EXHIBIT 2(g)
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AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 24, 1997
AMONG
MERIT BEHAVIORAL CARE CORPORATION
MAGELLAN HEALTH SERVICES, INC.
AND
MBC MERGER CORPORATION
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TABLE OF CONTENTS
PAGE
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ARTICLE I. DEFINITIONS..................................................................................... 2
SECTION 1.01. Certain Defined Terms.................................................................... 2
SECTION 1.02. Other Defined Terms...................................................................... 6
ARTICLE II. MERGER......................................................................................... 8
SECTION 2.01. The Merger............................................................................... 8
SECTION 2.02. Effective Time of the Merger............................................................. 8
SECTION 2.03. Closing.................................................................................. 8
SECTION 2.04. Effect of the Merger..................................................................... 8
SECTION 2.05. Certificate of Incorporation and Bylaws of the Surviving Corporation..................... 8
SECTION 2.06. Directors and Officers of the Surviving Corporation...................................... 8
SECTION 2.07. Conversion of Securities................................................................. 9
SECTION 2.08. Exchange of Certificates................................................................. 10
SECTION 2.09. Stock Transfer Books..................................................................... 12
SECTION 2.10. Company Options.......................................................................... 12
SECTION 2.11. Dissenting Shares........................................................................ 13
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................................. 14
SECTION 3.01. Incorporation and Authority of the Company............................................... 14
SECTION 3.02. Incorporation and Qualification of the Company and the Company 14
Subsidiaries.............................................................................
SECTION 3.03. Capital Stock of the Company............................................................. 14
SECTION 3.04. Subsidiaries............................................................................. 15
SECTION 3.05. No Conflict.............................................................................. 16
SECTION 3.06. Financial Statements..................................................................... 17
SECTION 3.07. Labor Matters............................................................................ 17
SECTION 3.08. Absence of Certain Changes or Events..................................................... 17
SECTION 3.09. Absence of Litigation.................................................................... 19
SECTION 3.10. Compliance with Laws..................................................................... 19
SECTION 3.11. Consents, Approvals, Licenses............................................................ 19
SECTION 3.12. Personal Property; Information Systems................................................... 20
SECTION 3.13. Real Property............................................................................ 21
SECTION 3.14. Employee Benefit Matters................................................................. 21
SECTION 3.15. Taxes.................................................................................... 23
SECTION 3.16. Certain Contracts........................................................................ 24
SECTION 3.17. Customers................................................................................ 25
SECTION 3.18. Undisclosed Liabilities.................................................................. 26
SECTION 3.19. Transactions with Affiliates............................................................. 26
SECTION 3.20. Undisclosed Liabilities.................................................................. 26
SECTION 3.21. Brokers.................................................................................. 26
SECTION 3.22. Restricted Cash.......................................................................... 27
SECTION 3.23. SEC Documents............................................................................ 27
SECTION 3.24. Accounts Receivable...................................................................... 27
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF PARENT 27
AND MERGER SUB................................................................................
SECTION 4.01. Incorporation and Authority of Parent and Merger Sub..................................... 27
SECTION 4.02. No Conflict.............................................................................. 28
SECTION 4.03. Consents and Approvals................................................................... 28
SECTION 4.04. Absence of Litigation.................................................................... 28
SECTION 4.05. Financing................................................................................ 28
SECTION 4.06. Other Transactions....................................................................... 29
SECTION 4.07. Brokers.................................................................................. 29
ARTICLE V. ADDITIONAL AGREEMENTS........................................................................... 29
SECTION 5.01. Conduct of Business Prior to the Closing................................................. 29
SECTION 5.02. Parent Action Prior to the Closing....................................................... 32
SECTION 5.03. Access to Information.................................................................... 32
SECTION 5.04. Confidentiality.......................................................................... 33
SECTION 5.05. Efforts; Regulatory and Other Authorizations; Consents................................... 33
SECTION 5.06. Further Action........................................................................... 35
SECTION 5.07. No Solicitation.......................................................................... 35
SECTION 5.08. Notification of Certain Matters.......................................................... 35
SECTION 5.09. Indemnification of Officers and Directors................................................ 36
SECTION 5.10. Repayment of Bank Debt and Senior Subordinated Notes..................................... 36
ARTICLE VI. EMPLOYEE MATTERS............................................................................... 37
Section 6.01. Employee Benefits........................................................................ 37
Section 6.02. Severance Arrangements................................................................... 37
ARTICLE VII. CONDITIONS TO CLOSING......................................................................... 37
SECTION 7.01. Conditions to Obligations of the Company................................................. 37
SECTION 7.02. Conditions to Obligations of Parent and Merger Sub....................................... 38
ARTICLE VIII. TERMINATION, AMENDMENT AND WAIVER............................................................ 39
SECTION 8.01. Termination.............................................................................. 39
SECTION 8.02. Effect of Termination.................................................................... 40
SECTION 8.03. Waiver................................................................................... 40
ARTICLE IX. GENERAL PROVISIONS............................................................................. 40
SECTION 9.01. Nonsurvival of Representations, Warranties and Agreements................................ 40
SECTION 9.02. Expenses................................................................................. 40
SECTION 9.03. Notices.................................................................................. 40
SECTION 9.04. Public Announcements..................................................................... 41
SECTION 9.05. Headings................................................................................. 42
SECTION 9.06. Severability............................................................................. 42
SECTION 9.07. Entire Agreement......................................................................... 42
SECTION 9.08. Assignment............................................................................... 42
SECTION 9.09. No Third Party Beneficiaries............................................................. 42
SECTION 9.10. Waivers and Amendments................................................................... 42
SECTION 9.11. Specific Performance..................................................................... 42
SECTION 9.12. Governing Law............................................................................ 43
SECTION 9.13. Counterparts............................................................................. 43
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AGREEMENT AND PLAN OF MERGER, dated as of October 24, 1997 (the
"Agreement"), among MAGELLAN HEALTH SERVICES, INC., a Delaware corporation
("Parent"), MERIT BEHAVIORAL CARE CORPORATION, a Delaware corporation (the
"Company"), and MBC MERGER CORPORATION, a Delaware corporation and a wholly
owned Subsidiary of Parent ("Merger Sub").
WITNESSETH:
WHEREAS, the Directors of the Company have unanimously determined that the
merger of Merger Sub with and into the Company, upon the terms and subject to
the conditions set forth in this Agreement (the "Merger"), is fair to and in the
best interests of the Company and its stockholders;
WHEREAS, in the Merger, the Company will be the surviving corporation, and
each share of common stock, par value $.01 per share, of the Company (the
"Common Stock") will be converted into the right to receive the cash
consideration specified in Section 2.07(c) hereof;
WHEREAS, the Boards of Directors of the Company, the Parent and Merger Sub
have each approved and adopted this Agreement and approved the Merger and the
other transactions contemplated hereby, and the Company has recommended approval
and adoption of this Agreement and the Merger by its stockholders;
WHEREAS, MBC Associates, L.P., a Delaware limited partnership ("MBC
Associates"), and KKR Partners II, L.P., a Delaware limited partnership ("KKR
Partners"), collectively own 21,000,000 shares of Common Stock, 38 Newbury
Ventures/MBC Limited Partnership, a Massachusetts limited partnership
("Newbury"), owns 600,000 shares of Common Stock, Albert S. Waxman, the Albert
S. Waxman Family Charitable Remainder Unitrust (the "Waxman Trust") collectively
own 2,055,100 shares of Common Stock, Arthur H. Halper owns 100,000 shares of
Common Stock, Michael G. Lenahan owns 100,000 shares of Common Stock and John A.
Budnick owns 50,000 shares of Common Stock, all of which shares represent, as of
the date hereof, in the aggregate approximately 81.3% of the outstanding Common
Stock; and
WHEREAS, MBC Associates, KKR Partners, Newbury, the Waxman Trust and Messrs.
Waxman, Halper, Lenahan and Budnick (collectively, the "Company Stockholders")
have approved this Agreement and the Merger.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, Parent, the Company and Merger
Sub agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms have the following meanings:
"Action" means any claim, action, suit or proceeding, arbitral action,
governmental inquiry, criminal prosecution or other investigation as to
which written notice has been provided to the applicable party.
"Affiliate" means, when used with respect to a specified Person, another
Person that either directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with
the Person specified.
"Aggregate Cash Consideration" means an amount equal to (i)
$750,000,000, plus (ii) Aggregate Option Exercise Price, less (iii) Net
Debt, less (iv) fees and expenses incurred by the Company in connection with
the transactions contemplated hereby (including without limitation the fees
referenced in Section 3.21 and specifically excluding any fees and expenses
associated with obtaining the financing under the Commitment Letter).
"Aggregate Option Exercise Price" means an amount equal to the aggregate
dollar amount of the exercise price on all Company Options outstanding
immediately prior to the Effective Time.
"Agreement" means this Agreement and Plan of Merger, dated as of October
24, 1997, by and among Parent, the Company and Merger Sub (including the
Disclosure Schedule and Parent Disclosure Schedule) and all amendments
hereto made in accordance with Section 9.10.
"Balance Sheet" means the unaudited consolidated balance sheet of the
Company and the Company Subsidiaries as of the Balance Sheet Date, together
with related notes thereto.
"Balance Sheet Date" means August 31, 1997.
"Books and Records" means all books of account and other financial
records pertaining to the Company and the Company Subsidiaries.
"Business" means the business of providing or administering managed
behavioral health care services or providing behavioral health care
services, including managed mental health programs and substance abuse
programs and employee assistance programs and utilization management, care
management and network management concerning behavioral health care
services, throughout the United States, as conducted by the Company and the
Company Subsidiaries.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by law to be closed in the
City of New York.
"Company Financial Statements" means audited consolidated financial
statements of the Company for the twelve months ended September 30, 1996,
September 30, 1995 and September 30, 1994 and unaudited condensed financial
statements for the eleven months ended on the Balance Sheet Date.
"Company Options" means options to purchase Common Stock granted
pursuant to the 1995 Plan and the 1996 Plan.
"Company Subsidiaries" means the Subsidiaries of the Company (each of
which is individually referred to as a "Company Subsidiary").
"Compensation Arrangement" means any written plan or compensation
arrangement, other than an Employee Plan, with respect to which the Company
or any ERISA Affiliate contributes, which the Company or any ERISA Affiliate
sponsors or maintains or to which it or any ERISA Affiliate otherwise is
bound, which provides to employees, or former employees, of the Company or
any ERISA Affiliate, with respect to the period of their employment, any
compensation or other benefits, whether deferred or not, in excess of base
salary or wages, including, but not limited to, any bonus or incentive plan,
stock rights plan, deferred compensation arrangement, life insurance, stock
purchase plan, severance pay plan, vacation pay and any other employee
fringe benefit plan.
"Confidentiality Agreement" means the letter agreement between the
Company and Parent dated as of September 2, 1997.
"Contract" means any contract, agreement, indenture, note, bond, loan,
letter of credit, instrument, lease, conditional sales contract, mortgage,
license, franchise agreement, insurance policy, binding commitment or other
agreement, whether written or oral.
"Debt" means any indebtedness, obligation or liability of the Company or
any Company Subsidiary for borrowed money, capitalized leases, and
obligations under reimbursement agreements related to letters of credit
(excluding intercompany indebtedness). The amount of Debt related to a
capitalized lease shall equal that amount required by GAAP to be set forth
on a balance sheet.
"DGCL" means the General Corporation Law of the State of Delaware.
"Disclosure Schedule" means the Disclosure Schedule dated as of the date
of this Agreement delivered to Parent by the Company.
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"Employee Plan" means any pension, profit-sharing, deferred
compensation, vacation, bonus, severance, incentive, medical, vision,
dental, disability, life insurance or any other employee benefit plan as
defined in Section 3(3) of ERISA to which the Company or any ERISA Affiliate
contributes, which the Company or any ERISA Affiliate sponsors or maintains,
or to which the Company or any ERISA Affiliate otherwise is bound.
"Encumbrance" means any security interest, pledge, mortgage, lien,
charge, adverse claim of ownership or use, option, right to purchase, right
to convert, judgement or other encumbrance of any kind.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any trade or business under common control with
the Company within the meaning of Sections 414(b), (c), (m) or (o) of the
Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"GAAP" means generally accepted accounting principles in the United
States.
"Governmental Authority" means any government, governmental entity,
department, commission, board, agency or instrumentality, and any court,
tribunal, or judicial body, whether federal, state or local.
"Governmental Order" means any statute, rule, regulation, order,
judgment, injunction, decree, stipulation or determination issued,
promulgated or entered by or with any Governmental Authority.
"HSR Act" means the Hart Scott Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations thereunder.
"Internal Revenue Code" or "Code" each means the Internal Revenue Code
of 1986, as amended, and the regulations thereunder.
"IRS" means the United States Internal Revenue Service.
"Knowledge" or "known" means, with respect to any matter in question, if
any of Albert Waxman, Arthur Halper, John Budnick, Michael Lenahan, Richard
Surles, David Stone, Doug Wiley, Ken Hawes, John Docherty and Pat
Schmiedeler of the Company and the members of the Board of Directors of the
Company designated by KKR Partners have actual knowledge of such matter as
of the date of this Agreement.
"Law" means any federal, state or local statute, law, ordinance,
regulation, rule, code, order or rule of common law.
