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EXHIBIT 2.1
AMENDED AND RESTATED
MERGER AGREEMENT
BY AND AMONG
MEDAPHIS CORPORATION,
HDSSUB, INC.
AND
HEALTH DATA SCIENCES CORPORATION
AS OF MAY 23, 1996
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ARTICLE 1 THE MERGER...................................................................... A-8
Section 1.1. Surviving Corporation................................................... A-8
Section 1.2. Certificate of Incorporation............................................ A-8
Section 1.3. Bylaws.................................................................. A-8
Section 1.4. Directors............................................................... A-8
Section 1.5. Officers................................................................ A-8
Section 1.6. Effective Time.......................................................... A-8
Section 1.7. Tax-Free Reorganization................................................. A-8
ARTICLE 2 CONVERSION OF SHARES; TREATMENT OF OPTIONS...................................... A-9
Section 2.1. HDS Common Stock and Preferred Stock.................................... A-9
Section 2.2. Fractional Shares....................................................... A-9
Section 2.3. Dissenting Shares....................................................... A-9
Section 2.4. Treatment of HDS Employee Stock Options................................. A-10
Section 2.5. Exchange of HDS Capital Stock........................................... A-10
Section 2.6. Conversion Ratio and Adjustment Event................................... A-11
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF HDS........................................... A-11
Section 3.1. Organization............................................................ A-11
Section 3.2. Authorization........................................................... A-12
Section 3.3. Absence of Restrictions and Conflicts................................... A-12
Section 3.4. Capitalization.......................................................... A-12
Section 3.5. Financial Statements.................................................... A-13
Section 3.6. Absence of Certain Changes.............................................. A-13
Section 3.7. Legal Proceedings....................................................... A-14
Section 3.8. Compliance with Law..................................................... A-14
Section 3.9. Material Contracts...................................................... A-14
Section 3.10. HDS Client Contracts.................................................... A-15
Section 3.11. Tax Returns; Taxes...................................................... A-15
Section 3.12. Officers, Directors and Employees....................................... A-16
Section 3.13. Employee Benefit Plans.................................................. A-16
Section 3.14. Labor Relations......................................................... A-18
Section 3.15. Insurance............................................................... A-18
Section 3.16. Title to Properties and Related Matters................................. A-18
Section 3.17. Environmental Matters................................................... A-19
Section 3.18. Patents, Trademarks, Trade Names........................................ A-19
Section 3.19. HDS Computer Software and Hardware...................................... A-20
Section 3.20. Proxy Statement and Registration Statement.............................. A-21
Section 3.21. Transactions with Affiliates............................................ A-21
Section 3.22. Brokers, Finders and Investment Bankers................................. A-22
Section 3.23. Disclosure.............................................................. A-22
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MEDAPHIS...................................... A-22
Section 4.1. Organization............................................................ A-22
Section 4.2. Authorization........................................................... A-22
Section 4.3. Absence of Restrictions and Conflicts................................... A-22
Section 4.4. Capitalization of Medaphis.............................................. A-23
Section 4.5. Capital Stock of Medaphis Subsidiaries.................................. A-23
Section 4.6. Medaphis Commission Reports............................................. A-23
Section 4.7. Financial Statements.................................................... A-24
Section 4.8. Absence of Certain Changes.............................................. A-24
Section 4.9. Legal Proceedings....................................................... A-25
Section 4.10. Compliance with Law..................................................... A-25
Section 4.11. Proxy Statement and Registration Statement.............................. A-25
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Section 4.12. Tax Returns; Taxes...................................................... A-25
Section 4.13. Billing and Collection Practices........................................ A-25
Section 4.14. Medaphis Employee Benefit Plans......................................... A-26
Section 4.15. Labor Relations......................................................... A-27
Section 4.16. Medaphis Computer Software and Hardware................................. A-28
Section 4.17. Title to Properties and Related Matters................................. A-29
Section 4.18. Environmental Matters................................................... A-29
Section 4.19. Brokers, Finders and Investment Bankers................................. A-29
Section 4.20. Disclosure.............................................................. A-29
ARTICLE 5 CERTAIN COVENANTS AND AGREEMENTS................................................ A-29
Section 5.1. Conduct of Business by HDS.............................................. A-29
Section 5.2. Conduct of Business by Medaphis......................................... A-31
Section 5.3. Inspection and Access to Information.................................... A-31
Section 5.4. Registration Statement.................................................. A-32
Section 5.5. HDS Stockholder Matters................................................. A-32
Section 5.6. The Nasdaq National Market Additional Shares Notification............... A-32
Section 5.7. HDS Affiliates.......................................................... A-32
Section 5.8. No Solicitation; Acquisition Proposals.................................. A-33
Section 5.9. Reasonable Efforts; Further Assurances; Cooperation..................... A-33
Section 5.10. Public Announcements.................................................... A-34
Section 5.11. Financial Statements and Commission Reports............................. A-34
Section 5.12. Supplements to Disclosure Letters....................................... A-35
Section 5.13. Pooling of Interests Accounting......................................... A-35
Section 5.14. Accountant's Review Report.............................................. A-35
Section 5.15. Special Indemnification by Medaphis..................................... A-35
Section 5.16 Employees............................................................... A-36
Section 5.17 Certain Other Benefits.................................................. A-37
ARTICLE 6 CONDITIONS...................................................................... A-37
Section 6.1. Conditions to Each Party's Obligations.................................. A-37
Section 6.2. Conditions to Obligations of Medaphis................................... A-37
Section 6.3. Conditions to Obligations of HDS........................................ A-38
ARTICLE 7 CLOSING......................................................................... A-39
ARTICLE 8 TERMINATION..................................................................... A-39
Section 8.1. Termination............................................................. A-39
Section 8.2. Specific Performance and Other Remedies................................. A-40
Section 8.3. Effect of Termination................................................... A-40
Section 8.4. Termination Fee......................................................... A-40
ARTICLE 9 MISCELLANEOUS PROVISIONS........................................................ A-41
Section 9.1. Notices................................................................. A-41
Section 9.2. Disclosure Letters and Exhibits......................................... A-41
Section 9.3. Assignment; Successors in Interest...................................... A-41
Section 9.4. Representations and Warranties.......................................... A-41
Section 9.5. Number; Gender.......................................................... A-42
Section 9.6. Captions................................................................ A-42
Section 9.7. Controlling Law; Integration; Amendment................................. A-42
Section 9.8. HDS and Medaphis Knowledge.............................................. A-42
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Section 9.9. Severability............................................................ A-42
Section 9.10. Counterparts............................................................ A-42
Section 9.11. Enforcement of Certain Rights........................................... A-42
Section 9.12. Waiver.................................................................. A-43
Section 9.13. Fees and Expenses....................................................... A-43
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DEFINED TERMS
TERM SECTION
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Acquisition Transaction.......................................................... 5.8
Agreement........................................................................ Page A-8
Average Closing Price............................................................ 2.2
Certificate and Certificates..................................................... 2.5(a)
Closing.......................................................................... Page A-39
Closing Date..................................................................... Page A-39
Code............................................................................. 1.7
Commission....................................................................... 2.4(c)
Conversion Ratio................................................................. 2.6(a)
Delaware Certificate of Merger................................................... Page A-8
Deloitte & Touche................................................................ 3.5(a)
Deloitte & Touche Review Report.................................................. 5.14
DGCL............................................................................. Page A-8
Dissenting Shares................................................................ 2.3
EEOC............................................................................. 3.14
Effective Time................................................................... 1.6
Employee Benefit Plan............................................................ 3.13(a)(ii)
ERISA............................................................................ 3.13(a)(ii)
Excess Parachute Payment......................................................... 3.13(k)
Exchange Act..................................................................... 3.3
HDS.............................................................................. Page A-8
HDS Benefit Plan................................................................. 3.13(a)
HDS Capital Stock................................................................ 2.1(a)
HDS Client Contracts............................................................. 3.10
HDS Common Stock................................................................. 2.1(a)
HDS Detrimental Information...................................................... 6.2(l)
HDS Disclosure Letter............................................................ Article 3
HDS ERISA Affiliate.............................................................. 3.13(b)
HDS Executives................................................................... 9.8
HDS Financial Statements......................................................... 3.5(a)
HDS Hardware..................................................................... 3.19(a)
HDS License Agreements........................................................... 3.19(b)
HDS Licensed Software............................................................ 3.19(a)
HDS Material Adverse Effect...................................................... 3.1
HDS Material Contracts........................................................... 3.9
HDS Preferred Stock.............................................................. 2.1(a)
HDS Proprietary Software......................................................... 3.19(a)
HDS Qualified Plans.............................................................. 3.13(g)
HDS Series B Stock............................................................... 2.1(a)
HDS Series C Stock............................................................... 2.1(a)
HDS Series F Stock............................................................... 2.1(a)
HDS Software..................................................................... 3.19(a)
HDS Stockholder.................................................................. 2.2
HDSSub........................................................................... Page A-8
HSR Act.......................................................................... 3.3
Intellectual Property............................................................ 3.18
IRS.............................................................................. 3.13(f)
Licensed Intellectual Property................................................... 3.18
Medaphis......................................................................... Page A-8
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TERM SECTION
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Medaphis Balance Sheet........................................................... 4.7
Medaphis Benefit Plan............................................................ 4.14(a)
Medaphis Commission Reports...................................................... 4.6
Medaphis Common Stock............................................................ 2.1(a)
Medaphis Disclosure Letter....................................................... Article 4
Medaphis Due Diligence Review.................................................... 5.3(a)
Medaphis ERISA Affiliate......................................................... 4.14(b)
Medaphis Executives.............................................................. 9.8
Medaphis Financial Statements.................................................... 4.7
Medaphis Hardware................................................................ 4.16(a)
Medaphis License Agreements...................................................... 4.16(b)
Medaphis Licensed Software....................................................... 4.16(b)
Medaphis Material Adverse Effect................................................. 4.1
Medaphis Premises................................................................ 4.18
Medaphis Proprietary Software.................................................... 4.16(a)
Medaphis Qualified Plans......................................................... 4.14(e)
Medaphis Software................................................................ 4.16(b)
Medaphis Subsidiaries............................................................ 4.5
Merger........................................................................... Page A-8
NLRB............................................................................. 3.14
Non-Qualified Options............................................................ 2.4(a)
Option Assumption Agreement...................................................... 2.4(b)
Options.......................................................................... 2.4(a)
PBGC............................................................................. 3.13(f)
Pension Benefit Plan............................................................. 3.13(n)
Premises......................................................................... 3.17
Proprietary Intellectual Property................................................ 3.18
Proxy Statement.................................................................. 3.20
Qualified Beneficiaries.......................................................... 5.16(b)
Registration Statement........................................................... 3.20
SO Plans......................................................................... 2.4(a)
Scheduled Leases................................................................. 3.16(b)
Securities Act................................................................... 3.3
Special Indemnified Parties...................................................... 5.15(a)
Specified Employees.............................................................. 5.1(m)
Specified Stockholders........................................................... 5.1(m)
Subsidiary....................................................................... 3.1
Successor Plans.................................................................. 5.16(b)
Surviving Corporation............................................................ 1.1
The knowledge of the HDS Executives.............................................. 9.8
The knowledge of the Medaphis Executives......................................... 9.8
Total HDS Shares................................................................. 2.7(a)
1996 Balance Sheet............................................................... 3.5(a)
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EXHIBITS
EXHIBIT NUMBER
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Delaware Certificate of Merger.................................................. 1.1
Option Assumption Agreement..................................................... 2.4
Noncompetition and Nonsolicitation Agreement.................................... 5.1(m)(A)
Employment Agreements........................................................... 5.1(m)(B)
Tax Opinion of King & Spalding.................................................. 6.1(c)
Opinion of Seyfarth, Shaw, Fairweather & Geraldson.............................. 6.2(c)
Opinion of King & Spalding...................................................... 6.3(c)
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AMENDED AND RESTATED
MERGER AGREEMENT
THIS AMENDED AND RESTATED MERGER AGREEMENT, dated as of May 23, 1996 (the
"Agreement"), by and among MEDAPHIS CORPORATION, a Delaware corporation
("Medaphis"), HDSSUB, INC., a Delaware corporation and a wholly-owned subsidiary
of Medaphis ("HDSSub"), and HEALTH DATA SCIENCES CORPORATION, a Delaware
corporation ("HDS").
WHEREAS, the respective Boards of Directors of Medaphis, HDSSub and HDS
each have approved this Agreement and the merger (the "Merger"), pursuant to
this Agreement and a certificate of merger in the form attached as Exhibit 1.1
proposed to be filed in the State of Delaware (the "Delaware Certificate of
Merger"), of HDSSub with and into HDS on the terms and conditions contained in
this Agreement and in accordance with the Delaware General Corporation Law (the
"DGCL");
WHEREAS, Medaphis, as the sole stockholder of HDSSub, has approved this
Agreement, the Merger and the transactions contemplated by this Agreement
pursuant to action taken by unanimous written consent in accordance with the
requirements of the DGCL and the Certificate of Incorporation and the Bylaws of
HDSSub;
WHEREAS, the parties to this Agreement intend that the Merger qualify as a
"reorganization" within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the parties agree as follows:
ARTICLE 1.
THE MERGER
Section 1.1. Surviving Corporation. Subject to the provisions of this
Agreement and the DGCL, at the Effective Time, HDSSub shall be merged with and
into HDS, and the separate corporate existence of HDSSub shall cease. HDS shall
be the surviving corporation in the Merger (sometimes called the "Surviving
Corporation") and shall continue its corporate existence under the laws of the
State of Delaware. The Merger shall have the effects set forth in Section 259 of
the DGCL.
Section 1.2. Certificate of Incorporation. The Certificate of
Incorporation of HDS shall be the Certificate of Incorporation of the Surviving
Corporation until amended after the Effective Time.
Section 1.3. Bylaws. The Bylaws of HDS shall be the Bylaws of the
Surviving Corporation until amended after the Effective Time.
Section 1.4. Directors. The directors of the Surviving Corporation shall
consist of the directors of HDSSub immediately prior to the Effective Time, such
directors to hold office from the Effective Time until their respective
successors are elected and qualify.
Section 1.5. Officers. The officers of the Surviving Corporation shall
consist of the officers of HDSSub immediately prior to the Effective Time, such
officers to hold office from the Effective Time until their respective
successors are elected and qualify.
Section 1.6. Effective Time. If all of the conditions set forth in Article
6 have been fulfilled or waived in accordance with the terms of this Agreement
and this Agreement has not been terminated in accordance with Article 8, the
parties shall cause the Delaware Certificate of Merger to be properly executed
and filed on the Closing Date with the Secretary of State of the State of
Delaware. The Merger shall become effective as of the time of filing of a
properly executed Delaware Certificate of Merger. The date and time when the
Merger becomes effective is referred to in this Agreement as the Effective Time.
Section 1.7. Tax-Free Reorganization. The Merger is intended to be a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and this
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Agreement is intended to be a "plan of reorganization" within the meaning of the
regulations promulgated under Section 368 of the Code.
ARTICLE 2.
CONVERSION OF SHARES; TREATMENT OF OPTIONS
Section 2.1. HDS Common and Preferred Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of any HDS Stockholder
(as defined below):
(a) Subject to Section 2.2, (i) each share of common stock, par value
$0.10 per share, of HDS ("HDS Common Stock"), (ii) each share of Series B
Convertible Preferred Stock, par value $0.10 per share, of HDS ("HDS Series
B Stock"), (iii) each share of Series C Convertible Preferred Stock, par
value $0.10 per share of HDS ("HDS Series C Stock"), and (iv) each share of
Series F Convertible Preferred Stock, par value $0.10 per share of HDS
("HDS Series F Stock"), issued and outstanding immediately prior to the
Effective Time (except for Dissenting Shares and treasury shares) shall be
converted, without any further action, into the right to receive such
number of shares of voting common stock, par value $.01 per share, of
Medaphis ("Medaphis Common Stock") as is equal to the Conversion Ratio. The
HDS Series B Stock, HDS Series C Stock and HDS Series F Stock are together
referred to as the "HDS Preferred Stock"; and the HDS Common Stock and HDS
Preferred Stock are together referred to as the "HDS Capital Stock."
(b) Each share of HDS Capital Stock issued immediately prior to the
Effective Time that is then held in HDS's treasury shall be canceled and
retired and all rights in respect of such HDS Capital Stock shall cease to
exist, without any conversion thereof or payment of any consideration
therefor.
(c) Each share of common stock, par value $0.01 per share, of HDSSub
that is issued and outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, par value $0.10 per
share, of the Surviving Corporation.
Section 2.2. Fractional Shares. No scrip or fractional shares of Medaphis
Common Stock shall be issued in the Merger. All fractional shares of Medaphis
Common Stock to which a holder of HDS Capital Stock (each an "HDS Stockholder")
immediately prior to the Effective Time would otherwise be entitled at the
Effective Time shall be aggregated. If a fractional share results from such
aggregation, an HDS Stockholder shall be entitled, after the later of (a) the
Effective Time or (b) the surrender of such HDS Stockholder's Certificate(s)
that represent such shares of HDS Capital Stock, to receive from Medaphis an
amount in cash in lieu of such fractional share, based on the Average Closing
Price. For purposes of this Agreement, the "Average Closing Price" shall be the
arithmetic average of the closing price per share of Medaphis Common Stock, as
reported on the Nasdaq National Market, for each of the ten consecutive trading
days ending on the trading day immediately prior to the date of the annual or
special meeting of HDS Stockholders at which the Merger and this Agreement will
be voted on by HDS Stockholders entitled so to vote.
Section 2.3. Dissenting Shares. To the extent that appraisal rights are
available under Section 262 of the DGCL, shares of HDS Capital Stock that are
issued and outstanding immediately prior to the Effective Time and that have not
been voted for adoption of the Merger and with respect to which appraisal rights
have been properly demanded in accordance with Section 262 of the DGCL
("Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Sections 2.1 and 2.2 at or after the Effective
Time unless and until the holder of such shares becomes ineligible for such
appraisal. If a holder of Dissenting Shares becomes ineligible for appraisal,
then, as of the Effective Time or the occurrence of such event, whichever later
occurs, such holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive the consideration
provided for in Sections 2.1 and 2.2. If any HDS Stockholder asserts the right
to be paid for the fair value of such HDS Capital Stock as described above, HDS
shall give Medaphis notice of such assertion and Medaphis shall have the right
to participate in all negotiations and proceedings with respect to any such
demands. HDS shall not, except with the prior written
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consent of Medaphis, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment. Payment for Dissenting Shares
shall be made as required by the DGCL.
