3.5 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), is required by or with respect to CDR
in connection with the execution and delivery of this Agreement by CDR or the
consummation by CDR of the transactions contemplated hereby, except for (i) the
filing of a Certificate of Merger with the Maryland Department of Assessments
and Taxation, and appropriate documents with the relevant authorities of other
states in which CDR is qualified to do business, (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as may be
required under applicable state securities laws and the laws of any foreign
country and (iii) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on CDR.
3.6 Financial Statements. CDR has furnished to HMS: (i) the
balance sheet of CDR as of October 31, 1995 (the "1995 Balance Sheet") and the
related statements of earnings, shareholders' equity and statements of cash
flows for the year then ended (together with the 1995 Balance Sheet, the "1995
Financial Statements"), certified by KPMG Peat Marwick LLP, (ii) the unaudited
balance sheets of CDR as of October 31, 1993 and 1994, and the related
statements of earnings for the years then ended, certified by the Chief
Financial Officer of CDR (together, the "Prior Financial Statements") and (iii)
the unaudited balance sheet of CDR as of January 31, 1996 (the "January Balance
Sheet"), and the related statement of earnings for the three months then ended,
certified by the Chief Financial Officer of CDR (together with the January
Balance Sheet, the "Interim Financial Statements"). The 1995 Financial
Statements (including any related schedules and/or
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notes, if any) and the Interim Financial Statements are complete and correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles, consistently applied ("GAAP") and, in the case
of the Interim Financial Statements, subject to normal year-end adjustments. The
1995 Balance Sheet fairly presents the financial position of CDR as of its date,
and the 1995 Financial Statements fairly present the consolidated results of
operations of CDR for the period then ended. Except as described in Schedule 3.6
hereto, the Prior Financial Statements and the Interim Financial Statements are
complete and correct in all material respects, fairly present the financial
position and earnings of CDR at the dates and for the periods presented, and
have been compiled in accordance with GAAP (except that the Interim Financial
Statements are subject to normal year-end adjustments which, both individually
and in the aggregate, will not differ materially and adversely from the Interim
Financial Statements). Except as described in Schedule 3.6 hereto, there has
been no material adverse change in the operations or condition (financial or
other) of CDR since January 31, 1996. Except as reflected in the 1995 Financial
Statements, the Prior Financial Statements or the Interim Financial Statements,
CDR had no obligations or liabilities, absolute, accrued or contingent, as of
October 31, 1995, October 31, 1993, October 31, 1994 and January 31, 1996,
respectively, that are material to the business or assets of CDR taken as a
whole other than performance obligations under contracts or agreements listed in
Schedule 3.13 attached hereto.
3.7 Accounting Matters. (i) Neither CDR nor any of its
affiliates has through the date of this Agreement taken or agreed to take any
action (without giving effect to any action taken or agreed to be taken by HMS
or Sub), and (ii) no facts or circumstances exist with regard to CDR or any of
its affiliates, which in each case could reasonably be expected to prevent HMS
from accounting for the business combination to be effected by the Merger as a
pooling of interests.
3.8 Absence of Changes. Since January 31, 1996, CDR has not,
except as disclosed on Schedule 3.8 attached hereto:
(a) suffered any changes in its condition (financial or
otherwise), net worth, assets, properties, obligations or liabilities which, in
the aggregate, have a Material Adverse Effect on CDR or become aware of any
event which may result in any such Material Adverse Effect;
(b) issued, or authorized for issuance, or entered into any
commitment to issue, any equity security, bond, note or other security of CDR;
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(c) incurred additional debt for borrowed money, except in the
ordinary and usual course of business;
(d) paid any obligation or liability, or discharged, settled
or satisfied any claim, lien or encumbrance, except for current liabilities in
the ordinary and usual course of business;
(e) declared, promised, or paid any dividend, payment or other
distribution on or with respect to any share of CDR Capital Stock, other than
quarterly distributions to its shareholders in a manner consistent with past
practices;
(f) purchased, redeemed or otherwise acquired or committed
itself to acquire, directly or indirectly, any share or shares of CDR Capital
Stock;
(g) mortgaged, pledged, or otherwise, voluntarily or
involuntarily encumbered any of its assets or properties, except for liens for
current taxes which are not yet due and payable and purchase-money liens arising
out of the purchase or sale of products or services made in the ordinary and
usual course of business consistent with past practices;
(h) transferred, assigned, licensed, conveyed or liquidated
any of its assets or entered into any transaction or incurred any liability or
obligation which affected its assets, other than transactions occurring in the
ordinary and usual course of business consistent with past practices;
(i) suffered any material destruction, damage or loss relating
to its assets whether or not covered by insurance;
(j) committed, suffered, permitted or incurred any default in
any liability or obligation which, in the aggregate, has had or will have any
adverse effect upon CDR;
(k) made any expenditure or commitment for the purchase,
acquisition, construction or improvement of a capital asset, except in the
ordinary and usual course of business consistent with past practices;
(l) sold, assigned, transferred or conveyed, or committed
itself to sell, assign, transfer or convey, any Proprietary Rights (as defined
in Section 3.14), except in the ordinary course of business consistent with past
practices (including non-exclusive licensing in connection with the sale of
equipment);
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(m) effected or agreed to effect any amendment or supplement
to any employee benefit plan or arrangement or paid, agreed to pay or incurred
any obligation for any payment for, any contribution or other amount to or with
respect to, any employee benefit plan, or paid any bonus to, or granted any
increase in the compensation of, its officers, agents or employees, or made any
increase in the pension, retirement or other benefits of its directors,
officers, agents or other employees;
(n) paid or committed itself to pay to or for the benefit of
any of its directors, officers, employees or shareholders any compensation of
any kind other than wages, salaries and benefits at times and rates in effect
prior to January 31, 1996, except for increases and bonuses to employees other
than the Principals in the ordinary course of business consistent with past
practices;
(o) effected or committed itself to effect any amendment or
modification in its Articles of Incorporation or By-laws, except as contemplated
in this Agreement, or to any change in the terms of any contract or instrument
to which it is a party which may have a Material Adverse Effect on CDR;
(p) waived, canceled, sold or otherwise disposed of, for less
than the face amount thereof, any claim or right which it has against others;
(q) committed, suffered, permitted or incurred any transaction
or event which would materially increase its tax liability for any prior taxable
year;
(r) incurred any other material liability or obligation or
entered into any transaction other than in the ordinary course of business
consistent with past practices; or
(s) received any notices, or has reason to believe, that any
supplier or customer of CDR has taken or contemplates any steps which could
disrupt the business relationship of CDR with said supplier or customer or could
result in the diminution in the value of CDR as a going concern.
3.9 Properties. CDR owns no fee interest in real property. The
1995 Financial Statements, the Prior Financial Statements and the Interim
Financial Statements reflect all of the personal property used by CDR in its
business or otherwise held by CDR, as of their respective dates, except for (i)
property acquired or disposed of in the ordinary and usual course of the
business of CDR since the date of the January Balance Sheet, and (ii) property
not required under generally accepted accounting principles to be
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reflected thereon. CDR has good and marketable title to all assets and
properties listed on the 1995 Balance Sheet, the Prior Financial Statements and
the January Balance Sheet and thereafter acquired, free and clear of any
imperfections of title, security interests, liens, pledges, claims, charges,
escrows, encumbrances, options, rights of first refusal, mortgages, indentures,
easements, licenses, security agreements or other agreements, arrangements,
contracts, commitments, understandings or obligations (collectively, the
"Encumbrances"), except (i) liens for current taxes not yet due and payable or
(ii) Encumbrances referred to in the January Balance Sheet or in Schedule 3.9
attached hereto (provided that the foregoing representation does not extend to
Proprietary Rights as to which Section 3.14 applies).
3.10 Taxes. CDR has duly filed with the appropriate United
States, state, local and foreign governmental agencies all tax returns and
reports required to be filed, and all such reports are true, correct and
complete in all material respects. CDR has paid all Taxes shown thereon as
owing. All Taxes due through the date of the Closing will have been fully paid
by that date or provided for by adequate reserves. The 1995 Financial
Statements, the Prior Financial Statements and the Interim Financial Statements
reflect all Taxes accrued through the period indicated thereon. Except as
described in Schedule 3.10 hereto, CDR is not a party to any pending action or
proceeding, nor to the knowledge of CDR is any such action or proceeding
threatened by any governmental authority for the assessment or collection of
Taxes, and no claim for assessment or collection of Taxes has been asserted
against CDR. For purposes of this Agreement, an action shall be deemed pending,
and a claim shall be deemed to have been asserted, only after service of summons
or other notice has been made upon CDR.
3.11 Compliance with Law. Except for possible minor
exceptions, the curing or non-curing of which would not have a Material Adverse
Effect on CDR, the business of CDR has been conducted in accordance with all
applicable laws, regulations, orders and other requirements of governmental
authorities.
3.12 Litigation. Except as otherwise set forth on Schedule
3.12 attached hereto, there is no claim, dispute, action, proceeding, suit or
appeal, or investigation, at law or in equity, pending against CDR or affecting
any of its assets or properties (including the Proprietary Rights), before any
court, agency, authority, arbitration panel or other tribunal and, to the
knowledge of CDR, none has been threatened against CDR. To the knowledge of CDR,
there are no facts which, if known to shareholders, customers, governmental
authorities or other persons, would be a basis for any such claim, dispute,
action, proceeding,
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suit or appeal or investigation which would have a Material Adverse Effect on
CDR. CDR is not subject to any order, writ, injunction or decree of any court,
agency, authority, arbitration panel or other tribunal. None of the items
described on Schedule 3.12, singly or in the aggregate, would have a Material
Adverse Effect on CDR or the right of CDR to consummate the transactions
contemplated hereby.