"Leased Real Property" means the real property leased by the Company and
the Company Subsidiaries, as tenant, together with, to the extent leased by
the Company and the Company Subsidiaries, all buildings and other
structures, facilities or improvements currently or hereafter located
thereon, all fixtures, systems, equipment and items of personal property of
the Company and the Company Subsidiaries attached or appurtenant thereto,
and all easements, licenses, rights and appurtenances relating to the
foregoing.
"Leases" means the leases for the Leased Real Property.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable.
"Licenses" means all of the licenses, permits and other governmental
authorizations required for the operation of the Business as conducted as of
the date of this Agreement.
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"Material Adverse Effect" means any change or effect that is materially
adverse to the operations, business, financial condition or results of
operations of the Company and the Company Subsidiaries, taken as a whole,
except for any such changes or effects resulting directly or primarily from
(i) the announcement or other disclosure or consummation of the transactions
contemplated by this Agreement, (including, without limitation, the breach,
termination, cancellation or non-renewal by any customer of any customer
contracts primarily as a result of such announcement, disclosure or
consummation), (ii) regulatory changes or changes in the managed behavioral
health care services industry, or (iii) general economic conditions.
"Merger" shall mean the merger of Merger Sub with and into the Company,
with the Company being the surviving corporation, in accordance with this
Agreement and the Certificate of Merger.
"Multiemployer Plan" means a plan, as defined in ERISA Section 3(37).
"Net Debt" means an amount equal to (i) Debt outstanding at September
30, 1997, less (ii) Unrestricted Cash at September 30, 1997, less (iii) the
amount of notes receivable from officers of the Company outstanding at
September 30, 1997, plus (iv) $8,200,000.
"Parent Disclosure Schedule" means the Parent Disclosure Schedule dated
as of the date of this Agreement delivered to the Company by Parent.
"Permitted Encumbrances" means (i) Encumbrances for inchoate mechanics'
and materialmen's liens for construction in progress and workmen's,
repairmen's, warehousemen's and carriers' liens arising in the ordinary
course of the Business, (ii) Encumbrances for Taxes not yet payable and for
Taxes being contested in good faith, (iii) Encumbrances in favor of Parent
or Merger Sub arising out of, under or in connection with this Agreement and
(iv) Encumbrances and imperfections of title that do not secure payment of
indebtedness and the existence of which would not materially affect the use
of the property subject thereto, consistent with past practice.
"Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group that would be deemed to be a person under Section
13(d)(3) of the Exchange Act.
"Subsidiaries" with respect to a Person means any other Person in which
such Person has a direct or indirect equity or ownership interest in excess
of 50% or has the right to appoint a majority of directors, in the case of a
corporation, or managers, in the case of a limited liability company (or
persons performing similar functions).
"Tax" or "Taxes" means all federal, state, local and foreign income,
estimated income, gross receipts, sales, use, social security, employees'
withholding, unemployment, disability, excise, franchise, profits, property,
capital stock, premium, minimum and alternative minimum or other taxes,
fees, stamp taxes and duties, assessments or charges of any kind whatsoever
(whether payable directly or by withholding), together with any interest and
any penalties, additions to tax or additional amounts imposed by any taxing
authority with respect thereto.
"Unrestricted Cash" means the aggregate of all amounts included on the
consolidated September 30, 1997 balance sheet of the Company under the line
items "Operating--MBC," "Operating-- CMG" and "Temporary Borrowings," plus
$4,735,000.
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SECTION 1.02. OTHER DEFINED TERMS. The following terms have the meanings
defined for such terms in the Sections set forth below:
TERM SECTION
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Annual Gross Revenue Amount...................................................... 5.05(b)
Antitrust Laws................................................................... 5.05(b)
Bank Debt........................................................................ 5.10
Cash Consideration............................................................... 2.07(c)
Certificate of Merger............................................................ 2.02
Certificates..................................................................... 2.08(b)
Closing.......................................................................... 2.03
Closing Date..................................................................... 2.03
Commitment Letter................................................................ 4.05
Common Stock..................................................................... Recitals
Company.......................................................................... Preamble
Company Active Entity............................................................ 3.04
Company Inactive Entity.......................................................... 3.04
Company Other Entity............................................................. 3.04
Company Stockholders............................................................. Recitals
Dissenting Shares................................................................ 2.10
Effective Time................................................................... 2.02
Excess Amount.................................................................... 5.05(b)
Exchange Agent................................................................... 2.08(a)
Exchange Fund.................................................................... 2.08(a)
Hardware......................................................................... 3.12
Indemnified Parties.............................................................. 5.09(a)
Listed Contracts................................................................. 3.16(a)
KKR Partners..................................................................... Recitals
MBC Associates................................................................... Recitals
Merger Sub....................................................................... Preamble
Newbury.......................................................................... Recitals
1995 Plan........................................................................ 2.10(a)
1996 Plan........................................................................ 2.10(b)
Option Certificate............................................................... 2.08(b)
Parent........................................................................... Preamble
Preliminary Schedule............................................................. 2.07(d)
Section 3.13 Leases.............................................................. 3.13
Section 3.19 Affiliates.......................................................... 3.19
Senior Subordinated Notes........................................................ 5.10
Software......................................................................... 3.12
Stock Certificate................................................................ 2.08(b)
Sub Capital Stock................................................................ 2.07(a)
Subsidiary Shares................................................................ 3.04(b)
Term............................................................................. Section
Surviving Corporation............................................................ 2.04
Threshhold Amount................................................................ 5.05(b)
Waxman Trust..................................................................... Recitals
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ARTICLE II.
MERGER
SECTION 2.01. THE MERGER. Upon the terms and subject to the provisions of
this Agreement, and in accordance with the DGCL, Merger Sub will merge with and
into the Company at the Effective Time (as defined in Section 2.02).
SECTION 2.02. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement, a certificate of merger with respect to the Merger in form and
substance satisfactory to the parties and in such form as is required by the
relevant provisions of the DGCL (the "Certificate of Merger") shall be duly
prepared, executed and acknowledged and thereafter delivered to the Secretary of
State of the State of Delaware for filing, as provided in the DGCL, as early as
practicable on the Closing Date (as defined in Section 2.03). The Merger shall
become effective at such time as is specified in the Certificate of Merger (the
time at which the Merger has become fully effective being hereinafter referred
to as the "Effective Time").
SECTION 2.03. CLOSING. The closing of the Merger (the "Closing") will take
place at 10:00 a.m., New York time, on a date to be specified by Parent and the
Company, which shall be no earlier than the 45th day following the date of this
Agreement and after such date, shall be no later than the second Business Day
after satisfaction or, if permissible, waiver of the conditions set forth in
Article VII (the "Closing Date"), at the offices of Latham & Watkins, 885 Third
Avenue, Suite 1000, New York, New York, 10022, unless another date, place or
time is agreed to in writing by Parent and the Company. At the Closing (i) the
documents, certificates and instruments referred to in Article VII shall be
executed and delivered, (ii) the cash to be deposited (in immediately available
funds) with the Exchange Agent for disbursement pursuant to Section 2.08 shall
be deposited, and (iii) all amounts contemplated by Section 5.10(i) to be paid
at Closing shall be paid.
SECTION 2.04. EFFECT OF THE MERGER. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and the Company shall continue as
the surviving corporation (the "Surviving Corporation"). Upon becoming
effective, the Merger shall have the effects set forth in the DGCL. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all properties, rights, privileges, powers and franchises of the Company
and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 2.05. CERTIFICATE OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. At the Effective Time, the Certificate of Incorporation and Bylaws
of the Surviving Corporation shall be amended to be identical to the Certificate
of Incorporation and Bylaws, respectively, of Merger Sub as in effect
immediately prior to the Effective Time until duly amended in accordance with
applicable laws.
SECTION 2.06. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION . The
directors of Merger Sub immediately prior to the Effective Time shall become the
initial directors of the Surviving Corporation, each to hold office from the
Effective Time until their respective successors are duly elected or appointed
and qualified in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation. The officers of the Company specified in the
Certificate of Merger shall be the initial officers of the Surviving
Corporation, each to hold office until their respective successors are duly
elected or appointed and qualified in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The Company shall use
reasonable efforts to cause each director of the Company to tender his or her
resignation prior to the Effective Time, each such resignation to be effective
as of the Effective Time.
SECTION 2.07. CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of any of the parties hereto or
the holders of any shares of the following securities:
(a) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
capital stock, par value $.01 per share, of Merger Sub (the "Sub Capital
Stock") shall be converted into and become one fully
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paid and nonassessable share of common stock, par value $.01 per share, of
the Surviving Corporation. At the Effective Time, Parent, as the sole holder
of the Sub Capital Stock, shall surrender any and all certificates
representing such Sub Capital Stock to the Surviving Corporation and shall
be entitled to receive in exchange therefor a certificate representing the
number of shares of common stock of the Surviving Corporation into which the
Sub Capital Stock theretofore represented by the certificates so surrendered
shall have been converted as provided in this Section 2.07(a). From and
after the Effective Time, until so surrendered, each certificate theretofore
representing shares of issued and outstanding Sub Capital Stock shall be
deemed for all corporate purposes to evidence the number of shares of common
stock of the Surviving Corporation into which such shares of Sub Capital
Stock shall have been converted.
(b) CANCELLATION OF TREASURY STOCK. All shares of Common Stock that are
owned by the Company as treasury stock shall be automatically canceled,
retired and extinguished and shall cease to exist and no payment or
consideration shall be made or delivered with respect thereto.
(c) COMMON STOCK OF THE COMPANY. Each issued and outstanding share of
Common Stock (other than shares to be canceled in accordance with Section
2.07(b) and any Dissenting Shares, as defined below) shall be converted into
and represent the right to receive an amount, in cash, equal to the quotient
obtained by dividing (i) the Aggregate Cash Consideration, by (ii) the total
number of shares of Common Stock outstanding immediately prior to the
Effective Time (other than shares to be cancelled in accordance with Section
2.07(b)) plus the number of shares issuable upon exercise of Company Options
outstanding immediately prior to the Effective Time (the "Cash
Consideration"). All such shares of Common Stock, when so converted, shall
no longer be outstanding and shall automatically be canceled, retired and
extinguished and shall cease to exist, and each certificate which
immediately prior to the Effective Time represented any such shares (other
than any Dissenting Shares) shall thereafter represent the right to receive,
upon surrender of such certificate in accordance with the provisions of
Section 2.08, the Cash Consideration into which such shares have been
converted in accordance herewith.
(d) ESTABLISHING THE CASH CONSIDERATION. Five days prior to the
Effective Time, the Company shall provide Parent with a schedule (the
"Preliminary Schedule"), setting forth in reasonable detail, the estimated
Cash Consideration as of the Effective Time. Parent shall promptly review
such schedule and provide any disagreements on such schedule within two days
of receipt of such schedule. The Company and Parent shall resolve any
disputes on the preparation of the Preliminary Schedule and agree upon a
final Cash Consideration which reflects changes, if any, between the date of
delivery of the Preliminary Schedule and the Effective Time.
SECTION 2.08. EXCHANGE OF CERTIFICATES. The procedures for exchanging
certificates which prior to the Effective Time represented shares of Common
Stock for the Cash Consideration pursuant to the Merger are as follows:
(a) EXCHANGE AGENT. As of the Effective Time, Parent shall deposit with
a bank or trust company designated by Parent and the Company (the "Exchange
Agent"), for the benefit of the holders of shares of Common Stock and
Company Options outstanding immediately prior to the Effective Time (other
than Dissenting Shares), for exchange in accordance with this Section 2.08,
through the Exchange Agent, cash in the aggregate amount sufficient to pay
the Cash Consideration for all shares of Common Stock converted pursuant to
Section 2.07(c) and to pay amounts payable to holders of Company Options
pursuant to Section 2.10 (such cash being hereinafter referred to in the
aggregate as the "Exchange Fund"). The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the cash required to be delivered pursuant
to Section 2.07(c) and Section 2.10 out of the Exchange Fund to holders of
shares of Common Stock and Company Options, respectively. Except as
contemplated by Section 2.08(e), the Exchange Fund shall not be used for any
other purpose.
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(b) EXCHANGE PROCEDURES. Commencing on the 35th day after the date
hereof, Parent shall cause the Exchange Agent to promptly deliver to each
holder of record of a certificate or certificates representing outstanding
shares of Common Stock (the "Stock Certificates") and to each holder of
record of a certificate or instrument which immediately prior to the
Effective Time represented any outstanding Company Options (the "Option
Certificates" and, collectively together with the Stock Certificates, the
"Certificates") from whom the Exchange Agent receives a written request (i)
a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only at
or following the Effective Time and upon delivery of the Certificates to the
Exchange Agent and which shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for effecting the surrender of the Certificates in exchange for
the cash payable pursuant to Section 2.07(c) or 2.10, as the case may be,
with respect to the shares of Common Stock or Company Options formerly
represented thereby. The letter of transmittal with respect to Option
Certificates shall contain language waiving any claims the holders thereof
may have against Parent or the Company or any Affiliates of either with
respect to the Company Options. As soon as reasonably practicable (and in
any event not later than three (3) Business Days) after the Effective Time,
Parent shall cause the Exchange Agent to mail a letter of transmittal and
the instructions described above to each holder of record of a Certificate
who has not previously requested such documents from the Exchange Agent.