Section 2.4. Treatment of HDS Employee Stock Options. (a) At the Effective
Time, Medaphis shall assume all of HDS's rights and obligations with respect to
the outstanding stock options held by certain employees, officers and directors
of HDS pursuant to the HDS stock option plans (the "SO Plans"), as such SO Plans
and such options are set forth in the HDS Disclosure Letter, which are
outstanding and unexercised at the Effective Time (together, the "Options"),
whether or not the Options are then exercisable. Promptly following such
assumption, Medaphis shall, subject to Section 2.4(b), substitute for the
Options non-qualified options to be granted under the Medaphis Non-Qualified
Stock Option Plan for Employees of Acquired Companies (the "Non-Qualified
Options"). The Non-Qualified Options shall have the vesting and other terms and
conditions described in the Option Assumption Agreement (as defined in Section
2.4(b)) and shall, in addition, have a term or terms mutually agreed upon by
Medaphis and HDS that will result in any Option that had been an "incentive
stock option" (as defined in the Code) being disqualified from its status as an
"incentive stock option." At and after the Effective Time, each Non-Qualified
Option and each Option for which a Non-Qualified Option is not issued in
substitution shall thereafter evidence the right to purchase the number of
shares of Medaphis Common Stock equal to the product (rounded up or down to the
nearest whole share) of (i) the number of shares of HDS Common Stock covered by
such option immediately prior to the Effective Time, multiplied by (ii) the
Conversion Ratio. The exercise price of such Non-Qualified Options for each
share of Medaphis Common Stock subject to such options shall be equal to the
quotient (rounded up or down to the nearest whole cent) obtained by dividing (i)
the per-share exercise price for shares of HDS Common Stock subject to such
option immediately prior to the Effective Time, by (ii) the Conversion Ratio.
(b) At least ten days prior to the Effective Time, Medaphis shall deliver
to each holder of an Option an Option Notice and Assumption Agreement in the
form attached as Exhibit 2.4 (the "Option Assumption Agreement") setting forth
Medaphis' assumption of the Option and substitution of the Non-Qualified Option
in accordance with the terms of Section 2.4(a). Medaphis shall not be entitled
to or required to substitute a Non-Qualified Option for an Option in accordance
with Section 2.4(a) until it has received from the holder of an Option a
properly executed and completed Option Assumption Agreement with respect to the
Option. HDS shall not grant any options to purchase shares of HDS Capital Stock
under any SO Plan or otherwise after the date of this Agreement.
(c) Medaphis agrees to cause the shares of Medaphis Common Stock issuable
upon exercise of the Non-Qualified Options (and, to the extent Non-Qualified
Options were not issued in substitution therefor, the Options) and all other
Options assumed by Medaphis or issued by Medaphis in replacement of the Options
to be registered with the Securities and Exchange Commission (the "Commission")
on a Form S-8 Registration Statement within thirty days following the Effective
Time. Medaphis further agrees to cause the shares of Medaphis Common Stock
issuable upon exercise of the Non-Qualified Options (and, to the extent Non-
Qualified Options were not issued in substitution therefor, the Options) to be
registered or exempt from the registration requirements of all applicable state
securities laws, rules and regulations.
(d) Approval by the HDS Stockholders of this Agreement shall constitute
authorization and approval of any and all of the actions described in this
Section 2.4.
Section 2.5. Exchange of HDS Capital Stock. (a) On or prior to the Closing
Date, Medaphis shall make available to each record holder who, as of the
Effective Time, was a holder of an outstanding certificate or certificates which
immediately prior to the Effective Time represented shares of HDS Capital Stock
(the "Certificate" or "Certificates"), a form of letter of transmittal and
instructions for use in effecting the surrender of the Certificates for
conversion into Medaphis Common Stock and payment for fractional shares.
Delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon proper delivery of the Certificates to Medaphis; and the form of
letter of transmittal shall so reflect. Upon surrender to Medaphis of a
Certificate, together with a properly completed and executed letter of
transmittal, the holder of such Certificate is entitled to receive in exchange
(i) one or more certificates as requested by the holder (properly issued,
executed and countersigned, as appropriate) representing that number of whole
fully paid and nonassessable shares of Medaphis Common Stock to which such HDS
Stockholder shall have become
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entitled pursuant to the provisions of Section 2.1(a) and (ii) as to any
fractional share of Medaphis Common Stock, a check representing the cash
consideration to which such holder shall have become entitled pursuant to
Section 2.2. The Certificate so surrendered shall forthwith be canceled. No
interest will be paid or accrued on any cash payable upon the surrender of the
Certificates. From the Effective Time until surrender in accordance with the
provisions of this Section 2.4, each Certificate shall represent for all
purposes only the right to receive the consideration provided in Sections 2.1
and 2.2. All payments of respective shares of Medaphis Common Stock and cash for
fractional shares that are made upon surrender of Certificates in accordance
with the terms of this Agreement shall be deemed to have been made in full
satisfaction of rights pertaining to the shares of HDS Common Stock evidenced by
such Certificates.
(b) In the case of any lost, mislaid, stolen or destroyed Certificate, the
holder of such Certificate may be required, as a condition precedent to delivery
to such holder of the consideration described in Sections 2.1 and 2.2, to
deliver to Medaphis a bond in such reasonable sum or a reasonably satisfactory
indemnity agreement as Medaphis may direct as indemnity against any claim that
may be made against Medaphis or the Surviving Corporation with respect to the
Certificate alleged to have been lost, mislaid, stolen or destroyed.
(c) After the Effective Time, there shall be no transfers on the stock
transfer books of the Surviving Corporation of the shares of HDS Capital Stock
that were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
transfer, they shall be canceled and exchanged for the consideration described
in Sections 2.1 and 2.2.
(d) Any shares of Medaphis Common Stock or cash due former HDS Stockholders
pursuant to Sections 2.1 and 2.2 that remains unclaimed by such former HDS
Stockholder for six months after the Effective Time shall be held by Medaphis;
and any former HDS Stockholder who has not prior to that date complied with
Section 2.5(a) can thereafter look only to Medaphis for issuance of the number
of shares of Medaphis Common Stock and other consideration to which such holder
has become entitled pursuant to the provisions of Sections 2.1 and 2.2, except
that neither Medaphis nor any other party to this Agreement shall be liable to a
former HDS Stockholder for any amount required to be paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
Section 2.6. Conversion Ratio and Adjustment Event. (a) The Conversion
Ratio is 6,125,000 divided by Total HDS Shares. Total HDS Shares is 7,741,843,
which represents the sum of the number of shares of HDS Preferred Stock and HDS
Common Stock that are issued and outstanding on the date of this Agreement.
(b) The Conversion Ratio shall be calculated to the nearest 1/10,000th of a
whole number.
(c) If, after the date of this Agreement and prior to the Effective Time,
Medaphis shall have declared a stock split (including a reverse split) or
combination of Medaphis Common Stock or a dividend payable in Medaphis Common
Stock, or any other distribution of Medaphis Common Stock to holders of Medaphis
Common Stock with respect to their Medaphis Common Stock (including such a
distribution or dividend made in connection with a recapitalization,
reclassification, merger, consolidation, reorganization or similar transaction),
or otherwise have changed the Medaphis Common Stock into any other securities,
then the Conversion Ratio shall be appropriately adjusted to reflect such stock
split, combination or dividend or other distribution or change of securities.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF HDS
With such exceptions as are set forth in a letter (the "HDS Disclosure
Letter") delivered by HDS to Medaphis prior to the date of this Agreement, HDS
represents and warrants to Medaphis as follows:
Section 3.1. Organization. HDS is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and the
subsidiary of HDS listed as such in the HDS Disclosure Letter (the "Subsidiary")
is a corporation existing under the laws of the Province of Ontario, and HDS and
Subsidiary have all requisite corporate power and authority to own, lease and
operate their respective
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properties and to carry on their respective businesses as now being conducted.
HDS and Subsidiary are each qualified to transact business, and are in good
standing, as a foreign corporation in each jurisdiction where the character of
their activities requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the assets, liabilities,
results of operations, financial condition or business of HDS and Subsidiary
taken as a whole (such an effect, an "HDS Material Adverse Effect"). HDS has
made available to Medaphis accurate and complete copies of the Certificate of
Incorporation (including all certificates of designation relating to the HDS
Preferred Stock) and Bylaws, as currently in effect, of HDS, the minute books
and stock records of HDS and the corresponding documents of Subsidiary. The HDS
Disclosure Letter contains a true and correct list of the jurisdictions in which
HDS or Subsidiary is qualified to do business as a foreign corporation.
Section 3.2. Authorization. HDS has full corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement and to consummate the Merger and the other transactions contemplated
by this Agreement. Other than the stockholder approval contemplated in Section
6.1(a), the execution and delivery of this Agreement by HDS and the performance
by HDS of its obligations under this Agreement and the consummation of the
Merger and the other transactions provided for by this Agreement have been duly
and validly authorized by all necessary corporate action on the part of HDS. The
Board of Directors of HDS has approved the execution, delivery and performance
of this Agreement and the consummation of the Merger and the other transactions
provided for in this Agreement. This Agreement has been duly executed and
delivered by HDS and constitutes the valid and binding agreement of HDS,
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency and other similar laws affecting the enforceability of
creditors' rights generally, general equitable principles and the discretion of
courts in granting equitable remedies.
Section 3.3. Absence of Restrictions and Conflicts. Subject to the
stockholder approval contemplated in Section 6.1(a), the execution, delivery and
performance of this Agreement, the consummation of the Merger and the other
transactions contemplated by this Agreement and the fulfillment of and
compliance with the terms and conditions of this Agreement do not and will not,
with the passing of time or the giving of notice or both, violate, constitute a
breach of or default under, result in the loss of any material benefit under the
terms or provisions of, or permit the acceleration of any obligation under, (i)
any term or provision of the charter or bylaws of HDS or Subsidiary, (ii) any
HDS Material Contract, (iii) any judgment, decree or order of any court or
governmental authority or agency to which HDS or Subsidiary is a party or by
which HDS or Subsidiary or any of their respective properties is bound, or (iv)
any statute, law, regulation or rule applicable to HDS or Subsidiary, so as to
have, in the case of subsections (ii) through (iv) above, an HDS Material
Adverse Effect. Except for compliance with the applicable requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Securities Act of 1933, as amended (the "Securities Act"), the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), applicable
state securities laws and the filing and recordation of the Certificate of
Merger as required by the DGCL, no consent, approval, order or authorization of,
or registration, declaration or filing with, any governmental agency or public
or regulatory unit, agency, body or authority with respect to HDS or Subsidiary
is required in connection with the execution, delivery or performance of this
Agreement by HDS or the consummation of the transactions contemplated by this
Agreement by HDS, the failure to obtain which would have an HDS Material Adverse
Effect.
Section 3.4. Capitalization. The authorized capital stock of HDS consists
of 10,000,000 shares of common stock, $0.10 par value per share, and 5,000,000
shares of serial preferred stock, of which 742,000 shares of HDS Series B Stock,
1,687,500 shares of HDS Series C Stock, 830,000 shares of HDS Series E Stock and
1,818,181 shares of HDS Series F Stock have been authorized. As of the date of
this Agreement, there were 4,081,990 shares of HDS Common Stock, 742,000 shares
of HDS Series B Stock, 1,312,500 shares of HDS Series C Stock and 1,605,353
shares of HDS Series F stock issued and outstanding. Shares of the HDS Series B,
HDS Series C and HDS Series F Stock are convertible into shares of HDS Common
Stock on a one-for-one basis. Each share of HDS Capital Stock outstanding as of
the date of this Agreement is duly authorized, validly issued, fully paid and
nonassessable and free of pre-emptive rights. There are no subscriptions,
options, convertible securities, calls, puts, rights, warrants or other
agreements,
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claims or commitments of any nature whatsoever obligating HDS to purchase,
redeem, issue, transfer, deliver or sell, or cause to be purchased, redeemed,
issued, transferred, delivered or sold, additional shares of the capital stock
or other securities of HDS or obligating HDS to grant, extend or enter into any
such agreement or commitment. HDS does not own an equity interest in any
corporation, partnership or other entity, except that HDS owns beneficially and
of record all the issued and outstanding stock of the Subsidiary. Each share of
capital stock of the Subsidiary outstanding as of the date of this Agreement is
duly authorized, validly issued, fully paid and non-assessable and free of
pre-emptive rights. No prior offer, issue, redemption, call, purchase, sale,
transfer or other transaction of any nature with respect to the capital stock or
equity interests of HDS, or any corporation or organization which has been
merged into HDS, has given or may give rise to any valid claim or action by any
person which is enforceable against HDS, the Surviving Corporation or any of
their respective affiliates and, to the knowledge of the HDS Executives (as
hereinafter defined), no fact or circumstance exists which could give rise to
any such right, claim or action on behalf of any person.
Section 3.5. Financial Statements. (a) HDS has made available to Medaphis
the audited balance sheets of HDS as of March 31, 1995 and March 31, 1996, and
the related audited statements of income, changes in stockholders' equity and
cash flows for the respective fiscal years then ended including the notes to
such financial statements, examined by and accompanied by the report of Deloitte
& Touche LLP ("Deloitte & Touche"), independent public accountants (the balance
sheet as of March 31, 1996 is referred to herein as the "1996 Balance Sheet").
All of the foregoing financial statements are collectively referred to as the
"HDS Financial Statements." The HDS Financial Statements (i) have been prepared
from, and are in accordance with, the books and records of HDS and (ii), as
applicable, present fairly the financial position, results of operations,
changes in stockholders' equity and cash flows of HDS as of the dates and for
the periods indicated, in each case in conformity with generally accepted
accounting principles, consistently applied. The HDS Disclosure Letter sets
forth a true and complete list of all loss contingencies (within the meaning of
Statement of Financial Accounting Standards No. 5) of HDS existing as of March
31, 1996 exceeding $50,000 in the case of any single loss contingency or
$100,000 in the case of all loss contingencies.
(b) On the Closing Date, HDS and Subsidiary will not have any obligation or
liability (including but not limited to indebtedness for borrowed money and
capitalized lease obligations) that under generally accepted accounting
principles is required to be recorded on a balance sheet as a long-term
liability.
Section 3.6. Absence of Certain Changes. (a) Since March 31, 1996, there
has not been (i) any material adverse change in the assets, liabilities, results
of operations, financial condition or business of HDS and Subsidiary taken as a
whole, (ii) any material damage, destruction, loss or casualty to property or
assets of HDS, whether or not covered by insurance, which property or assets are
material to the operations or business of HDS and Subsidiary taken as a whole,
(iii) any declaration, setting aside or payment of any dividend or distribution
(whether in cash, stock or property) in respect of the capital stock of HDS, any
redemption or other acquisition by HDS of any of the capital stock of HDS or any
split, combination or reclassification of shares of capital stock declared or
made by HDS or (iv) any agreement to do any of the foregoing.
(b) Since March 31, 1996, there have not been (i) any extraordinary losses
suffered, which, in the aggregate, have had an HDS Material Adverse Effect, (ii)
any material assets mortgaged, pledged or made subject to any material lien,
charge or other encumbrance, (iii) any material liability or obligation
(absolute, accrued or contingent) incurred or any material bad debt, contingency
or other reserve increase suffered, except, in each such case, in the ordinary
course of business and consistent with past practice, (iv) any material claims,
liabilities or obligations (absolute, accrued or contingent) paid, discharged or
satisfied, other than the payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice, of claims, liabilities and
obligations reflected or reserved against in the HDS Financial Statements or
incurred in the ordinary course of business and consistent with past practice,
(v) any material guaranteed checks, notes or accounts receivable written off as
uncollectible, except write-offs in the ordinary course of business and
consistent with past practice, (vi) any write down (under Statement of Financial
Accounting Standards No. 121 ("SFAS No. 121") or otherwise) of the value of any
material asset or investment on HDS's books or records, except for depreciation
and amortization taken in the ordinary course of business and consistent with
past practice, (vii) any cancellation of any material debts or waiver of any
material claims or rights of substantial value, or sale, transfer or other
disposition of any material properties or assets (real,
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personal or mixed, tangible or intangible) of substantial value, except, in each
such case, in transactions in the ordinary course of business and consistent
with past practice, (viii) any capital expenditure that would cause all capital
expenditures since December 31, 1995, to exceed $500,000, (ix) any change in
accounting practice relating to capitalized research and development, (x) any
material transactions entered into other than in the ordinary course of
business, (xi) any agreements to do any of the foregoing, or (xii) any other
events, developments or conditions of any character that have had or are
reasonably likely to have an HDS Material Adverse Effect other than events
affecting businesses similar to HDS and Subsidiary generally.
Section 3.7. Legal Proceedings. There are no suits, actions, claims,
proceedings or investigations pending, or, to the knowledge of the HDS
Executives, threatened against HDS or Subsidiary (or any of their officers or
directors) before any court, arbitrator or administrative or governmental body,
which, if finally determined adversely, are reasonably likely, individually or
in the aggregate, to have an HDS Material Adverse Effect. All pending suits,
actions, claims, proceedings or investigations of HDS or Subsidiary (or any of
their officers or directors) before any court, arbitrator or administrative or
governmental body are adequately provided for in the 1996 Balance Sheet if and
to the extent such a provision is required by generally accepted accounting
principles consistently applied. Neither HDS nor Subsidiary is subject to any
judgment, decree, injunction, rule or order of any court, and, to the knowledge
of the HDS Executives, neither HDS nor Subsidiary is subject to any governmental
restriction applicable to HDS, which is reasonably likely (i) to have an HDS
Material Adverse Effect or (ii) to cause a material limitation on Medaphis's
ability to operate the business of HDS and Subsidiary taken as a whole after the
Closing.
