<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ____)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14-A-6 (E) (2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
United Payors & United Providers, Inc.
--------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
----------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
- --------------------------------------------------
[ ] No fee required
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------
United Payors & United Providers, Inc. common stock, $ .01 par value,
and options to purchase United Payors & United Providers, Inc. common
stock.
2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------
19,053,781 shares of common stock, plus an aggregate of 2,259,500
options and warrants to purchase shares of common stock.
3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
which the filing fee is calculated and state how it was determined):
---------------------------------
$27.00 for each share of common stock outstanding and the difference
between $27.00 and the exercise price for each outstanding option and
warrant.
4) Proposed maximum aggregate value of transaction: $552,458,254
------------------------------------------------
5) Total fee paid: $110,500
---------------
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-----------------------
2) Form, Schedule or Registration Statement No.:
---------------------------------------------
3) Filing Party:
-------------
4) Date Filed:
-----------
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Dear Stockholder:
We are pleased to inform you of a special meeting of the stockholders of
United Payors & United Providers, Inc. (UP&UP) to be held on ____________, 2000
at 10:00 a.m. EST. The meeting will be conducted at UP&UP's corporate
headquarters at 2275 Research Boulevard, Sixth Floor, Rockville, Maryland 20850.
The Board of Directors of UP&UP, taking into consideration the best
interests of the stockholders, has unanimously approved an agreement and plan of
merger with BCE Emergis Inc. The Board of Directors of UP&UP recommends that
you vote for the proposed merger. Your approval of the merger will result in BCE
Emergis paying UP&UP stockholders $27.00 in cash for each share of UP&UP common
stock they own. It is not necessary for you to attend this special meeting;
however, it is important that UP&UP receive your vote on the proposed merger.
The merger agreement and the reasons for the merger, as well as other
important information for you to consider in deciding how to vote, are described
in the attached proxy statement.
As indicated, it is important that your shares be voted at the special
meeting, regardless of whether you plan to attend in person. If you fail to
vote, it will have the same effect as a vote against approval of the merger. To
assure that your shares are represented in voting on this important matter,
please sign, date, complete and return the enclosed proxy promptly in the
enclosed postage-prepaid envelope whether or not you plan to attend the special
meeting. If you are a stockholder of record and do attend, your may, if you
wish, revoke your proxy and vote your shares in person at the special meeting.
We enthusiastically support the merger and join with the other members of
our Board of Directors in recommending that you vote in favor of the merger.
Sincerely,
/s/ Thomas L. Blair
-----------------------------------------
Thomas L. Blair
Chairman and Co-Chief Executive Officer
/s/ Edward S. Civera
-----------------------------------------
Edward S. Civera
Co-Chief Executive Officer and President
<PAGE>
United Payors & United Providers, Inc.
2275 Research Boulevard, Sixth Floor
Rockville, Maryland 20850
-----------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ___________, 2000
-----------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of United
Payors & United Providers, Inc. will be held at its corporate headquarters, 2275
Research Boulevard, Sixth Floor, Rockville, Maryland 20850 at 10:00 a.m.,
Eastern Time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger among BCE Emergis Inc., Jetco Inc., United Payors &
United Providers, Inc. and Thomas L. Blair, dated as of February 4,
2000, a copy of which is attached as Appendix A to the accompanying
proxy statement, pursuant to which Jetco will merge with and into United
Payors & United Providers, and each share of common stock of United
Payors & United Providers, par value $.01 per share, (other than certain
shares owned by United Payors & United Providers, BCE Emergis Inc. or
their respective subsidiaries, which would be canceled, and other than
shares properly dissenting from the merger) will be converted into the
right to receive $27.00 in cash, without interest, all on and subject to
the terms and conditions contained in the merger agreement.
2. To transact such other business as may properly come before the meeting
or any adjournment or postponement.
Only stockholders of record at the close of business on [March 1], 2000
will be entitled to notice of and to vote at the special meeting and at any
adjournment or postponement of the special meeting. United Payors & United
Providers stockholders can vote their shares by completing, signing, dating and
returning the enclosed proxy card as promptly as possible in the enclosed pre-
addressed, postage pre-paid envelope.