Each holder of a Certificate shall be entitled to surrender such
Certificate to the Exchange Agent at the Effective Time in accordance with
the procedures described herein. Upon surrender of a Stock Certificate or
Option Certificate, as the case may be, to the Exchange Agent, together with
such letter of transmittal, duly executed,
(x) the holder of such Stock Certificate shall be entitled to receive
promptly in exchange therefor the Cash Consideration (to be paid in
immediately available funds) which such holder has the right to receive
pursuant to the provisions of Section 2.07(c) (provided that Stock
Certificates delivered to the Exchange Agent at the Closing shall be paid
at the Closing) and the Stock Certificate so surrendered shall
immediately be canceled, and
(y) the holder of such Option Certificate shall be entitled to
receive (to be paid in immediately available funds) promptly (but no
earlier than the seventh day after the Closing Date) in exchange therefor
the consideration which such holder has the right to receive pursuant to
Section 2.10 hereof (which shall include the interest payment specified
in Section 2.10).
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No payment shall
be made to the holder of any unsurrendered Certificate in respect thereof
until the holder of record of such Certificate shall surrender such
Certificate to Parent in accordance herewith.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK OR COMPANY OPTIONS. The
payment made upon the surrender for exchange of Certificates in accordance
with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of Common Stock or
Company Options, as appropriate, theretofore represented by such
Certificates.
(e) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed for 180 days after the Effective Time shall be
delivered to Parent upon demand, and any former holder of shares of Common
Stock or Company Options, as appropriate, who has not previously complied
with this Section 2.08 shall thereafter look only to Parent for payment of
such former holder's claim for payment in respect of such holder's shares of
Common Stock or Company Options, as appropriate.
(f) NO LIABILITY. None of the Company, Parent, Merger Sub or the
Exchange Agent shall be liable to any holder of shares of Common Stock for
any cash, stock or other property delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
8
(g) WITHHOLDING RIGHTS. Parent, the Surviving Corporation or the
Exchange Agent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
Certificates such amounts as it is required by Law to deduct and withhold
with respect to the making of such payment under the Code, or any provision
of state, local or foreign tax law provided, however, that if a zero or
reduced rate is available by Law, Parent, the Surviving Corporation and
Exchange Agent shall deduct or withhold such lower amounts. To the extent
that amounts are so withheld by Parent, the Surviving Corporation or the
Exchange Agent, as the case may be, such withheld amounts shall be treated
for all purposes of this Agreement as having been paid to the holder of the
shares of Common Stock or Company Options, as appropriate, in respect of
which such deduction and withholding was made.
(h) LOST CERTIFICATES. If any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed in such form as
Parent may reasonably require and, if required by Parent or the Surviving
Corporation, the posting by such Person of a bond in such reasonable amount
as Parent or the Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the payment deliverable in respect thereof pursuant to this
Agreement.
SECTION 2.09. STOCK TRANSFER BOOKS. From and after the Effective Time, the
stock transfer books of the Company shall be closed, and there shall be no
further registration of transfers of shares of Common Stock on the books and
records of the Company or the Surviving Corporation. If, after the Effective
Time, any Certificates are presented to the Exchange Agent or the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Section 2.09.
SECTION 2.10. COMPANY OPTIONS.
(a) 1995 OPTION PLAN. Prior to the Effective Time, the Compensation
Committee of the Board of Directors of the Company, as administrator of the 1995
Stock Purchase and Option Plan for Employees of the Company (the "1995 Plan"),
shall pursuant to its authority under Section 9 of the 1995 Plan provide that
each option issued under the 1995 Plan shall (i) upon stockholder approval
pursuant to Code Section 280G(b)(5)(A)(ii) become exercisable immediately prior
to the Effective Time, and (ii) after the Effective Time be exercisable only for
an amount of cash equal to that which would have been received by the holder of
such option as a result of the Merger if such holder had exercised such option
immediately prior to the Effective Time. The Company shall, prior to the
Effective Time, pursuant to the provisions of Section 2.08, offer to pay,
subject to consummation of the Merger, each holder of an option issued under the
1995 Plan an amount equal to (x) the aggregate Cash Consideration into which the
shares of Common Stock issuable upon exercise of such option would have been
converted if such option had been exercised immediately prior to the Effective
Time, reduced by (y)(I) the aggregate exercise price for the shares of Common
Stock then issuable upon exercise of such option, and (II) the amount of any
withholding taxes which may be required thereon, in return for the cancellation
of such option, plus (z) an amount equal to the interest which would accrue at a
fluctuating rate per annum equal to the prime interest rate announced by The
Chase Manhattan Bank, N.A., from time to time, compounded daily, on such
remainder for the period commencing on the Closing Date and ending on the such
payment is made (but in no event shall interest accrue for more than seven
days).
(b) 1996 OPTION PLAN. Prior to the Effective Time, the Compensation
Committee of the Board of Directors of the Company, as administrator of the
Company 1996 Employee Stock Option Plan (the "1996 Plan"), shall pursuant to its
authority under Section 11 of the 1996 Plan provide that each option issued
under the 1996 Plan shall after the Effective Time be exercisable only for an
amount of cash equal to that which would have been received by the holder of
such option as a result of the Merger if such holder had exercised such option
immediately prior to the Effective Time. Subject to stockholder approval
pursuant to Code Section 280G(b)(5)(A)(ii), the Company shall, prior to the
Effective Time, pursuant to the
9
provisions of Section 2.08, offer to pay, subject to consummation of the Merger,
each holder of an option issued under the 1996 Plan an amount equal to (x) the
aggregate Cash Consideration into which the shares of Common Stock issuable upon
exercise of such option would have been converted if such option had been
exercised immediately prior to the Effective Time, reduced by (y)(i) the
aggregate exercise price for the shares of Common Stock then issuable upon
exercise of such option, and (ii) the amount of any withholding taxes which may
be required thereon, in return for the cancellation of such option, plus (z) an
amount equal to the interest which would accrue at a fluctuating rate per annum
equal to the prime interest rate announced by The Chase Manhattan Bank, N.A.,
from time to time, compounded daily, on such remainder for the period commencing
on the Closing Date and ending on the such payment is made (but in no event
shall interest accrue for more than seven days).
SECTION 2.11. DISSENTING SHARES.
(a) Notwithstanding any other provision of this Agreement to the contrary,
shares of Common Stock that are outstanding immediately prior to the Effective
Time and which are held by stockholders who shall have not consented to the
Merger in writing and who shall have properly delivered a written demand for
appraisal of such shares in accordance with Section 262 of the DGCL and shall
not have failed to perfect or shall not have effectively withdrawn such demand
or otherwise lost their appraisal rights (the "Dissenting Shares") shall not be
converted into or represent the right to receive Cash Consideration. Such
stockholders shall be entitled to have such shares of Common Stock held by them
appraised in accordance with the provisions of Section 262 of the DGCL, except
that all Dissenting Shares held by stockholders who shall have failed to perfect
or shall have effectively withdrawn or otherwise lost their right to appraisal
of such shares of Common Stock under such Section 262 shall thereupon be deemed
to have been converted into and to have become exchangeable for, as of the
Effective Time, the right to receive, without any interest thereon, the Cash
Consideration therefor, upon surrender in accordance with Section 2.08(b) of the
Stock Certificate or Stock Certificates that formerly evidenced such shares of
Common Stock.
(b) The Company shall give Parent (i) prompt notice of any demands for
appraisal received by the Company, withdrawals of demands for appraisal, and any
other instruments served pursuant to the DGCL and received by the Company and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company will not, except
with the prior written consent of Parent, make any payment with respect to any
demands for appraisal, or offer to settle, or settle, any such demand for
appraisal rights.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as follows:
SECTION 3.01. INCORPORATION AND AUTHORITY OF THE COMPANY. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Delaware and has all necessary corporate power and
authority to enter into this Agreement, to carry out its obligations hereunder
and to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement by the Company, the performance by the Company of its
obligations hereunder and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of the Company. This Agreement has been duly executed and delivered
by the Company and (assuming due authorization, execution and delivery by Parent
and Merger Sub) this Agreement constitutes a legal, valid and binding obligation
of the Company enforceable against the Company in accordance with its terms,
subject to the effect of any applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and to the
effect of general
10
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
SECTION 3.02. INCORPORATION AND QUALIFICATION OF THE COMPANY AND THE COMPANY
SUBSIDIARIES.The Company and each Company Subsidiary is duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has the requisite corporate or other organizational power and authority to
own, operate or lease the properties and assets now owned, operated or leased by
it and to carry on its business in all material respects as currently conducted
by the Company or such Company Subsidiary. The Company and each Company
Subsidiary is duly qualified as a foreign organization to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
operated or leased or the nature of its activities makes such qualification
necessary, except for such failures which, when taken together with all other
such failures, would not have a Material Adverse Effect. Except as set forth on
Section 3.02 of the Disclosure Schedule, true and complete copies of the
Certificate of Incorporation and Bylaws and stock and minute books of the
Company and each Company Subsidiary, each of the foregoing as amended to the
date of this Agreement, have been made available for review by Parent.
SECTION 3.03. CAPITAL STOCK OF THE COMPANY. The authorized capital stock of
the Company consists of 40,000,000 shares of Common Stock and 1,000,000 shares
of Preferred Stock, par value $.01 per share. As of the date of this Agreement,
29,396,158 shares of Common Stock are issued and outstanding; and no shares of
Preferred Stock are outstanding; and the Company has no other voting securities
outstanding. Such shares of Common Stock have been duly authorized and validly
issued and are fully paid and nonassessable and were not issued in violation of
any preemptive rights. Section 3.03 of the Disclosure Schedule sets forth, as of
the date hereof, all of the record owners of the outstanding Common Stock and
their respective holdings of shares of Common Stock. Except as set forth on
Section 3.03 of the Disclosure Schedule, there are no options, warrants or
rights of conversion or other rights, agreements, arrangements or commitments
relating to the capital stock of the Company obligating the Company to issue or
sell any of its shares of capital stock other than the outstanding Company
Options representing the right to purchase up to 6,992,725 shares of Common
Stock. Except as set forth on Section 3.03 of the Disclosure Schedule, there are
no voting trusts, stockholder agreements, proxies or other agreements in effect
to which the Company is a party with respect to the governance of the Company or
voting or transfer of its shares of capital stock. Except as set forth on
Section 3.03 of the Disclosure Schedule, there are no outstanding obligations of
the Company to repurchase, redeem or otherwise acquire any capital stock or
other securities or equity interests of the Company.
SECTION 3.04. SUBSIDIARIES.
(a) Other than the Company Subsidiaries, and except as set forth in Section
3.04(a) of the Disclosure Schedule, there are no other corporations,
partnerships, joint ventures, limited liability companies, associations or other
entities in which the Company or any Company Subsidiary owns, of record or
beneficially, any direct or indirect equity interest or any right (contingent or
otherwise) to acquire such an equity interest. Except as set forth in Section
3.04(a) of the Disclosure Schedule, neither the Company nor any Company
Subsidiary is a member of any partnership, nor is the Company or any Company
Subsidiary a participant in any joint venture or similar arrangement
constituting a legal entity. The entities disclosed on Section 3.04(a) of the
Disclosure Schedule are referred to each as a "Company Other Entity" and
collectively as the "Company Other Entities." Section 3.04(a) of the Disclosure
Schedule sets forth the jurisdiction of organization of each Company Other
Entity and the current ownership of the Company or any Company Subsidiary of
such equity interest of each Company Other Entity. The equity interest of each
such Company Other Entity owned by the Company or any Company Subsidiary is
owned free and clear of all Encumbrances, except those set forth on Section
3.04(a) of the Disclosure Schedule and Encumbrances arising pursuant to this
Agreement. Except as disclosed on Section 3.04(a) of the Disclosure Schedule,
neither the Company nor any Company Subsidiary is required to make any
additional capital contribution or provide additional funding to, or acquire any
securities or equity interests of any Company Other Entity.
11
Section 3.04(aa) of the Disclosure Schedule sets forth those Company Other
Entities which are currently inactive and have not previously been actively
engaged in any material business activity or operations (the "Company Inactive
Entities"; and those Company Other Entities that are not Company Inactive
Entities are referred to as "Company Active Entities"). To the Knowledge of the
Company as of the date hereof, each of the Company Active Entities is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has the requisite corporate or other
organizational power and authority to own, operate or lease the properties and
assets now owned, operated or leased by it and to carry on its business in all
material respects as currently conducted by such Company Active Entity and is
duly qualified as a foreign organization in each jurisdiction where the
character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary, except for such failure which
would not have a Material Adverse Effect. Except as set forth on Section
3.04(aa) of the Disclosure Schedule, to the Company's Knowledge as of the date
hereof, there are no voting trusts, stockholders agreements, proxies or other
agreements in effect to which any Company Active Entity is a party with respect
to the voting or transfer of any equity interest of such Company Active Entity
or the repurchase, redemption or acquisition of any equity interest of such
Company Active Entity.
(b) Section 3.04(b) of the Disclosure Schedule sets forth the jurisdiction
of organization of each Company Subsidiary, its authorized capital stock, the
number and type of its issued and outstanding shares of capital stock, and the
current ownership by the Company and the Company Subsidiaries of such shares
(collectively, the "Subsidiary Shares"). The Subsidiary Shares constitute all
the issued and outstanding shares of capital stock of the Company Subsidiaries
owned by the Company and Company Subsidiaries. The Subsidiary Shares have been
duly authorized and validly issued and are fully paid and nonassessable and were
not issued in violation of any preemptive rights. There are no options, warrants
or rights of conversion or other rights, agreements, arrangements or commitments
relating to the capital stock of any Company Subsidiary obligating any Company
Subsidiary to issue or sell any of its shares of capital stock. Either the
Company or another Company Subsidiary owns the Subsidiary Shares issued by the
respective Company Subsidiaries, free and clear of all Encumbrances, except (i)
as set forth in Section 3.04(b) of the Disclosure Schedule and (ii) Encumbrances
arising pursuant to this Agreement. Except as set forth in Section 3.04(b) of
the Disclosure Schedule, there are no voting trusts, stockholder agreements,
proxies or other agreements in effect to which the Company or any Company
Subsidiary is a party with respect to the governance of a Company Subsidiary,
the voting or transfer of the Subsidiary Shares or the repurchase, redemption or
acquisition of any capital stock or other securities or equity interests of such
Company Subsidiary.