Section 3.8. Compliance with Law. HDS and Subsidiary each has all material
authorizations, approvals, licenses and orders of and from all governmental and
regulatory officers and bodies necessary to carry on its business as it is
currently being conducted, to own or hold under lease the properties and assets
it owns or holds under lease and to perform all of its obligations under the
agreements to which it is a party, and each has been and is in compliance with
all applicable laws, regulations and administrative orders of any country, state
or municipality or of any subdivision of any thereof to which its business or
its employment of labor or its use or occupancy of properties or any part
thereof are subject, the failure to obtain or the violation of which would have
an HDS Material Adverse Effect.
Section 3.9. Material Contracts. The HDS Disclosure Letter contains a
correct and complete list of the following (other than accounts payable incurred
in the ordinary course of business) (the "HDS Material Contracts"):
(a) all bonds, debentures, notes, loans, mortgages, indentures or
guarantees to which HDS or Subsidiary is a party or by which any one of its
properties or assets (real, personal or mixed, tangible or intangible) is
bound, in any case involving an amount in excess of $10,000 individually;
(b) all leases to which HDS or Subsidiary is a party or by which any
of its properties or assets (real, personal or mixed, tangible or
intangible) is bound involving an annual rental payment in excess of
$75,000 individually;
(c) all credit or loan commitments in excess of $100,000 to HDS or
Subsidiary which are outstanding, together with a brief description of such
commitments and the name of each financial institution granting the same;
(d) all contracts or agreements which limit or restrict in a
substantial manner HDS, Subsidiary or any of the HDS Executives from
engaging in any business in any jurisdiction and all contracts or
agreements that limit or restrict others from competing with HDS or
Subsidiary in any jurisdiction, other than contracts between HDS or
Subsidiary and current or former employees of HDS or Subsidiary;
(e) all contracts or agreements requiring HDS or Subsidiary to
register its capital stock or securities under federal or state securities
law; and
(f) all existing contracts and commitments (other than those described
in subparagraphs (a), (b), (c), (d) or (e) of this Section 3.9, the HDS
Client Contracts and other agreements between HDS or Subsidiary and their
clients that are not HDS Client Contracts, and the HDS Benefit Plans) to
which
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HDS or Subsidiary is a party or by which its properties or assets may be
bound involving an annual commitment or annual payment by any party to such
contract or commitment of more than $75,000 individually.
True and complete copies of all HDS Material Contracts, including all
amendments, have been made available to Medaphis. The HDS Material Contracts are
valid and enforceable in accordance with their respective terms with respect to
HDS and, to the knowledge of the HDS Executives, valid and enforceable in
accordance with their respective terms with respect to any other party to an HDS
Material Contract, in each case to the extent material to the business and
operations of HDS and subject to applicable bankruptcy, insolvency and other
similar laws affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies. Except for events or occurrences, the consequences of which,
individually or in the aggregate, would not have an HDS Material Adverse Effect,
there is not under any of the HDS Material Contracts any existing breach,
default or event of default by HDS or Subsidiary or event that with notice or
lapse of time or both would constitute a breach, default or event of default by
HDS or Subsidiary, nor do the HDS Executives know of, and HDS has not received
notice of, or made a claim with respect to, any breach or default by any other
party to an HDS Material Contract.
Section 3.10. HDS Client Contracts. The HDS Disclosure Letter sets forth a
true and complete list of all agreements, contracts or commitments pursuant to
which HDS or Subsidiary provides goods or services to its clients which (i)
produced annual payments to HDS or Subsidiary in excess of $100,000 in the year
ending March 31, 1996, or (ii) HDS reasonably expects to produce annual payments
to HDS or Subsidiary in excess of $1,000,000 in the year ending March 31, 1997
(the "HDS Client Contracts"). The HDS Disclosure Letter contains an accurate
description of (a) the terms and conditions of each oral HDS Client Contract;
(b) any and all disagreements, complaints, disputes or defaults known to the HDS
Executives arising under or with respect to the HDS Client Contracts which could
reasonably be expected to result in a client's termination of its HDS Client
Contract or claim for damages against HDS or Subsidiary in excess of $300,000;
and (c) all loans or advances made by HDS or Subsidiary to or on behalf of its
clients, which description includes the dates of such loans or advances and the
principal balance outstanding as of the date of the HDS Disclosure Letter under
each such loan or advance. Except for provisions in HDS Client Contracts
granting unilateral termination rights to clients of HDS upon notice to HDS, the
execution, delivery and performance of this Agreement by HDS and the
consummation of the transactions contemplated by this Agreement will not, with
the passing of time or the giving of notice or both, violate, constitute a
default under, result in the loss of any material benefit under the terms or
provisions of, or give rise to a termination right under, any HDS Client
Contract. True and complete copies of all written HDS Client Contracts,
including all amendments, have been made available to Medaphis. The HDS Client
Contracts are valid and enforceable in accordance with their respective terms
with respect to HDS or Subsidiary, and, to the knowledge of the HDS Executives,
are valid and enforceable in accordance with their respective terms with respect
to any other party to an HDS Client Contract, in each case except as would not
have an HDS Material Adverse Effect, and subject to applicable bankruptcy,
insolvency and other similar laws affecting the enforceability of creditors'
rights generally, general equitable principles and the discretion of courts in
granting equitable remedies. Except as would not have an HDS Material Adverse
Effect, there is not under HDS Client Contracts any existing breach, default or
event of default by HDS or Subsidiary, or event that with notice or lapse of
time or both would constitute a breach, default or event of default by HDS or
Subsidiary, nor do the HDS Executives know of, and HDS has not received notice
of, or made a claim with respect to, any breach or default by any other party.
Section 3.11. Tax Returns; Taxes. Each of HDS and Subsidiary has duly
filed all federal, state, local and foreign tax returns required to be filed by
it and has duly paid or made adequate provision for the payment of all taxes
which are due and payable pursuant to such returns or pursuant to any assessment
which is due and payable with respect to taxes in such jurisdictions, whether or
not in connection with such returns. The liability for taxes reflected in the
1996 Balance Sheet is sufficient for the payment of all unpaid taxes, whether or
not disputed, that are accrued or applicable for the period ended March 31, 1996
and for all years and periods ended prior to that date or that are attributable
to differences in the time for recognition of income, deductions and other items
for financial reporting and tax purposes. All deficiencies asserted as a result
of any
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examinations by the Internal Revenue Service or any other taxing authority have
been paid and fully settled. There are no pending claims asserted for taxes of
HDS or Subsidiary or outstanding agreements or waivers extending the statutory
period of limitation applicable to any tax return of HDS or Subsidiary for any
period. Each of HDS and Subsidiary has made all estimated income tax deposits
and all other required tax payments or deposits and has complied for all prior
periods in all material respects with the tax withholding provisions of all
applicable federal, state, local, foreign and other laws. HDS has made available
to Medaphis true, complete and correct copies of its federal income tax returns
for the last three taxable years and made available all other tax returns
requested by Medaphis.
Section 3.12. Officers, Directors and Employees. The HDS Disclosure Letter
contains a true and complete list of all of the officers and directors of HDS,
specifying their office and annual rate of compensation, and a true and complete
copy of the form of written employment agreement to which each full-time
employee of HDS or Subsidiary is a party and a list of the employees of HDS or
Subsidiary as of the date of this Agreement to whom HDS or Subsidiary has made
oral commitments involving material terms which are binding on HDS or Subsidiary
and that involve an amount in excess of $35,000.
Section 3.13. Employee Benefit Plans. (a) Definition of Benefit
Plans. For purposes of this Section 3.13, the term "HDS Benefit Plan" means any
plan, program, arrangement, fund, policy, practice or contract which, through
which or under which HDS or any HDS ERISA Affiliate currently provides or, with
respect to any multi-employer plans (as defined in ERISA section 4001(a)(3)) and
pension benefit plans (as defined in ERISA section 3(3)) subject to Code section
412, at any time provided, benefits or compensation to or on behalf of employees
or former employees of HDS or any HDS ERISA Affiliate, whether formal or
informal, whether or not written, including but not limited to the following:
(i) Arrangements -- any bonus, incentive compensation, stock option,
deferred compensation, commission, severance pay, golden parachute or other
compensation plan or rabbi trust;
(ii) ERISA Plans -- any "employee benefit plan" (as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), including, but not limited to, any multiemployer plan (as
defined in Section 3(37) and Section 4001(a) (3) of ERISA), defined benefit
plan, profit sharing plan, money purchase pension plan, 401(k) plan,
savings or thrift plan, or any plan, fund, program, arrangement or practice
providing for medical (including post-retirement medical), hospitalization,
accident, sickness, disability, or life insurance benefits; and
(iii) Other Employee Fringe Benefits -- any stock purchase, vacation,
scholarship, sick days, day care, prepaid legal services, dependent care or
other fringe benefits plans, programs, arrangements, contracts or
practices.
(b) HDS ERISA Affiliate. For purposes of this Section 3.13, the term "HDS
ERISA Affiliate" means each trade or business (whether or not incorporated)
which together with HDS is treated as a single employer under Section 414(b),
(c), (m) or (o) of the Code.
(c) Identification of Benefits Plans. All of the HDS Benefit Plans are
listed in the HDS Disclosure Letter.
(d) Compliance With All Statutes, Orders and Rules. Each HDS Benefit Plan
maintained by HDS and each HDS ERISA Affiliate is in compliance in all material
respects with the requirements prescribed by and all statutes, orders and
governmental rules and regulations applicable to HDS Benefit Plans. All reports
and disclosures relating to HDS Benefit Plans required to be filed with or
furnished to any governmental entity, participants or beneficiaries prior to the
Closing Date have been or will be filed or furnished in a timely manner and in
accordance with applicable laws except as would not have an HDS Material Adverse
Effect.
(e) MEPPA Liability/Post-Retirement Medical Benefits. Neither HDS nor any
HDS ERISA Affiliate maintains, or has at anytime established or maintained, or
has at any time been obligated to make, or made, contributions to or under any
multiemployer plan (as defined in Section 3(37) and Section 4001(a)(3) of
ERISA). HDS does not maintain, nor has HDS at any time established or
maintained, nor has HDS at any time been obligated to make, or made,
contributions to or under any plan which provides post-retirement
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medical or health benefits with respect to employees of HDS. There is no lien
upon any property of HDS or any HDS ERISA Affiliate outstanding pursuant to
Section 412(n) of the Code in favor of any HDS Benefit Plan. No assets of HDS or
any HDS ERISA Affiliate have been provided as security for any HDS Benefit Plan
pursuant to Section 401(a) (29) of the Code.
(f) Documentation. HDS has made available to Medaphis a true and complete
copy of the following documents, if applicable, with respect to each HDS Benefit
Plan identified in the HDS Disclosure Letter: (1) all documents, including any
insurance contracts and trust agreements, setting forth the terms of each HDS
Benefit Plan, or if there are no such documents evidencing an HDS Benefit Plan,
a full description of such HDS Benefit Plan, (2) the ERISA summary plan
description and any other summary of plan provisions provided to participants or
beneficiaries for each such HDS Benefit Plan, (3) the annual reports filed for
the most recent three plan years and most recent financial statements or
periodic accounting of related plan assets with respect to each HDS Benefit
Plan, (4) the most recent favorable determination letter, opinion or ruling from
the Internal Revenue Service ("IRS") for each HDS Benefit Plan, the assets of
which are held in trust, to the effect that such trust is exempt from federal
income tax, and any outstanding request for a determination letter and (5) each
opinion or ruling from the Department of Labor or the Pension Benefit Guaranty
Corporation ("PBGC") with respect to any such HDS Benefit Plan.
(g) Qualified Status. Each HDS Benefit Plan that is funded through a trust
or insurance contract has at all times satisfied in all material respects, by
its terms and in its operation, all applicable requirements for an exemption
from federal income taxation under Section 501(a) of the Code. Except for the
HDS Profit Sharing 401(k) Plan and the HDS Money Purchase Pension Plan (the "HDS
Qualified Plans"), no HDS Benefit Plan meets or was intended to meet the
requirements of Section 401(a) of the Code. Any determination letter issued by
the IRS to the effect that the HDS Qualified Plans qualify under Section 401(a)
of the Code and that the related trusts are exempt from taxation under Section
501(a) of the Code remains in effect and has not been revoked. The HDS Qualified
Plans currently comply in form in all material respects with the requirements
under Section 401(a) of the Code, other than changes required by statutes,
regulations and rulings for which amendments are not yet required. The HDS
Qualified Plans have been administered according to their terms (except for
those terms which are inconsistent with the changes in operations of a HDS
Qualified Plan required by statutes, regulations, and rulings for which changes
in plan terms are not yet required to be made, in which case the HDS Qualified
Plans have been operated in accordance with the provisions of those statutes,
regulations and rulings) and in accordance with the requirements of Section
401(a) of the Code.
The HDS Profit Sharing 401(k) Plan has been tested for compliance with, and
in all material respects has satisfied the requirements of, Section 401(k)(3)
and 401(m)(2) of the Code for each plan year ending prior to the Closing Date.
(h) Legal Actions. To the knowledge of the HDS Executives, there are no
actions, audits, suits or claims which are pending or threatened against any HDS
Benefit Plan, any fiduciary of any of the HDS Benefit Plans with respect to the
HDS Benefit Plans or against the assets of any of the HDS Benefit Plans, except
claims for benefits made in the ordinary course of the operation of such plans.
(i) Funding. HDS and each HDS ERISA Affiliate has made full and timely
payment of all amounts required to be contributed under the terms of each HDS
Benefit Plan and applicable law or required to be paid as expenses under such
HDS Benefit Plan and no excise taxes in an aggregate amount in excess of $50,000
are assessable as a result of any nondeductible or other contributions made or
not made to an HDS Benefit Plan. The assets of all HDS Benefit Plans which are
required under applicable laws to be held in trust are in fact held in trust,
and the assets of each such HDS Benefit Plan equal or exceed the liabilities of
each such plan. The liabilities of each other HDS Benefit Plan are properly and
accurately reported on the financial statements and records of HDS to the extent
required by law or accounting principles except as would not have an HDS
Material Adverse Effect. The assets of each HDS Benefit Plan are reported at
their then current fair market value on the books and records of each HDS
Benefit Plan.
(j) Liabilities. Neither HDS nor any HDS ERISA Affiliate is subject to any
material liability, tax or penalty whatsoever to any person whomsoever as a
result of HDS's or any HDS ERISA Affiliate's engaging in
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a prohibited transaction under ERISA or the Code, and the HDS Executives have no
knowledge of any circumstances which reasonably might result in any such
material liability, tax or penalty as a result of a breach of fiduciary duty
under ERISA.
(k) Excess Parachute Payments. No payment required to be made to any
employee associated with HDS as a result of the transactions contemplated hereby
under any contract or otherwise will, if made, constitute an "excess parachute
payment" within the meaning of Section 280G of the Code.
(l) COBRA. HDS and each HDS ERISA Affiliate have complied with the
continuation coverage requirements of Section 4980B of the Code.
(m) No Acceleration of Liability Under Benefit Plans. The consummation of
the transactions contemplated hereby will not accelerate or increase any
liability under any HDS Benefit Plan because of an acceleration or increase of
any of the rights or benefits to which employees of HDS or any HDS ERISA
Affiliate may be entitled thereunder.
(n) Leased Employees. To the knowledge of the HDS Executives, HDS has made
no representations or warranties (whether written or oral, express or implied)
contractually or otherwise to any client or customer of HDS that HDS employees
rendering services to such client or customer are not "leased employees" (within
the meaning of Section 414(n) of the Code) or that such employees would not be
required to participate under any pension benefit plan (within the meaning of
Section 3(2) of ERISA) (a "Pension Benefit Plan") of such client or customer of
HDS relating either to (a) providing benefits to employees of HDS under a
Pension Benefit Plan of HDS or (b) making contributions to or reimbursing such
client or customer for any contributions made to a Pension Benefit Plan of such
client or customer on behalf of employees of HDS.
(o) Defined Benefit Plans/Money Purchase Plans. No HDS Benefit Plan has
suffered any accumulated funding deficiency within the meaning of Section 302 of
ERISA and Section 412 of the Code. Neither HDS nor any HDS ERISA Affiliate has
any outstanding liability under Section 4971 of the Code. No HDS Benefit Plan is
subject to Title IV of ERISA.
Section 3.14. Labor Relations. To the knowledge of the HDS Executives,
each of HDS and Subsidiary is in compliance with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours, and is not engaged in any unfair labor or unlawful
employment practice. Except as would not result in an HDS Material Adverse
Effect, there is no unlawful employment practice discrimination charge involving
HDS or Subsidiary pending before the Equal Employment Opportunity Commission
("EEOC"), EEOC recognized state "referral agency" or any other governmental
agency. There is no unfair labor practice or similar charge or complaint against
HDS or Subsidiary pending before the National Labor Relations Board ("NLRB") or
any comparable Canadian governmental agency. There is no labor strike, slowdown
or stoppage actually pending or, to the knowledge of the HDS Executives,
threatened against or involving or affecting HDS or Subsidiary and no labor
union representation question exists under the National Labor Relations Act or
any comparable Canadian law respecting any employees of HDS or Subsidiary. To
the knowledge of the HDS Executives, no grievance or arbitration proceeding is
pending against HDS or Subsidiary and no written claim therefor exists. There is
no collective bargaining agreement that is binding on HDS or Subsidiary.
Section 3.15. Insurance. HDS has provided to Medaphis a true and complete
list of its current insurance coverages for HDS and Subsidiary, including names
of carriers, amounts of coverage and premiums therefor. Each of HDS and
Subsidiary believes that such corporation has been and is insured with respect
to its properties and the conduct of its business in such amounts and against
such risks as are reasonable in relation to its business and will use its
reasonable efforts to maintain such insurance at least through the Effective
Time. HDS has made available to Medaphis true and complete copies of all
insurance policies covering HDS or Subsidiary, their properties, assets,
employees or operations.