United Payors & United Providers stockholders have the right to dissent
from the merger and obtain payment in cash of the fair value of their shares of
common stock under applicable provisions of Delaware law. In order to perfect
dissenters' rights, stockholders must give written demand for appraisal of their
shares before the taking of the vote on the merger at the special meeting and
must not vote in favor of the merger. A copy of the applicable Delaware
statutory provisions is included as Appendix C to the accompanying proxy
statement and a summary of the provisions can be found under "You Have Appraisal
Rights in the Merger."
In the event that there are not sufficient votes to approve the proposed
merger at the time of the special meeting, the special meeting may be adjourned
in order to permit further solicitation by United Payors & United Providers.
By Order of the Board of Directors
Joseph M. Mott
Corporate Secretary
Rockville, Maryland
______________, 2000
THE UP&UP BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
UP&UP AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT UP&UP STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
The affirmative vote of the holders of a majority of the outstanding
shares of common stock is required to adopt the merger agreement. Whether or
not you plan to attend the meeting, we urge you to please complete, sign, date
and return the enclosed proxy card in the accompanying pre-addressed, postage
pre-paid envelope as promptly as possible.
Please do not send your stock certificates at this time.
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UNITED PAYORS & UNITED PROVIDERS, INC.
2275 Research Boulevard, Sixth Floor
Rockville, Maryland 20850
PROXY STATEMENT
Special Meeting of Stockholders To Be Held _____________, 2000
- --------------------------------------------------------------------------------
SUMMARY TERM SHEET
This summary term sheet does not contain all of the information that
is important to you. You should carefully read the entire proxy statement to
fully understand the merger. The merger agreement is attached as Appendix A to
this proxy statement. We encourage you to read the merger agreement, as it is
the legal document that governs the merger.
Proposed Acquisition
. Stockholder Vote. You are being asked to vote to approve a merger
transaction whereby United Payors & United Providers, Inc. will be acquired
by BCE Emergis Inc.
. Price for Your Stock. As a result of the merger, you will receive $27.00 in
cash, without interest, for each of your shares of UP&UP common stock.
. The Acquiror. BCE Emergis is a Canadian corporation and is among the
leading electronic commerce providers in North America. BCE Emergis is
controlled by BCE Inc., Canada's largest communications company.
. Availability of Funds. BCE Emergis has received commitments from BCE Inc.,
which expire December 31, 2000, to provide up to Cdn$800 million,
approximately $554 million, to fund the acquisition of UP&UP.
UP&UP Stock Price
Shares of UP&UP are quoted on the Nasdaq National Market System under the
symbol "UPUP". On February 4, 2000, which was the last trading day before we
announced the merger, UP&UP common stock closed at $20.50 per share. The
average closing price of UP&UP common stock on the 20 trading days immediately
preceding the announcement of the merger was $18.16 per share.
Unanimous Board Recommendation
UP&UP's Board of Directors has unanimously approved the merger and recommends
that UP&UP stockholders vote to approve the merger.
Fairness Opinion
J.P. Morgan Securities, Inc. has delivered to the UP&UP Board of Directors its
opinion that, as of February 3, 2000, the $27.00 in cash per share merger
consideration was fair to the holders of UP&UP common stock from a financial
point of view.
Mailing of Proxy Statement
This proxy statement is first being sent to you on ____________, 2000.
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The Special Meeting of Stockholders
. Place, Date and Time. The special meeting will be held at UP&UP's
corporate headquarters, 2275 Research Boulevard, Sixth Floor, Rockville,
Maryland 20850, on _____________, 2000, at 10:00 a.m., Eastern Time.
. What Vote is Required for Approval of the Merger. The merger requires the
approval of the holders of a majority of the outstanding shares of UP&UP
common stock. The failure to vote or a broker non-vote has the same effect
as a vote against the merger.
. Who Can Vote at the Meeting. You can vote at the special meeting all of the
shares of UP&UP common stock you own of record as of [March 1], 2000, which
is the record date for the special meeting. If you own shares which are
registered in someone else's name, for example, a broker, you need to
direct that person to vote those shares or obtain an authorization from
them and vote the shares yourself at the meeting. As of [March 1], 2000,
there were [19,053,781] shares of UP&UP common stock outstanding, held by
______ stockholders of record.
. Procedure for Voting. You can vote your shares by attending the special
meeting and voting in person or by mailing the enclosed proxy card. You may
revoke your proxy at any time before the vote is taken at the meeting. To
revoke your proxy, you must either advise the Corporate Secretary of UP&UP
in writing or deliver a later dated proxy, before your common stock has
been voted at the special meeting, or attend the meeting and vote your
shares in person. Attendance at the special meeting will not in itself
constitute revocation of your proxy.