3.13 Material Agreements. Schedule 3.13 attached hereto
consists of a true and complete list of all Material Agreements relating to CDR,
and not listed on another schedule hereto, to which CDR is a party. Schedule
3.13 further identifies each of the Material Agreements which contain change of
control provisions. Prior to the execution of this Agreement, CDR has delivered
or made available to HMS a true and complete copy of each such Material
Agreement. Except as set forth on Schedule 3.13 attached hereto or any other
schedule to this Agreement, CDR is not a party or subject to any other Material
Agreements.
For purposes of this Agreement, "Material Agreements" means
the following written and oral agreements, contracts, or arrangements:
(a) each partnership, joint venture or similar agreement of
CDR with a third person;
(b) each contract or agreement under which CDR has created,
incurred, assumed or guaranteed (or may create, incur, assume or guarantee)
indebtedness of more than $25,000 in principal amount or under which CDR has
imposed (or may impose) a security interest or lien on any of its assets,
whether tangible or intangible, securing indebtedness in excess of $25,000;
(c) each contract or agreement which involves an aggregate
payment or commitment per contract or agreement on the part of CDR of more than
$25,000;
(d) each of the ten (10) contracts or agreements which (i)
accounted for the largest percentage of CDR's net revenues for the twelve (12)
months ended October 31, 1995, and (ii) is projected to account for the largest
percentage of CDR's net revenues for the twelve (12) months ended October 31,
1996;
(e) each contract or agreement relating to employment or
consulting, and each severance or indemnification agreement or arrangement with
any of the directors, officers, consultants or employees of CDR, without regard
to the value thereof;
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(f) all leases and subleases from any third person to CDR;
(g) each contract or agreement to which CDR or its affiliates
is a party limiting, in any material respect, the right of CDR prior to the
Effective Date of the Merger, or the Surviving Corporation or any of its
subsidiaries or affiliates at or after the Effective Time of the Merger (i) to
engage in, or to compete with any person in, any business, including each
contract or agreement containing exclusivity provisions restricting the
geographical area in which, or the method by which, any business may be
conducted by CDR or any of its affiliates prior to the Effective Time of the
Merger, or the Surviving Corporation or any of its subsidiaries or affiliates
after the Effective Date or (iii) to solicit any customer or client;
(h) fire, casualty, liability, title, worker's compensation
and all other insurance policies and binders maintained by CDR;
(i) all material licenses, licensing agreements and other
agreements pertaining to any Proprietary Rights;
(j) all distribution and development agreements; and
(k) all other contracts or agreements which are material to
CDR or the conduct of its business, other than those made in the ordinary and
usual course of business or those which are terminable by CDR upon no greater
than sixty (60) days prior notice and without penalty or other adverse
consequences.
Except for those matters which, individually or in the
aggregate, do not and will not have a Material Adverse Effect on CDR, no third
party has made or raised any claim, dispute or controversy with respect to any
of the Material Agreements nor has CDR received notice or warning of alleged
nonperformance, delay in delivery or other noncompliance by CDR with respect to
its obligations under any of the Material Agreements, nor to the knowledge of
CDR are there any facts which exist indicating that any of the Material
Agreements may be totally or partially terminated or suspended by the other
parties thereto.
3.14 Proprietary Rights. Schedule 3.14 constitutes a full and
complete list of all material computer software, software programs, patents and
applications for patents, trademarks, trade names, service marks, and registered
copyrights, and applications therefor, owned or used by CDR or in which it has
any material rights or licenses (including, as to each such license, the name of
the licensee and licensor, the termination date or notice requirement with
respect to termination, basis of royalties
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calculation and renewal options). CDR owns or possesses adequate licenses or
other rights to use all computer software, software programs, patents, patent
applications, trademarks, trademark applications, trade secrets, service marks,
trade names, copyrights, inventions, drawings, designs, customer lists,
proprietary know-how or information, or other rights with respect thereto
(collectively referred to as "Proprietary Rights"), used in the business of CDR,
and the same are sufficient to conduct CDR's business as it has been and is now
being conducted or as it may foreseeably be conducted in the future. All of such
licenses are in full force and effect and constitute legal, valid and binding
obligations of the respective parties thereto; there have not been and there
currently are not any material defaults thereunder by any party; and no event
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a material default
thereunder. The validity, continuation and effectiveness of all of such licenses
under the current material terms thereof will in no way be affected by the
transactions contemplated in this Agreement or, if any would be affected, CDR
and HMS shall use all necessary and reasonable means at their disposal to cause
an appropriate consent to such transaction to be delivered to HMS prior to the
Closing Date at no cost or other adverse consequences to HMS. The operations of
CDR do not conflict with or infringe, and no one has asserted to CDR that such
operations conflict with or infringe, any Proprietary Rights owned, possessed or
used by any third party.
3.15 Insurance. CDR maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses as are, in CDR's judgment, reasonable for the
business and assets of CDR. All such policies are in full force and effect, all
premiums due and payable thereon have been paid (other than retroactive or
retrospective premium adjustments that are not yet, but may be, required to be
paid with respect to any period ending prior to the Effective Time of the Merger
under comprehensive general liability and workmen compensation insurance
policies), and no notice of cancellation or termination has been received with
respect to any such policy which has not been replaced on substantially similar
terms prior to the date of such cancellation.
3.16 No Conflict. The execution and delivery of this Agreement
by CDR, and the performance of its obligations hereunder, (i) are not in
violation or breach of, and will not conflict with or constitute a default
under, any of the terms of the Articles of Incorporation or By-laws of CDR or
any Material Agreement; (ii) will not give rise to a right by any party to
terminate its obligations under any Material Agreement; (iii) will not result in
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the creation or imposition of any lien, encumbrance, equity or restriction in
favor of any third party upon any of the material assets or properties of CDR;
and (iv) will not conflict with or violate any applicable law, rule, regulation,
judgment, order or decree of any government, governmental instrumentality or
court having jurisdiction over CDR or any of its assets or properties. Schedule
3.16 attached hereto contains a full and complete list of all necessary
consents, waivers and approvals required from parties to Material Agreements or
from Governmental Entities in connection with the execution and delivery of this
Agreement by CDR and the performance of CDR's obligations hereunder.
3.17 No Default. CDR has in all material respects performed,
or is now performing, the obligations of, and it is not in default (nor would by
the lapse of time and/or the giving of notice be in default) in respect of, any
Material Agreements. Each of the Material Agreements is a legal, binding and
enforceable obligation by or against CDR, assuming in the case of any such
agreement, that it is a legal, binding and enforceable obligation of the other
party(ies) thereto, enforceable in accordance with its terms, except as such
terms may be (i) limited by applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting creditors' rights generally (including
fraudulent transfer laws), and (ii) subject to general principles of equity,
including without limitation, concepts of materiality, reasonableness, good
faith and fair dealing (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
3.18 Brokers or Finders. Except with respect to Wallingford
Capital Corporation ("Wallingford"), CDR and the Principals have not incurred,
and shall not incur, directly or indirectly, any liability for any brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby. CDR and the Principals
shall jointly and severally indemnify and hold HMS harmless from and against any
and all claims, liabilities or obligations with respect to any other brokerage
or finders fees, commissions or expenses asserted by any person.
3.19 Certain Advances. There are no receivables of CDR owing
by directors, officers, or shareholders of CDR or owing by any affiliate of any
director or officer of CDR, other than advances in the ordinary and usual course
of business to officers for reimbursable business expenses. A list of such
advances is set forth in Schedule 3.19 attached hereto.
3.20 Related Parties. Except as disclosed in Schedule 3.20
attached hereto, none of the Principals or any affiliate of any
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such person, has, either directly or indirectly: (i) an interest in any
corporation, partnership, firm or other person or entity which furnishes or
sells services or products which are similar to those furnished or sold by CDR;
or (ii) a beneficial interest in any contract or agreement to which CDR is party
or by which CDR is be bound. For purposes of this Section 3.20, there shall be
disregarded any interest which arose solely from the ownership of less than a
five (5) percent equity interest in a corporation whose stock is regularly
traded on any national securities exchange or in the over-the-counter market.
3.21 Information Supplied. None of the information provided or
to be provided by CDR and the Principals to HMS in writing in connection with
the transactions contemplated by this Agreement (other than the CDR projections
addressed in the next succeeding sentence) contains or will contain, at the time
such information was or is provided, any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. In the case of CDR projections
provided to HMS, such projections were prepared in good faith and, when
presented to HMS as well as on the date hereof, CDR had and continues to have a
reasonable basis for the future operating results presented therein. In
addition, any such information provided in writing by CDR and the Principals for
the specific purpose of inclusion in the Form S-3 will contain all material
statements which are required to be stated therein in accordance with the
Securities Act of 1933, as amended (the "Act") and the rules and regulations
thereunder (the "Regulations"), and will in all material respects conform to the
requirements of the Act and the Regulations. To the extent facts or
circumstances occur subsequent to the provision by CDR of any written
information to HMS which causes such information to become materially
misleading, CDR will update such information in order to make the statements
made, in light of the circumstances under which they were made, not misleading.
CDR's obligation to update hereunder shall commence as of the date of this
Agreement and shall continue thereafter until the later to occur of (i) the
Closing Date, (ii) the date on which the Form S-3 relating to the HMS Common to
be issued in connection with the Merger is filed with the SEC or (iii) the date
on which the Form S-3 is declared effective by the SEC.
3.22 Employee Benefit Plans.
(a) A complete list of each employee benefit plan, including,
without limitation, any "employee benefit plan" as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
(collectively, "ERISA Plans"), and any bonus, pension, profit sharing, deferred
compensation,
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incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, insurance or other plan, arrangement or understanding
maintained or contributed to by CDR or any of its subsidiaries, excluding
"multiemployer plans" within the meaning of Section 3(37) of ERISA (all of the
foregoing, collectively the "Benefit Plans") is set forth on Schedule 3.22.