Section 3.16. Title to Properties and Related Matters. (a) Each of HDS and
Subsidiary has good and valid title to or valid leasehold interests in its
properties reflected in the 1996 Balance Sheet or acquired after March 31, 1996
(other than properties sold or otherwise disposed of in the ordinary course of
business), and
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all of such properties are held free and clear of all title defects, liens,
encumbrances and restrictions, except, with respect to all such properties, (a)
mortgages and liens securing debt reflected as liabilities on the 1996 Balance
Sheet and (b) (i) liens for current taxes and assessments not in default, (ii)
mechanics', carriers', workmen's, repairmen's, statutory or common law liens
either not delinquent or being contested in good faith, and (iii) liens,
mortgages, encumbrances, covenants, rights-of-way, building or use restrictions,
easements, exceptions, variances, reservations and other matters or limitations
of any kind, if any, which either individually or in the aggregate do not have a
material adverse effect on HDS's or Subsidiary's use of the property affected.
Notwithstanding the preceding sentence, HDS makes no representation or warranty
in this Section 3.16 or otherwise regarding the validity of lessor's title to
any such properties in which HDS or Subsidiary has a leasehold interest as
lessee. Neither HDS nor Subsidiary has granted any security interests or other
liens upon or factored the accounts receivable of HDS or Subsidiary.
(b) The HDS Disclosure Letter sets forth a true and complete list of all
leases and agreements of HDS or Subsidiary granting possession of or rights to
real or personal property which provide for payments in excess of $75,000
annually (the "Scheduled Leases"). All such Scheduled Leases are in full force
and effect and constitute the valid, binding and enforceable obligations of HDS
or Subsidiary, and, to the knowledge of the HDS Executives, are valid, binding
and enforceable in accordance with their respective terms with respect to each
other party to a Scheduled Lease, subject in each case to applicable bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally, general equitable principles and the discretion of courts in granting
equitable remedies and except as would not result in an HDS Material Adverse
Effect. HDS or Subsidiary has physical possession of all real property,
equipment and other assets which are covered by Scheduled Leases. Except as
would not result in an HDS Material Adverse Effect, there are no existing
defaults of HDS or Subsidiary with respect to such Scheduled Leases or, to the
knowledge of the HDS Executives, of any of the other parties to such Scheduled
Leases (or, to the knowledge of the HDS Executives, any events or conditions
which, with notice or lapse of time, or both, would constitute a default).
Section 3.17. Environmental Matters. To the actual knowledge of the HDS
Executives, HDS is in compliance in all material respects with all statutes,
regulations and ordinances relating to the protection of human health and the
environment including, without limitation, the Clean Water Act, 33 U.S.C.
sec. 1251 et seq., the Resource Conservation and Recovery Act, 42 U.S.C.
sec. 6901 et seq., the Clean Air Act, 42 U.S.C. sec. 7401 et seq., the Toxic
Substances Control Act, 15 U.S.C. sec. 2601 et seq., the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. sec. 11001 et seq., the regulations
developed pursuant to these statutes and the corresponding state and local
statutes, ordinances and regulations. There has been no release by HDS,
Subsidiary or, to the actual knowledge of the HDS Executives, by any other
person of a hazardous substance as that term is defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
sec. 9601(14), into the environment at any property owned or leased by HDS or
Subsidiary (the "Premises") including, without limitation, any such release in
the soil or groundwater underlying the Premises. To the actual knowledge of the
HDS Executives, there is no asbestos, polychlorinated biphenyls or underground
storage tanks located on the Premises and there have been no releases of
asbestos, polychlorinated biphenyls or materials stored in underground storage
tanks, including, without limitation, petroleum or petroleum-based materials. To
the knowledge of the HDS Executives, neither HDS nor Subsidiary has received
notice of any violation of any environmental statute or regulation by HDS or
Subsidiary nor has it been advised of any claim or liability pursuant to any
environmental statute or regulation brought by any governmental agency or
private party against HDS or Subsidiary.
Section 3.18. Patents, Trademarks, Trade Names. The HDS Disclosure Letter
sets forth a true and complete list of (i) all patents, registered trademarks,
registered trade names (including all federal and state registration pertaining
thereto) and registered copyrights owned by HDS or Subsidiary and unregistered
trademarks and trade names which are material to the business of HDS and
Subsidiary taken as a whole (collectively, the "Proprietary Intellectual
Property") and (ii) all patents, trademarks, trade names, copyrights, technology
and processes used by HDS or Subsidiary in its business which are material to
its business and are used pursuant to a license or other right granted by a
third party (collectively, the "Licensed Intellectual Property", and together
with the Proprietary Intellectual Property referred to as "Intellectual
Property"), other than commercially available "shrink-wrap" software sold
through retail channels. A true
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and complete list of all such licenses with respect to Licensed Intellectual
Property is set forth in the HDS Disclosure Letter. To the knowledge of the HDS
Executives, each of the federal and state registrations pertaining to the
Proprietary Intellectual Property is valid and in full force and effect and all
required filings in association with such registrations have been properly made
and all required fees have been paid. Each of HDS and Subsidiary owns, or has
the right to use pursuant to valid and effective agreements, in accordance with
their respective terms (subject to applicable bankruptcy, insolvency and other
similar laws affecting the enforceability of creditors' rights generally,
general equitable principles and the discretion of courts in granting equitable
remedies), all Intellectual Property, and the consummation of the transactions
contemplated by this Agreement will not violate, constitute a breach of or a
default under, or result in the loss of any material benefit under, the terms or
provisions of any such agreement. To the knowledge of the HDS Executives, no
written claims are pending against HDS or Subsidiary by any person with respect
to the use of any Intellectual Property or challenging or questioning the
validity or effectiveness of any license or agreement relating to the same, and
to the knowledge of the HDS Executives the current use by HDS and Subsidiary of
the Intellectual Property does not infringe on the rights of any third party.
The HDS Disclosure Letter sets forth a list of all jurisdictions in which HDS or
Subsidiary is operating under a trade name, and each jurisdiction in which any
such trade name is registered.
Section 3.19. HDS Computer Software. (a) The HDS Disclosure Letter sets
forth (i) a description of all software owned by each of HDS and Subsidiary and
used or licensed to customers in connection with the business of HDS and
Subsidiary (the "HDS Proprietary Software"); and (ii) a list of all software
(other than the HDS Proprietary Software) used in connection with the business
of HDS and Subsidiary (the "HDS Licensed Software" and together with the HDS
Proprietary Software, the "HDS Software"), except that such list does not
include HDS Licensed Software that is commercially available "shrink-wrap"
software sold through retail channels. The HDS Software consists of: (i) source
and object code embodied in magnetic media; and (ii) all development and
procedural tools necessary to maintain the HDS Proprietary Software, including
licenses to use compilers, assemblers, libraries and other such aids. To the
knowledge of the HDS Executives, HDS employs individuals who are familiar with
the business of such corporation and who are qualified to maintain the HDS
Software and to use the computer hardware used by such corporation in its
operations (the "HDS Hardware").
(b) HDS has all right, title and interest in and to all patent, trade
secret and copyright rights in the HDS Proprietary Software. HDS has developed
the HDS Proprietary Software entirely through its own efforts for its own
account. The HDS Proprietary Software is free and clear of all liens, claims and
encumbrances, except for liens, claims and encumbrances involving an aggregate
of not more than $100,000. The use of the HDS Licensed Software and the use and
distribution of the HDS Proprietary Software does not breach any terms of any
contract between HDS and Subsidiary and any third party, except for breaches of
such contracts involving not more than $100,000 in the aggregate. The HDS
Disclosure Letter sets forth a true and complete list of all license agreements
in favor of HDS or Subsidiary relating to the HDS Licensed Software that is
listed in the HDS Disclosure Letter pursuant to Section 3.19(a)(ii) (the "HDS
License Agreements"). To the knowledge of the HDS Executives, HDS has been
granted and has under the HDS License Agreements valid license rights with
respect to the HDS Licensed Software. HDS is in compliance in all material
respects with each of the material terms and conditions of each of the HDS
License Agreements. In the case of any commercially available "shrink-wrap"
software sold through retail channels (such as Lotus 1-2-3), to the knowledge of
the HDS Executives (i) HDS has not made and is not using any unauthorized copies
of any such software programs and (ii) none of the employees, agents or
representatives of any of HDS or Subsidiary have made or are using any such
unauthorized copies.
(c) Except for infringements that involve in the aggregate not more than
$500,000 or that do not have or would not have an HDS Material Adverse Effect,
the HDS Proprietary Software does not and, to the actual knowledge of the HDS
Executives, the HDS Licensed Software does not infringe any United States
patent, copyright, or trade secret or any other intellectual property right of
any third party. HDS has taken commercially reasonable actions to maintain in
confidence the source code for the HDS Proprietary Software. The HDS Disclosure
Letter sets forth a true and complete list of all source code escrow
arrangements under which a third party may have a right to obtain source code
for the HDS Proprietary Software. Source code for
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the HDS Proprietary Software has never been furnished to a third party, except
that source code has been deposited with the escrow agent under the source code
escrow agreements identified on the HDS Disclosure Letter.
(d) To the knowledge of the HDS Executives, the HDS Proprietary Software
was: (i) developed by HDS's employees working within the scope of their
employment at the time of such development; (ii) developed by agents,
consultants, contractors or others who have executed appropriate instruments of
assignment in favor of HDS as assignee that have conveyed to HDS ownership of
all of their intellectual property rights in the HDS Proprietary Software; or
(iii) acquired by HDS in connection with acquisitions in which HDS obtained
appropriate representations and warranties from the transferring party relating
to the title to such HDS Proprietary Software. To the knowledge of the HDS
Executives, neither HDS nor Subsidiary has received notice from any third party
claiming any right, title or interest in the HDS Proprietary Software.
(e) There are no agreements or arrangements in effect with respect to the
marketing, distribution, licensing or promotion of the HDS Proprietary Software
by any independent sales person, distributor, sublicensee or other remarketer or
sales organization.
(f) Neither HDS nor Subsidiary has granted rights in the HDS Proprietary
Software or HDS Licensed Software that is listed pursuant to Section 3.19(a)(ii)
to any third party, except for rights granted to customers pursuant to contracts
with customers which grants of rights are disclosed in the HDS Disclosure
Letter.
(g) To the knowledge of the HDS Executives, the HDS Software and the HDS
Hardware are adequate in all material respects, when taken together with the
other assets, resources and personnel of HDS and Subsidiary, to run the business
of HDS and Subsidiary on the date of this Agreement in substantially the same
manner as such business has operated since June 30, 1995. The HDS Disclosure
Letter contains a summary description of any problems experienced by HDS or
Subsidiary in the past twelve months with respect to the HDS Software or HDS
Hardware and the provision of services to HDS clients which have arisen outside
the ordinary course of business and resulted, or reasonably could be expected to
result, in a material disruption of the provision of services by HDS or
Subsidiary to such clients.
Section 3.20. Proxy Statement and Registration Statement. The information
with respect to HDS, its officers, directors and affiliates in the definitive
proxy statement to be furnished to the stockholders of HDS (the "Proxy
Statement") that will form a part of the Registration Statement on Form S-4
relating to the shares of Medaphis Common Stock to be issued in the Merger (the
"Registration Statement") or in the Registration Statement will not, in the case
of the Proxy Statement, on the date the Proxy Statement is first mailed to
stockholders of HDS or on the date of the stockholders' meeting referred to in
Section 5.5, or, in the case of the Registration Statement, at the time it
becomes effective and at the Effective Time, as such Proxy Statement or
Registration Statement is then amended or supplemented, contain any untrue
statement of a material fact, or 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.
Section 3.21. Transactions with Affiliates. No holder of five percent or
more of the issued and outstanding shares of HDS Capital Stock, officer or
director of HDS or Subsidiary, or any immediate family member of any such
stockholder, officer or director, or any entity in which any such person owns
any beneficial interest (other than a publicly held corporation whose stock is
traded on a national securities exchange or in the over-the-counter market and
less than 1% of the stock of which is beneficially owned by all such persons),
has any beneficial interest in: (i) any contract, arrangement or understanding
involving aggregate consideration of $100,000 or more with, or relating to, the
business or operations of HDS or Subsidiary; (ii) any loan, arrangement,
understanding, agreement or contract for or relating to indebtedness of HDS or
Subsidiary in the amount of $100,000 or more; or (iii) any property (real,
personal or mixed), tangible or intangible, with a value of $100,000 or more
used or currently intended to be used in the business or operations of HDS or
Subsidiary.
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Section 3.22. Brokers, Finders and Investment Bankers. Neither HDS nor any
of its officers, directors or employees has employed any broker, finder or
investment banker or incurred any liability for any investment banking fees,
financial advisory fees, brokerage fees or finders' fees in connection with the
transactions contemplated by this Agreement.
Section 3.23. Disclosure. No representation, warranty or covenant made by
HDS in this Agreement, the HDS Disclosure Letter or the Exhibits attached to
this Agreement contains an untrue statement of a material fact or omits to state
a material fact required to be stated herein or therein or necessary to make the
statements contained herein or therein not misleading.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF MEDAPHIS
With such exceptions as are set forth in a letter (the "Medaphis Disclosure
Letter") delivered by Medaphis to HDS prior to the date of this Agreement,
Medaphis represents and warrants to HDS as follows:
Section 4.1. Organization. Each of Medaphis and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Medaphis and each of its subsidiaries is duly
qualified to transact business, and is in good standing, as a foreign
corporation in each jurisdiction where the character of its activities requires
such qualification, except where the failure to so qualify would not have a
material adverse effect on the assets, liabilities, results of operations,
financial condition or business of Medaphis and its subsidiaries taken as a
whole (such an effect, a "Medaphis Material Adverse Effect"). Medaphis has
delivered to HDS accurate and complete copies of the Articles or Certificate of
Incorporation and Bylaws, as currently in effect, of Medaphis and each of its
subsidiaries, and has made available to HDS the minute books and stock records
of Medaphis and each subsidiary. The Medaphis Disclosure Letter contains a true
and correct list of all of the jurisdictions in which Medaphis or any of its
subsidiaries is qualified to do business as a foreign corporation.
Section 4.2. Authorization. Each of Medaphis and HDSSub has full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement and to consummate the Merger and the other
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Medaphis and HDSSub, the performance by each of Medaphis and HDSSub
of its respective obligations under this Agreement and the consummation of the
Merger and the other transactions provided for in this Agreement have been duly
and validly authorized by all necessary corporate action on the part of Medaphis
and HDSSub. The Boards of Directors of Medaphis and HDSSub have approved the
execution, delivery and performance of this Agreement and the consummation of
the Merger and the other transactions provided for in this Agreement. This
Agreement has been duly executed and delivered by each of Medaphis and HDSSub
and constitutes the valid and binding agreement of each of Medaphis and HDSSub,
enforceable against each of Medaphis and HDSSub in accordance with its terms,
subject to applicable bankruptcy, insolvency and other similar laws affecting
the enforceability of creditors' rights generally, general equitable principles
and the discretion of courts in granting equitable remedies.
Section 4.3. Absence of Restrictions and Conflicts. The execution,
delivery and performance of this Agreement, the consummation of the Merger and
the other transactions contemplated by this Agreement, and the fulfillment of
and compliance with the terms and conditions of this Agreement do not and will
not, with the passing of time or the giving of notice or both, violate or
conflict with, constitute a breach of or default under, result in the loss of
any material benefit under, or permit the acceleration of any obligation under
the terms or provisions of, (i) any term or provision of the Articles or
Certificate of Incorporation or Bylaws of Medaphis or any of its subsidiaries,
(ii) any material contract, agreement, bond, note, mortgage or indenture to
which Medaphis or any of its subsidiaries is a party or by which Medaphis, any
of its subsidiaries or any of their respective properties is bound (a "Medaphis
Material Contract"), (iii) any judgment, decree or order of any court or
governmental authority or agency to which Medaphis or any of its subsidiaries is
a party or by which Medaphis, any of its subsidiaries or any of their respective
properties is bound, or (iv) any statute, law,
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regulation or rule applicable to Medaphis, or any of its subsidiaries, so as to
have, in the case of subsections (ii) through (iv) above, a Medaphis Material
Adverse Effect. Except for compliance with the applicable requirements of the
HSR Act, the Securities Act, the Exchange Act, applicable state securities laws
and the filing and recordation of the Certificate of Merger as required by the
DGCL, no consent, approval, order or authorization of, or registration,
declaration or filing with, any government agency or public or regulatory unit,
agency, body or authority with respect to Medaphis or any of its subsidiaries is
required in connection with the execution, delivery or performance of this
Agreement by Medaphis or HDSSub or the consummation of the transactions
contemplated by this Agreement by Medaphis or HDSSub , the failure to obtain
which would have a Medaphis Material Adverse Effect.
Section 4.4. Capitalization of Medaphis. The authorized capital stock of
Medaphis consists of 200,600,000 shares of capital stock consisting of
200,000,000 shares of voting common stock, $.01 par value and 600,000 shares of
non-voting common stock, $.01 par value. At May 13, 1996, there were 64,953,205
shares of Medaphis Common Stock issued and outstanding and no shares of
non-voting common stock were issued or outstanding. All shares of Medaphis
Common Stock outstanding as of the date hereof are duly authorized, validly
issued, fully paid, nonassessable and free of pre-emptive rights. The shares of
Medaphis Common Stock to be issued in the Merger will be validly issued, fully
paid, nonassessable and free of pre-emptive rights. The shares of Medaphis
Common Stock issuable upon exercise of the Non-Qualified Options (and, to the
extent Non-Qualified Options were not issued in substitution therefor, the
Options) have been duly authorized and, when issued against payment therefor,
will be validly issued, fully paid for and nonassessable and free of pre-emptive
rights. Except as set forth in this Section 4.4, there are no shares of capital
stock of Medaphis outstanding, and there are no subscriptions, options,
convertible securities, calls, puts, rights, warrants or other agreements,
claims or commitments of any nature whatsoever obligating Medaphis or any of its
subsidiaries to purchase, redeem, issue, transfer, deliver or sell, or cause to
be purchased, redeemed, issued, transferred, delivered or sold, additional
shares of the capital stock or other securities of Medaphis or obligating
Medaphis or any of its subsidiaries to grant, extend or enter into any such
agreement or commitment.