(c) Section 3.04(a) and (b) of the Disclosure Schedule describe any material
earnout arrangement or similar obligation of the Company or any Company
Subsidiary arising from any merger, consolidation or acquisition of stock or
assets or other similar acquisition by the Company or any Company Subsidiary.
SECTION 3.05. NO CONFLICT. Assuming all consents, approvals, authorizations
and other actions described in Section 3.11 have been obtained and all filings
and notifications listed in Section 3.11 of the Disclosure Schedule have been
made, and except as may result from any facts or circumstances relating solely
to Parent or as described in Section 3.05 of the Disclosure Schedule, the
execution, delivery and performance of this Agreement by the Company does not
and will not (a) violate or conflict with the Certificate of Incorporation or
Bylaws of the Company, (b) conflict with or violate in any material respect any
material Law or Governmental Order applicable to the Company, any Company
Subsidiary or, to the Company's Knowledge, any Company Active Entity, or (c)
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of any Encumbrance on any of the assets or properties of
the Company or any Company Subsidiary pursuant to, any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument relating to such assets or properties to which the Company or
any Company Subsidiary is a party or by which any of such assets or properties
is bound or affected.
12
SECTION 3.06. FINANCIAL STATEMENTS. The Company has caused to be prepared
and delivered to Parent the Company Financial Statements (copies of which are
included in the Disclosure Schedule). The Company Financial Statements have been
prepared in accordance with GAAP and except as set forth in the Company
Financial Statements, on a consistent basis, and present fairly, in all material
respects, the consolidated financial position, results of operations and cash
flows of the Company at the date and for the period indicated, subject in the
case of unaudited interim financial statements, to normal recurring year-end
adjustments.
SECTION 3.07. LABOR MATTERS. Neither the Company nor any Company Subsidiary
is a party to any labor agreement with respect to its employees with any labor
organization, group or association nor within the last year, have there been any
material attempts to organize. Except as set forth in Section 3.07 of the
Disclosure Schedule, to the Company's Knowledge as of the date hereof, (a) the
Company and each Company Subsidiary is in material compliance with all
applicable Laws respecting employment practices, terms and conditions of
employment and wages and hours, (b) there is no unfair labor practice charge or
complaint against the Company or any Company Subsidiary pending before the
National Labor Relations Board or any comparable state agency, (c) there is no
material complaint, charge or claim pending or threatened in writing against the
Company or any Company Subsidiary with any Governmental Authority, arising out
of, in connection with, or otherwise relating to the employment by the Company
or any Company Subsidiary of any individual, and (d) there is no labor strike,
labor disturbance or work stoppage pending against the Company or any Company
Subsidiary.
SECTION 3.08. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1997 to
the date of this Agreement and except as set forth in Section 3.08 of the
Disclosure Schedule or as expressly contemplated by this Agreement, there has
not been:
(a) any damage, destruction or loss to any of the material assets or
properties of the Company or any Company Subsidiary;
(b) any declaration, setting aside or payment of any dividend or
distribution or capital return in respect of any shares of Common Stock or
any redemption, purchase or other acquisition by the Company or any Company
Subsidiaries of any shares of Common Stock;
(c) any sale, assignment, transfer, lease or other disposition or
agreement to sell, assign, transfer, lease or otherwise dispose of any of
the assets of the Company or any Company Subsidiary having a value
individually exceeding $2,000,000;
(d) any acquisition (by merger, consolidation, or acquisition of stock
or assets) by the Company or any Company Subsidiary of any corporation,
partnership or other business organization or division thereof for
consideration individually in excess of $1,000,000;
(e) except as reflected in the Company Financial Statements, (i) any
incurrence by the Company or any Company Subsidiary of any indebtedness for
borrowed money, (ii) any issuance by the Company or any Company Subsidiary
of any debt securities or (iii) any assumption, granting, guarantee or
endorsement, or other accommodation arrangement making the Company or any
Company Subsidiary responsible for, the indebtedness for borrowed money of
any Person (other than another Company Subsidiary), in the case of (i), (ii)
and (iii) above, having an aggregate value exceeding $2,000,000 for all such
occurrences;
(f) except as reflected in the Company Financial Statements, any change
in any method of accounting or accounting practice used by the Company or
any Company Subsidiary, other than such changes required by GAAP;
(g) any Material Adverse Effect;
(h)(i) any employment, deferred compensation, severance or similar
agreement entered into or amended by the Company or any Company Subsidiary,
except any employment agreement providing
13
for compensation of less than $100,000 per annum entered into in the
ordinary course of business, (ii) increase in the compensation payable or to
become payable by it to any of its directors or officers, or (iii) any
increase in the coverage or benefits available under any severance pay,
termination pay, vacation pay, company awards, salary continuation or
disability, sick leave, deferred compensation, bonus or other incentive
compensation, insurance, pension or other employee benefit plan, payment or
arrangement made to, for or with such directors, officers, employees, agents
or representatives, other than, in the case of (ii) and (iii) above, normal
increases in the ordinary course of business consistent with past practice
and that in the aggregate have not resulted in a material increase in the
benefits or compensation expense of the Company or the Company Subsidiaries;
(i) any material adverse change in the business relationship of the
Company or any Company Subsidiary with any customer referred to in Section
3.17;
(j) except as reflected in the Company Financial Statements, any writing
down, in accordance with GAAP and consistent with past practice, of the
value of any material accounts receivable or any revaluation by the Company
or any Company Subsidiary of any of its material assets or any cancellation
or writing off as worthless and uncollectible of any debt, note or account
receivable by the Company or any Company Subsidiary, excluding writeoffs and
writedowns individually less than $50,000;
(k) any cancellation, termination or non-renewal of any contract with a
customer which was one of the Company's largest 30 customers (measured by
contribution margin) during the nine months ended June 30, 1997;
(l) Except as set forth in the Company Financial Statements, any loans,
letters of credit, advances or material capital contributions made by or
issued for the account of the Company or any Company Subsidiary to, or
investments by any such party in, any Person (other than another
wholly-owned Company Subsidiary, as to which the uses of the transferred
cash or property are not subject to restrictions greater than those imposed
prior to such transfer), including, without limitation, to any employee,
officer or member of the Board of Directors of the Company or any Company
Subsidiary; or
(m) any agreement to take any actions specified in this Section 3.08,
except for this Agreement.
SECTION 3.09. ABSENCE OF LITIGATION. Section 3.09 of the Disclosure Schedule
sets forth as of the date hereof, all material pending Actions, and, to the
Company's Knowledge, material Actions threatened in writing or otherwise,
against the Company or any Company Subsidiary or to the Company's Knowledge as
of the date hereof, against any Company Active Entity. Except as set forth in
Section 3.09 of the Disclosure Schedule, (a) there are no Actions pending or, to
the Company's Knowledge, threatened, against the Company or any Company
Subsidiary or any of the assets or properties of the Company or any Company
Subsidiary that, individually or in the aggregate, reasonably could be expected
to have a Material Adverse Effect and (b) the Company, each Company Subsidiary
and their respective assets and properties are not subject to any material
order, judgment, injunction, decree, stipulation or determination entered by or
with any Governmental Authority.
SECTION 3.10. COMPLIANCE WITH LAWS. The Company and each Company Subsidiary
and the conduct of their respective businesses and operations are in compliance
in all material respects with all applicable material Laws. As of the date
hereof, neither the Company nor any Company Subsidiary nor, to the Company's
Knowledge as of the date hereof, any Company Active Entity has received any
written notice to the effect that the Company or any Company Subsidiary or
Company Active Entity is not in material compliance with any applicable material
Laws except as set forth in Section 3.10 of the Disclosure Schedule.
SECTION 3.11. CONSENTS, APPROVALS, LICENSES. No material consent, approval,
authorization, license, order or permit of, or declaration, filing or
registration with, or notification to, any Governmental
14
Authority or third party is required to be made or obtained by the Company or
the Company Subsidiaries in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, except: (a) as set forth in Section 3.11 of the Disclosure
Schedule; (b) applicable requirements, if any, of the DGCL, the Exchange Act,
state securities or blue sky laws and the HSR Act; and (c) as may be necessary
as a result of any facts or circumstances relating solely to Parent. The
Company, each Company Subsidiary and to the Company's Knowledge as of the date
hereof, each Company Active Entity has all material Licenses necessary to
conduct its business and operations and is duly qualified and in good standing
under the HMO laws, utilization review laws, third party administrative laws,
preferred provider organization laws or insurance laws of each State in which
the conduct of its business requires such qualification or authorization, except
for such failures, when taken together with all such other failures, would not
materially impair the Company, the Company Subsidiaries and the Company Active
Entities, taken as a whole, from conducting their respective businesses and
operations as presently conducted. Other than as set forth in Section 3.11 of
the Disclosure Schedule, as of the date hereof no audit of the Company or any
Company Subsidiary is pending before, or to the Company's Knowledge as of the
date hereof has been threatened by, any Governmental Authority (other than the
IRS). As of the date hereof all of the material Licenses of the Company, each
Company Subsidiary and, to the Company's Knowledge as of the date hereof, each
Company Active Entity are in full force and effect and the Company, each Company
Subsidiary and to the Company's Knowledge as of the date hereof, each Company
Active Entity is in material compliance with the respective material Licenses
issued to it, except for such failures, when taken together with all such other
failures, would not materially impair the Company, the Company Subsidiaries and
the Company Active Entities, taken as a whole, from conducting their respective
businesses and operations as presently conducted.
SECTION 3.12. PERSONAL PROPERTY; INFORMATION SYSTEMS.
(a) Except as set forth in Section 3.12 of the Disclosure Schedule, the
Company and the Company Subsidiaries collectively own, have a valid leasehold
interest in or have legal right to use all of the material tangible personal
property necessary to carry on their business and operations, free and clear of
all Encumbrances, except Permitted Encumbrances and Encumbrances reflected on
the Company Financial Statements.
(b) To the Company's Knowledge as of the date hereof, the operating and
applications computer programs and data bases ("Software") which the Company and
the Company Subsidiaries currently use or have available for use are adequate
and sufficient in all material respects to service their existing customers on
the date hereof through the end of the current term of the contracts with such
customers. All material Software is owned outright by the Company or the
applicable Company Subsidiary or, if not so owned, the Company or such Company
Subsidiary has the right to use the same pursuant to valid licenses thereof. To
the Company's Knowledge as of the date hereof, none of the material Software
owned by the Company or any Company Subsidiaries and none of the Software
licensed by the Company or any Company Subsidiary infringes upon or violates any
patent, copyright, trade secret or other proprietary right of any other Person.
(c) To the Company's Knowledge as of the date hereof, the central processing
units, monitors, printers and other computer-related hardware ("Hardware") which
the Company and any Company Subsidiaries currently use or have available for use
are adequate and sufficient to service their existing customers on the date
hereof through the end of the current term of the contracts with such customers.
All such Hardware is owned outright by the Company or the applicable Company
Subsidiary or if not so owned, the Company or such Company Subsidiary has the
right to use the same pursuant to valid licenses therefor, except as would not
materially impair the ability of the Company and the Company Subsidiaries, taken
as a whole, to conduct their business and operations, as presently conducted
SECTION 3.13. REAL PROPERTY
(a) Neither the Company nor any Company Subsidiary owns any real property.
15
(b) Section 3.13 of the Disclosure Schedule lists all material Leases to
which the Company or any Company Subsidiary is a party or is bound as of the
date hereof. Except as disclosed in Section 3.13 of the Disclosure Schedule as
of the date of this Agreement, the Company or Company Subsidiary party to the
Leases on Section 3.13 of the Disclosure Schedule which relate to Leased Real
Property with square footage in excess of 15,000 (the "Section 3.13 Leases") (i)
has a valid and subsisting leasehold interest in each such Section 3.13 Lease,
(ii) is in undisturbed possession of all space that it is currently entitled to
possess under each such Section 3.13 Lease and no rights adverse to the rights
of the Company or Company Subsidiary have, to the Knowledge of the Company, been
asserted by any third Persons, and (iii) has not received any written notice of
material default under any such Section 3.13 Lease which is still in effect.
(c) Each of the Section 3.13 Leases is in full force and effect and is valid
and enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally and general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in equity), and there is
no default under any Section 3.13 Lease either by the Company or the Company
Subsidiary party thereto, and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default thereunder.
SECTION 3.14. EMPLOYEE BENEFIT MATTERS.