Except as set forth on Schedule 3.22, CDR has made available to HMS, a true and
correct copy of (i) the documents comprising each such Benefit Plan; (ii) the
most recent annual report (Form 5500) filed by CDR or any of its subsidiaries
with the Internal Revenue Service ("IRS") for each such Benefit Plan for which
such report is required; (iii) each trust agreement or insurance contract, if
any, to which CDR or any of its subsidiaries is a party relating to such Benefit
Plan; and (iv) the current summary plan description for each ERISA Plan.
(b) With respect to the CDR Benefit Plans, individually and in
the aggregate, no event has occurred, and to the knowledge of CDR there exists
no condition or set of circumstances in connection with which CDR could be
subject to any liability that could reasonably be expected to have a Material
Adverse Effect on CDR (except liability for benefits, claims and funding
obligations payable in the ordinary course), under ERISA, the Code or any other
applicable law.
(c) With respect to the CDR Benefit Plans, individually and in
the aggregate, there are no benefit obligations for which contributions have not
been made or properly accrued, or which have not been accounted for by reserve,
or otherwise properly footnoted in accordance with generally accepted accounting
principles, on the Financial Statements, which obligations could reasonably be
expected to have a Material Adverse Effect on CDR. CDR does not maintain a
"welfare benefit fund", as defined in Code Section 419(e).
(d) The sole CDR Benefit Plan that is an employee pension
benefit plan within the meaning of Section 3(2) of ERISA is the CDR Associates,
Inc. Target Benefits Pension Plan (the "CDR Plan"). Except as set forth on
Schedule 3.22, (i) the CDR Plan complies in all material respects with the
applicable requirements of ERISA and the Code; (ii) the CDR Plan was established
by the adoption of an approved prototype standardized plan sponsored by SRC &
Associates, Inc., and the opinion letter issued by the IRS with respect to such
prototype plan applies to the CDR Plan; and (iii) nothing has occurred to the
knowledge of CDR that may cause the CDR Plan to cease to be qualified.
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(e) With respect to any CDR Benefit Plan that provides for
major medical coverage for retirees, such coverage for retirees may be amended
in any manner or eliminated entirely without liability to CDR, any of its
affiliates or HMS.
(f) With respect to any multiemployer plan within the meaning
of Section 3(37) of ERISA to which CDR contributes (or has at any time
contributed or had an obligation to contribute): (i) CDR has or will have, as of
the Effective Time of the Merger, made all contributions to each such
multiemployer plan required by the terms of such multiemployer plan or any
collective bargaining agreement; (ii) neither CDR nor HMS would be subject to
any withdrawal liability under Part 1 of Subtitle E of Title IV of ERISA that
could reasonably be expected to have a Material Adverse Effect on CDR, if, as of
the Effective Time of the Merger, CDR were to engage in a complete withdrawal
(as defined in ERISA Section 4203) or partial withdrawal (as defined in ERISA
Section 4205) from any such multiemployer plan; and (iii) CDR has delivered (or
will prior to the Effective Time of the Merger deliver) to HMS current, accurate
and complete copies of all such multiemployer plans to which CDR contributes and
all collective bargaining agreements requiring contributions to be made to any
such multiemployer plan or plans.
3.23 Labor Relations; Employees. CDR has generally enjoyed a
good employer-employee relationship with its employees and except as listed on
Schedule 3.23 attached hereto, no past or current CDR employee has made a claim
before any government agency or in any court against CDR or any of the
Principals or threatened to make such a claim. CDR will pay in full to the
extent possible or, if not, accrue by adequate reserves, all wages, salaries,
bonuses, sick pay, vacation pay and other direct and indirect compensation
earned by all employees of CDR through the Closing Date (whether or not payable
by such date). Upon termination of the employment of any CDR employee by HMS,
HMS will not incur any liability for any severance or termination pay or other
similar payment except as expressly provided in agreements with labor unions
listed on Schedule 3.23 or employment agreements listed on Schedule 3.25. CDR is
in compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. Except as listed on Schedule 3.23, there is no
unfair labor practice complaint against CDR pending before the National Labor
Relations Board or strike, dispute, slowdown or stoppage pending or, to the
knowledge of CDR, threatened against or involving CDR, and none has occurred
since December 31, 1995. No representation question exists respecting the
employees of CDR and no collective bargaining agreement is currently being
negotiated by CDR. Except
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as listed on Schedule 3.23, no grievance procedure or arbitration proceeding is
pending under any collective bargaining agreements.
3.24 Compensation. Schedule 3.24 contains a list of all
officers, employees (both full time and part time) and consultants of CDR during
calendar year 1995 and the first quarter of calendar year 1996, together with
their current job title (if currently employed) and aggregate remuneration rate
(salary, bonus and commission) for each such person for each respective period.
3.25 Customers and Suppliers. Schedule 3.25 is a true and
complete list of CDR's 10 largest customers and suppliers (measured by dollar
volume in each case) during calendar years 1994 and 1995 and the first quarter
of calendar year 1996 showing, with respect to each, the name and address,
dollar volume involved and nature of the relationship (including the principal
categories of products or services bought and sold).
3.26 Bank Accounts. Schedule 3.26 is a list of all bank and
investment accounts and safe deposit boxes in the name of or controlled by CDR
and a listing of the persons having signature authority or access thereto.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF HMS AND SUB
HMS represents and warrants to CDR as of the date hereof and as of the
Closing Date as follows:
4.1 Organization. Each of HMS and Sub is a corporation duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has the full power and authority
(corporate or otherwise) to carry on its business in the places and as it is now
being conducted and to own and lease the properties which it now owns and
leases.
4.2 Capital Structure. The authorized capital stock of HMS
consists of 45,000,000 shares of HMS Common, of which 16,490,825 shares were
issued and outstanding as of March 31, 1996, and 5,000,000 shares of preferred
stock, $.01 par value, of which no shares were issued and outstanding. All of
the outstanding shares of HMS Common were issued in compliance with applicable
federal and state securities laws, and no further registration, qualification or
other compliance under such securities laws is required. All of the outstanding
shares of HMS Common are validly issued, fully paid and nonassessable and not
subject to preemptive rights created by statute, HMS's Certificate of
Incorporation or By-laws or any
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agreement to which HMS is a party or is bound. The authorized capital stock of
Sub consists of 200 shares of Common Stock, $.01 par value ("Sub Common"). Upon
the execution of this Agreement, 200 shares of Sub Common were validly issued
and outstanding and were and, as of the Effective Time of the Merger will be,
held by HMS of record and beneficially. An additional 2,234,444 shares of HMS
Common (the "Option Shares") are reserved for issuance upon the exercise of
options outstanding under HMS's Stock Option and Restricted Stock Purchase Plan
and HMS's Non-Employee Director Stock Option Plan as of March 31, 1996. The
Option Shares, when issued and paid for, will constitute validly issued, fully
paid and nonassessable shares of HMS Common.
4.3 Authority. HMS and Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of HMS and Sub. This Agreement has been duly executed
and delivered by HMS and Sub and constitutes valid and binding obligations of
HMS and Sub, enforceable against them in accordance with its terms , except as
such terms may be (i) limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights generally
(including fraudulent transfer laws), and (ii) subject to general principles of
equity, including without limitation, concepts of materiality, reasonableness,
good faith and fair dealing (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Subject to satisfaction of the
conditions set forth in Sections 8.1 and 8.2, the execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under (i) any provision of the Certificate of Incorporation or
Bylaws of HMS, (ii) any provision of the Articles of Incorporation or By-laws of
Sub, or (iii) any material agreement, permit, license, judgment, order, statute,
rule or regulation applicable to HMS, Sub or any Subsidiary of HMS or their
respective properties or assets, other than any such conflicts, violations,
defaults, terminations, cancellations or accelerations which individually or in
the aggregate would not have a Material Adverse Effect on HMS, Sub and HMS's
Subsidiaries.
4.4 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to HMS or Sub in
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connection with the execution and delivery of this Agreement by HMS and Sub or
the consummation by HMS and Sub of the transactions contemplated hereby, except
for (i) the filing of a Certificate of Merger with the Maryland Department of
Assessments and Taxation and appropriate documents with the relevant authorities
of other states in which HMS or Sub is qualified to do business, (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the laws
of any foreign country, (iii) the filing of such reports under Section 13 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be
required in connection with this Agreement and the transactions contemplated
hereby, and (iv) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a Material Adverse
Effect on HMS, Sub and Subsidiaries.
4.5 SEC Documents. HMS has furnished, or made available to
counsel for CDR, a true and complete copy of each report, registration statement
and definitive proxy statement filed by HMS with the SEC since December 17, 1992
(the "HMS SEC Documents"), which are all the documents (other than preliminary
material) that HMS was required to file with the SEC since December 17, 1992. As
of their respective filing dates, the HMS SEC Documents (excluding (i) any
information (including financial information) contained or incorporated by
reference into any HMS SEC Document with respect CDR and (ii) any pro forma
financial information included in any HMS SEC Document, as to which no
representations are made by HMS), complied in all material respects with the
requirements of the Exchange Act or the Act, and none of the HMS SEC Documents
(excluding (i) any information (including financial information) contained or
incorporated by reference into any HMS SEC Document with respect CDR and (ii)
any pro forma financial information or projections included in any HMS SEC
Document, as to which no representations are made by HMS) contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, except to
the extent corrected by a subsequently filed HMS SEC Document. In addition, HMS
has furnished CDR copies of its Stock Option and Restricted Stock Purchase Plan
and its Employee Stock Purchase Plan, as such Plans are in effect as of the date
of this Agreement.