Section 4.5. Capital Stock of Medaphis Subsidiaries. The Medaphis
Disclosure Letter sets forth a true and complete list of all corporations,
partnerships and other entities in which Medaphis owns an equity interest (such
corporations, partnerships and other entities being hereinafter referred to as
the "Medaphis Subsidiaries"), the jurisdiction in which each Medaphis Subsidiary
is incorporated or organized, and all shares of capital stock or other ownership
interests authorized, issued and outstanding of each Medaphis Subsidiary. The
outstanding shares of capital stock or other equity interests of each Medaphis
Subsidiary have been duly authorized and are validly issued, fully paid and
nonassessable. All shares of capital stock or other equity interests of each
Medaphis Subsidiary owned by Medaphis or any of its subsidiaries are set forth
in the Medaphis Disclosure Letter and are owned by Medaphis, either directly or
indirectly, free and clear of all liens, encumbrances, equities or claims.
Section 4.6. Medaphis Commission Reports. Medaphis has made available to
HDS (i) Medaphis's Annual Report on Form 10-K for the year ended December 31,
1995, including all exhibits and items incorporated by reference, (ii)
Medaphis's Quarterly Report on Form 10-Q for the quarter ended March 31, 1996,
including all exhibits and items incorporated by reference, (iii) the proxy
statement relating to Medaphis's Annual Meeting of Stockholders held on May 1,
1996 and (iv) all Current Reports on Form 8-K filed by Medaphis with the
Commission since March 31, 1996, including all exhibits and items incorporated
by reference (items (i) through (iv) in this sentence being referred to
collectively as the "Medaphis Commission Reports"). As of their respective
dates, the Medaphis Commission Reports did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. Since December 31, 1994, Medaphis has
filed all forms, reports and documents with the Commission required to be filed
by it pursuant to the Securities Act and the Exchange Act and the rules and
regulations promulgated under such acts, each of which complied as to form, at
the time such form, document or report was filed, in all material respects with
the applicable requirements of the Securities Act and the Exchange Act and the
applicable rules and regulations promulgated under such acts.
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Section 4.7. Financial Statements. Medaphis has delivered to HDS (i) the
audited consolidated balance sheets of Medaphis and its subsidiaries as of
December 31, 1995 and its audited consolidated statements of operations, changes
in stockholders' equity and cash flows for the fiscal years then ended,
including the notes thereto, examined by and accompanied by the report of
Deloitte & Touche, independent public accountants; and (ii) the unaudited
consolidated balance sheet of Medaphis and its subsidiaries as of March 31,
1996, (the "Medaphis Balance Sheet") and its unaudited consolidated statements
of operations, stockholders' equity and cash flows for the three-month period
then ended (all of the financial statements referred to in this Section 4.7 are
collectively referred to as the "Medaphis Financial Statements"). The Medaphis
Financial Statements have been prepared from, and are in accordance with, the
books and records of Medaphis and its consolidated subsidiaries and, as
applicable, present fairly the consolidated financial position, consolidated
results of operations, changes in stockholders' equity and consolidated cash
flows of Medaphis and its consolidated subsidiaries as of the dates and for the
periods indicated, in each case in conformity with generally accepted accounting
principles, consistently applied. The Medaphis Disclosure Letter sets forth a
true and complete list of all loss contingencies (within the meaning of
Statement of Financial Accounting Standards No. 5) of Medaphis existing as of
December 31, 1995, exceeding $250,000 in the case of any single loss contingency
or $1,000,000 in the case of all loss contingencies.
Section 4.8. Absence of Certain Changes. (a) Since December 31, 1995,
there has not been (i) any change in the assets, liabilities, results of
operations, financial condition or business of Medaphis and its subsidiaries
taken as a whole that has resulted in a Medaphis Material Adverse Effect, (ii)
any damage, destruction, loss or casualty to property or assets of Medaphis or
any of its subsidiaries, whether or not covered by insurance, which property or
assets are material to the operations or business of Medaphis and its
subsidiaries taken as a whole, (iii) any declaration, setting aside or payment
of any dividend or distribution (whether in cash, stock or property) in respect
of the capital stock of Medaphis or any redemption or other acquisition by
Medaphis of any of the capital stock of Medaphis or any of its subsidiaries
(except for the acquisition of Medaphis Common Stock in payment of the purchase
price and related taxes upon the exercise of stock options) or any split,
combination or reclassification of shares of capital stock declared or made by
Medaphis, or (iv) any agreement to do any of the foregoing.
(b) Since December 31, 1995, there have not been (i) any extraordinary
losses suffered which, in the aggregate, have had a Medaphis Material Adverse
Effect, (ii) any material assets mortgaged, pledged or made subject to any lien,
charge or other encumbrance, (iii) any material liability or obligation
(absolute, accrued or contingent) incurred or any material bad debt, contingency
or other reserve increase suffered, except, in each such case, in the ordinary
course of business and consistent with past practice, (iv) any material claims,
liabilities or obligations (absolute, accrued or contingent) paid, discharged or
satisfied, other than the payment, discharge or satisfaction, in the ordinary
course of business and consistent with past practice, of claims, liabilities and
obligations reflected or reserved against in the Medaphis Financial Statements
or incurred in the ordinary course of business and consistent with past
practice, (v) any material guaranteed checks, notes or accounts receivable
written off as uncollectible, except write-offs in the ordinary course of
business and consistent with past practice, (vi) any write down (under SFAS No.
121 or otherwise) of the value of any material asset or investment on Medaphis's
books or records, except for depreciation and amortization taken in the ordinary
course of business and consistent with past practice, (vii) any cancellation of
any material debts or waiver of any material claims or rights of substantial
value, or sale, transfer or other disposition of any properties or assets (real,
personal or mixed, tangible or intangible) of substantial value, except, in each
such case, in transactions in the ordinary course of business and consistent
with past practice and which in any event do not exceed $250,000 in the
aggregate, (viii) any single capital expenditure or commitment in excess of
$1,000,000 for additions to property or equipment, or aggregate capital
expenditures and commitments in excess of $30,000,000 (on a consolidated basis)
for additions to property or equipment, (ix) any transactions entered into other
than in the ordinary course of business, (x) any agreements to do any of the
foregoing, or (xi) any other events, developments or conditions of any character
that have had or are reasonably likely to have a Medaphis Material Adverse
Effect other than events affecting businesses similar to Medaphis and its
subsidiaries generally.
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Section 4.9. Legal Proceedings. There are no suits, actions, claims,
proceedings or investigations pending, or, to the knowledge of the Medaphis
Executives, threatened against, relating to or involving Medaphis or any of its
subsidiaries (or any of their officers or directors) before any court,
arbitrator or administrative or governmental body, which, if finally determined
adversely, are reasonably likely, individually or in the aggregate, to have a
Medaphis Material Adverse Effect. All pending suits, actions, claims,
proceedings or investigations relating to or involving Medaphis or any of its
subsidiaries (or any of their officers or directors) before any court,
arbitrator or administrative or governmental body are adequately provided for in
the Medaphis Balance Sheet if and to the extent such a provision is required by
generally accepted accounting principles. Neither Medaphis nor any of its
subsidiaries is subject to any judgment, decree, injunction, rule or order of
any court, and, to the knowledge of the Medaphis Executives, neither Medaphis
nor any of its subsidiaries is subject to any governmental restriction
applicable to Medaphis or any such subsidiary, which is reasonably likely (i) to
have a Medaphis Material Adverse Effect or (ii) to cause a material limitation
on Medaphis's and its subsidiaries' ability to operate the business of Medaphis
and its subsidiaries after the Closing.
Section 4.10. Compliance with Law. Each of Medaphis and its subsidiaries
has all material authorizations, approvals, licenses and orders of and from all
governmental and regulatory officers and bodies necessary to carry on its
business as it is currently being conducted, to own or hold under lease the
properties and assets it owns or holds under lease and to perform all of its
obligations under the agreements to which it is a party, and each of Medaphis
and its subsidiaries has been and is in compliance with all applicable laws,
regulations and administrative orders of any country, state, or municipality or
any subdivision of any thereof to which its business or its employment of labor
or its use or occupancy of properties or any part thereof are subject, the
failure to obtain or the violation of which would have a Medaphis Material
Adverse Effect.
Section 4.11. Proxy Statement and Registration Statement. The information
with respect to Medaphis and its subsidiaries and each of their respective
officers, directors and affiliates in the Proxy Statement or in the Registration
Statement, will not, in the case of the Proxy Statement, on the date the Proxy
Statement is first mailed to stockholders of HDS or on the date of the
stockholders' meeting referred to in Section 5.5, or, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Time, as such Proxy Statement or Registration Statement is then amended or
supplemented, contain any untrue statement of a material fact, or 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. The Registration Statement and the Proxy Statement will
comply as to form with the applicable provisions of the Securities Act and the
Exchange Act.
Section 4.12. Tax Returns; Taxes. Each of Medaphis and its subsidiaries
has duly filed all federal, state, local and foreign tax returns required to be
filed by it and has duly paid or made adequate provision for the payment of all
taxes which are due and payable pursuant to such returns or pursuant to any
assessment which is due and payable with respect to taxes in such jurisdictions,
whether or not in connection with such returns. The liability for taxes
reflected on the Medaphis Balance Sheet is sufficient for the payment of all
unpaid taxes, whether or not disputed, that are accrued or applicable for the
period ended December 31, 1995 and for all years and periods ended prior to
December 31, 1995 or are attributable to differences in the time for recognition
of income, deductions and other items for financial reporting and tax purposes.
All deficiencies asserted as a result of any examinations by the Internal
Revenue Service or any other taxing authority have been paid and fully settled.
There are no pending claims asserted for taxes of Medaphis or any of its
subsidiaries or outstanding agreements or waivers extending the statutory period
of limitation applicable to any tax return of Medaphis or any of its
subsidiaries for any period. Medaphis and each of its subsidiaries have made all
estimated income tax deposits and all other required tax payments or deposits
and have complied for all prior periods in all material respects with the tax
withholding provisions of all applicable federal, state, local and other laws.
Section 4.13. Billing and Collection Practices. (a) The current practices
and procedures of Medaphis and its subsidiaries with respect to (i) billing on
behalf of clients, (ii) receiving and processing Medicare and Medicaid payments
due to clients, (iii) holding and transfer of such payments and (iv) method of
determining and collecting the fees received by Medaphis and its subsidiaries
for services provided by
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providers and physicians participating in the Medicare or Medicaid programs are
not in violation of the restriction on assignment as set forth in 42 U.S.C.
sec. 1395g(c), 42 U.S.C. sec. 1395u(b)(6) and 42 U.S.C. sec. 1396(a)(32), and
the regulations promulgated thereunder, or similar provisions of any state
Medicaid program, except for such violations which in the aggregate would not
have a Medaphis Material Adverse Effect.
(b) Neither Medaphis nor any of its subsidiaries is engaged in any
activity, whether alone or in concert with one of its clients, which would
constitute a violation of any federal laws or the law of any state (including
but not limited to (i) federal antifraud and abuse or similar laws pertaining to
the Medicare, Medicaid, or any other federal health or insurance program; (ii)
state law pertaining to Medicaid or any other state health or insurance program;
(iii) state or federal laws pertaining to billings to insurance companies,
health maintenance organizations, and other managed care plans or to insurance
fraud; and (iv) Federal and state laws relating to collection agencies and the
performance of collection services) prohibiting fraudulent or abusive or
unlawful practices connected in any way with the provision of health care
services, the billing for such services provided to a beneficiary of any state,
federal or private health or insurance program or credit collection services,
except for such violations which in the aggregate would not have a Medaphis
Material Adverse Effect. Without limiting the generality of the foregoing,
neither Medaphis nor any subsidiary has, directly or indirectly, paid, offered
to pay or agreed to pay, or solicited or received, any fee, commission, sum of
money, property or other remuneration to or from any person which the Medaphis
Executives know or have reason to believe to have been illegal under (i) 42
U.S.C. sec. 1320a-7b(b) or (ii) any similar state law.
(c) Medaphis and its subsidiaries are in compliance in all material
respects with the applicable trust accounting statutes, rules and regulations of
the various states and each has sufficient funds deposited in such trust
accounts to cover all trust liabilities to clients of Medaphis and its
subsidiaries.
Section 4.14. Medaphis Employee Benefit Plans. Except as to matters of
which HDS is aware,
(a) Definition of Benefit Plans. For purposes of this Section 4.14,
the term "Medaphis Benefit Plan" means any plan, program, arrangement,
fund, policy, practice or contract which, through which or under which
Medaphis or a Medaphis ERISA Affiliate currently provides, or with respect
to any multi-employer plans (as defined in ERISA Section 4001(a)(3)) and
pension benefit plans (as defined in ERISA Section 3(3)) subject to Code
Section 412, at any time provided, benefits or compensation to or on behalf
of employees or former employees of Medaphis or a Medaphis ERISA Affiliate,
whether formal or informal, whether or not written, including but not
limited to the following:
(1) Arrangements -- any bonus, incentive compensation, stock
option, deferred compensation, commission, severance pay, golden
parachute or other compensation plan or rabbi trust;
(2) ERISA Plans -- any "employee benefit plan" (as defined in
Section 3(3) of ERISA, including, but not limited to, any multi-employer
plan (as defined in Section 3(37) and Section 4001(a)(3) of ERISA),
defined benefit plan, profit sharing plan, money purchase pension plan,
401(k) plan, savings or thrift plan, stock bonus plan, employee stock
ownership plan, or any plan, fund, program, arrangement or practice
providing for medical (including post-retirement medical),
hospitalization, accident, sickness, disability, or life insurance
benefits; and
(3) Other Employee Fringe Benefits -- any stock purchase, vacation,
scholarship, day care, prepaid legal services, dependent care or other
fringe benefit plans, programs, arrangements, contracts or practices.
(b) Medaphis ERISA Affiliate. For purposes of this Section 4.14, the
term "Medaphis ERISA Affiliate" means each trade or business (whether or
not incorporated) which together with Medaphis is treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code.
(c) Identification of Benefit Plans. Except for Medaphis Benefit
Plans which have been terminated and with respect to which neither Medaphis
nor any Medaphis ERISA Affiliate has any financial, administrative or other
liability, obligation or responsibility, Medaphis does not maintain, nor
has at any
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time established or maintained, nor has at any time been obligated to make,
or otherwise made, contributions to or under or otherwise participated in
any Medaphis Benefit Plan.
(d) MEPPA Liability/Post-Retirement Medical Benefits. Neither
Medaphis nor any Medaphis ERISA Affiliate maintains, nor has at any time
established or maintained, nor has at any time been obligated to make, or
made, contributions to or under any multi-employer plan. Medaphis does not
maintain, nor has at any time established or maintained, nor has at any
time been obligated to make, or made, contributions to or under (i) any
plan which provides post-retirement medical or health benefits with respect
to employees of Medaphis; (ii) any organization described in Sections
501(c)(9) or 501(c)(20) of the Code; (iii) any defined benefit pension plan
or money purchase pension plan subject to Title IV of ERISA; or (iv) any
plan which provides retirement benefits in excess of the limitations in
Sections 401(a)(17), 401(k), 401(m), 402(g) or 415 of the Code. There is no
lien upon any property of Medaphis or any Medaphis ERISA Affiliate
outstanding pursuant to Section 412(n) of the Code in favor of any Medaphis
Benefit Plan. No assets of Medaphis or any Medaphis ERISA Affiliate have
been provided as security for any Medaphis Benefit Plan pursuant to Section
401(a)(29) of the Code.
(e) Qualified Status. Each Medaphis Benefit Plan that is funded
through a trust or insurance contract has at all times satisfied in all
material respects, by its terms and in its operation, all applicable
requirements for an exemption from federal income taxation under Section
501(a) of the Code. Except for the plans identified as Qualified Plans in
the Medaphis Disclosure Letter (the "Medaphis Qualified Plans"), no
Medaphis Benefit Plan meets or was intended to meet the requirements of
Section 401(a) of the Code. Any determination letter issued by the IRS to
the effect that any of the Medaphis Qualified Plans qualifies under Section
401(a) of the Code and that the related trust is exempt from taxation under
Section 501(a) of the Code remains in effect and has not been revoked. Each
of the Medaphis Qualified Plans currently complies in form in all material
respects with the requirements under Section 401(a) of the Code, other than
changes required by statutes, regulations and rulings for which amendments
are not yet required. Each of the Medaphis Qualified Plans has been
administered according to its terms (except for those terms which are
inconsistent with the changes in operations of a Medaphis Qualified Plan
required by statutes, regulations and rulings for which changes in plan
terms are not yet required to be made, in which case such Medaphis
Qualified Plan has been operated in accordance with the provisions of those
statutes, regulations and rulings) and in accordance with the requirements
of Section 401(a) of the Code. Each of the Medaphis Qualified Plans has
been tested for compliance with, and in all material respects has satisfied
the requirements of, Sections 401(k)(3) and 401(m)(2) of the Code for each
plan year ending prior to the Effective Time.
(f) Legal Actions. There are no actions, audits, suits or claims
known to Medaphis which are pending or, to the knowledge of the Medaphis
Executives, threatened against any Medaphis Benefit Plan, any fiduciary of
any Medaphis Benefit Plans with respect to the Medaphis Benefit Plans or
against the assets of any of the Medaphis Benefit Plans, except claims for
benefits made in the ordinary course of the operation of such plans.
(g) Funding. Medaphis and each Medaphis ERISA Affiliate has made full
and timely payment of all amounts required to be contributed under the
terms of each Medaphis Benefit Plan and applicable law or required to be
paid as expenses under such Medaphis Benefit Plan, and no excise taxes in
an aggregate amount in excess of $50,000 are assessable as a result of any
nondeductible or other contributions made or not made to a Medaphis Benefit
Plan.