Appraisal Rights
Delaware law provides you with dissenters' appraisal rights in the
merger. This means that if you are not satisfied with the amount you are
receiving in the merger, you are legally entitled to have the value of your
shares independently determined and to receive payment based on that
valuation. To exercise your dissenters' rights, you must deliver a written
objection to the merger to UP&UP at or before the special meeting and you must
not vote in favor of the merger. Your failure to exactly follow the
procedures specified under Delaware law will result in the loss of your
dissenters' rights.
Federal Income Tax Consequences
The merger will be a taxable transaction to you. For United States
federal income tax purposes, your receipt of cash in exchange for your shares
of UP&UP common stock generally will cause you to recognize a gain or loss
measured by the difference between the cash you receive in the merger and your
tax basis in your shares of UP&UP common stock. You should consult your own
tax advisor for a full understanding of the merger's tax consequences that are
particular to you.
When Will the Merger Be Completed
We are working to complete the merger as soon as possible. We
anticipate completing the merger in the second quarter of 2000, subject to
receipt of stockholder approval and satisfaction of other requirements,
including the conditions described immediately below.
Conditions to Completing the Merger
The completion of the merger depends on a number of conditions being
met. In addition to the parties complying with the merger agreement, these
conditions, unless waived, include:
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. approval of the merger and the merger agreement by UP&UP stockholders;
. satisfaction of the notification and waiting periods under the Hart-
Scott-Rodino Antitrust Improvements Act;
. divestiture of the federal savings bank owned by UP&UP in order for
the acquisition by BCE Emergis to satisfy United States banking laws;
- In order to facilitate the merger, Thomas L. Blair, Chairman of the
Board, Co-Chief Executive Officer and a principal stockholder of UP&UP,
who already is deemed to be a controlling person of the bank, has agreed
to purchase the bank for $8.4 million, or a greater amount equal to the
bank's book value, and has filed a notification seeking banking
regulatory approval for that purchase.
. exercise of dissenters' appraisal rights by the holders of less than
15% of UP&UP outstanding shares of common stock;
. the remaining in force of the employment and consulting agreements
with senior executives of UP&UP required by the merger agreement; and
. the absence of a material adverse effect pertaining to UP&UP.
Interests of Directors and Officers in the Merger that Differ From Your
Interests
Some of UP&UP's directors and officers have interests in the merger
that are different from, or are in addition to, their interests as stockholders
in UP&UP. The members of UP&UP's Board of Directors knew about these additional
interests, and considered them, when they approved the merger agreement. These
interests include the following:
. as previously mentioned, in order to facilitate the merger, the
agreement by Mr. Blair to purchase the bank from UP&UP;
. in order to facilitate the merger, the agreement by Mr. Blair that BCE
Emergis can withhold $10 million of the merger consideration otherwise
payable to him for his ownership interest in UP&UP, to support various
representations and warranties, future employment commitments and BCE
Emergis' business plan for UP&UP;
. the agreement of BCE Emergis to loan Mr. Blair $8 million at 7%
interest for one year, which is secured by the $10 million withheld from
Mr. Blair's merger consideration;
. the acceleration of the vesting of options to purchase an anticipated
718,375 shares of common stock under the terms of UP&UP's stock option
plan;
. the requirement that senior executive officers of UP&UP enter into
employment or consulting agreements with BCE Emergis, which, among other
things, waive any severance benefits provided those executives under
existing employment contracts, and, in the case of Mr. Civera, provide for
a signing bonus of $1.75 million when the contract takes effect upon
completion of the merger;
. as part of the agreements with the senior executives of UP&UP, the
receipt of options to purchase shares of BCE Emergis;
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. provisions in the merger agreement regarding directors' and officers'
indemnification and insurance; and
. the agreement by Mr. Blair to subscribe for $5 million of BCE Emergis
common stock at the time of the first underwritten public offering of BCE
Emergis common shares in the United States.