(a) All of the material Employee Plans and Compensation Arrangements are
listed in Section 3.14(a) of the Disclosure Schedule, and complete and accurate
copies of (including any amendments to) any such Employee Plans and Compensation
Arrangements (or related insurance policies), including any related trust
documents, have been made available to Parent along with copies of any current
employee handbook of general circulation. Any material unwritten arrangements
which would be Compensation Arrangements except for the fact that they are
unwritten also are listed in Section 3.14(a) of the Disclosure Schedule. Except
as disclosed in Section 3.14(a) of the Disclosure Schedule or expressly
contemplated in this Agreement, neither the Company nor any ERISA Affiliate has
any obligations to put into effect any plan, arrangement or other scheme which
will become an Employee Plan or Compensation Arrangement (including, but not
limited to, any bonus, cash or deferred compensation, severance, medical,
pension, profit sharing or thrift, stock option, employee stock ownership, life
or group insurance, death benefit, vacation, sick leave, disability or trust
agreement or arrangement), or any amendment to an Employee Plan or Compensation
Arrangement.
(b) The Company has made available to Parent the Forms 5500 filed for each
of the Employee Plans (including all attachments and schedules), actuarial
reports, summaries of material modifications, summary annual reports, and any
other governmental filings relating to the Employee Plans for the last three
plan years, and also has furnished the current summary plan descriptions. Copies
of the most recent determination letters issued by the IRS with respect to any
Employee Plan have been furnished to Parent.
(c) Each Employee Plan and Compensation Arrangement has been administered in
material compliance with its own terms and in material compliance with the
provisions of ERISA, the Code, the Age Discrimination in Employment Act and any
other applicable federal or state laws.
(d) Neither the Company nor any ERISA Affiliate is contributing to, is
required to contribute to, or has contributed within the last six years to, any
Multiemployer Plan, and neither the Company nor any ERISA Affiliate has incurred
within the last six years, or reasonably expects to incur, any "withdrawal
liability," as defined under Section 4201 et seq of ERISA.
(e) Except as set forth in Section 3.14(e) of the Disclosure Schedule, to
the Company's Knowledge as of the date hereof, there are neither any active
governmental inspections, investigations, audits or examinations of any Employee
Plans or Compensation Arrangements nor any actions, suits or claims (other than
routine claims for benefits) with respect to any Employee Plan or Compensation
Arrangement pending or threatened against any such plan or arrangement.
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(f) Except as described in Section 3.14(f) of the Disclosure Schedule,
neither the Company nor any ERISA Affiliate sponsors, maintains or contributes
to any Employee Plan or Compensation Arrangement that provides medical or death
benefit coverage to former employees of the Company or any ERISA Affiliate,
except to the extent required by Section 4980B of the Code.
(g) Except as described in Section 3.14(g) of the Disclosure Schedule, with
respect to each Employee Plan and, to the extent applicable, each Compensation
Arrangement: (i) each Employee Plan that is intended to be tax-qualified, and
each amendment thereto, is the subject of a favorable determination letter, and
no plan amendment that is not the subject of a favorable determination letter
would affect the validity of an Employee Plan's letter; (ii) no Employee Plan is
subject to Code Section 412; and (iii) to the Knowledge of the Company as of the
date hereof, no prohibited transaction, within the definition of Section 4975 of
the Code or Title I, Part 4 of ERISA, has occurred which would subject the
Company or any ERISA Affiliate to any material liability.
(h) Except as disclosed on Section 3.14(h) of the Disclosure Schedule,
neither the execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any material payment
(including, without limitation, severance, or unemployment compensation)
becoming due to any director or employee of the Company; (ii) result in the
acceleration of vesting under any Employee Plan or Compensation Arrangement; or
(iii) materially increase any benefits otherwise payable under any Employee
Plan. Subject to stockholder approval under Code Section 280G(b)(5)(A)(ii), any
such payment or increase in benefits shall not fail to be deductible by reason
of Code Sections 162(m), 280G or 404. Except as disclosed on Section 3.14(h) of
the Disclosure Schedule, deductibility of future compensation payments to
employees of the Company are not subject to the limitations of Code Section 280G
solely as a result of prior corporate transactions involving the Company.
(i) The Company has made available to Parent (i) copies of all employment
agreements with officers of the Company and each Company Subsidiary involving
payments in excess of $100,000 and not terminable within 60 days, (ii) copies of
all material severance agreements and plans of the Company and each Company
Subsidiary with or relating to their employees, and (iii) copies of all material
plans and agreements of the Company and each Company Subsidiary with or relating
to its respective employees which contain change in control provisions. Section
3.14(i) of the Disclosure Schedule sets forth a list of all employee agreements
described in this Section 3.14(i).
(j) Except as set forth on Section 3.14(j) of the Disclosure Schedule, there
are no third party agreements which could affect the ability of the Company and
the ERISA Affiliates to terminate or modify the terms of the Employee Plans or
Compensation Arrangements.
(k) Section 3.14(k) of the Disclosure Schedule is a document received by the
Company from Merck & Co., Inc. ("Merck") indicating Merck's records of the
employees of the Company and its ERISA Affiliates who currently possess the
right to exercise options to purchase shares of the common stock of Merck, the
number of shares covered by such options and their respective exercise prices.
SECTION 3.15. TAXES.
(a) (i) All material Tax returns and reports required to be filed before the
Closing Date in respect of the Company and each Company Subsidiary have been
filed on a timely basis; (ii) the Company and each Company Subsidiary has paid
when due all Taxes shown to be due on such returns and reports in respect of the
periods covered by such Tax returns and reports, has paid when due all estimated
Taxes in respect of periods ended on or before the Closing Date and has
adequately reserved for the payment of all Taxes with respect to periods ended
on or before the Closing Date for which Tax returns have not yet been filed;
(iii) there are no proposed additional Tax assessments against the Company or
any Company Subsidiary not adequately provided for in the Company Financial
Statements; (iv) there are no unpaid Taxes which are or could become a lien on
the property of the Company or any Company Subsidiary, and no Tax liens have
been filed against the property of the Company or any Company Subsidiary; (v)
the charges, accruals
17
and reserves with respect to Taxes on the Books and Records and Company
Financial Statements are adequate (as determined in accordance with GAAP); and
(vi) all Taxes that the Company and the Company Subsidiaries are or were legally
required to withhold or collect have been duly withheld or collected and, to the
extent required, have been paid to the proper Governmental Authority.
(b) As of the date hereof except as set forth in Section 3.15 of the
Disclosure Schedule, with respect to the Company or any Company Subsidiary, no
waivers of statutes of limitations have been given with respect to any Tax
returns and reports, which waivers are currently in effect, and no request for
any such waiver is currently pending. No requests for ruling or determination
letters or competent authority relief with respect to the Company or any Company
Subsidiary is pending with any taxing agency with respect to any Taxes. Section
3.15 of the Disclosure Schedule identifies all Tax returns of the Company or any
Company Subsidiary with respect to which an audit is in progress as of the date
hereof.
(c) Except as set forth on Section 3.15 of the Disclosure Schedule, no
material issues have been raised in writing (and are currently pending) by any
Governmental Authority in connection with any of the Tax returns and reports
referred to in Section 3.15(a), and all material deficiencies asserted or
assessments made as a result of any examination by a taxing authority of the Tax
returns and reports referred to in Section 3.15(a) have been paid in full.
(d) The Company has delivered to Parent true and complete copies of each of
the federal and state income Tax returns of the Company and Company
Subsidiaries, as well as tax depreciation and amortization schedules and
schedules of any tax carryforward items of the Company and Company Subsidiaries
set forth on Section 3.15 of the Disclosure Schedule.
(e) Except as set forth in Section 3.15 of the Disclosure Schedule, neither
the Company nor any Company Subsidiary has been a member of any affiliated group
(as defined in Section 1504(a) of the Code or as defined for applicable state,
local or foreign Tax purposes) that has filed or is required to file
consolidated or combined federal or state income Tax returns for any period.
(f) Except as set forth in Section 3.15 of the Disclosure Schedule, neither
the Company nor any Company Subsidiary has any liability for Taxes, whether
currently due or deferred, of any Person under Treasury Regulation Section
1.1502-6 (or any similar provision of state or local law). Except as set forth
in Section 3.15 of the Disclosure Schedule, there will be no tax sharing
agreement or tax indemnification agreement in effect on the Closing Date under
which the Company or any Company Subsidiary has liability for Taxes of any other
Person. All tax sharing agreements or tax indemnification agreements in effect
on the date hereof under which the Company or any Company Subsidiary has the
right to indemnification against any other Person for Taxes of the Company or
such Company Subsidiary shall remain in full force and effect on the Closing
Date.
(g) Neither the Company nor any Company Subsidiary will be required to
include any amount in its income or exclude any amount from its deductions in
any taxable period ending after the Closing Date by reason of a change in method
of accounting or use of the installment method of accounting in any period
ending on or prior to the Closing Date.
(h) Section 3.15(h) of the Disclosure Schedule sets forth each state and
locality with jurisdiction to impose any Tax on the property or business of the
Company and the Company Subsidiaries at any time prior to the Closing Date.
SECTION 3.16. CERTAIN CONTRACTS.
(a) Section 3.16 of the Disclosure Schedule lists the following agreements
or contracts, written or oral (collectively, with the Section 3.13 Leases and
the customer contracts with those customers referenced in Section 3.17, the
"Listed Contracts"), in effect as of the date of this Agreement to which the
Company or any Company Subsidiary is a party:
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(i) any commitment, contract or agreement (other than the Leases listed
on Section 3.13 of the Disclosure Schedule, the customer contracts listed on
Section 3.17 of the Disclosure Schedule and provider contracts), involving
aggregate payments by the Company or any Company Subsidiary for the six
months ended on the Balance Sheet Date of more than $500,000 and that is not
cancelable by the Company without liability within 60 days;
(ii) any lease of personal property involving any annual expense in
excess of $500,000 and not cancelable by the Company without liability
within 60 days;
(iii) any material joint venture agreement for a Company Active Entity;
(iv) any agreement with a hospital or provider, including a professional
corporation, involving payments by or to the Company or any Company
Subsidiary in the six months ended on the Balance Sheet Date in excess of
$2,500,000 and not cancelable by the Company without liability within 90
days;
(v) any note, loan, letter of credit, bond or contract relating to
indebtedness for borrowed money or capitalized leases, or other Contract in
respect of which the Company or any Company Subsidiaries are obligated in
any way after the date hereof to provide funds in respect of, or to
guarantee or assume, any debt, obligation or dividend of any Person, other
than intercompany indebtedness between the Company and a wholly-owned
Subsidiary;
(vi) any indemnity arrangement arising in connection with any sale or
disposition of assets for proceeds in excess of $1,000,000 wherein the
Company or any Company Subsidiary is the indemnitor;
(vii) any agreement containing covenants presently limiting, in any
material respect, the freedom of the Company, any Company Subsidiary or, to
the Company's Knowledge as of the date hereof, any Company Active Entity, to
compete with any person in any line of business or in any area or territory
(including exclusivity arrangements binding upon the Company or any Company
Subsidiary) or which contains a "most favored nations" provision or similar
provision affecting the pricing of customer contracts;
(viii) contracts for capital expenditures requiring payments by the
Company or any Company Subsidiary after the date hereof in excess of
$500,000 for any single project;
(ix) any "Administrative Services Only" contract relating to plans
(whether public or private) with more than 10,000 covered lives or any
risk-based customer contracts which provided in excess of $10 million in
annual revenue during fiscal year 1997; and
(x) any executory contracts of the Company or any Company Subsidiary for
the acquisition or disposition of assets or businesses for proceeds
individually in excess of $1,000,000.
(b) Except as set forth in Section 3.16(b) of the Disclosure Schedule,
neither the Company nor any Company Subsidiary is in material breach or
violation of, or material default under, any of the Listed Contracts. Except as
set forth on Section 3.16(b) of the Disclosure Schedule, each Listed Contract is
a valid agreement, arrangement or commitment of the Company or Company
Subsidiary which is a party thereto, enforceable against the Company or Company
Subsidiary in accordance with its terms and is a valid agreement, arrangement or
commitment of each other party thereto, enforceable against such party in
accordance with its terms, except in each case where enforceability may be
limited by bankruptcy, insolvency or other similar laws affecting creditors'
rights generally and the application of equitable principles or remedies.
SECTION 3.17. CUSTOMERS. Section 3.17 of the Disclosure Schedule contains a
complete and accurate list, as of the date of this Agreement, of the 30 largest
customers (together with the commencement and expiration date of the contract
with each such customer) of the Company and the Company Subsidiaries taken as a
whole in terms of revenues during the nine months ended on June 30, 1997, and
19
certain other customers showing the approximate total sales by the Company and
the Company Subsidiaries to each such customer during such period. As of the
date hereof, neither the Company nor any Company Subsidiary has been notified by
any such customer that it intends to terminate its contract with the Company or
any Company Subsidiary or not renew any such contract or received any threat
that such customer may terminate or not renew its contract.
SECTION 3.18. UNDISCLOSED LIABILITIES. Neither the Company nor any Company
Subsidiary nor, to the Company's Knowledge as of the date hereof, any Company
Active Entity has any material liability or obligation of any kind or nature
(fixed or contingent) that is required to be reflected on a balance sheet or in
the financial footnotes thereto in accordance with GAAP except those (i)
reflected, reserved against or disclosed in the Company Financial Statements,
(ii) disclosed in Section 3.18 of the Disclosure Schedule, (iii) incurred in the
ordinary course of business since the Balance Sheet Date, or (iv) that would not
have a Material Adverse Effect.