(h) Liabilities. Neither Medaphis nor any Medaphis ERISA Affiliate is
subject to any material liability, tax or penalty whatsoever to any person
whomsoever as a result of Medaphis' or any Medaphis ERISA Affiliate's
engaging in a prohibited transaction under ERISA or the Code, and Medaphis
has no knowledge of any circumstances which reasonably might result in any
such material liability, tax or penalty as a result of a breach of
fiduciary duty under ERISA.
Section 4.15. Labor Relations. Each of Medaphis and its subsidiaries is in
compliance in all material respects with all federal and state laws respecting
employment and employment practices, terms and conditions of employment, wages
and hours, and is not engaged in any unfair labor or unlawful employment
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practice. Except as would not result in a Medaphis Material Adverse Effect,
there is no unlawful employment practice discrimination charge involving
Medaphis or any of its subsidiaries pending before the EEOC, EEOC recognized
state "referral agency" or any other governmental agency. There is no unfair
labor practice charge or complaint against Medaphis or any of its subsidiaries
pending before the NLRB. There is no labor strike, dispute, slowdown or stoppage
actually pending or, to the knowledge of the Medaphis Executives, threatened
against or involving or affecting Medaphis or any of its subsidiaries and no
NLRB representation question exists respecting any of their respective
employees. To the knowledge of the Medaphis Executives, no grievance or
arbitration proceeding is pending against Medaphis or any of its subsidiaries
and no written claim for such a proceeding exists. There is no collective
bargaining agreement that is binding on Medaphis or any of its subsidiaries.
Section 4.16. Medaphis Computer Software and Hardware. (a) The software
owned by Medaphis and its subsidiaries for license to or use in connection with
the business of Medaphis and its subsidiaries (the "Medaphis Proprietary
Software") consists of: (i) source and object code embodied in magnetic media;
and (ii) all development and procedural tools necessary to maintain the Medaphis
Proprietary Software, including licenses to use compilers, assemblers, libraries
and other aids. To the knowledge of the Medaphis Executives, Medaphis and its
subsidiaries employ individuals who are familiar with the business of Medaphis
and its subsidiaries and who are qualified to maintain the Medaphis Proprietary
Software and the related computer hardware used by Medaphis and its subsidiaries
in their operations (the "Medaphis Hardware").
(b) Medaphis and its subsidiaries have all right, title and interest in and
to all patent, trade secret and copyright rights in the Medaphis Proprietary
Software. Medaphis and its subsidiaries have developed the Medaphis Proprietary
Software entirely through their own efforts for their own accounts and the
Medaphis Proprietary Software is free and clear of all liens, claims and
encumbrances, except for liens, claims and encumbrances involving an aggregate
of not more than $100,000. The use of the software (other than the Medaphis
Proprietary Software) used by Medaphis and its subsidiaries in connection with
the business of Medaphis and its subsidiaries (the "Medaphis Licensed Software"
and together with the Medaphis Proprietary Software, the "Medaphis Software")
and the use and distribution of the Medaphis Proprietary Software does not
breach any terms of any contract between Medaphis or any of its subsidiaries and
any third party, except for breaches of such contracts involving not more than
$100,000 in the aggregate. To the knowledge of the Medaphis Executives, Medaphis
and its subsidiaries has been granted under the license agreements relating to
the Medaphis Licensed Software (the "Medaphis License Agreements") valid and
subsisting license rights with respect to all software comprising the Medaphis
Licensed Software. Medaphis is in compliance in all respects with each of the
material terms and conditions of each of the Medaphis License Agreements. In the
case of any commercially available "shrink-wrap" software programs (such as
Lotus 1-2-3), Medaphis and its subsidiaries have not made and are not using any
unauthorized copies of any such software programs and, to the knowledge of the
Medaphis Executives, none of the employees, agents or representatives of
Medaphis or any of its subsidiaries have made or are using any such unauthorized
copies.
(c) Except for infringements that involve in the aggregate not more than
$500,000 or that do not or would not have a Medaphis Material Adverse Effect,
the Medaphis Proprietary Software and, to the knowledge of the Medaphis
Executives, the Medaphis Licensed Software does not infringe any United States
patent, copyright, or trade secret or any other intellectual property right of
any third party. The source code for the Medaphis Proprietary Software has been
maintained in confidence.
(d) Neither Medaphis nor any of its subsidiaries has granted rights in the
Medaphis Software to any third party.
(e) To the knowledge of the Medaphis Executives, the Medaphis Software and
the Medaphis Hardware are adequate in all material respects with the other
assets of Medaphis to run the business of Medaphis and its subsidiaries in
substantially the same manner as such business has operated since December 31,
1994. The Medaphis Disclosure Letter contains a summary description of any
problems experienced by Medaphis and its subsidiaries in the past twelve months
with respect to the Medaphis Software or Medaphis Hardware and the provision of
services to Medaphis's and its subsidiaries' clients which have arisen outside
the ordinary course
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of business and resulted, or reasonably could be expected to result, in any
disruption of the provision of services by Medaphis and its subsidiaries to such
clients.
Section 4.17. Title to Properties and Related Matters. Each of Medaphis
and its subsidiaries has good and valid title to or valid leasehold interest in
its properties reflected in the Medaphis Balance Sheet or acquired after the
date thereof (other than property sold or otherwise disposed of in the ordinary
course of business), and all of such properties are held free and clear of all
title defects, liens, encumbrances and restrictions, except, with respect to all
such properties, (a) mortgages and liens securing debt reflected as liabilities
on the Medaphis Balance Sheet and (b)(i) liens for current taxes and assessments
not in default, (ii) mechanics', carriers', workmen's, materialmen's,
repairmen's, statutory or common law liens either not delinquent or being
contested in good faith, and (iii) liens, mortgages, encumbrances, covenants,
rights of way, building or use restrictions, easements, exceptions, variances,
reservations and other similar matters or limitations of any kind, if any, which
either individually or in the aggregate do not have a material adverse effect on
the use of the property affected by Medaphis or its subsidiaries, as applicable.
Notwithstanding the preceding sentence, Medaphis and its subsidiaries make no
representation or warranty in this Section 4.17 or otherwise regarding the
validity of lessor's title to any such properties in which Medaphis or its
subsidiaries have only a leasehold interest as lessee.
Section 4.18. Environmental Matters. There has been no release of a
hazardous substance, as that term is defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. sec. 9601(14), by
Medaphis or any of its subsidiaries into the environment at any property owned,
leased or used by Medaphis or any of its subsidiaries (the "Medaphis Premises")
including, without limitation, any release in the soil or ground water
underlying such Medaphis Premises, and, to the actual knowledge of the Medaphis
Executives, there has been no such release by any other party at any of the
Medaphis Premises. Neither Medaphis nor any of its subsidiaries has received
notice of any violation of any environmental statute or regulation, nor has any
such corporation been advised of any claim or liability pursuant to any
environmental statute or regulation brought by any domestic or foreign
governmental agency or private party, except such violations, claims and
liabilities which in the aggregate would not have a Medaphis Material Adverse
Effect.
Section 4.19. Brokers, Finders and Investment Bankers. Neither Medaphis
nor any subsidiary of Medaphis, or any of their respective officers, directors
or employees, has employed any broker, finder or investment banker or incurred
any liability for any investment banking fees, financial advisory fees,
brokerage fees or finders' fees in connection with the transactions contemplated
by this Agreement.
Section 4.20. Disclosure. No representation, warranty or covenant made by
Medaphis in this Agreement, the Medaphis Disclosure Letter or the Exhibits
hereto contains any untrue statement of a material fact or omits to state a
material fact required to be stated herein or therein or necessary to make the
statements contained herein or therein not misleading.
ARTICLE 5.
CERTAIN COVENANTS AND AGREEMENTS
Section 5.1. Conduct of Business by HDS. From the date of this Agreement
to the Effective Time or the termination of this Agreement, HDS will and will
cause Subsidiary to, except as required in connection with the Merger and the
other transactions contemplated by this Agreement and except as otherwise
disclosed in the HDS Disclosure Letter or consented to in writing by Medaphis:
(a) Carry on its businesses in the ordinary course in substantially
the same manner as previously conducted and not engage in any new line of
business or enter into any agreement, transaction or activity or make any
commitment except those in the ordinary course of business and not
otherwise prohibited under this Section 5.1, subject to the provisions of
the proviso to the first sentence of Section 5.8;
(b) Neither change nor amend its Certificate of Incorporation or
Bylaws;
(c) Not issue, sell or grant options, warrants or rights to purchase
or subscribe to, or enter into any arrangement or contract with respect to
the issuance or sale of any of the capital stock of HDS or
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Subsidiary or rights or obligations convertible into or exchangeable for
any shares of the capital stock of HDS or Subsidiary and not make any
changes (by split-up, stock dividend, combination, reorganization or
otherwise) in the capital structure of HDS or Subsidiary; except that HDS
shall be permitted to issue shares of HDS Common Stock upon exercise of
Options outstanding on the date of this Agreement that are exercised in
accordance with their terms as the same exist on the date of this
Agreement;
(d) Not declare, pay or set aside for payment any dividend or other
distribution in respect of the capital stock or other equity securities of
HDS and not redeem, purchase or otherwise acquire any shares of the capital
stock or other securities of HDS or rights or obligations convertible into
or exchangeable for any shares of the capital stock or other securities of
HDS or obligations convertible into such, or any options, warrants or other
rights to purchase or subscribe to any of the foregoing;
(e) Not acquire or enter into an agreement to acquire, by merger,
consolidation or purchase of stock or assets, any business or entity;
(f) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of HDS and Subsidiary, to
keep the officers and employees of HDS and Subsidiary available to Medaphis
and to preserve the relationships of HDS and Subsidiary with customers,
suppliers and others having business relations with HDS or Subsidiary;
(g) Not (i) create, incur or assume any short-term debt for borrowed
money, except in the ordinary course of business under existing lines of
credit, (ii) assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, contingently or otherwise) for the
obligations of any other person, except in the ordinary course of business
and consistent with past practice, (iii) make any loans or advances to any
other person, except in the ordinary course of business and consistent with
past practice, (iv) make any capital contributions to, or investments in,
any person, except in the ordinary course of business and consistent with
past practices with respect to investments, or (v) make any capital
expenditure that would cause all capital expenditures since December 31,
1995, to exceed $500,000;
(h) Not enter into, modify or extend in any manner the terms of any
employment, severance or similar agreements with officers and directors or
grant any increase in the compensation of officers, directors or employees,
whether now or in the future payable, including any increase pursuant to
any option, bonus, stock purchase, pension, profit-sharing, deferred
compensation, retirement or other plan, arrangement, contract or
commitment, other than raises or bonuses granted in the ordinary course of
business or pursuant to written agreements in existence on the date of this
Agreement;
(i) Perform in all material respects all of its obligations under all
HDS Client Contracts (except those being contested in good faith), and not
amend any existing contract of HDS in a way that would result in the loss
to HDS of a material benefit thereunder;
(j) Use its reasonable efforts to maintain in full force and effect
and in the same amounts policies of insurance comparable in amount and
scope of coverage to that now maintained by HDS;
(k) Use its reasonable efforts to continue to collect its accounts
receivable and pay its accounts payable in the ordinary course of business
and consistent with past practices;
(l) Prepare and file all federal, state, local and foreign returns for
taxes and other tax reports, filings and amendments thereto required to be
filed by it, and allow Medaphis, at its request, to review all such
returns, reports, filings and amendments at HDS's offices prior to the
filing thereof, which review shall not interfere with the timely filing of
such returns;
(m) Obtain on or prior to the Closing Date, Noncompetition and
Nonsolicitation Agreements (in the form of Exhibit 5.1(m)(A)) with the
stockholders specified in the HDS Disclosure Letter (the "Specified
Stockholders") and Employment Agreements (in the form of Exhibit 5.1(m)(B))
with the employees of HDS specified in the HDS Disclosure Letter (the
"Specified Employees"); and
(n) Not take any action the effect of which would be to cause the
Merger to be treated as a taxable transaction.
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In connection with the continued operation of the business of HDS and
Subsidiary between the date of this Agreement and the Effective Time, HDS shall
confer in good faith on a regular and frequent basis with one or more
representatives of Medaphis designated in writing to report operational matters
of materiality and the general status of ongoing operations. HDS acknowledges
that Medaphis does not and will not waive any rights it may have under this
Agreement as a result of such consultations.
Section 5.2. Conduct of Business by Medaphis. From the date of this
Agreement to the Effective Time, Medaphis will, and will cause each of its
subsidiaries to, except as required in connection with the Merger and the other
transactions contemplated by this Agreement and except as otherwise disclosed in
the Medaphis Disclosure Letter or consented to in writing by HDS:
(a) Carry on its businesses in the ordinary course in substantially
the same manner as previously conducted;
(b) Neither change nor amend its Articles or Certificate of
Incorporation or Bylaws;
(c) Other than pursuant to the exercise of employee stock options
outstanding on the date of this Agreement, not issue, sell or grant
options, warrants or rights to purchase or subscribe to, or enter into any
arrangement or contract with respect to the issuance or sale of any of the
capital stock of Medaphis or any of its subsidiaries or rights or
obligations convertible into or exchangeable for any shares of the capital
stock of Medaphis or any of its subsidiaries and not alter the terms of any
presently outstanding options or make any changes (by split-up,
combination, reorganization or otherwise) in the capital structure of
Medaphis or any of its subsidiaries; provided, however, that Medaphis shall
have the right to issue capital stock or securities convertible into
capital stock in transactions approved by the Board of Directors of
Medaphis;
(d) Not take any action the effect of which would be to cause the
Merger to be treated as a taxable transaction; and
(e) Use its reasonable efforts to preserve intact the corporate
existence, goodwill and business organization of Medaphis and to preserve
the relationships of Medaphis with customers, suppliers and others having
business relations with Medaphis.
Section 5.3. Inspection and Access to Information. (a) Between the date of
this Agreement and the Effective Time, each party to this Agreement will provide
each other party and its accountants, counsel and other authorized
representatives full access, during reasonable business hours and under
reasonable circumstances, to any and all of its premises, properties, contracts,
commitments, books, records and other information (including tax returns filed
and those in preparation) and will cause their respective officers to furnish to
the other party and its authorized representatives any and all financial,
technical and operating data and other information pertaining to its business,
as each other party shall from time to time reasonably request. HDS further
acknowledges and agrees that, during the period beginning on the date of this
Agreement and ending on June 20, 1996, Medaphis will be continuing its
financial, legal and business due diligence review of HDS and Subsidiary as
provided pursuant to this Section 5.3(a) (the "Medaphis Due Diligence Review").
In the event that any HDS Detrimental Information (as defined in Section 6.2(l))
shall become known to the Medaphis Executives during the Medaphis Due Diligence
Review, Medaphis agrees to provide HDS with a brief written description of such
information within five business days of the date of the obtaining of such
knowledge, but in any event, Medaphis will notify HDS of such information and
the failure of the condition set forth in Section 6.2(l) no later than the close
of business on June 20, 1996.
(b) All non-public information obtained by Medaphis or HDS or any of their
representatives pursuant to this Agreement or in connection with the matters
contemplated by this Agreement concerning the business, operations or affairs of
the other will be kept confidential and will not be used for any purpose other
than the consummation of the transactions contemplated by this Agreement, or be
disclosed to any other person or entity, except for disclosure to its employees,
agents and representatives who have a need to know the same, who have been
advised of the confidential nature of such information and who agree to abide by
the terms of this Section 5.3(b) and except for such disclosure as may be
required by applicable law, court order or
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governmental agency request. If this Agreement is terminated, any non-public
information furnished by any party to any other party to this Agreement will be
promptly returned.
Section 5.4. Registration Statement. (a) Medaphis shall prepare and file
with the Commission as soon as is reasonably practicable the Registration
Statement and shall use all reasonable efforts to have the Registration
Statement declared effective by the Commission as promptly as practicable.
Medaphis also shall take any action required to be taken under state blue sky or
securities laws in connection with the issuance of the Medaphis Common Stock
pursuant to the Merger. Medaphis and HDS will furnish each other with all
information concerning themselves, their subsidiaries, directors, officers and
stockholders or shareholders and such other matters as may be necessary or
advisable for the Registration Statement, the Proxy Statement, filings under the
Blue Sky laws, and any other statement or application made by or on behalf of
Medaphis or HDS to any governmental body in connection with the Merger and the
other transactions contemplated by this Agreement.
(b) Medaphis will indemnify and hold harmless each of HDS's directors,
officers and other persons, if any, who control HDS (within the meaning of the
Securities Act) from and against any losses, claims, damages, liabilities or
judgments, joint or several, to which they or any of them may become subject,
insofar as such losses, claims, damages, liabilities, or judgments (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the Proxy Statement or
Registration Statement, or in any amendment or supplement thereto, or in any
state application for qualification, permit, exemption or registration, or in
any amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse each such person for any legal or other expenses reasonably
incurred by such person in connection with investigating or defending any such
action or claim; provided, however, that Medaphis shall not be liable, in any
such case, to the extent that any such loss, claim, damage, liability, or
judgment (or action in respect thereof) arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in the Proxy Statement or Registration Statement, or in any such amendment
or supplement thereto, or in any such state application, or in any amendment or
supplement thereto, in reliance upon and in conformity with written information
furnished to Medaphis by or on behalf of HDS, or any officer, director or
affiliate of HDS, for use therein.
Section 5.5. HDS Stockholder Matters. HDS shall call a meeting of its
stockholders to be held as soon as practicable after the date of this Agreement
for the purpose of voting upon matters relating to this Agreement and the
transactions contemplated by this Agreement. HDS will use its reasonable efforts
to hold its stockholders' meeting as promptly as practicable and will, through
its Board of Directors, recommend (subject to the provisions of the proviso to
the first sentence of Section 5.8) to its stockholders approval of this
Agreement and the transactions contemplated by this Agreement.
Section 5.6. The Nasdaq National Market Additional Shares
Notification. Medaphis will file an additional shares notification with The
Nasdaq National Market to approve for listing, subject to official notice of its
issuance, the shares of Medaphis Common Stock to be issued in connection with
the Merger and upon the exercise of the Non-Qualified Options (and, to the
extent Non-Qualified Options were not issued in substitution therefor, the
Options). Medaphis shall exercise reasonable good faith efforts to cause the
shares of Medaphis Common Stock to be issued in the Merger to be approved for
listing on The Nasdaq National Market, subject to official notice of issuance,
prior to the Effective Time.