4.6 Information Supplied. None of the information provided or
to be provided by HMS to CDR in writing in connection with the transactions
contemplated by this Agreement contains or will contain any untrue statement of
a material fact or omits or will omit to state any material fact required to be
stated therein or
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necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. In addition, any such information
provided in writing for the specific purpose of inclusion in the Form S-3 will
contain all material statements which are required to be stated therein in
accordance with the Act and the Regulations, and will in all material respects
conform to the requirements of the Act and the Regulations (excluding (i) any
information (including financial information) contained or incorporated by
reference into the Form S-3 with respect CDR and (ii) any pro forma financial
information included in the Form S-3, as to which no representations are made by
HMS). To the extent facts or circumstances occur subsequent to the provision by
HMS of any written information to CDR which causes such information to become
materially misleading, HMS will update such information in order to make the
statements made, in light of the circumstances under which they were made, not
misleading. HMS's obligation to update hereunder shall commence as of the date
of this Agreement and shall continue thereafter until the later to occur of (i)
the Closing Date, (ii) the date on which the Form S-3 relating to the HMS Common
to be issued in connection with the Merger is filed with the SEC or (iii) the
date on which the Form S- 3 is declared effective by the SEC.
4.7 No Conflict. The execution and delivery of this Agree-
ment and the Merger Agreement by HMS, and the performance of its obligations
hereunder or thereunder, (i) are not in violation or breach of, and will not
conflict with or constitute a default under, any of the terms of the Certificate
of Incorporation or Bylaws of HMS or any of its Subsidiaries, or any material
contract, agreement or commitment binding upon HMS or any of its Subsidiaries or
any of their assets or properties; (ii) will not give rise to a right by any
party to terminate its obligations under any HMS material agreement; (iii) will
not result in the creation or imposition of any lien, encumbrance, equity or
restriction in favor of any third party upon any of the material assets or
properties of HMS or any of its Subsidiaries; and (iv) will not conflict with or
violate any applicable law, rule, regulation, judgment, order or decree of any
government, governmental instrumentality or court having jurisdiction over HMS
or any of its Subsidiaries or any of their assets or properties.
4.8 Shares of Common Stock. The shares of HMS Common will,
when issued and delivered to the shareholders of CDR in accordance with this
Agreement, be duly authorized, validly issued, fully paid and nonassessable,
free from all liens and encumbrances and not subject to pre-emptive rights or
restrictions on transfer, except as provided in this Agreement and under the
federal and state securities laws.
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4.9 Accounting Matters. (i) Neither HMS nor any of its
Subsidiaries has through the date of this Agreement taken or agreed to take any
action (without giving effect to any action taken or agreed to be taken by CDR),
and (ii) no facts or circumstances exist with regard to HMS or any of its
Subsidiaries, which in each case could reasonably be expected to prevent HMS
from accounting for the business combination to be effected by the Merger as a
pooling of interests.
4.10 No Prior Activities. Sub has not incurred any liabilities
or obligations, except those incurred in connection with its incorporation or
with the negotiation and consummation of this Agreement and the transactions
contemplated hereby. Sub has not engaged in any business or activities of any
type or kind whatsoever, or entered into any agreements or arrangements with any
person or entity, and is not subject to or bound by any obligation or
undertaking which are not contemplated by this Agreement or incurred in
connection with its incorporation.
ARTICLE 5.
COVENANTS RELATING TO CONDUCT OF BUSINESS
During the period from the date of this Agreement and continu-
ing until the Effective Time of the Merger, CDR agrees (except as expressly
contemplated by this Agreement or to the extent that HMS shall otherwise consent
in writing) that:
5.1 Ordinary Course. CDR will use all reasonable efforts,
consistent with its past practice and policy to: (i) carry on its business in
the usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent with such business; (ii) to
preserve intact its present business organization; (iii) keep available the
services of its present officers and key employees and preserve its relationship
with customers, suppliers and others having business dealings with it; and (iv)
maintain continuously insurance coverage substantially equivalent to the
insurance coverage in existence on the date of this Agreement. In addition, CDR
will not engage in any transaction not in the ordinary course consistent with
its past practices, nor will CDR enter into any new Material Agreement or amend
any existing Material Agreement (other than minor modifications) without the
prior written consent of HMS.
5.2 Dividends; Changes in Stock. CDR shall not: (i) declare,
pay or promise to pay any dividends on or make other distributions in respect of
any of its capital stock, (ii) split, combine or reclassify any of its capital
stock or issue or
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authorize the issuance of any other securities in respect of, in lieu of or in
substitution for shares of capital stock of CDR or (iii) repurchase or otherwise
acquire any shares of its capital stock. Notwithstanding the foregoing, CDR may,
as a corporation qualified under Subchapter S of the Code, continue to make
quarterly distributions (in addition to usual and customary salary payments) to
its shareholders in a manner consistent with past practices, provided that CDR
shall establish a reserve sufficient to offset the expenses incurred by it in
connection with the transactions contemplated by this Agreement prior to making
any such distributions for the quarter ended March 31, 1996, and after the
minimum net cash required by Section 7.19 has been set aside and reserved.
5.3 Issuance of Securities. CDR shall not issue, deliver or
sell or authorize, promise or propose the issuance, delivery or sale of, or
purchase or promise or propose the purchase of, any shares of its capital stock
or any class of securities exercisable or convertible into or exchangeable for,
or rights, warrants or options to acquire, any such shares or other convertible
securities.
5.4 Governing Documents. CDR shall not amend its Articles of
Incorporation or By-laws, except as contemplated in this Agreement.
5.5 No Acquisitions. CDR shall not acquire or agree to acquire
by merging or consolidating with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business of any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate, to CDR taken as a whole, except with the prior written consent of
HMS.
5.6 No Dispositions. CDR shall not sell, lease or otherwise
dispose of any of its assets, which are material, individually or in the
aggregate, to CDR, except in the ordinary course of business consistent with
prior practice, provided, however, that any such sale, lease or other
disposition of assets for a sales price in excess of $25,000 shall require the
prior written consent of HMS.
5.7 Indebtedness. CDR shall not incur any indebtedness for
borrowed money, or guarantee any such indebtedness or issue or sell or promise
to issue or sell, any debt securities of CDR or guarantee any debt securities of
others.
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5.8 Benefit Plans, Etc. CDR shall not adopt or amend in any
material respect any agreement with employees, other than as provided in this
Agreement.
5.9 Accounting Practices. CDR shall not alter the manner of
keeping its books, accounts or records, or change in any manner the accounting
practices therein reflected.
5.10 No Solicitation; Competing Transactions. CDR shall not,
nor shall it permit any of its directors, officers, employees or agents,
directly or indirectly, to (a) solicit, initiate, encourage or participate in
any discussions or negotiations with respect to, or to take any other action to
facilitate, any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any offer or proposal to directly or
indirectly acquire outside the ordinary course of business any of the business,
properties or the CDR Capital Stock, whether by merger, consolidation, proxy
solicitation, tender or exchange offer, business combination, purchase of assets
or otherwise, other than the transactions contemplated by this Agreement (a
"Competing Transaction"), or (b) except as required by law, to furnish or
disclose to any person, other than HMS or its agents, any information not
customarily disclosed concerning the business, assets, liabilities, properties
and personnel of CDR, or afford to any person other than HMS and its agents
access to the properties, books or records of CDR. If CDR receives any offer or
proposal, written or otherwise, of the type referred to above, CDR promptly
shall inform HMS of such offer or proposal and furnish HMS with a copy thereof
if such offer or proposal is in writing.
5.11 Other Agreements. CDR shall not agree, in writing or
otherwise, to do any of the foregoing.
ARTICLE 6.
REGISTRATION RIGHTS
6.1 Certain Definitions. For purposes of this Article 6, the
following definitions shall apply:
(a) "Registrable Securities" means the shares of HMS Common
that will be issued to the Principals pursuant to the Merger and any shares or
other securities received in exchange for, or as dividends or distributions on
or with respect to, such shares of HMS Common or other securities.
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(b) "Holders" means and includes (a) each Principal, while he
continues to own any of the Registrable Securities and (b) each person who
purchases or otherwise receives ownership of any of the Registrable Securities
in a transaction or chain of transactions not involving any public offering,
while such person continues to own any such securities.
6.2 HMS to Register Shares.
(a) Preparation and Filing of Registration Statement. Promptly
after the execution of this Agreement, HMS shall prepare a suitable registration
statement on Form S-3 for registration of the Registrable Securities under the
Act and Rule 415 thereunder for resale by the Holders or any of them (as filed,
and as it may be amended or superseded from time to time, the "Registration
Statement"). HMS shall file the Registration Statement with the SEC as soon as
is practicable after the execution of this Agreement and shall use all diligent
best efforts to achieve the effectiveness of the Registration Statement so as to
permit the public sale of such Registrable Securities by the Holders or any of
them.
(b) Information to be Supplied by Holders. To permit such
registration, each Holder shall provide to HMS in writing such information
regarding such Holder as HMS may reasonably request as necessary for preparation
of the Registration Statement and to permit HMS to comply with the applicable
requirements of the SEC, to obtain any desired acceleration of the effective
date of the Registration Statement, and/or to keep the Registration Statement
current and effective. Each Holder shall keep HMS advised from time to time of
any material changes to the information previously supplied and reflected in the
Registration Statement.
(c) Restrictions on Resale. During the period of two years
from the Closing Date, each Holder shall not, directly or indirectly, sell,
pledge, create a security interest in or lien upon, or otherwise voluntarily,
encumber or dispose of, in excess of (i) 50% of the Registrable Securities owned
by such Holder during the first twelve months following the Closing Date and
(ii) an additional 20% (or an aggregate of 70%) of the originally issued
Registrable Securities owned by such holder during the second twelve months
following the Closing Date.