Voting Agreement
Thomas L. Blair, Chairman of the Board and Co-Chief Executive Officer
of UP&UP, and other officers and consultants, and their affiliates, and another
significant stockholder have committed to BCE Emergis to vote a total of 5.7
million shares of common stock, 30.0% of outstanding common stock, in favor of
the merger. In addition, all of UP&UP's directors and officers, as a group, may
be deemed to beneficially own 10.9 million shares of common stock currently
outstanding, or 54.8% of outstanding shares, which includes a significant
portion of the shares committed to be voted for the merger. In addition,
Messrs. Blair and Civera, under certain circumstances, could be required by BCE
Emergis to purchase 2.9 million shares of UP&UP common stock, representing
collectively 14.7% of outstanding common stock on a diluted basis, which they
have the right to purchase, and to vote, those shares in favor of the merger.
The Merger
. Procedure for Receiving Merger Consideration. BCE Emergis has appointed
American Stock Transfer & Trust Company as paying agent, to coordinate the
payment of the cash merger consideration following the merger. The paying
agent will send you written instructions for surrendering your certificates
and obtaining the cash merger consideration after we have completed the
merger.
. Terminating the Merger Agreement. UP&UP and BCE Emergis can agree at
any time to terminate the merger agreement without completing the merger,
even if the stockholders of UP&UP have approved it. Also, either of UP&UP
and BCE Emergis can decide, without the consent of the other, to terminate
the agreement if:
- UP&UP's stockholders do not approve the merger and the merger agreement;
- a required regulatory approval is denied or a governmental authority
blocks the merger;
- the merger is not completed by August 31, 2000; or
- the other party commits a material breach of a representation, warranty
or covenant.
In addition, BCE Emergis can decide to terminate the merger agreement
without UP&UP's consent if:
- the UP&UP Board withholds, withdraws, modifies or changes its approval
of the merger in a manner adverse to BCE Emergis;
- the UP&UP Board recommends a superior proposal to the stockholders of
UP&UP;
- the UP&UP Board does not reaffirm its recommendation in favor or
approval of the merger and the merger agreement within five days of BCE
Emergis' written request for reaffirmation;
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- UP&UP breaches the no solicitation or transactions provision in the
merger agreement; or
- the UP&UP Board does not recommend against acceptance of a tender or
exchange offer for 20% or more of the outstanding shares of UP&UP stock.
. Termination Fees. UP&UP is required to pay BCE Emergis a termination
fee of $22 million, in the following circumstances:
if BCE Emergis terminates the merger agreement because:
- the UP&UP Board withheld, withdrew, modified or changed its approval of
the merger in a manner adverse to BCE Emergis;
- the UP&UP Board recommended a superior proposal to the stockholders of
UP&UP;
- the UP&UP Board did not reaffirm its recommendation in favor of
approval of the merger and the merger agreement within five days of BCE
Emergis' written request for reaffirmation;
- UP&UP breached the no solicitation of transactions provision in
the merger agreement; or
- the UP&UP Board did not recommend against acceptance of a tender or
exchange offer for 20% or more of the outstanding shares of stock of
UP&UP; or
if UP&UP or BCE Emergis terminates the merger and the UP&UP stockholders
vote against the merger and:
- prior to the stockholder vote against the merger and the merger
agreement, an acquisition proposal is made; and
- on or prior to the one year anniversary of the termination, UP&UP
or any of its subsidiaries enters into an agreement or letter of intent
with respect to any acquisition proposal or consummates any transaction
pursuant to an acquisition proposal.
Contact Information
If you have any questions regarding the merger or any other matters
discussed in this proxy statement, please contact:
Joseph M. Mott, Esq.
Corporate Secretary
United Payors & United Providers, Inc.