Section 5.7. HDS Affiliates. (a) HDS shall deliver to Medaphis a letter
identifying all persons who are, at the time the Merger is submitted to a vote
to the shareholders of HDS, "affiliates" of HDS for purposes of Rule 145 under
the Securities Act. HDS shall cause each person who is identified as an
"affiliate" in such letter to deliver to Medaphis on or prior to the Effective
Time a written statement, in form satisfactory to Medaphis and HDS, that such
person will not offer to sell, transfer or otherwise dispose of any of the
shares of Medaphis Common Stock issued to such person pursuant to the Merger,
except (i) in accordance with the applicable provisions of the Securities Act
and the rules and regulations under the Securities Act and (ii) until such time
as financial results covering at least thirty days of combined operations of
Medaphis and HDS have been published within the meaning of Section 201.01 of the
Commission's Codification of Financial Reporting
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Policies; except that each affiliate shall be permitted to make sales to the
extent permitted by applicable accounting rules and regulations promulgated by
the Commission. Medaphis shall be entitled to place legends on any certificates
of Medaphis Common Stock issued to such affiliates to restrict transfer of such
shares as set forth above.
(b) Medaphis shall take such action with respect to affiliates of Medaphis
as is reasonably appropriate under applicable accounting rules and regulations
promulgated by the Commission for the Merger to qualify as a "pooling of
interests" for accounting purposes.
Section 5.8. No Solicitation; Acquisition Proposals. From the date of this
Agreement until the Effective Time or until this Agreement is terminated as
provided in Article 8, HDS will not directly or indirectly (i) solicit or
initiate (including by way of furnishing any information) discussions with or
(ii) enter into negotiations or agreements with, or furnish any information to,
any corporation, partnership, person or other entity or group (other than
Medaphis, an affiliate of Medaphis or their authorized representatives pursuant
to Section 5.3) concerning any proposal for a merger, sale of substantial
assets, sale of shares of stock or securities or other takeover or business
combination transaction (an "Acquisition Transaction") involving HDS; and HDS
will instruct its officers, directors, advisors and other financial and legal
representatives and consultants not to take any action contrary to the foregoing
provisions of this sentence; provided, however, that the actions prohibited by
the foregoing clauses (i) and (ii) shall be subject to any action taken by the
Board of Directors of HDS in the exercise of its good faith judgment as to its
fiduciary duties to the stockholders of HDS, which judgment is based upon the
advice of independent counsel that a failure of the Board of Directors to take
such action would be likely to constitute a breach of its fiduciary duties to
the stockholders of HDS. HDS will notify Medaphis promptly in writing if HDS
becomes aware that any inquiries or proposals are received by, any information
is requested from, or any negotiations or discussions are sought to be initiated
with HDS with respect to an Acquisition Transaction and will immediately after
receipt provide to Medaphis a copy of any letter, proposal or other document in
which any proposal for an Acquisition Transaction is made or expressed. HDS will
immediately cease any existing activities, discussions or negotiations with any
third parties which may have been conducted on or prior to the date hereof with
respect to an Acquisition Transaction and shall direct and use reasonable
efforts to cause its officers, advisors and representatives not to engage in any
such activities, discussions or negotiations.
Section 5.9. Reasonable Efforts; Further Assurances; Cooperation. Subject
to the other provisions of this Agreement, the parties hereto shall each use
their reasonable, good faith efforts to perform their obligations herein and to
take, or cause to be taken or do, or cause to be done, all things necessary,
proper or advisable under applicable law to obtain all regulatory approvals and
satisfy all conditions to the obligations of the parties under this Agreement
and to cause the Merger and the other transactions contemplated by this
Agreement to be effected on or prior to June 30, 1996 in accordance with the
terms of this Agreement and shall cooperate fully with each other and their
respective officers, directors, employees, agents, counsel, accountants and
other designees in connection with any steps required to be taken as a part of
their respective obligations under this Agreement, including without limitation:
(a) Subject to the provisions of Section 5.9(e), HDS and Medaphis
shall promptly make their respective filings and submissions and shall
take, or cause to be taken, all actions and do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations
to obtain any required approval of any other federal, state or local
governmental agency or regulatory body with jurisdiction over the
transactions contemplated by this Agreement.
(b) Subject to the provisions of Section 5.9(e), if any claim, action,
suit, investigation or other proceeding by any governmental body or other
person is commenced which questions the validity or legality of the Merger
or any of the other transactions contemplated by this Agreement or seeks
damages in connection with this Agreement, the parties agree to cooperate
and use all reasonable efforts to defend against such claim, action, suit,
investigation or other proceeding and, if an injunction or other order is
issued in any such action, suit or other proceeding, to use all reasonable
efforts to have such injunction or other order lifted, and to cooperate
reasonably regarding any other impediment to the consummation of the
transactions contemplated by this Agreement.
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(c) Each party shall give prompt written notice to the other of (i)
the occurrence, or failure to occur, of any event which occurrence or
failure would be likely to cause any representation or warranty of HDS or
Medaphis, as the case may be, 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 or that will or may result in the failure
to satisfy any of the conditions specified in Article 6 and (ii) any
failure of HDS or Medaphis, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement.
(d) Without the prior written consent of Medaphis, HDS will not
terminate any employee if such termination would result in the payment of
any amounts pursuant to "change in control" provisions of any employment
agreement or arrangement.
(e) With respect to filings under the HSR Act, Medaphis will
coordinate on behalf of all parties and, except as may be required by law,
shall determine in its sole judgment and discretion the timing of and,
except with respect to matters relating specifically to HDS, the substance
of all communications and filings made by the parties with any governmental
antitrust authority regarding the transactions contemplated by this
Agreement, including without limitation:
(i) the timing of the HSR filings by any party;
(ii) the extent to which it may be necessary to resolve or settle
any concerns on the part of any governmental antitrust authority
regarding the legality under any antitrust law of the Merger by entering
into negotiations, providing information, making proposals, entering
into and performing agreements or submitting to judicial or
administrative orders;
(iii) contesting the entry in a judicial or administrative
proceeding brought under any antitrust law by any governmental antitrust
authority or any other party of any permanent or preliminary injunction
or other order that would make consummation of the Merger unlawful or
would prevent or delay it;
(iv) if such an injunction or other order has been issued in such a
proceeding, taking any and all steps, including, without limitation,
appeal, or the posting of bond, necessary to vacate, modify or suspend
such injunction or order so as to permit the consummation of the Merger
on the schedule contemplated by this Agreement;
(v) responding to and complying with any request for additional
information by any governmental antitrust authority; and
(vi) determining any other appropriate response or initiative to
avoid or eliminate impediments under any antitrust law that may be
asserted by any governmental antitrust authority or any other party to
the consummation of the transactions contemplated by this Agreement.
Section 5.10. Public Announcements. The timing and content of all
announcements regarding any aspect of this Agreement or the Merger to the
financial community, government agencies (except as otherwise provided by
Section 5.9(e)), employees or the general public shall be mutually agreed upon
in advance (unless Medaphis or HDS is advised by counsel that any such
announcement or other disclosure not mutually agreed upon in advance is required
to be made by law or applicable rule of The Nasdaq National Market and then only
after making a reasonable attempt to comply with the provisions of this Section
5.10).
Section 5.11. Financial Statements and Commission Reports. Prior to the
Effective Time, each party to this Agreement shall deliver to the other, as soon
as available but in no event later than 45 days after the end of each fiscal
quarter, a consolidated balance sheet as of the last day of such fiscal period
and the consolidated statements of income, stockholders' equity and cash flows
of such party and its subsidiaries for the fiscal period then ended prepared in
accordance with generally accepted accounting principles with such exceptions as
are noted on such financial statements, and in the case of Medaphis, in
accordance with the requirements of Form 10-Q (or Form 10-K as the case may be)
under the Exchange Act. Prior to the Effective Time, Medaphis shall deliver to
HDS as soon as available a copy of each form, report and other document filed by
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Medaphis with the Commission after the date of this Agreement and shall
otherwise keep HDS apprised of any material developments with respect to the
business or financial condition of Medaphis.
Section 5.12. Supplements to Disclosure Letters. From time to time prior
to the Effective Time, HDS and Medaphis will each promptly supplement or amend
the respective disclosure letters which they have delivered pursuant to this
Agreement with respect to any matter arising after the date of this Agreement
which, if existing or occurring at the date of this Agreement, would have been
required to be set forth or described in any such disclosure letter or which is
necessary to correct any information in any such disclosure letter which has
been rendered inaccurate by such matter. No supplement or amendment to any such
disclosure letter shall have any effect for the purpose of determining
satisfaction of the conditions set forth in Sections 6.2(a) or 6.3(a).
Section 5.13. Pooling of Interests Accounting. From and after the date of
this Agreement and until the Effective Time, neither Medaphis nor HDS nor any of
their respective subsidiaries or other affiliates shall knowingly take, or
knowingly fail to take, any action (other than actions expressly contemplated by
this Agreement) that would jeopardize the treatment of Medaphis' acquisition of
HDS as a "pooling of interests" for accounting purposes. Following the Effective
Time, Medaphis shall use its reasonable, best efforts to conduct the business of
Medaphis in a manner that would not jeopardize the characterization of the
Merger as a "pooling of interests" for accounting purposes.
Section 5.14. Accountant's Review Report. HDS agrees to exercise
reasonable efforts to cause Deloitte & Touche to deliver to Medaphis prior to
the filing of the Registration Statement a limited review report covering any
unaudited financial statements of HDS included in the Registration Statement in
form and substance reasonably acceptable to Medaphis (the " Deloitte & Touche
Review Report").
Section 5.15. Special Indemnification by Medaphis. (a) Subsequent to the
Closing, Medaphis shall to the fullest extent permitted under Delaware corporate
law, indemnify and hold harmless each present and former director, officer,
employee and agent of HDS (collectively, the "Special Indemnified Parties")
against all losses, claims, damages, liabilities or judgments, joint or several,
in connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any action or omission in their capacity as an officer, director, employee or
agent of HDS before the Closing, whether asserted or claimed prior to, at or
after the Closing Date, for a period of six years after the Closing Date, in
each case to the fullest extent permitted under Delaware corporate law (and
shall pay any expenses in advance of the final disposition of such action or
proceeding to each Special Indemnified Party to the fullest extent permitted
under Delaware corporate law, upon receipt from the Special Indemnified Party to
whom expenses are advanced of an undertaking to repay such advances as required
under Delaware corporate law). In the event of any such claim, action, suit,
proceeding or investigation, Medaphis, at its expense, shall have the right to
defend such claim, action, suit, proceeding or investigation, unless there is,
as determined by counsel to Medaphis, a conflict or reasonable likelihood of a
conflict such that the representation of one or more of the Special Indemnified
Parties would be impermissible under applicable standards of professional
conduct, in which case, or in the case that Medaphis elects not to defend such
claim, action, suit, proceeding or investigation, Medaphis shall pay the
reasonable fees and expenses of counsel selected by the Special Indemnified
Parties, which counsel shall be reasonably satisfactory to Medaphis, promptly
after statements therefor are received, and Medaphis shall cooperate in the
defense of any such matter; provided, however, that, in the event that any claim
for indemnification is asserted or made within such six-year period, all rights
to indemnification in respect of such claim shall continue until the disposition
of such claim.
(b) For a period of six years after the Closing Date, Medaphis agrees that
it will not take any action to amend the Certificate of Incorporation or Bylaws
of the Surviving Corporation to limit the indemnification available to the
Special Indemnified Parties as described by Section 5.15(a).
(c) Medaphis shall maintain, or cause the Surviving Corporation to
maintain, directors' and officers' liability insurance for acts or omissions
occurring through the Closing Date with respect to the Special Indemnified
Parties having terms at least as advantageous to the Special Indemnified Parties
as the directors' and officers' liability insurance policies of HDS currently in
place, for a period of three years after the Closing Date.
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(d) In the event Medaphis or any of its respective successors or assigns
(i) consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers all or substantially all of its properties and assets
to any person or entity, then, and in each such case, proper provision shall be
made so that the successors and assigns of Medaphis shall assume the obligations
set forth in this Section 5.15.
Section 5.16. Employees. (a) HDS 401(k) Plan. Medaphis will maintain the
HDS 401(k) Plan in effect for employees of HDS and each HDS ERISA Affiliate for
a period commencing on the Closing Date and ending September 30, 1997. Medaphis
shall allow employees of HDS and each HDS ERISA Affiliate to participate in the
HDS 401(k) Plan under the terms in effect under the HDS 401(k) Plan as of the
Closing Date except for any changes to such plan that are required by law. At
the end of such period, Medaphis shall cause employees of HDS and each HDS ERISA
Affiliate to be eligible to participate in either the Medaphis 401(k) Plan or
other similar plan providing benefits at a level at least as generous as the
Medaphis 401(k) Plan (the "Replacement Plan"). Medaphis covenants that the
service of each employee of HDS and each HDS ERISA Affiliate prior to the
Closing Date shall be credited as service under the Replacement Plan for all
purposes (including, without limitation, eligibility and vesting) for those
employees of HDS and each HDS ERISA Affiliate who were participants in any
401(k) plan maintained by HDS or an HDS ERISA Affiliate as of the Closing Date.
In addition, to the extent that the Replacement Plan provides for a level of
employer matching and other employer contributions (not including elective
contributions and other employee contributions) which are less than that
provided under the HDS 401(k) Plan prior to the Closing Date, each employee of
HDS and each HDS ERISA Affiliate as of the Closing Date shall be entitled to a
bonus as of the date of their eligibility under the Replacement Plan, such bonus
to be paid on or before December 31, 1997, equal to 75% of the difference
between (A) and (B), where (A) is the employer matching contribution made to the
HDS 401(k) Plan for the employee for the plan year ending September 30, 1997 and
(B) is the employer matching and other employer contributions that would be made
under the Replacement Plan if such employee contributed the same percentage of
his or her compensation to the Replacement Plan during a plan year.
(b) HDS Health Plan. For a period of two years after the Closing Date, in
addition to any other Medaphis group health plan offered to all Medaphis
employees (the "Successor Plans"), Medaphis shall provide all employees of HDS
and each HDS ERISA Affiliate with the opportunity to elect coverage for
themselves and their dependents under the health maintenance organization
sponsored by Blue Cross, the dental program sponsored by Prudential and the
vision care program sponsored by Blue Cross in which HDS participates as of the
Closing Date. Any Successor Plan shall meet the following requirements: (i)
service with HDS and each HDS ERISA Affiliate prior to the Closing Date shall be
credited against all eligibility and waiting period requirements under the
Successor Plans for those employees of HDS and each HDS ERISA Affiliate (and
their eligible dependents) who were eligible for coverage from HDS or an HDS
ERISA Affiliate as of the Closing Date; (ii) the Successor Plans shall not
provide for any pre-existing condition exclusion for those employees of HDS and
each HDS ERISA Affiliate (and their dependents) and all qualified beneficiaries
(as defined in Section 4980B(g)(i) of the Code) entitled to continuation
coverage under COBRA (the "Qualified Beneficiaries") who were entitled to
coverage from HDS or an HDS ERISA Affiliate as of the Closing Date; and (iii)
the deductibles in effect under the Successor Plans for the plan year in which
the Closing Date occurs shall be reduced by any amounts applied toward the
deductibles under the HDS Benefit Plans for the plan year in which the Closing
Date occurs provided such individuals submit evidence to Medaphis sufficient to
demonstrate the amount so applied against any applicable deductibles in effect
under any HDS Benefit Plan.
(c) Other Benefits. For a period of two years after the Closing Date,
Medaphis will provide all employees of HDS and each HDS ERISA Affiliate with
substantially similar benefits, other than those benefits described in Sections
5.16(a) and (b) above, as provided by HDS and each HDS ERISA Affiliate to such
employees as of the Closing Date or will pay such employees the economic
equivalent of such benefits; provided, however, that Medaphis shall not be
required to maintain any insurance benefit programs to the extent that such
programs are unavailable from an insurance carrier or are only available on
commercially unreasonable terms.
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Section 5.17. Certain Other Benefits. After the Effective Time, Medaphis
will grant to employees of HDS and Subsidiary certain other benefits in the
manner and to the extent provided in the Medaphis Disclosure Letter.
ARTICLE 6.
CONDITIONS
Section 6.1. Conditions to Each Party's Obligations. The respective
obligations of each party to effect the Merger shall be subject to the
fulfillment at or prior to the Closing of each of the following conditions:
(a) HDS Stockholder Approval. The Merger, this Agreement and the
transactions contemplated by this Agreement shall have been approved at the
meeting of HDS Stockholders duly called and held in accordance with the
DGCL by the holders of not less than eighty-five percent of the outstanding
shares of HDS Series F Stock having the right to vote on such matters and
holders of a majority of the outstanding shares of HDS Capital Stock
(voting together as a class) having the right to vote on such matters.
(b) Injunction. At the Effective Time there shall be no effective
injunction, writ or preliminary restraining order or any order of any
nature issued by a court or governmental agency of competent jurisdiction
to the effect that the Merger may not be consummated as provided in this
Agreement, no proceeding or lawsuit shall have been commenced by any
governmental or regulatory agency for the purpose of obtaining any such
injunction, writ or preliminary restraining order and no written notice
shall have been received from any such agency indicating an intent to
restrain, prevent, materially delay or restructure the transactions
contemplated by this Agreement.
(c) Tax Opinion. HDS and Medaphis shall each have received a written
opinion of King & Spalding concerning certain federal income tax
consequences of the Merger, substantially in the form attached as Exhibit
6.1(c).