SECTION 3.19. TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section
3.19 of the Disclosure Schedule, no Company Stockholder, or director or officer
of the Company listed in the definition of "Knowledge" in Section 1.01 or any
entity (other than the Company) 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) (collectively,
"Section 3.19 Affiliates") has any interest in: (i) any contract, arrangement or
understanding with, or relating to, the business or operations of the Company or
any Company Subsidiary or, to the Company's Knowledge as of the date hereof, any
Company Active Entity; (ii) any loan, arrangement, understanding, agreement or
contract for or relating to indebtedness of the Company or any Company
Subsidiary or, to the Company's Knowledge as of the date hereof, any Company
Active Entity; or (iii) any property (real, personal or mixed), tangible or
intangible, used in the business or operations of the Company or any Company
Subsidiary or, to the Company's Knowledge as of the date hereof, any Company
Active Entity; excluding any such contract, arrangement, understanding or
agreement constituting an Employee Plan or Compensation Arrangement. Following
the Closing, except for obligations set forth herein, neither the Company nor
any Company Subsidiary nor, to the Company's Knowledge as of the date hereof,
any Company Active Entity will have any obligations of any kind to any Section
3.19 Affiliate except for (i) accrued salary for the pay period commencing
immediately prior to the Closing Date and (ii) the obligations set forth in
Section 3.19 of the Company Disclosure Schedule.
SECTION 3.20. INSURANCE. Section 3.20 of the Disclosure Schedule sets forth
a true and correct list of all material liability insurance policies which are
in force and under which the Company or any Company Subsidiary is a named
insured or beneficiary. All such policies are (i) binding and effective upon the
issuers thereof in accordance with their respective terms and (ii) based solely
on the past claims experience of the Company and each Company Subsidiary,
reasonably likely to adequately cover any loss contingencies of a type covered
by such policies relating to occurrences on or prior to the Balance Sheet Date,
subject to any applicable reserves, deductibles, copayments or self retention
amounts.
SECTION 3.21. BROKERS. Except for Morgan Stanley & Co. Incorporated and
Kohlberg Kravis Roberts & Co. (the fees and expenses of each of which shall be
paid in full by the Company, and the amount of which has been disclosed to
Parent) no broker, finder or investment banker is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
SECTION 3.22. RESTRICTED CASH. As of the date hereof, except as set forth on
Section 3.22 of the Disclosure Schedule, there are no regulatory or contractual
restrictions on the ability of the Company and any Company Subsidiaries to
freely transfer their respective cash and cash equivalents.
SECTION 3.23. SEC DOCUMENTS. As of their respective filing dates, none of
the documents filed by the Company with the Securities and Exchange Commission
since October 1, 1996 pursuant to Section 15(d) of the Exchange Act contained
any untrue statement of a material fact or omitted to state a material
20
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading, except to the extent corrected by any document subsequently filed by
the Company with the Securities and Exchange Commission.
SECTION 3.24. ACCOUNTS RECEIVABLE. Except as set forth in Section 3.24 of
the Disclosure Schedule, the accounts receivable of the Company reflected on the
Balance Sheet arose from bona fide transactions in the ordinary course of
business, have been recorded on a GAAP basis and are not subject to any
counterclaims or setoffs (except for the amount of any applicable existing
reserves for counterclaims or setoffs) and are fully collectable, except for any
allowances for doubtful accounts reflected on the Balance Sheet. The amount of
allowance for doubtful accounts on a GAAP basis in the Balance Sheet was
calculated consistent with past practice and is adequate.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as set forth on the Parent Disclosure Schedule, each of Parent and
Merger Sub represents and warrants to the Company as follows:
SECTION 4.01. INCORPORATION AND AUTHORITY OF PARENT AND MERGER SUB. Each of
Parent and Merger Sub is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has all necessary
corporate power and authority to enter into this Agreement, to carry out its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement by each of Parent and Merger Sub,
the performance by each of Parent and Merger Sub of its obligations hereunder
and the consummation by each of Parent and Merger Sub of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on the part of each of Parent and Merger Sub. This Agreement has been duly
executed and delivered by each of Parent and Merger Sub, and (assuming due
authorization, execution and delivery by Company) constitutes a legal, valid and
binding obligation of each of Parent and Merger Sub enforceable against it in
accordance with its terms, subject to the effect of any applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws affecting creditors'
rights generally and to the effect of general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
SECTION 4.02. NO CONFLICT. Assuming all consents, approvals, authorizations
and other actions described in Section 4.03 have been obtained and all filings
and notifications listed on Section 4.03 of the Parent Disclosure Schedule, have
been made, and except as may result from any facts or circumstances relating
solely to the Company, the execution, delivery and performance of this Agreement
by each of Parent and Merger Sub does not and will not: (a) violate or conflict
with the Certificate of Incorporation or Bylaws of Parent or Merger Sub; (b)
conflict with or violate any Law or Governmental Order applicable to Parent or
its Subsidiaries; or (c) result in any breach of, or constitute a default (or
event which with the giving of notice or lapse of time, or both, would become a
default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of any Encumbrance on
any of the assets or properties of Parent pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument relating to such assets or properties to which Parent or any of its
Subsidiaries is a party or by which any of such assets or properties is bound or
affected, except, in the case of clauses (b) and (c), as would not, individually
or in the aggregate, have a material adverse effect on the ability of Parent or
Merger Sub to consummate the transactions contemplated by this Agreement.
SECTION 4.03. CONSENTS AND APPROVALS. No consent, approval, authorization,
license, order or permit of, or declaration, filing or registration with, or
notification to, any Governmental Authority or third party is required to be
made or obtained by Parent or any of its Subsidiaries in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby,
21
except (a) as set forth on Section 4.03 of the Parent Disclosure Schedule, (b)
applicable requirements, if any of the DGCL, the Exchange Act, state securities
or blue sky laws and the HSR Act, (c) where failure to obtain such consent,
approval, authorization or action, or to make such filing or notification, would
not prevent or delay, Parent or Merger Sub from performing any of its material
obligations under this Agreement (including obtaining the financing contemplated
in the Commitment Letter), and (d) as may be necessary as a result of any facts
or circumstances relating solely to the Company.
SECTION 4.04. ABSENCE OF LITIGATION. As of the date of this Agreement (a)
there are no Actions pending against Parent or any of its Subsidiaries or any of
the assets or properties of Parent or any of its Subsidiaries that, individually
or in the aggregate, would prevent Parent from consummating the transactions
contemplated hereby and (b) Parent, its Subsidiaries and their respective assets
and properties are not subject to any order, judgment, injunction, decree,
stipulation or determination entered by or with any Governmental Authority that
would prevent Parent from consummating the transactions contemplated hereby.
SECTION 4.05. FINANCING. Parent has provided to the Company true and
complete copies of the commitment letter for the benefit of Parent (the
"Commitment Letter") relating to the Merger and the transactions contemplated
thereby. The financing outlined in the Commitment Letter is sufficient, assuming
funding of such amounts, to make the payments required under Article II with
respect to all outstanding shares of Common Stock and Company Options, to repay
the Bank Debt and the Senior Subordinated Notes and to pay all fees and expenses
to be paid by Parent in connection with the transactions contemplated hereby.
SECTION 4.06. OTHER TRANSACTIONS. Set forth on Section 4.06 of the Parent
Disclosure Schedule is a description of each executory contract, agreement,
commitment or other arrangement of Parent or any of its Subsidiaries to acquire
(by merger, consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof (other than as
contemplated by the Merger) which is in the business of providing managed
behavioral health care services within the United States, including managed
mental health programs, substance abuse programs and employee assistance
programs, for consideration in excess of $10,000,000.
SECTION 4.07. BROKERS. Except for Chase Securities Inc. and Smith Barney
Inc. (the fees and expenses of which shall be paid in full by Parent), no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent or its
Affiliates.
ARTICLE V.
ADDITIONAL AGREEMENTS
SECTION 5.01. CONDUCT OF BUSINESS PRIOR TO THE CLOSING.
(a) Unless Parent otherwise agrees in writing and except as expressly
contemplated by this Agreement, between the date of this Agreement and the
Closing Date, the Company will, and will cause each Company Subsidiary to, and
will use reasonable efforts to cause each Company Active Entity with respect to
which the Company or any Company Subsidiary has a representative on the board of
directors or other managing body to, (i) conduct its business and operations
only in the ordinary course consistent with past practice; (ii) use commercially
reasonable best efforts, subject to the limitations set forth herein, to
preserve the current relationships of the Company and the Company Subsidiaries
with their respective customers, suppliers, distributors, officers and other key
employees and other Persons with which the Company and the Company Subsidiaries
have significant business relationships; (iii) use reasonable efforts to
maintain its assets and properties in good repair condition in all material
respects, normal wear and tear excepted; (iv) maintain its books, accounts and
records in the usual, regular and ordinary manner, on a GAAP basis consistently
applied; (v) keep in full force and effect insurance and bonds comparable in
22
amount and scope of coverage to that currently maintained; (vi) deliver to
Parent, within fifteen (15) Business Days after the end of each calendar month,
an unaudited, consolidated balance sheet, statement of operations, statement of
stockholders' equity and cash flow statement for the Company for such month just
ended prepared on a GAAP basis, schedules showing the results of operations and
variances in revenue for each of the items set forth therein and within 45 days
after the end of each fiscal quarter, an unaudited, condensed balance sheet,
statement of operations, statement of stockholders' equity and cash flow
statement for the Company for such fiscal quarter just ended; and (vii) notify
Parent of any material Action commenced by or against the Company or any Company
Subsidiary or any Actions commenced or threatened which relate to the
transactions contemplated by this Agreement.
(b) Except as expressly provided in this Agreement or Section 5.01(b) of the
Disclosure Schedule, between the date of this Agreement and the Closing Date,
the Company will not, and shall cause the Company Subsidiaries not to, and will
use reasonable efforts, consistent with their fiduciary duties, to cause its
Company Active Entities not to, do any of the following without the prior
written consent of Parent:
(i) create any Encumbrance of any kind on any properties or assets
(whether tangible or intangible) of the Company or any Company Subsidiary,
other than (A) Permitted Encumbrances, (B) Encumbrances that will be
released at or prior to the Closing and (C) Encumbrances on assets having a
value not exceeding $250,000 in the aggregate;
(ii) except for transactions among the Company and Company Subsidiaries,
sell, assign, transfer, lease or otherwise dispose of or agree to sell,
assign, transfer, lease or otherwise dispose of any of the assets of the
Company or any Company Subsidiary having a value individually of more than
$500,000 or $1,000,000 in the aggregate;
(iii) acquire (by merger, consolidation, or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or equity or other interest therein, other than in
connection with the transactions set forth in Section 5.01(b) of the
Disclosure Schedule and except for transactions with an individual fair
market value of less than $500,000 or $1,000,000 in the aggregate;
(iv) (A) increase the rate of compensation payable or to become payable
to any of its employees or agents, other than normal increases in the
ordinary course of business consistent with past practice to Persons
receiving cash compensation of less than $100,000 per annum; (B) pay or
provide for any bonus, profit sharing, deferred compensation, pension,
retirement or other similar payment or arrangement to or in respect of any
such employee or agent except to the extent the Company or the Company
Subsidiaries are, on the date hereof, contractually obligated to do so or
required to do so by Law ; and (C) enter into any new, or amend in any
material respect any existing employment, severance, or consulting
agreement, sales agency or other Contract with respect to the performance of
personal services, except (x) any such new agreement providing for cash
compensation of less than $100,000 per annum entered into in the ordinary
course of business, which such new agreements shall not provide for cash
compensation of more than $500,000 per annum in the aggregate; and (y) any
individuals hired on an at-will basis to replace current employees or to
service customer contracts which commence after the date hereof;
(v) change any method of accounting or accounting practice used by the
Company or any Company Subsidiary, other than such changes required by
changes in GAAP;
(vi) issue or sell any shares of the capital stock of, or other equity
interests in, the Company or any Company Subsidiary, or securities
convertible into or exchangeable for such shares or equity interests, or
issue or grant of any options, warrants, calls, subscription rights or other
rights of any kind to acquire additional shares of such capital stock, such
other equity interests, or such securities; except
23
the issuance of Common Stock upon exercise of Company Options outstanding on
the date hereof or pursuant to other rights set forth on Section 3.03 of the
Disclosure Schedule;
(vii) amend the Company's or any Company Subsidiary's Certificate of
Incorporation or By laws or equivalent organizational documents;
(viii) take any action which would materially interfere with the
consummation of the transactions contemplated hereby, or make such
consummation more difficult or materially delay the consummation of such
transactions;
(ix) incur, guarantee or assume any indebtedness for borrowed money or
assume any reimbursement obligations relating to any letters of credit,
including borrowings under revolving credit agreements in existence on the
date hereof, including any renewals or extensions thereof, to finance
ordinary course working capital needs, provided that the amount of such
indebtedness outstanding at any time shall not exceed $15,000,000 in the
aggregate in excess of the amount outstanding as of the date hereof
(provided, however, that this limitation shall not restrict the Company and
its Subsidiaries from incurring indebtedness in order to pay the fees and
expenses relating to the transactions contemplated hereby, including the
fees and expenses referenced in Section 3.21);
(x) declare, set aside or pay any dividend or distribution or capital
return in respect of any shares of Common Stock, or redeem, purchase or
acquire any shares of Common Stock or other equity interests in the Company,
any Company Subsidiary or any Company Active Entity;
(xi) make any loans or advances to any Person, except for (x) travel
advances or for other routine business expenses incurred in the ordinary
course of business; (y) loans or advances made in connection with obtaining
or commencing new customer contracts not to exceed $1,000,000 outstanding at
any time in the aggregate; and (z) loans or advances made in the ordinary
course of business not to exceed $100,000 outstanding at any time in the
aggregate;
(xii) settle or compromise any Action for any amount in excess of
$250,000 or which involves a commitment that may have a Material Adverse
Effect;
(xiii) (A) enter into any new customer contract, excluding any customer
contract entered into in the ordinary course of business consistent with
past practices (and in the case of risk contracts, consistent with
reasonable and customary underwriting practices), provided such contract
does not have estimated annual revenues in excess of $10,000,000; provided,
further that the prohibition applicable to contracts in excess of
$10,000,000 shall not be applicable if the Company has received a written
opinion of the Company's outside legal counsel that such prohibition would
be reasonably likely to violate applicable Law (which opinion will be made
available to Parent); or (B) make any material amendment or modification to
those customer contracts which are Listed Contracts;
(xiv) make capital expenditures in excess of $500,000 individually or
$2,300,000 in the aggregate per month during the first three months
following the date hereof and $1,800,000 in the aggregate during each month
thereafter;
(xv) enter into any contract or agreement which would have been required
to be listed on Section 3.16 of the Disclosure Schedule as a result of
clauses (iii), (iv), (vi), (vii) or (x) of Section 3.16 had such contract or
agreement been entered into prior to the date hereof or make any material
amendments or modifications to the Listed Contracts that are set forth on
Section 3.16 of the Disclosure Schedule as a result of such clauses;
(xvi) enter into any new contract or agreement with a Section 3.19
Affiliate; or
(xvii) agree to take any of the actions specified in this Section 5.01(b).