6.3 Associated Obligations of HMS. As to the offering of
Registrable Securities covered by a Registration Statement, HMS shall:
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(a) promptly notify each Holder and confirm such advice in
writing (i) when such Registration Statement has become effective and (ii) of
any request by the SEC for any amendment or supplement to such Registration
Statement or any prospectus relating thereto (any such prospectus being referred
to herein as the "Prospectus") or for additional information;
(b) furnish to each Holder a reasonable number of copies of
any Prospectus in conformity with the requirements of the Act and, in general,
cooperate with the Holder(s) and any underwriters with respect to the
satisfaction of all requirements of the securities laws for the proposed
offering and sale;
(c) use all diligent best efforts to qualify, not later than
the effective date of such Registration Statement, the Registrable Securities of
the Holders for sale under the "Blue Sky" laws of such states as the Holders may
reasonably request (except to the extent that such shares are exempt from such
qualification);
(d) until the earlier of (a) three years after the Effective
Time of the Merger and (b) such times as all of the Registrable Securities have
been publicly sold by their respective Holders, keep the Registration Statement
and state qualifications in effect and current and from time to time supplement
or amend the Registration Statement and the prospectus in compliance with the
Act and the rules and regulations thereunder (including Rule 415) and comparable
provisions of state securities law and regulations (or, if necessary, promptly
file a new or superseding Registration Statement and/or application(s) for state
qualification(s) or exemption(s) and promptly cause them to become effective) so
as to permit the sale and distribution of the Registrable Securities. If at any
time the SEC or any state should institute or threaten to institute any
proceedings for the purpose of issuing, or should issue, a stop order suspending
the effectiveness of any such Registration Statement or state qualification or
registration, HMS will promptly notify each Holder and will use its best efforts
to prevent the issuance of any such stop order or to obtain the withdrawal
thereof as soon as possible; and
(e) promptly (i) give written notice to each Holder if, at any
time, it has reason to believe that different or additional disclosure is
required in the Prospectus and/or Registration Statement, including a specific
description of any inadequacies or inaccuracies in the then current disclosures
and a specific statement of the reasons for and circumstances relating to such
inadequacy or inaccuracy, provided that, in the case of material
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non-public information or trade secrets, if HMS immediately requests each Holder
to provide a written pledge from such Holder that such information will be
treated confidentially, HMS may delay disclosing such reasons and circumstances
to any Holder until it receives such a written pledge from him, and (ii) prepare
and file any supplements or amendments to the prospectus and/or Registration
Statement as may be necessary or appropriate to reflect such additional or
amended disclosures as may be required to permit continued public sales, or the
prompt resumption of public sales, of the Registrable Securities.
HMS acknowledges, with respect to the above commitments, its
obligation promptly to provide all necessary information and disclosures, make
all filings, and comply with all regulations and requirements of regulatory
authorities in order to obtain and maintain the effectiveness of the
registrations provided for herein.
6.4 Expenses. The out-of-pocket costs and expenses incurred in
connection with the above described federal and state registrations and
qualifications shall be borne by HMS. Such costs and expenses shall include,
without limitation, the fees and expenses of HMS's counsel and its accountants
and other out-of-pocket costs and expenses of HMS incident to the preparation
and filing under the Act of the Registration Statement and all amendments and
supplements thereto and the cost of furnishing a reasonable number of copies of
each final prospectus and each amendment or supplement thereto to underwriters,
dealers and other purchasers of the securities so registered, the costs and
expenses incurred in connection with the qualification of such securities so
registered under the "blue sky" laws of various jurisdictions, and any other
costs and expenses of complying with the foregoing provisions of this Article 6
with respect to such registration (the "Registration Expenses"). The foregoing
notwithstanding, (i) each Holder shall be responsible for any underwriting
discounts and commissions with respect to sales of his Registrable and Remaining
Securities and (ii) to the extent that any of the out-of-pocket costs referred
to above in this Section 6.4 are occasioned, or increased, because of the
engagement of an underwriter or underwriters by one or more of the Holders
and/or by the use of any underwriter in the offering of Registrable or Remaining
Securities by one or more of the Holders, such costs shall be the responsibility
of the respective Holder(s).
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6.5 Indemnification.
(a) Indemnification by HMS. HMS hereby indemnifies and agrees
to hold harmless the Holders, any underwriter (as defined in the Act) of shares
offered by the Holders, and each person, if any, who controls the Holders or any
such Underwriter within the meaning of Section 15 of the Act against any losses,
claims, damages or liabilities (collectively, "Losses"), to which any such
persons may be subject, under the Act or otherwise, and to reimburse any of such
persons for any legal or other expenses reasonably incurred by them in
connection with investigating any claims or defending against any actions,
insofar as such Losses arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement under which such Registrable Securities were registered under the Act
pursuant to this Article 6, any prospectus contained therein (if used during the
period appropriate for such prospectus) or any amendment or supplement thereto,
or on the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading, except insofar as
such Losses arise out of or are based upon any such untrue statement or omission
or alleged untrue statement or omission made in reliance upon and in conformity
with (i) information furnished in writing to HMS by the Holders or any
underwriter for the Holders expressly and specifically for use therein or (ii)
the CDR Financial Statements or any other financial statements or related
financial information of CDR provided to HMS in writing by any of the
Principals.
(b) Indemnification by the Holders. Each Principal hereby
agrees, and each Holder and underwriter, by agreeing to participate in such
offering, shall agree, in the same manner and to the same extent as set forth in
the preceding paragraph, to indemnify and to hold harmless HMS and its directors
and officers and each person, if any, who controls HMS within the meaning of the
Act against any Losses to which any of such persons may be subject under the Act
or otherwise, and to reimburse any of such persons for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending against any such Losses, but only to the extent such Losses arise out
of or are based upon an untrue statement or alleged untrue statement or omission
or alleged omission of a material fact in any Registration Statement under which
the Registrable Securities were registered under the Act pursuant to this
Article 6, any prospectus contained therein, or any amendment or supplement
thereto, which was based upon and made in conformity with (i)
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information furnished in writing to HMS by the Holders or such underwriter
expressly and specifically for use therein or (ii) the CDR Financial Statements
or any other financial statements or related financial information of CDR
provided to HMS in writing by any of the Principals; provided that the maximum
aggregate amount of such indemnification for which any Holder shall be
responsible (for all indemnified parties) shall not exceed the net proceeds of
the offering received by such Holder; and the maximum aggregate amount of such
indemnification for which any such underwriter shall be responsible (for all
indemnified parties) shall not exceed the aggregate commissions or discounts
received by such underwriter in connection with the offering.
(c) Notification. Each party indemnified under Section 6.5(a)
or (b) shall, promptly after receipt of notice of the commencement of any action
against such indemnified party in respect of which indemnity may be sought,
notify the indemnifying party in writing of the commencement thereof. The
failure or omission of any indemnified party so to notify an indemnifying party
of any such action shall relieve the indemnifying party from liability in
respect of such action which it may have to such indemnified party on account of
the indemnity agreement contained in this Section 6.5 only to the extent, if
any, that the indemnifying party was prejudiced by such omission. In case any
such action shall be brought against any indemnified party and it shall notify
an indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and,
after notice from the indemnifying party to such indemnified party under this
Section 6.5 of its election to assume the defense thereof, the indemnifying
party shall not be liable to the indemnified party pursuant to the provisions of
this Section 6.5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than the
reasonable costs of investigation; provided, however, that the indemnifying
party shall remain liable for the reasonable costs of separate counsel for the
indemnified party if and to the extent that the indemnified party reasonably
determines that it requires separate counsel in view of a conflict of interest
affecting the counsel designated by the indemnifying party; and provided,
further, that no indemnifying party shall be required to pay the costs of
separate counsel for each of the indemnified parties individually by reason of
the above proviso but only an amount equal to the costs of a single separate
counsel for all of them as a group.
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ARTICLE 7.
ADDITIONAL AGREEMENTS
7.1 Access to Information. CDR shall afford to HMS and to
HMS's accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time of the
Merger to all of CDR's properties, books, contracts, commitments and records
and, during such period, CDR shall use all reasonable efforts to furnish
promptly to HMS all other information concerning the business, properties and
personnel of CDR as HMS may reasonably request, provided that CDR shall not be
required to disclose any information which it is legally required to keep
confidential. CDR shall request a waiver of any such confidentiality
requirement. All such information will be considered as confidential and subject
to the terms of that Confidentiality Agreement between HMS and Wallingford dated
January 16, 1996. HMS will not use such information for purposes other than this
Agreement and will otherwise hold such information in confidence (and will cause
its consultants and advisors also to hold such information in confidence) until
such time as such information otherwise becomes publicly available, and in the
event of termination of this Agreement for any reason, HMS shall promptly
return, or cause to be returned, to CDR all nonpublic documents obtained from
CDR which it would not otherwise have been entitled to obtain, and any copies
made of such documents, extracts and copies thereof, as well as schedules,
exhibits or other documents contained in or derived from such information.
Notwithstanding the foregoing, HMS shall be permitted to disclose such
information in its filings with the SEC as and to the extent required under
applicable federal securities laws.
7.2 Legal Conditions to the Merger. Each party will take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on such party with respect to the Merger and will promptly
cooperate with and furnish information to the other party in connection with any
such requirements imposed upon such other party in connection with the Merger.
Each party will take all reasonable actions to obtain, and to cooperate with the
other party with respect to, any consent, authorization, order or approval of,
or any exemption by, any Governmental Entity, or other third party, required to
be obtained or made by such party or its Subsidiaries in connection with the
Merger or the taking of any action contemplated thereby or by this Agreement.
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7.3 Affiliates. Schedule 7.3 sets forth a list of names and
addresses of those persons, who may be deemed "affiliates" of CDR within the
meaning of Rule 145 under the Securities Act ("Rule 145") or from whom a letter
in the form of Exhibit D hereto (the "Affiliate Letter") may be necessary in
order for the Merger to qualify as a pooling of interests transaction (each such
person, together with the persons identified below, an "Affiliate"). CDR shall
provide HMS such information and documents as HMS shall reasonably request for
purposes of reviewing such list. There shall be added to such list the names and
addresses of any other person who becomes an Affiliate of CDR at any time after
the date hereof up to and including the time of the CDR shareholder meeting
called to consider and approve this Agreement and the Merger or who HMS
reasonably identifies (by written notice to CDR) as being a person who may be
deemed to be an Affiliate of CDR. CDR shall use its best efforts to deliver or
cause to be delivered to HMS, concurrent herewith, or as promptly as practicable
after the date hereof, from each of the Affiliates identified on Schedule 7.3
(as the same may be supplemented as aforesaid), the Affiliate Letter.