2275 Research Boulevard, Sixth Floor
Rockville, Maryland 20850
(301) 548-1000 (Telephone)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
SUMMARY TERM SHEET....................................................... 1
TABLE OF CONTENTS........................................................ 6
QUESTIONS AND ANSWERS ABOUT THE MERGER................................... 8
SELECTED CONSOLIDATED FINANCIAL DATA..................................... 10
MARKET PRICE OF UP&UP COMMON STOCK....................................... 11
THE SPECIAL MEETING OF UP&UP STOCKHOLDERS................................ 12
Place, Date, Time and Purpose.......................................... 12
Who Can Vote at the Special Meeting.................................... 12
Attending the Meeting.................................................. 12
Vote Required.......................................................... 12
Voting by Proxy........................................................ 13
THE PARTIES TO THE MERGER................................................ 14
THE MERGER............................................................... 15
BACKGROUND AND REASONS FOR THE MERGER.................................. 15
OPINION OF UP&UP'S FINANCIAL ADVISOR................................... 19
Discounted Cash Flow Analysis....................................... 21
Selected Public Trading Multiples................................... 21
Comparable Transaction Analysis..................................... 24
CERTAIN ASPECTS OF THE MERGER.......................................... 27
The Merger.......................................................... 27
Conversion of UP&UP Shares.......................................... 27
Payment for UP&UP Shares............................................ 27
Source and Amount of Funds.......................................... 28
Commitments Made by Thomas L. Blair to Facilitate the Merger........ 28
Interests of UP&UP's Directors and Officers in the Merger
that Differ from Your Interests.................................. 29
When Will the Merger be Completed................................... 33
Procedures for Exchanging Your Stock Certificates................... 33
Certain Federal Income Tax Consequences............................. 34
THE MERGER AGREEMENT................................................... 34
Conversion of UP&UP Shares.......................................... 35
Payment for UP&UP Shares............................................ 35
Representations and Warranties of UP&UP and Thomas L. Blair......... 35
Representations and Warranties of BCE Emergis and Jetco............. 37
Conduct of Business Prior to the Closing............................ 38
No Solicitation Provision........................................... 40
Mutual Covenants of BCE Emergis and UP&UP........................... 41
Conditions to Closing............................................... 43
Additional Conditions to Closing.................................... 43
Termination and Termination Fees.................................... 44
Expenses............................................................ 45
</TABLE>
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<TABLE>
<S> <C>
YOU HAVE APPRAISAL RIGHTS IN THE MERGER.................................. 46
BENEFICIAL OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS.................................. 49
FORWARD-LOOKING STATEMENTS............................................... 50
WHERE YOU CAN FIND MORE INFORMATION...................................... 50
STOCKHOLDER PROPOSALS.................................................... 50
</TABLE>
APPENDIX A AGREEMENT AND PLAN OF MERGER, DATED AS OF FEBRUARY 4, 2000, BY AND
AMONG BCE EMERGIS INC., JETCO INC., UNITED PAYORS & UNITED
PROVIDERS, INC. AND THOMAS L. BLAIR
APPENDIX B FAIRNESS OPINION OF J.P. MORGAN SECURITIES, INC.
APPENDIX C SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
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QUESTIONS AND ANSWERS ABOUT THE MERGER
The following questions and answers are intended to address briefly some
commonly asked questions regarding the merger. These questions and answers may
not address all questions that may be important to you as a stockholder of
UP&UP. Please refer to the more detailed information contained elsewhere in
this proxy statement and its appendices.
1. If the merger is completed, what will I receive for my UP&UP common
stock?
You will receive $27.00 in cash for each share of UP&UP common stock you
own.
2. Who is entitled to vote at the special meeting?
Holders of record of UP&UP common stock as of the close of business on
[March 1], 2000 are entitled to vote at the special meeting. Each stockholder
has one vote for each share of UP&UP common stock he or she owns.
3. What vote is required for UP&UP stockholders to approve the merger?
In order for the merger to be approved, holders of a majority of the
outstanding UP&UP common stock must vote "FOR" the merger. If your shares are
not voted, it has the same effect as a vote "AGAINST" the merger.
4. What do I need to do now?
After carefully reading and considering the information contained in this
proxy statement, please vote your shares as soon as possible by filling out,
signing and returning the enclosed proxy card. Your voting materials include
detailed information on how to vote.
5. If my shares are held in "street name" by my broker, will my broker
vote my shares for me?
No. Your broker can vote your shares only if you provide instructions to
him or her on how to vote. You should instruct your broker on how to vote your
shares, using the instructions provided by your broker. If your shares are not
voted, it has the same effect as a vote "AGAINST" the merger.