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SECTION 5.02. PARENT ACTION PRIOR TO THE CLOSING.
(a) Between the date of this Agreement and the Closing Date, Parent shall
not, and shall cause its Subsidiaries not to, (a) take any action which would
materially interfere with the consummation of the transactions contemplated
hereby, or make such consummation more difficult or materially delay the
consummation of such transactions, or (b) except as set forth on Section 5.02 of
the Disclosure Schedule, solicit, initiate or continue any discussions or
negotiations with, or encourage or respond to any inquiries or proposals by, or
participate in any negotiations with or enter into any agreement or commitment
with, or provide or request any information from, or otherwise cooperate in any
way with, any Person, other than the Company and its officers, directors,
employees, agents and representatives, concerning any acquisition of assets,
contracts, securities, businesses or other property (whether by merger,
consolidation or otherwise) with an aggregate fair market value in excess of
$10,000,000 that relate to the business of providing managed behavioral health
care services in the United States, including managed mental health programs,
substance abuse programs and employee assistance programs.
(b) Parent shall notify the Company of any material Action commenced by or
against Parent or any Subsidiary thereof or any Actions commenced or threatened
which relate to the transactions contemplated by this Agreement.
(c) Parent shall use its best efforts to obtain the financing contemplated
by the Commitment Letter as promptly as practicable, including, without
limitation: (i) negotiating and executing definitive agreements for the
financing contemplated by the Commitment Letter; (ii) consummating the Green
Springs Transactions (as defined in the Commitment Letter); (iii) repurchasing
the necessary percentage of the 11-1/4% Senior Subordinated Notes of Parent and
the Senior Subordinated Notes, and amending the terms thereof upon the terms set
forth on Section 5.02(c) of the Parent Disclosure Schedule; and (iv) not taking,
or failing to take, any action that would result in any of the conditions to the
funding of such financing not being satisfied.
SECTION 5.03. ACCESS TO INFORMATION. Subject to the terms of the
Confidentiality Agreement, from the date of this Agreement until the Closing,
upon reasonable notice, the Company shall, and shall cause the officers,
employees, auditors and agents of the Company and each Company Subsidiary, to,
(i) afford the officers, employees and authorized agents and representatives of
Parent reasonable access, during normal business hours, to the offices,
properties, books and records of the Company and the Company Subsidiaries and
furnish Parent or its representatives copies of such documents and other
information as reasonably requested, including communications with any
Governmental Authority, and (ii) furnish to the officers, employees and
authorized agents and representatives of Parent such additional financial and
operating data and other information regarding the assets, properties, goodwill
and business of the Company and the Company Subsidiaries as Parent may from time
to time reasonably request in order to assist Parent in fulfilling its
obligations under this Agreement and to facilitate the consummation of the
transactions contemplated hereby, including such information as may be
reasonably requested by Parent in connection with obtaining the financing under
the Commitment Letter; provided, however, that (x) Parent shall not unreasonably
interfere with any of the businesses or operations of the Company, or any
Company Subsidiaries, and (y) the Company and each Company Subsidiary shall not
be obligated to provide information which, based upon the written advice of
Company counsel, would reasonably be likely violate applicable Law.
SECTION 5.04. CONFIDENTIALITY. The terms of the Confidentiality Agreement
are hereby incorporated herein by reference and shall continue in full force and
effect until the Closing, at which time such Confidentiality Agreement and the
obligations of the Parties hereto under this Section 5.04 shall terminate.
SECTION 5.05. EFFORTS; REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS.
25
(a) Each party hereto shall use its best efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to promptly
consummate and make effective the transactions contemplated by this Agreement
(including, in the case of Parent, obtaining the financing necessary to
consummate the transactions contemplated hereby), (ii) obtain all
authorizations, consents, orders and approvals of, and give all notices to and
make all filings with, all Governmental Authorities and other third parties that
may be or become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement including, without
limitation, those consents set forth in the Disclosure Schedule, (iii) lift or
rescind any injunction or restraining order or other order adversely affecting
the ability of the parties hereto to consummate the transactions contemplated
hereby, and (iv) fulfill all conditions to this Agreement. Each party will
cooperate fully with the other party in promptly seeking to obtain all such
authorizations, consents, orders and approvals, giving such notices, and making
such filings. In connection with obtaining such consents from third parties,
neither party shall be required to make payments, commence litigation or agree
to modifications of the terms of any agreements with such third parties (other
than payments and modifications which individually, and in the aggregate, would
not have a Material Adverse Effect), and (except for modifications which
individually, and in the aggregate, would not have a Material Adverse Effect) no
such modification shall be made to any contract of the Company or any Company
Subsidiary without the consent of Parent, which consent shall not be
unreasonably withheld. The parties hereto agree not to take any action that will
have the effect of unreasonably delaying, impairing or impeding the receipt of
any required authorizations, consents, orders or approvals. The Company shall
cooperate with Parent in connection with effecting a tender offer for the Senior
Subordinated Notes.
(b) In furtherance and not in limitation of the foregoing, each party hereto
agrees to make an appropriate filing of a Notification and Report Form pursuant
to the HSR Act with respect to the transactions contemplated hereby within ten
Business Days of the date hereof and to supply promptly any additional
information and documentary material that may be requested pursuant to the HSR
Act and cooperate in connection with any filing under applicable Antitrust Laws
and in connection with resolving any investigation or other inquiry concerning
the transactions contemplated by this Agreement commenced by any of the Federal
Trade Commission, the Antitrust Division of the Department of Justice or state
attorneys general. In addition, Parent shall use its best efforts to resolve
such objections, if any, as may be asserted with respect to the transactions
contemplated hereby under any antitrust or trade regulatory laws of any
Governmental Authority ("Antitrust Laws"). It is further agreed that in
connection with resolving such objections, Parent, the Company and their
respective Affiliates, as determined by Parent, will, not withstanding any
provision of this Agreement, if necessary, divest or hold separate (i) customer
contracts ("Disposed Contracts") which in the aggregate represent annual gross
revenues in an amount (the "Annual Gross Revenue Amount") not to exceed
$45,000,000, as determined below, and (ii) any interest of Parent, the Company
or their respective Affiliates in the TennCare Partners Program implemented by
the State of Tennessee, including without limitation any interest in the
behavioral health organizations participating in the TennCare Partners Program
or in the customer contract held by such behavioral health organization. Annual
Gross Revenue Amounts shall, (x) exclude gross revenues with respect to
contracts referred to in clause (ii) above and with respect to Disposed
Contracts for which Parent, the Company or the relevant Affiliate shall have
received a notice of nonrenewal or termination from the customer prior to the
date of receipt of objections, (y) with respect to Disposed Contracts that have
been in force for at least twelve months, be the product of the gross revenues
generated during the immediately preceding twelve-month period multiplied by
Parent's, the Company's or the relevant Affiliate's direct or indirect
percentage interest in such contract, and (z) with respect to Disposed Contracts
that have been in force for less than twelve months, be the product of the gross
revenues generated during the time the contract has been in force annualized,
multiplied by Parent's, the Company's or the relevant Affiliate's direct or
indirect percentage interest in such contract. To the extent the Annual Gross
Revenue Amount for Disposed Contracts does not exceed $25,000,000 (the
"Threshold Amount"), no adjustment will be made to the Aggregate Cash
Consideration. To the extent the Annual Gross
26
Revenue Amount for Disposed Contracts exceeds the Threshold Amount (such excess,
the "Excess Amount", which shall in no event be greater than $20,000,000), the
Aggregate Cash Consideration shall be reduced by an amount equal to (A) .8
multiplied by the Excess Amount, less (B) an amount equal to (a) the fraction
equal to the Excess Amount, divided by the Annual Gross Revenue Amount,
multiplied by (b) an amount equal to the proceeds received in connection with
the divestiture or other transfer of the Disposed Contracts. In no event shall
Parent or the Company be required to breach any customer contract in connection
with this provision. If any suit is instituted challenging any of the
transactions contemplated hereby as violative of any Antitrust Law, Parent and
the Company shall each cooperate to contest and resist any such action or
proceeding, and to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order (whether temporary, preliminary or
permanent) that is in effect and that restricts, prevents or prohibits
consummation of the transactions contemplated by this Agreement, including,
without limitation, by pursuing all reasonable avenues of administrative and
judicial appeal.
(c) Either party hereto shall promptly inform the other of any material
communication from the Federal Trade Commission, the Department of Justice or
any other Governmental Authority regarding any of the transactions contemplated
hereby. If either party or any Affiliate thereof receives a request for
additional information or documentary material from any such Governmental
Authority with respect to the transactions contemplated hereby, then such party
will endeavor in good faith to make, or cause to be made, as soon as reasonably
practicable and after consultation with the other party, an appropriate response
in substantial compliance with such request. The Company and Parent will consult
and cooperate with one another, and will consider in good faith the views of one
another in connection with any analyses, appearances, presentations, memoranda,
briefs, and other similar items and proposals made or submitted by or on behalf
of any party hereto in connection with proceedings under or relating to any
proceedings with any Governmental Authority. Parent will consult with the
Company in advance and provide the Company with the opportunity to participate
in any discussion in respect of any understanding, undertaking, or agreement
which Parent proposes to make or enter into with the Federal Trade Commission,
the Department of Justice or any other Governmental Authority in connection with
the transactions contemplated hereby.
SECTION 5.06. FURTHER ACTION. Subject to the terms and conditions herein
provided, each of the parties hereto covenants and agrees to use its best
efforts to deliver or cause to be delivered such documents and other papers and
to take or cause to be taken such further actions as may be necessary, proper or
advisable under applicable Laws to consummate and make effective the
transactions contemplated hereby.
SECTION 5.07. NO SOLICITATION. From the date hereof through the Closing or
the earlier termination of this Agreement in accordance with its terms, each of
the Company, its Subsidiaries and Affiliates and their respective officers,
directors, employees, agents and representatives shall not, directly or
indirectly, enter into, solicit, initiate or continue any discussions or
negotiations with, or encourage or respond to any inquiries or proposals by, or
participate in any negotiations with, or provide any information to, or
otherwise cooperate in any other way with, any corporation, partnership, person
or other entity or group, other than Parent and its officers, directors,
employee, agents and representatives, concerning any sale of the Company or all
or a substantial portion of its assets, the Business or any merger,
consolidation, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries. The Company will promptly notify Parent if
after the date hereof, it (or any Company Subsidiary) receives any such inquiry
or proposal or offer to discuss or negotiate any such transaction
SECTION 5.08. NOTIFICATION OF CERTAIN MATTERS. Each of the Company and
Parent shall give prompt written notice to the other party of the occurrence, or
non-occurrence, of any events the occurrence, or non-occurrence of which would
cause either (i) a representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, or (ii) any of the conditions set forth in Article VII to be
unsatisfied in any material respect at any time from the date hereof to the
Effective Time; provided that the parties hereto need not give notice with
27
respect to events that are reported in the financial or general interest
newspapers that do not specifically relate to the Company or Parent and their
respective businesses. Nothing in this Section 5.08 shall affect any
representation or warranty made by the parties herein.
SECTION 5.09. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
(a) From and after the Effective Time, Parent agrees that it will, and will
cause the Company to, indemnify and hold harmless each present and former
director and officer (the "Indemnified Parties"), against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that the
Company would have been permitted under Delaware law and its Certificate of
Incorporation or bylaws in effect on the date hereof to indemnify such
Indemnified Party (and Parent and the Company shall also advance expenses as
incurred to the fullest extent permitted under applicable Law, provided the
Indemnified Party to whom expenses are advanced provides an undertaking to repay
such advances if it is ultimately determined that such Indemnified Party is not
entitled to indemnification).