If any Affiliate of CDR refuses to provide an Affiliate
Letter, HMS shall in lieu of receipt of such letter be entitled to place
appropriate legends on the certificates evidencing HMS Common to be received by
such Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stock transfer instructions to the transfer agent for HMS Common, to
the effect that the shares of HMS Common received or to be received by such
Affiliate pursuant to the terms of this Agreement may only be sold, transferred
or otherwise conveyed, and the holder thereof may only reduce his interest in or
risks relating to such shares of HMS Common, pursuant to an effective
registration statement under the Act or in accordance with the provisions of
Paragraph (d) of Rule 145 and, in any event, only after financial results
covering at least 30 days of combined operations of HMS and CDR after the
Effective Time of the Merger shall have been published. The foregoing
restrictions on the transferability of HMS Common shall apply to all purported
sales, transfers and other conveyances of the shares of HMS Common received or
to be received by such Affiliate pursuant to this Agreement and to all purported
reductions in the interest in or risks relating to such shares of HMS Common
whether or not such Affiliate has exchanged the certificates previously
evidencing such Affiliate's shares of CDR Capital Stock for certificates
evidencing the shares of HMS Common into which such shares of CDR Capital Stock
were converted.
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7.4 CDR Shareholders' Approval. CDR agrees to submit this
Agreement and any related matters to its shareholders for approval, as provided
by law and its Articles of Incorporation and By-laws, immediately following the
execution of this Agreement. The Board of Directors of CDR will unanimously
recommend to the CDR shareholders that such shareholders approve the
transactions contemplated by this Agreement. In consideration for the execution
of this Agreement by HMS and Sub, each of the Principals agrees to vote all
shares of CDR Capital Stock held by such Principal entitled to vote at the CDR
Shareholders' Meeting (and at any adjournment thereof) in favor of this
Agreement (or to provide appropriate written consents with respect thereto).
7.5 Dissenting Shares. As promptly as practicable after the
date of the CDR Shareholders' Meeting and prior to the Closing Date, CDR shall
furnish HMS with the name, address and number of Dissenting Shares owned by each
Dissenting Shareholder.
7.6 Blue Sky Laws. HMS shall take such steps as may be
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in connection with the Merger. CDR shall use its reasonable
efforts to assist HMS as may be necessary to comply with such laws.
7.7 Non-Competition Agreements. CDR and each of the Principals
shall, at the Closing, execute an agreement not to compete with the business of
CDR and HMS (or any successor corporations) for a period of three (3) years
after the termination of their employment. Each agreement shall be in the form
attached hereto as Exhibit E.
7.8 Employee Benefits. HMS agrees that, after the Closing
Date, CDR employees will be afforded the opportunity to participate in benefits
and equity acquisition programs that are currently available to all HMS
employees. Within 60 days after the Closing Date, CDR will terminate the CDR
Plan. The Principals will be responsible for all costs associated with the CDR
Plan termination including, but not limited to, plan funding, IRS notification,
associated attorney fees, and record keeping expense.
7.9 Stock Options at Closing. At the Closing Date, HMS will
cause options ("Closing Options") to purchase an aggregate of 100,000 shares of
HMS Common to be issued to the Principals pro rata in proportion to their
holdings of CDR Capital Stock, or to such other senior management and employees
of CDR as the Principals may direct. It is anticipated that the Closing
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Options will be exercisable for a period of ten (10) years, will have an
exercise price equal to the fair market value of HMS Common on the Closing Date
and will be deemed to be "incentive stock options," to the maximum extent
permissible under the Code. It is further anticipated that the Closing Options,
which will be subject to continued employment, will have a vesting schedule
spanning four years, with one-third of the Closing Options vesting on October
31, 1997, an additional one-third of the Closing Options vesting on October 31,
1998 and the remaining Closing Options vesting on October 31, 1999.
7.10 Communications. Between the date hereof and the Effective
Time of the Merger, neither CDR nor HMS will furnish any communication to its
shareholders or to the public generally if the subject matter thereof relates to
the other party or to the transactions contemplated by this Agreement without
the prior approval of the other party as to the content hereof, which approval
shall not be unreasonably withheld; provided, however, that HMS shall be
entitled to make any disclosure to the public as it shall reasonably believe to
be necessary to comply with the requirements of federal or state securities laws
or the Nasdaq National Market System (provided that, in such event, HMS shall
make reasonable efforts to advise CDR in advance of such disclosure).
7.11 Delivery of Stock Certificates. HMS will issue and
deliver as and when required by the provisions of this Agreement, certificates
representing the shares of HMS Common into which the shares of CDR Capital Stock
outstanding immediately prior to the Effective Time of the Merger shall have
been converted as provided herein.
7.12 Parachute Payments. CDR shall comply with the provisions
of Section 208G(b)(5)(A)(ii) of the Code, such that neither HMS, Sub, CDR or any
entity affiliated therewith shall be considered by the IRS to have paid (at any
time before or after the Merger) a parachute payment to a person who is or was a
disqualified individual (within the meaning of Section 280G(c) the Code) of CDR
or any entity affiliated therewith.
7.13 Notification of Certain Matters. CDR shall give prompt
notice to HMS and HMS shall give prompt notice to CDR, of (i) the occurrence, or
non-occurrence, of any event the occurrence, or non-occurrence, of which would,
in the reasonable judgment of their respective management, be likely to cause
either (a) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date of this
Agreement to the Effective Time of the Merger or (b)
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any condition set forth herein to be unsatisfied in any material respect at any
time from the date of this Agreement to the Effective Time of the Merger, and
(ii) any material failure of CDR, HMS or Sub, as the case may be, to comply with
or satisfy any covenant, condition or agreement to be complied with or satisfied
by it hereunder, provided that the delivery of any notice pursuant to this
Section 7.15 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
7.14 Tax Treatment. CDR and HMS shall, and from and after the
Effective Time of the Merger HMS shall, use best efforts to qualify the Merger,
and shall use best efforts not to take any action to cause the Merger not to
qualify, as a reorganization under Section 368(a) of the Code. From and after
the Effective Time of the Merger, (i) HMS shall cause the Surviving Corporation
to continue CDR's historic business or use a significant portion of CDR's
historic business assets in a business within the meaning of Treasury Regulation
Section 1.368-1(d), and (ii) HMS and Sub shall, and HMS shall cause the
Surviving Corporation to, treat the Merger as a "reorganization" within the
meaning of Section 368(a) of the Code and shall file such information with their
income tax returns as may be required by Treasury Regulation Section 1.368-3 or
other applicable law.
7.15 Wallingford Fee. The fee of Wallingford in the amount of
$380,000, as provided for in the engagement agreement between CDR and
Wallingford, and thereafter agreed to by CDR, Wallingford and HMS, will be paid
via an HMS check, which will be delivered immediately following the Effective
Time of the Merger.
7.16 Confirmation as to Accounting Treatment. Immediately
following the mutual execution and delivery of this Agreement, HMS shall take
all reasonable and customary steps to obtain from the staff of the SEC a formal
or informal concurrence that the Merger may be treated as a pooling of
interests. As requested by HMS, CDR will cooperate reasonably with HMS toward
this objective.
7.17 Nasdaq Listing. Prior to the Closing Date, HMS shall have
prepared and filed with the National Association of Securities Dealers, Inc. an
Additional Listing Application covering the shares of HMS Common to be issued in
the Merger so that such shares will be listed on the Nasdaq National Market
System upon official notice of issuance.
7.18 Sub Sole Stockholder's Approval. HMS agrees, in its
capacity as the sole stockholder of Sub, to approve this
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Agreement and any related matters, as provided by law and Sub's Articles of
Incorporation and By-laws, immediately following the execution of this
Agreement.
7.19 CDR Minimum Net Cash. On the Closing Date, CDR shall have
net cash of not less than $235,000, after (i) deduction of all CDR transaction
expenses (consisting of legal, accounting and pension termination expenses
estimated to be approximately $38,000), all operating expenses (billed and
accrued) through the Closing Date and all amounts owed to insurance companies
(estimated to be approximately $149,470), and (ii) repayment of all shareholder
loans ($124,132).
ARTICLE 8.
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligations to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction, or to the waiver by such party, on or prior to the
Closing Date, of each of the following conditions:
(a) Shareholder Approval. This Agreement shall have been
approved and adopted by the required affirmative vote of (i) the holders of the
outstanding shares of CDR Capital Stock and (ii) HMS in its capacity as the sole
stockholder of Sub.
(b) Government Approvals. All authorizations, consents, orders
or approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any Governmental Entity necessary for the consummation of
the transactions contemplated by this Agreement including, but not limited to,
such requirements under applicable state securities laws, shall have been filed,
occurred or been obtained, other than filings with and approvals by foreign
governments relating to the Merger if failure to make such filings or obtain
such approvals would not be materially adverse to HMS or its Subsidiaries taken
as a whole, or CDR.
(c) Third-Party Approvals. Any and all consents or approvals
required from third parties shall have been obtained.
(d) Legal Action. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any federal or state court and remain in
effect, and no litigation seeking the issuance of such an order or injunction,
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or seeking the imposition against CDR or HMS of substantial damages if the
Merger is consummated, shall be pending or threatened which, in the good faith
judgment of CDR's or HMS's Board of Directors has a reasonable probability of
resulting in such order, injunction or damages. In the event any such order or
injunction shall have been issued, each party agrees to use its reasonable
efforts to have any such injunction lifted.
(e) Statutes. No statute, rule or regulation shall have been
enacted by the government of the United States or any state or agency thereof
which would make the consummation of the Merger illegal.