(d) Registration Statement. The Registration Statement shall be
effective under the Securities Act and no stop order suspending the
effectiveness of the Registration Statement shall be in effect and no
proceedings for such purpose, or under the proxy rules of the Commission
pursuant to the Exchange Act and with respect to the transactions
contemplated by this Agreement, shall be pending before or threatened by
the Commission. All applicable state securities laws shall have been
complied with in connection with the issuance of Medaphis Common Stock to
be issued pursuant to the Merger, and no stop order suspending the
effectiveness of any qualification or registration of such Medaphis Common
Stock under such state securities laws shall have been issued and pending
or threatened by the authorities of any such state. The prospectus that
comprises part of the Registration Statement shall have been mailed or sent
to HDS Stockholders not less than twenty business days prior to the meeting
described in Section 6.1(a), as the term "business days" is defined for
purposes of Form S-4 under the Securities Act.
(e) Pooling. HDS and Medaphis shall have been advised in writing, as
of the Effective Time, by Deloitte & Touche that, in accordance with
generally accepted accounting principles, the Merger qualifies to be
treated as a "pooling of interests" for accounting purposes.
(f) The Nasdaq National Market Additional Shares Notification. The
Medaphis Common Stock to be issued pursuant to this Agreement shall have
been approved for listing on The Nasdaq National Market, subject only to
official notice of issuance by Medaphis.
(g) HSR Act. The applicable waiting periods shall have expired or
been terminated early under the HSR Act.
Section 6.2. Conditions to Obligations of Medaphis. The obligation of
Medaphis to effect the Merger shall be subject to the fulfillment at or prior to
the Closing of each of the following additional conditions:
(a) Representations and Warranties. The representations and
warranties of HDS set forth in Article 3 of this Agreement shall be true
and correct as of the date of this Agreement and as of the Effective Time
as though made on and as of the Effective Time.
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(b) Performance of Obligations of HDS. HDS shall have performed in
all material respects all covenants and agreements required to be performed
by it under this Agreement.
(c) Opinion of HDS Counsel. Medaphis shall have received an opinion
of Seyfarth, Shaw, Fairweather & Geraldson, dated the Closing Date,
substantially in the form attached as Exhibit 6.2(c).
(d) Authorization of Merger. All corporate action necessary by HDS to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated by this Agreement shall have
been duly and validly taken.
(e) Consents. All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution, delivery
and performance of this Agreement shall have been obtained or made, except
for filing of the Delaware Certificate of Merger and any other documents
required to be filed after the Effective Time and except where the failure
to have obtained or made any such consent, authorization, order, approval,
filing or registration would not have a material adverse effect on the
business of Medaphis and HDS following the Effective Time.
(f) Certificates. HDS shall have furnished Medaphis with a
certificate of its appropriate officers as to compliance with the
conditions set forth in Sections 6.2(a), (b) and (d).
(g) Accountant's Review Report and Letter. Medaphis shall have
received: (i) the Deloitte & Touche Review Report in accordance with
Section 5.14; and (ii) a letter from Deloitte & Touche dated the effective
date of the Registration Statement under the Securities Act, with respect
to certain financial and statistical information concerning HDS included in
the Registration Statement in form and substance customary in transactions
of the nature of the Merger.
(h) Material Contracts. Medaphis shall have received consents to
assignment of all HDS Material Contracts or written waivers of the
provisions of any HDS Material Contracts requiring the consents of third
parties as set forth in the HDS Disclosure Letter.
(i) Resignation Letters. Each of the directors of HDS shall have
tendered to Medaphis resignation letters in form and substance reasonably
acceptable to Medaphis on or prior to the Closing Date, such resignations
to be effective immediately following the Closing Date.
(j) Dissenters' Rights. Holders of less than 10% of the outstanding
HDS Capital Stock shall have exercised appraisal rights pursuant to the
DGCL.
(k) Options. At least 70% of the holders of Options shall have
executed and delivered to Medaphis an Option Assumption Agreement with
respect to each Option held by such holder on the Closing Date.
(l) Due Diligence. During the course of the Medaphis Due Diligence
Review, Medaphis shall not have discovered any HDS Detrimental Information.
The term "HDS Detrimental Information" means any information concerning the
assets, liabilities, results of operations, financial condition or business
of HDS or Subsidiary, that (i) would have an HDS Material Adverse Effect,
(ii) although it existed on the date of execution of this Agreement, it was
not previously delivered by, or on behalf of, HDS to Medaphis and was not
specifically set forth in or contemplated by the HDS Disclosure Letter as
delivered on the date of this Agreement, (iii) is specific to HDS or
Subsidiary (as opposed to general information concerning the industry or
industries in which HDS or Subsidiary operate or the economy generally) and
(iv) does not relate to prospective agreements of HDS, or any projections
or other similar forward-looking information relating to HDS.
Section 6.3. Conditions to Obligations of HDS. The obligation of HDS to
effect the Merger shall be subject to the fulfillment at or prior to the Closing
of each of the following additional conditions:
(a) Representations and Warranties. The representations and
warranties of Medaphis set forth in Article 4 of this Agreement shall be
true and correct as of the date of this Agreement and as of the Effective
Time as though made on and as of the Effective Time.
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(b) Performance of Obligations by Medaphis. Medaphis shall have
performed in all material respects all covenants and agreements required to
be performed by it under this Agreement.
(c) Opinion of Medaphis Counsel. HDS shall have received an opinion,
dated the Closing Date, of King & Spalding, counsel to Medaphis,
substantially in the form of Exhibit 6.3(c).
(d) Authorization of Merger. All corporate action necessary by
Medaphis to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated by this
Agreement shall have been duly and validly taken.
(e) Consents. All consents, authorizations, orders and approvals of
(or filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution, delivery
and performance of this Agreement shall have been obtained or made, except
for filing of the Delaware Certificate of Merger and any other documents
required to be filed after the Effective Time and except where the failure
to have obtained or made any such consent, authorization, order, approval,
filing or registration would not have a material adverse effect on the
business of Medaphis and HDS following the Effective Time.
(f) Certificates. Medaphis shall have furnished HDS with a
certificate of its appropriate officers as to compliance with the
conditions set forth in Sections 6.3(a), (b) and (d).
(g) Accountant's Report. HDS shall have received a letter from
Deloitte & Touche dated the effective date of the Registration Statement
under the Securities Act, with respect to certain financial and statistical
information concerning Medaphis and its subsidiaries included or
incorporated by reference in the Registration Statement, in form and
substance customary in transactions of the nature of the Merger.
(h) Fairness Opinion. The Board of Directors of HDS shall have
received a written opinion of Hambrecht & Quist, dated on or before the
Closing Date, to the effect that the Merger is fair to HDS and its
stockholders from a financial point of view.
ARTICLE 7.
CLOSING
The consummation of the transactions contemplated by this Agreement is
referred to as the "Closing." The "Closing Date" is the date on which the
Closing occurs. The Closing shall occur as soon following the HDS Stockholders'
meeting described in Section 5.5 as is reasonably practicable and in any event
within three business days of the satisfaction or waiver of the other conditions
set forth in Article 6; except that under no circumstance shall the Closing take
place on or after August 15, 1996. The Closing shall take place at the offices
of King & Spalding, 191 Peachtree Street, Atlanta, Georgia, or at such other
place as HDS and Medaphis may agree.
ARTICLE 8.
TERMINATION
Section 8.1. Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after approval by the stockholders
of HDS:
(a) by mutual agreement of the Boards of Directors of HDS and
Medaphis;
(b) by HDS, if any one or more of the conditions set forth in Sections
6.1 and 6.3 are not complied with or performed and such noncompliance or
nonperformance has not been cured or eliminated (or by its nature cannot be
cured or eliminated) by Medaphis on or before August 15, 1996;
(c) by Medaphis, if any one or more of the conditions set forth in
Sections 6.1 and 6.2 are not complied with or performed and such
noncompliance or nonperformance has not been cured or eliminated (or by its
nature cannot be cured or eliminated) by HDS on or before August 15, 1996;
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(d) if, after the meeting of the HDS Stockholders contemplated by
Section 5.5 has been held (after giving effect to any adjournments), the
condition set forth in Section 6.1(a) has not been fulfilled, by HDS or
Medaphis; and
(e) by HDS if the Average Closing Price is less than $37.
Section 8.2. Specific Performance and Other Remedies. The parties each
acknowledge that the rights of each party to consummate the transactions
contemplated by this Agreement are special, unique and of extraordinary
character, and that, if any party violates or fails or refuses to perform any
covenant or agreement made by it in this Agreement, the non-breaching party may
be without an adequate remedy at law. The parties each agree, therefore, that if
either party violates or fails or refuses to perform any covenant or agreement
made by such party in this Agreement, the non-breaching party or parties may,
subject to the terms of this Agreement and in addition to any remedies at law
for damages or other relief, institute and prosecute an action in any court of
competent jurisdiction to enforce specific performance of such covenant or
agreement or seek any other equitable relief. If HDS fails to perform any of the
covenants contained in Section 5.1(m) or Section 5.7(a), Medaphis's sole remedy
is to terminate this Agreement pursuant to Section 8.1(c), because the condition
set forth in Section 6.2(b) has not been satisfied.
Section 8.3. Effect of Termination. In the event of termination of this
Agreement pursuant to this Article 8, this Agreement shall forthwith become void
and there shall be no liability on the part of any party or its respective
officers, directors or stockholders, except for obligations under Section
5.3(b), Section 5.10, Section 8.4, Section 9.13 and this Section, all of which
shall survive the termination. Notwithstanding the foregoing, nothing contained
in this Section 8.3 shall relieve any party from liability for any breach of any
covenant or agreement in this Agreement.
Section 8.4. Termination Fee. If (A)(i) Medaphis terminates this Agreement
pursuant to Section 8.1(c) as the result of the failure to satisfy the closing
condition in Section 6.1(a), (ii) HDS terminates this Agreement pursuant to
Section 8.1(b) as a result of the failure to satisfy the closing condition in
Section 6.1(a), (iii) Medaphis terminates this Agreement pursuant to Section
8.1(d), or (iv) HDS terminates this Agreement pursuant to Section 8.1(d); and
(B) on or prior to the date scheduled for the meeting of HDS Stockholders
specified in Section 5.5, any corporation, partnership, limited liability
company, other type of entity, group or person makes a proposal or offer
concerning an Acquisition Transaction involving HDS; and (C) prior to the
expiration of 182 days after the date of a termination of this Agreement of the
type described in (A), HDS engages in negotiations with or enters into a letter
of intent, agreement in principle or definitive agreement with any corporation,
partnership, limited liability company, other type of entity, group or person
(except for Medaphis or its authorized representatives) concerning an
Acquisition Transaction; and (D) such Acquisition Transaction is consummated
during or after such 182-day period, then HDS shall within five business days
after such consummation pay Medaphis a fee of $7,500,000 to reimburse and
compensate Medaphis for its expense, time and effort in connection with the
transactions contemplated by this Agreement.
Except as provided in the second sentence of Section 9.4, in the event of a
payment pursuant to this Section 8.4, such payment shall be in full satisfaction
of all obligations and liabilities of the paying party to the other, arising out
of the termination of this Agreement.
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ARTICLE 9.
MISCELLANEOUS PROVISIONS
Section 9.1. Notices. Each notice, communication and delivery under this
Agreement must be made in writing signed by the party making the same, must
specify the Section pursuant to which it is given or being made, and must be
delivered personally or by telecopy transmission (provided that any notice sent
by telecopy transmission must also be sent by registered or certified mail) or
sent by registered or certified mail or by any express mail service (with
postage and other fees prepaid) as follows:
To Medaphis:
Medaphis Corporation
2700 Cumberland Parkway
Suite 300
Atlanta, Georgia 30339
Attn.: William R. Spalding
Telecopy No.: (770) 431-1667
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attn: Robert W. Miller, Esq.
Telecopy No.: (404) 572-5146
To HDS:
Health Data Sciences Corporation
268 West Hospitality Lane #300
San Bernardino, California 92408
Attn: Ralph A. Korpman, M.D.
Telecopy No.: (909) 885-0124
with a copy to:
Seyfarth, Shaw, Fairweather & Geraldson
2029 Century Park East
Los Angeles, California 90067-3063
Attn: Edward J. Pierce
Telecopy No.: (310) 201-5219
or to such other representative or at such other address of a party as such
party may furnish to the other parties in writing.
Section 9.2. Disclosure Letters and Exhibits. The HDS Disclosure Letter
and the Medaphis Disclosure Letter and all Exhibits are incorporated into this
Agreement and are made a part of this Agreement as if set out in full in this
Agreement.
Section 9.3. Assignment; Successors in Interest. No assignment or transfer
by Medaphis, HDSSub or HDS of their respective rights and obligations under this
Agreement prior to the Closing shall be made except with the prior written
consent of the other parties. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their permitted successors and assigns,
and any reference to a party shall also be a reference to a permitted successor
or assign.
Section 9.4. Representations and Warranties. The representations and
warranties set forth in this Agreement shall not survive the Closing.
Notwithstanding anything to the contrary set forth in this Section 9.4, this
Section shall not limit or restrict HDS's or Medaphis's remedies against the
other or any other person for fraud, willful misconduct, or bad faith. The
covenants and agreements of each of Medaphis,
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HDSSub and HDS set forth in this Agreement shall survive the Closing and shall
remain in full force and effect until performed or satisfied by the applicable
party responsible for the same in this Agreement.
Section 9.5. Number; Gender. Whenever this Agreement so requires, the
singular number shall include the plural and the plural shall include the
singular, and the gender of any pronoun shall include the other genders.
Section 9.6. Captions. The titles, captions and table of contents
contained in this Agreement are inserted only as a matter of convenience and for
reference and in no way define, limit, extend or describe the scope of this
Agreement or the intent of any provision of this Agreement. Unless otherwise
specified to the contrary, all references to Articles and Sections are
references to Articles and Sections of this Agreement and all references to
Exhibits are references to Exhibits to this Agreement and the HDS Disclosure
Letter and the Medaphis Disclosure Letter.
Section 9.7. Controlling Law; Integration; Amendment. (a) This Agreement
shall be governed by and construed and enforced in accordance with the internal
laws of the State of Delaware without reference to Delaware's choice of law
rules and the parties agree that any legal proceeding instituted with respect to
this Agreement shall be brought in Delaware and the parties submit to personal
jurisdiction therein and agree that venue properly lies in Delaware. This
Agreement supersedes all negotiations, agreements and understandings among the
parties with respect to the subject matter of this Agreement and constitutes the
entire agreement among the parties.
(b) This Agreement may not be amended, modified or supplemented except by
written agreement of the parties.
Section 9.8. HDS and Medaphis Knowledge. As used in this Agreement, the
terms "the knowledge of the HDS Executives," "known to the HDS Executives" or
words of similar import used in this Agreement with respect to HDS shall mean
the actual knowledge of any HDS Executive, together with the knowledge a
reasonable business person would have obtained after making reasonable inquiry
and after exercising reasonable diligence with respect to the matters at hand.
The "HDS Executives" shall consist of Ralph A. Korpman, M.D., Mr. Peter Gladkin
and Ms. Janice E. Ticich. As used in this Agreement, the terms "the knowledge of
the Medaphis Executives," "known to the Medaphis Executives" or words of similar
import used in this Agreement with respect to Medaphis shall mean the actual
knowledge of any Medaphis Executive, together with the knowledge a reasonable
business person would have obtained after making reasonable inquiry and after
exercising reasonable diligence with respect to the matters at hand. The
"Medaphis Executives" shall consist of Messrs. Randolph G. Brown, Timothy J.
Kilgallon, Michael R. Cote and William R. Spalding.
Section 9.9. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction will, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions of this Agreement, and any such
prohibition or unenforceability in any jurisdiction will not invalidate or
render unenforceable such provision in any other jurisdiction. To the extent
permitted by law, the parties waive any provision of law which renders any such
provision prohibited or unenforceable in any respect.
Section 9.10. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and it shall not be
necessary in making proof of this Agreement or the terms hereof to produce or
account for more than one of such counterparts.
Section 9.11. Enforcement of Certain Rights. Nothing expressed or implied
in this Agreement is intended, or shall be construed, to confer upon or give any
person, firm or corporation other than the parties, and their permitted
successors or assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, or result in such person, firm or corporation being
deemed a third party beneficiary of this Agreement, other than Section 5.4 and
Section 5.15 which provide for certain benefits to the persons described in such
sections.
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Section 9.12. Waiver. At any time prior to the Effective Time, the
parties, by or pursuant to action taken by their respective Boards of Directors,
may, to the extent legally permitted: (i) extend the time for the performance of
any of the obligations or other acts of any other party; (ii) waive any
inaccuracies in the representations or warranties of any other party contained
in this Agreement or in any document or certificate delivered pursuant to this
Agreement; (iii) waive compliance or performance by any other party with any of
the covenants, agreements or obligations of such party contained in this
Agreement; and (iv) waive the satisfaction of any condition that is precedent to
the performance by the party so waiving of any of its obligations under this
Agreement. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. A waiver by one party of the performance of any covenant, agreement,
obligation, condition, representation or warranty shall not be construed as a
waiver of any other covenant, agreement, obligation, condition, representation
or warranty. A waiver by any party of the performance of any act shall not
constitute a waiver of the performance of any other act or an identical act
required to be performed at a later time.
Section 9.13. Fees and Expenses. Medaphis shall pay its own fees, costs
and expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement, including, but not limited to, the fees, costs
and expenses of its financial advisors, accountants and counsel. HDS shall pay
its own fees, costs and expenses incurred in connection with this Agreement and
the transactions contemplated by this Agreement, but such fees, costs and
expenses shall not exceed in the aggregate the sum of the amounts of fees
specified in the HDS Disclosure Letter and the reasonable fees, costs and
expenses of the accountants and counsel for HDS.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed, as of the date first above written.
MEDAPHIS CORPORATION
By: /s/ RANDOLPH G. BROWN
-------------------------------------------
Title: Chairman, CEO and President
--------------------------------------
HDSSUB, INC.
By: /s/ RANDOLPH G. BROWN
-------------------------------------------
Title: Chairman, CEO and President
--------------------------------------
HEALTH DATA SCIENCES CORPORATION
By: /s/ RALPH A. KORPMAN, M.D.
-------------------------------------------
Title: Chairman and Chief Executive Officer
--------------------------------------
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