(b) For a period of six years after the Effective Time, Parent shall
maintain or shall cause the Company to maintain (to the extent available in the
market) in effect a directors' and officers' liability insurance policy covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy (copies of which have been heretofore
delivered by the Company to Parent) with coverage in amount and scope at least
as favorable as the Company's existing coverage; provided that in no event shall
Parent or the Company be required to expend in the aggregate in excess of
200% of the annual premium currently paid by the Company for such coverage; and
if such premium would at any time exceed 200% of the such amount, then Parent or
the Company shall maintain insurance policies which provide the maximum and best
coverage available at an annual premium equal to 200% of such amount.
(c) The provisions of this Section 5.09 are intended to be in addition to
the rights otherwise available to the current officers and directors of the
Company by Law, charter, bylaw or agreement, and shall operate for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, their heirs
and their representatives.
SECTION 5.10. REPAYMENT OF BANK DEBT AND SENIOR SUBORDINATED NOTES. Parent
agrees to cause the Company to, and provide the Company with sufficient funds
to, (i) at the Effective Time repay all amounts outstanding under that certain
Credit Agreement, as amended, among the Company, various lending institutions
and The Chase Manhattan Bank, N.A. dated as of October 6, 1995 (the "Bank Debt")
in the manner required by such agreement, and (ii) perform the Company's
obligations set forth in Section 4.15 (Change of Control) of that certain
Indenture dated as of November 22, 1995 between the Company and Marine Midland
Bank, as Trustee with respect to the Company's $100,000,000 11-1/2% Senior
Subordinated Notes (the "Senior Subordinated Notes").
ARTICLE VI.
EMPLOYEE MATTERS
Section 6.01. EMPLOYEE BENEFITS.
(a) Parent shall or shall cause the Company to maintain in effect employee
benefit plans and arrangements which provide benefits which have a value which
is substantially comparable, in the aggregate, to the benefits provided by the
benefit plans and arrangements of the Company and Company Subsidiaries
immediately prior to the Effective Time (not taking into account the value of
any benefits
28
under any such plans or arrangements which are equity based) for a period of one
year after the Effective Time.
(b) For purposes of determining eligibility to participate, vesting,
entitlement to benefits and in all other respects where length of service is
relevant under any employee benefit plan or arrangement of Parent or the Company
(including for severance but not for pension benefit accruals to the extent not
permitted by Law), employees of the Company or any Company Subsidiaries employed
as of the Effective Time shall receive service credit for service with the
Company or any Company Subsidiaries to the same extent such service was credited
under the benefit plans and arrangements of the Company and Company Subsidiaries
immediately prior to the Effective Time.
SECTION 6.02. SEVERANCE ARRANGEMENTS.
Parent shall require the Company to (i) honor the terms of the severance
agreement included in the Non-Competition Agreements entered into between the
Company and each of Messrs. Waxman, Halper, Lenahan and Budnick as of the date
hereof; (ii) honor the terms of the severance agreements entered into prior to
the date hereof with the employees of the Company and the Company Subsidiaries
identified in Section 3.14(i) of the Disclosure Schedule; and (iii) subject to
the approval by the Company's stockholders under Code Section 280G(b)(5)(A)(ii),
maintain the Company severance policy, to be adopted as of the Effective Time,
the terms of which are set forth in Section 3.14(a) of the Disclosure Schedule.
ARTICLE VII.
CONDITIONS TO CLOSING
SECTION 7.01. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of
the Company to consummate the transactions contemplated by this Agreement shall
be subject to the fulfillment or waiver, at or prior to the Closing, of each of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. (i) The representations
and warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct as of the Closing, with the same force and effect as if
made as of the Closing (or, in the case of representations and warranties of
Parent and Merger Sub which address matters only as of a particular date, as
of such date), except where the failure to be so true and correct would not
have a material adverse effect on the ability of Parent and Merger Sub to
perform its obligations hereunder; (ii) the covenants and agreements
contained in this Agreement to be complied with by Parent and Merger Sub at
or prior to the Closing, shall have been complied with in all material
respects; and (iii) the Company shall have received a certificate of Parent
as to the matters set forth in clauses (i) and (ii) above signed by a duly
authorized officer of Parent;
(b) NO ORDER. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any Governmental Order which is in effect
and has the effect of making the transactions contemplated by this Agreement
illegal or otherwise prohibiting consummation of such transactions:
provided, however, that the provisions of this Section 7.01(b) shall not
apply if the Company has directly or indirectly solicited or encouraged any
such action;
(c) HSR ACT. The applicable waiting period under the HSR Act shall have
expired or been terminated; and
(d) APPROVALS. All consents and approvals of Governmental Authorities
necessary for consummation of the transactions contemplated hereby shall
have been obtained.
SECTION 7.02. CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER SUB. The
obligations of Parent and Merger Sub to consummate the transactions contemplated
by this Agreement shall be subject to the fulfillment or waiver, at or prior to
the Closing, of each of the following conditions:
29
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. (i) The representations
and warranties of the Company contained in this Agreement shall be true and
correct as of the Closing, with the same force and effect as if made as of
the Closing (or, in the case of representations and warranties of the
Company which address matters only as of a particular date, as of such
date), except where the failure to be so true and correct would not have a
Material Adverse Effect; (ii) the covenants and agreements contained in this
Agreement to be complied with by the Company at or prior to the Closing
shall have been complied with in all material respects; and (iii) Parent
shall have received a certificate of the Company as to the matters set forth
in clauses (i) and (ii) above signed by a duly authorized officer of the
Company;
(b) NO ORDER. No Governmental Authority shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, injunction
or other Governmental Order which is in effect and has the effect of making
the transactions contemplated by this Agreement illegal or otherwise
prohibiting consummation of such transactions; provided, however, that the
provisions of this Section 7.02(b) shall not apply if Parent or Merger Sub
has directly or indirectly solicited or encouraged any such action;
(c) HSR ACT. The applicable waiting period under the HSR Act shall have
expired or been terminated;
(d) MATERIAL ADVERSE EFFECT. Since the date of this Agreement there has
not been any Material Adverse Effect;
(e) APPROVALS. All consents and approvals of Governmental Authorities
necessary for consummation of the transactions contemplated hereby shall
have been obtained;
(f) COMMITMENT LETTER. Parent and/or Merger Sub shall have obtained the
financing set forth in the Commitment Letter on the terms set forth in such
Commitment Letter or other terms reasonably acceptable to Parent, and such
financing shall have been funded on such terms; provided, however, that this
condition shall be deemed satisfied if the financing shall not have been
obtained or funded directly or primarily due to the nonconsummation of the
"Green Springs Transactions" (as defined in the Commitment Letter);
(g) TERMINATION OF CERTAIN AGREEMENTS. Each of the agreements listed in
Exhibit 7.02(g) shall have been terminated without cost or liability to the
Company, Parent or Merger Sub, and shall be of no further force or legal
effect;
(h) STOCKHOLDER SUPPORT AGREEMENTS. Each of the Company Stockholders
shall be in compliance with the Stockholder Support Agreement as of the
Closing;
(i) LOAN REPAYMENTS. The loans made by the Company to certain of its
officers in connection with their purchase of Common Stock shall be repaid
in full at the Effective Time either by delivery of funds or offset against
the total Cash Consideration due such officers pursuant to this Agreement;
(j) GOVERNMENTAL ACTIONS. There shall not be any pending litigation or
administrative proceeding brought by a Governmental Authority against Parent
or the Company relative to the Merger that would reasonably likely result in
a material adverse effect on the operations, business, financial conditions
or results of operations of Parent and the Company and their respective
Subsidiaries, taken as a whole; and
(k) RESIGNATIONS. Prior to the Effective Time, each member of the Board
of Directors of the Company immediately prior to the Effective Time shall
have executed letters of resignation which shall become effective as of the
Effective Time.
30
ARTICLE VIII.
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. TERMINATION. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of the Company and Parent;
(b) by either the Company or Parent, if any Governmental Authority with
jurisdiction over such matters shall have issued a Governmental Order
restraining, enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and unappealable;
provided, however, that the provisions of this Section 8.01(b) shall not be
available to any party unless such party shall have used best efforts
(consistent with the terms hereof) to oppose any such Governmental Order or
to have such Governmental Order vacated or made inapplicable to the
transactions contemplated by this Agreement;
(c) by Parent, if the Closing shall not have occurred prior to the date
five months after the date of this Agreement; provided, however, that Parent
shall not have the right to terminate this Agreement under this Section
8.01(c) if Parent's failure to fulfill any obligation under this Agreement
shall have been the cause of, or shall have resulted in, the failure of the
Closing to occur prior to the applicable date; or
(d) by the Company, if the Closing shall not have occurred prior to the
date five months after the date of this Agreement; provided, however, that
the Company shall not have the right to terminate this Agreement under this
Section 8.01(d) if the Company's failure to fulfill any obligation under
this Agreement shall have been the cause of, or shall have resulted in, the
failure of the Closing to occur prior to the applicable date.
SECTION 8.02. EFFECT OF TERMINATION. In the event of termination of this
Agreement and abandonment of the Merger as provided in Section 8.01, this
Agreement shall forthwith become void and there shall be no liability on the
part of any party hereto except (a) as set forth in Section 5.04 and Section
9.02 and (b) that nothing herein shall relieve either party from liability for
any willful breach hereof.
SECTION 8.03. WAIVER. At any time prior to the Closing, either party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, or (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid only if
set forth in an instrument in writing signed by the party to be bound thereby.
ARTICLE IX.
GENERAL PROVISIONS
SECTION 9.01. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Article II,
Section 5.09, Section 5.10, Article VI and Article IX and any other agreement
which contemplates performance after the Effective Time.
SECTION 9.02. EXPENSES. All costs and expenses, including, without
limitation, fees and disbursements of counsel, financial advisors and
accountants, incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such costs and
expenses, whether or not the Closing shall have occurred.
31
SECTION 9.03. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by courier service, by cable, by telecopy, by telegram, by telex or by
registered or certified mail (postage prepaid, return receipt requested) to the
respective parties at the following addresses (or at such other address for a
party as shall be specified in a notice given in accordance with this Section
9.03):
(a) if to the Company:
Merit Behavioral Care Corporation
One Maynard Drive
Park Ridge, New Jersey 07656
Telecopier: (201) 391-2411
Attention: Chairman and Chief Executive Officer
with copies to:
Latham & Watkins
75 Willow Road
Menlo Park, California 94002
Telecopier: (650) 463-2600
Attention: Peter F. Kerman
(b) if to Parent or Merger Sub:
Magellan Health Services, Inc.
3414 Peachtree Road, N.E.
Suite 1400
Atlanta, Georgia 30326
Telecopier: (404) 814-2720
Attention: Chief Executive Officer and President
with a copy to:
Dow, Lohnes & Albertson, PLLC
One Ravinia Drive
Suite 1600
Atlanta, Georgia 30346
Telecopier: (770) 901-8800
Attention: J. Eric Dahlgren
SECTION 9.04. PUBLIC ANNOUNCEMENTS. Unless otherwise required by applicable
Law or stock exchange requirements, no party to this Agreement shall make any
public announcements in respect of this Agreement or the transactions
contemplated hereby or otherwise communicate with any news media without the
prior written consent of the other party (which consent shall not be
unreasonably withheld). If a public statement is required to be made pursuant to
the foregoing sentence, the parties shall consult with each other, to the extent
reasonably practicable, in advance as to the contents and timing thereof.
SECTION 9.05. HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.06. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
32
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
transactions contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
SECTION 9.07. ENTIRE AGREEMENT. This Agreement (including the Disclosure
Schedule hereto) and the Confidentiality Agreement constitute the entire
agreement of the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the Company, Parent and Merger Sub with respect to the subject matter hereof and
except as otherwise expressly provided herein.
SECTION 9.08. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
SECTION 9.09. NO THIRD PARTY BENEFICIARIES. Except as specifically provided
in Section 5.09 (and solely with respect to parties indemnified thereunder),
this Agreement is for the sole benefit of the parties hereto and their permitted
assigns and nothing herein, express or implied, is intended to or shall confer
upon any other person or entity any legal or equitable right, benefit or remedy
of any nature whatsoever under or by reason of this Agreement.
SECTION 9.10. WAIVERS AND AMENDMENTS. This Agreement may be amended or
modified, and the terms and conditions hereof may be waived, only by a written
instrument signed by the parties hereto or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege hereunder,
nor any single or partial exercise of any other right, power or privilege
hereunder, preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
any party may otherwise have at Law or in equity.
SECTION 9.11. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
required to be performed prior to the Closing was not performed in accordance
with the terms hereof and that, prior to the Closing, the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at Law or in equity.
SECTION 9.12. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in a New York state or federal court sitting in the City of New York,
and the parties hereto hereby irrevocable submit to the exclusive jurisdiction
of such courts in any such action or proceeding and irrevocably waive the
defense of an inconvenient forum to the maintenance of any such action or
proceeding.
SECTION 9.13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original, but all of which taken
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, the Company, Parent and Merger Sub have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
MERIT BEHAVIORAL CARE CORPORATION
BY: ALBERT S. WAXMAN__________________
NAME: ALBERT S. WAXMAN________________
TITLE: CHAIRMAN & CEO_________________
MAGELLAN HEALTH SERVICES, INC.
BY: CRAIG MCKNIGHT____________________
NAME: CRAIG MCKNIGHT__________________
TITLE: EXECUTIVE VICE PRESIDENT &
CFO___________________________________
MBC MERGER CORPORATION
BY: CRAIG MCKNIGHT____________________
NAME: CRAIG MCKNIGHT__________________
TITLE: EXECUTIVE VICE PRESIDENT &
CFO___________________________________
34