(f) Nasdaq HMS Listing. The shares of HMS Common to be issued
in the Merger shall have been duly listed on the Nasdaq National Market System,
subject to official notice of issuance.
8.2 Conditions to Obligations of HMS and Sub. The obligations
of HMS and Sub to effect the Merger are subject to the satisfaction on or prior
to the Closing Date of the following conditions, unless waived by HMS and Sub:
(a) Representations and Warranties. The representations and
warranties of CDR set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date,
and HMS shall have received a certificate or certificates to such effect signed
by the Chief Executive and Chief Financial Officers of CDR.
(b) Performance of Obligations of CDR. CDR shall have
performed in all material respects all obligations required to be performed by
it under this Agreement prior to the Closing Date, and HMS shall have received a
certificate signed by the Chief Executive Officer of CDR to such effect.
(c) Opinion of CDR's Counsel. HMS shall have received an
opinion dated the Closing Date of Miles & Stockbridge, counsel to CDR,
substantially in the form set forth in Exhibit F attached hereto.
(d) Affiliate's Agreement. Persons who are identified as
affiliates of CDR pursuant to Section 7.3 shall have executed and delivered to
HMS and its counsel the Affiliate's Letters.
(e) Non-Competition Agreements. The non-competition agreements
of the Principals, as contemplated under Section 7.7, shall have been duly
executed and delivered.
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(f) Dissenting CDR Shareholders. CDR shareholders owning more
than 5% of the CDR Capital Stock shall not have sought to pursue their rights as
objecting shareholders with respect to such shares.
(g) Pooling Treatment. HMS shall have obtained from the staff
of the SEC and/or its independent outside accountants a formal or informal
concurrence that the Merger may be treated for accounting purposes as a pooling
of interests.
(h) No Adverse Change in the Business of CDR. HMS shall have
received a certificate signed by the Chief Executive and Chief Financial
Officers of CDR that since the date of the Interim Financial Statements there
has been no Material Adverse Change in the business of CDR.
(i) Corporate Action. HMS shall have received from CDR
certified copies of resolutions of CDR's shareholders and Board of Directors
approving and adopting this Agreement and the transactions contemplated hereby,
and HMS shall have received a certificate signed on behalf of CDR by the
corporate secretary of CDR to such effect.
8.3 Conditions to Obligations of CDR. The obligations of CDR
to effect the Merger are subject to the satisfaction on or prior to the Closing
Date of the following conditions unless waived by CDR:
(a) Representations and Warranties. The representations and
warranties of HMS and Sub set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and as of the Closing
Date, and CDR shall have received a certificate signed by the Chief Executive
and Principal Accounting Officers of HMS to such effect.
(b) Performance of Obligations of HMS and Sub. HMS and Sub
shall have performed all obligations required to be performed by them under this
Agreement prior to the Closing Date, and CDR shall have received a certificate
signed by the Chief Executive Officer of HMS to such effect.
(c) Opinion of HMS's Counsel. CDR shall have received an
opinion dated the Closing Date of Coleman & Rhine LLP, counsel to HMS,
substantially in the form set forth in Exhibit G attached hereto.
(d) Corporate Action. CDR shall have received from HMS
certified copies of resolutions of Sub's sole shareholder and of
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HMS's and Sub's Boards of Directors approving and adopting this Agreement and
the transactions contemplated hereby, and CDR shall have received a certificate
signed on behalf of each of HMS and Sub by the corporate secretary of each such
company to such effect.
ARTICLE 9.
INVESTMENT REPRESENTATIONS OF THE PRINCIPALS
The Principals hereby represent that they are acquiring the
shares of HMS Common to be issued pursuant to the Merger for their own accounts
for the purpose of investment and not with a view to, or for sale in connection
with, any distribution thereof except as otherwise contemplated by this
Agreement. The Principals further represent that they understand that (i) the
shares of HMS Common have not been registered under the Act pursuant to the
exemption afforded by Section 4.2 thereof, (ii) the shares must be held
indefinitely unless a subsequent disposition thereof is registered under the Act
or is exempt from such registration, (iii) the shares will bear a legend to such
effect and (iv) HMS will make a notation on its transfer books to such effect.
The Principals further understand that the exemption from registration afforded
by Rule 144 under the Securities Act depends upon the satisfaction of various
conditions and that, if applicable, Rule 144 affords the basis of sales of the
shares in limited amounts under certain conditions.
ARTICLE 10.
CLOSING
10.1 Closing Date. The Closing under this Agreement (the
"Closing") shall be held not more than five (5) business days following (a) the
delivery to HMS of the CDR Financial Statements as provided in Section 8.2(f)
hereof and (b) satisfaction of all other conditions precedent to the Merger
specified in this Agreement, unless duly waived by the party entitled to
satisfaction thereof. The parties hereto anticipate that the Closing will occur
on or before April 30, 1996. In any event, if the Closing has not occurred on or
before May 31, 1996, this Agreement may be terminated as provided in Article 13.
Such date on which the Closing is to be held is herein referred to as the
"Closing Date." The Closing shall be held at the offices of Coleman & Rhine LLP,
1120 Avenue of the Americas, 19th Floor, New York, New York 10036, at 10:00 a.m.
on such date, or at such other time and place as the parties may mutually agree.
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10.2 Filing Date. Subject to the provisions of this Agreement,
on the Closing Date, a fully-executed and acknowledged copy of this Agreement,
if required, along with required related certificates of CDR and Sub meeting the
requirements of the Maryland General Corporation Law, shall be filed with the
Maryland Department of Assessments and Taxation, all in accordance with the
provisions of this Agreement.
ARTICLE 11.
NON-COMPETITION AND NON-SOLICITATION
11.1 Statement of Intent. HMS has agreed to engage in the
Merger and to exchange shares of HMS Common for the CDR Capital Stock in
anticipation that HMS will benefit from the organization, proprietary
information and product technology, and good will pertaining to and constituting
the business operations of CDR. As a consequence, and to preserve the value of
CDR, HMS would have not have agreed to the Merger unless, for the period
specified in this Article 11, the Principals agreed, on the terms described
herein, to refrain from (a) performing services to third parties in competition
with CDR, (b) disclosing to third parties confidential information proprietary
to CDR and (c) soliciting the employment of persons employed by CDR. The
Principals hereby acknowledge the foregoing and the importance placed thereon by
HMS in the negotiations which led to this Agreement. The Principals further
acknowledge that, as the key management, professional and technical staff of
CDR, they each have had free access to the proprietary information pertaining to
the business and operations of CDR and that any violation by them of the
provisions of this Article 11 would diminish the value of CDR and thereby have
an adverse effect upon HMS. In connection with the foregoing, each Principal
represents that his experience, capabilities and circumstances are such that the
provisions of this Article 11 will not prevent him from earning a livelihood and
that the limitations set forth herein are reasonable and properly required for
the adequate protection of HMS and are primary inducement to HMS to enter into
the Merger.
11.2 Definitions. For purposes of this Article 11, the
following definitions will apply:
(a) Business. "Business" shall be defined as audit services
which enable recovery by payors of health care of inappropriate payments which
are either duplicative or the result of an improper coordination of benefits or
have resulted in a payment in excess of the payor's liability.
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(b) Territory. In recognition of the national scope of CDR's
business, and in order to effect the statement of intent in Section 11.1, the
geographic area covered by this Article 11 (the "Territory") shall be defined as
the Continental United States.
(c) Competing Organization. "Competing Organization" will be
defined as a business or organization which competes in the Business; provided
that, if the business or organization has distinct divisions or other operating
groups, each such division or operating group will be deemed a separate business
or organization such that a Principal may act as an officer, employee, manager,
consultant, independent contractor, advisor or provide services for any division
or operating group that does not compete in the Business.
11.3 Non-Competition. Each Principal covenants and agrees
that, for a period covering his employment by CDR and three (3) years after the
termination hereof (the "Contract Period"), he will refrain from:
(a) directly or indirectly (as a director, officer, employee,
manager, consultant, independent contractor, advisor or otherwise) engaging in
competition in the Business, or owning any interest in, performing any services
for, participating in or being connected with any "Competing Organization" (as
set forth in Section 11.2(c) above). This covenant shall not be construed to
prohibit such Principal from working in data processing, health care or related
industries, so long as the focus of the work of the Principal is not in
competition in the Business. The provisions of this Section 11.3 shall not be
deemed to prohibit such Principal's ownership of less than five (5%) of the
total shares of all classes of stock outstanding of any public company;
(b) discussing with any existing or potential client of CDR
the present or future availability of services or products of a Competing
Organization; or
(c) making any statement or doing any act intended to cause
any existing or potential client of CDR to make use of the services or purchase
the products of any Competitive Organization.
11.4 Non-Solicitation. Each Principal covenants and agrees
that, during the Contract Period, he will refrain from:
(a) directly or indirectly soliciting for employment or
advising or recommending to any other person that they employ or solicit for
employment, any employee of CDR;
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(b) soliciting any other employee of CDR in connection with
the formation or operations of any Competing Organization for the possible
future employment of such other employee.
11.5 Confidential Information.
(a) Each Principal acknowledges that, as a result of his prior
employment by CDR, he possesses secret and confidential information of CDR which
constitute trade secrets and is proprietary to the Business of CDR.
(b) Each Principal agrees that, during the term of his
employment by CDR and for a period of five (5) years thereafter, such Principal
will not directly or indirectly furnish, disclose or divulge any confidential or
proprietary information, methods, processes or trade secrets of CDR
(collectively, "CDR Confidential Information") to any other party or use CDR
Proprietary Information without the prior written consent of CDR. The foregoing
obligations of confidentiality and restrictions on use shall not apply to
information that: (a) was in such Principal's possession prior to his employment
with CDR and is not CDR Confidential Information; (b) was or is developed
independently by or for such Principal without breaching any obligation owed by
such Principal to CDR or HMS; (c) is rightfully received by such Principal from
a third party without breaching any obligation owed by such Principal to CDR or
HMS, if such Principal is not restricted by the third party from disclosing such
information; (d) is or becomes publicly available or readily ascertainable
through no breach of this Agreement; or (e) is information concerning such
Principal's employment generic to, or which such Principal would reasonably
learn from, similar employment in the industry.
(c) Each Principal agrees that, during the term of his
employment by CDR and for a period of one (1) year thereafter, such Principal
will return to CDR, upon request of HMS, all documents, materials, photographs,
memoranda, and all copies or reproductions thereof, or any property of a similar
or different nature containing information relating to the CDR systems or other
CDR Confidential Information. Each Principal further agrees to use diligent best
efforts to protect, guard and keep secret and confidential all CDR Confidential
Information that has come or, in the future, may come into such Principal's
possession by reason of his employment by CDR.
11.6 Remedies. The Principals agree and acknowledge that the
rights and obligations set forth under this Article 11 are of a unique and
special nature and that HMS and CDR are, therefore,
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without an adequate legal remedy in the event of any Principal's violation of
the covenants set forth therein. The parties, therefore, agree that the
covenants made by each Principal in this Article 11 shall be specifically
enforceable in equity in addition to all other rights and remedies, at law or in
equity, that may be available to HMS or CDR.
ARTICLE 12.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations, warranties and covenants contained in
this Agreement shall survive the Merger for the periods specified in Section
14.3. All representations, warranties and covenants in or pursuant to this
Agreement shall be deemed to be conditions to the Merger, and in the event this
Agreement shall be terminated in accordance with the terms thereof, the
provisions of Section 7.1 and Article 12 of this Agreement shall survive any
termination of this Agreement.
ARTICLE 13.
PAYMENT OF EXPENSES
HMS, Sub and CDR shall each pay their own out-of-pocket
expenses incurred incident to the preparation and carrying out of the
transactions herein contemplated, whether or not such transactions are
consummated; provided that HMS shall pay the fee of Wallingford if the Merger is
consummated, in accordance with the provisions of Section 7.15 above. If for any
reason the Merger as contemplated herein is not consummated, HMS, Sub and CDR
shall each pay their own out-of-pocket expenses incurred incident to the
preparation and carrying out of the transactions herein contemplated (including
but not limited to the fees and expenses of KPMG Peat Marwick LLP incurred in
connection with the preparation of the 1995 Financial Statements, the Prior
Financial Statements and the Interim Financial Statements, which fees and
expenses shall be the sole responsibility of CDR); provided, however, that,
unless the Merger is not consummated because of a material breach by CDR of one
or more of its representations, warranties or covenants contained herein, HMS
will reimburse CDR its actual documented costs incurred, up to a maximum of
$25,000, in consideration of the expenses incurred by CDR and the termination of
this Agreement and the Merger; and provided further, that if the Merger is not
consummated because of a material breach by CDR of one or more of its
representations, warranties or covenants contained herein, CDR will reimburse
HMS its actual documented costs incurred, up to a maximum of $25,000,
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in consideration of the expenses incurred by HMS and the termination of this
Agreement and the Merger.
ARTICLE 14.
TERMINATION, AMENDMENT AND WAIVER
14.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval of
matters presented in connection with the Merger by the shareholders of CDR:
(a) by mutual written consent of CDR and HMS;
(b) by HMS or CDR, as the non-defaulting party, if there has
been a material breach of any material representation, warranty, covenant or
agreement contained in this Agreement on the part of the other party set forth
in this Agreement and, if such breach is curable, such breach has not been cured
within a ten (10) day period after written notice of such breach;
(c) by either HMS or CDR if the Merger shall not have been
consummated on or before May 31, 1996; provided, however, that if the Merger
shall not be consummated on or before May 31, 1996, because of a party's failure
to satisfy any of the conditions set forth in Sections 8.2 or 8.3, neither HMS
nor CDR may rely upon its own actions or lack thereof to terminate the
Agreement.
(d) by either HMS or CDR if (i) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Merger or (ii) there shall be any action taken, or any
statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger by any Governmental Entity which would make
consummation of the Merger illegal; and
(e) by either HMS or CDR if there shall be any action taken,
or any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any Governmental Entity, which would (A)
prohibit HMS's or CDR's ownership or operation of all or a material portion of
the business or assets of CDR or HMS and its Subsidiaries taken as a whole, or
compel HMS or CDR to dispose of or hold separate all or a material portion of
the business or assets of CDR and its Subsidiaries taken as a whole or HMS and
its Subsidiaries taken as a whole, as a result of the Merger or (B) render HMS
or CDR unable to consummate the Merger, except for any waiting period
provisions;
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Where action is taken to terminate this Agreement pursuant to
this Section 13.01, it shall be sufficient for such action to be authorized by
the Board of Directors of the party taking such action.
14.2 Effect of Termination. In the event of termination of
this Agreement by either CDR or HMS as provided in Section 13.1, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of HMS or CDR or their respective officers or directors except as set forth
in Article 12 and except to the extent that such termination results from the
breach by a party hereto of any of its covenants or agreements set forth in this
Agreement.
14.3 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Board of Directors, at any time
before or after approval of matters presented in connection with the Merger by
the shareholders of CDR and Sub but, after any such shareholder approval, no
amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
14.4 Extension; Waiver. At any time prior to the Effective
Time of the Merger, any party hereto, by such corporate action as shall be
appropriate, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE 15.
INDEMNIFICATION
15.1 Indemnity by Principals. Subject to the terms and
conditions of this Article 14, each of the Principals hereby jointly and
severally agrees to indemnify, defend and hold HMS and its affiliates 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
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(collectively "Damages"), imposed upon or incurred by HMS or CDR by reason of or
resulting from:
(a) any inaccuracy or breach of any representation, warranty
or covenant of CDR contained in or made pursuant to this Agreement, or
(b) any inaccuracy or misrepresentation in any certificate or
any CDR Schedule delivered by CDR pursuant to this Agreement.
15.2 Conditions of Indemnification. The Principals'
obligations to HMS under Section shall be subject to the following terms and
conditions:
(a) within twenty (20) days after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, or with reasonable promptness after the assertion in writing of any
claim, HMS shall give the Principals written notice thereof together with a copy
of such claim, process or other legal pleading, and the Principals shall have
the right to undertake the defense thereof through a legal representative of the
Principals' own choosing, and reasonably satisfactory to HMS.
(b) If the CDR legal representative, by the thirtieth (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, HMS (upon further notice to the
Principals) will have the right to undertake the defense, compromise or
settlement of such claim on behalf of and for the account and risk of the
Principals.
15.3 Limitations on Liability of Principals.
(a) The indemnities set forth in this Article 14 and all
representations, warranties and covenants hereunder shall survive for a period
of two (2) years following the Effective Time of the Merger, unless such
indemnities, representations, warranties and covenants of CDR hereunder pertain
to tax claims, in which event they shall survive until expiration of the
applicable statute of limitations. Upon the expiration of such respective
periods, the Principals shall have no liability for Damages under such
indemnification provisions unless HMS has been given notice of a claim asserting
liability by a third party prior to the expiration of such respective periods
and thereafter provides
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notice to the Principals in the manner provided in Section above.
(b) If the Principals become liable for Damages to HMS
hereunder, the Principals shall be entitled to a credit or offset against such
liability of an amount equal to ($50,000) (the "Threshold"). At such time as the
aggregate of all Damages exceeds the Threshold, HMS shall be entitled to recover
from the Principals any and all amounts for which a claim for indemnity has been
made, without regard to the Threshold.
ARTICLE 16.
GENERAL
16.1 Notices. Any notice, request, instruction or other
document to be given hereunder by any party to the other shall be in writing and
delivered personally or sent by certified mail, postage prepaid, as follows:
If to HMS or Sub:
Health Management Systems, Inc.
401 Park Avenue South
New York, New York 10016
Attention: President
with a copy to
Coleman & Rhine LLP
1120 Avenue of the Americas
New York, New York 10036
Attention: Bruce S. Coleman, Esq.
If to CDR or Principals:
CDR Associates, Inc.
100 West Padonia Road, Suite 2A
Baltimore, Maryland 21903
Attention: Chief Executive Officer
with a copy to
Miles & Stockbridge
10 Light Street
Baltimore, Maryland 21202
Attention: Susan L. Spence, Esq.
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or to such other persons as may be designated in writing by the parties, by a
notice given as aforesaid.
16.2 Headings. The headings of the several sections of this
Agreement are inserted for convenience of reference only and are not intended to
affect the meaning or interpretation of this Agreement.
16.3 Counterparts. This Agreement may be executed in
counterparts, and when so executed each counterpart shall be deemed to be an
original, and said counterparts together shall constitute one and the same
instrument.
16.4 Binding Nature. This Agreement shall be binding upon and
inure to the benefit of the parties hereto. Neither HMS, Sub nor CDR may assign
or transfer any rights under this Agreement.
16.5 Other Agreements. This Agreement, together with all of
the Exhibits and Schedules hereto, constitute the entire agreement and
understanding of the parties with respect to the subject matter hereof. All
other written agreements heretofore made between the parties hereto in
contemplation of this Agreement are superseded by this Agreement and are hereby
terminated in their entirety.
16.6 Good Faith. Each of the parties hereto agrees that it
shall act in good faith in an attempt to cause all the conditions precedent to
their respective obligations to be satisfied.
16.7 Applicable Law. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of New York, without regard to principles of conflicts of laws.
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IN WITNESS WHEREOF, HMS, Sub, CDR and each Principal have caused this
Agreement to be duly signed all as of the date first written
HEALTH MANAGEMENT SYSTEMS, INC.
By:
----------------------------
CDR ACQUISITION CORP.
By:
----------------------------
CDR ASSOCIATES, INC.
By:
----------------------------
-------------------------------
JEFFREY R. DONNELLY
-------------------------------
JOSEPH H. CZAJKOWSKI
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