6. Can I change my vote after I have mailed my proxy card?
Yes. You can change your vote at any time before your proxy is voted at
the special meeting. You may revoke your proxy by notifying the Corporate
Secretary of UP&UP in writing or by submitting a new proxy dated after the date
of the proxy being revoked. In addition, your proxy will be revoked by
attending the special meeting and voting in person. However, simply attending
the special meeting will not revoke your proxy. If you have instructed a broker
to vote your shares, you must follow the instructions received from your broker
to change your vote.
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7. Do I need to attend the UP&UP special meeting in person?
No. It is not necessary for you to attend the special meeting in order to
vote your shares, although you are welcome to attend.
8. Will I have appraisal rights as a result of the merger?
Yes. If you wish to exercise your appraisal rights, you must follow the
requirements of Delaware law. A summary describing the requirements you must
follow in order to exercise your appraisal rights is described in "You Have
Appraisal Rights in the Merger" in this proxy statement.
9. When will holders of UP&UP common stock receive the merger
consideration?
The merger is expected to be completed promptly following the special
meeting of the UP&UP stockholders. However, it is possible that delays could
require that the merger be completed at a later time. Following the merger, you
will receive instructions on how to receive your cash payment in exchange for
your shares of UP&UP common stock. You must return your UP&UP stock
certificates as described in the instructions. You will receive your cash
payment as soon as practicable after American Stock Transfer & Trust Company
receives your UP&UP stock certificate.
10. Should I send in my UP&UP stock certificates now?
No. After the merger is completed, American Stock Transfer & Trust
Company, as paying agent, will send you written instructions for exchanging your
UP&UP stock certificates.
11. Will I owe taxes as a result of the merger?
The cash you receive in the merger in exchange for your shares of UP&UP
common stock and any cash you may receive from exercising your appraisal rights
will be subject to United States federal income tax and also may be taxed under
applicable state, local and foreign tax laws. In general, you will recognize
gain or loss equal to the difference between (a) the amount of cash you receive
and (b) your tax basis in your shares of UP&UP common stock. We recommend that
you read the section entitled "The Merger--Certain Aspects of the Merger--
Certain Federal Income Tax Consequences" in this proxy statement for a more
detailed explanation of the tax consequences of the merger. You should consult
your tax advisor regarding the specific tax consequences of the merger
applicable to you.
12. Who can help answer my questions?
If you have more questions about the merger after reading this proxy
statement, you should contact:
Joseph M. Mott, Esq.
Corporate Secretary
United Payors & United Providers, Inc.
2275 Research Boulevard, Sixth Floor
Rockville, Maryland 20850
(301) 548-1000
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UNITED PAYORS & UNITED PROVIDERS, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
(Dollars in thousands, except per share data)/(1)/
UP&UP is providing the following information to aid your analysis of the
financial aspects of the merger. The following selected consolidated financial
data as of and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999
have been derived from the audited financial statements of UP&UP.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenue:
Provider network............................. $ 877 $31,259 $ 41,195 $ 57,952 $ 83,494
Utilization management services.............. -- 4,190 19,833 20,497 24,284
------- ------- -------- -------- --------
Total revenue.......................... 877 35,449 61,028 78,449 107,778
------- ------- -------- -------- --------
Operating expenses:
Direct contract expenses..................... 2,238 15,295 29,173 33,524 51,030
General and administrative................... 334 2,783 6,221 8,365 10,168
Depreciation and amortization................ 114 538 1,695 4,028 4,357
------- ------- -------- -------- --------
Total operating expenses............... 2,686 18,616 37,089 45,917 65,555
------- ------- -------- -------- --------
Operating income (loss)......................... (1,809) 16,833 23,939 32,532 42,223
Other income, net............................... 699 971 1,426 729 741
Banking operations, net (2)..................... -- -- -- -- 46
------- ------- -------- -------- --------
Income (loss) before income taxes......... (1,110) 17,804 25,365 33,261 43,010
Income taxes.................................... 399 (7,158) (10,388) (13,682) (17,091)
------- ------- -------- -------- --------
Net income (loss)............................... $ (711) $10,646 $ 14,977 $ 19,579 $ 25,919
======= ======= ======== ======== ========
Net income (loss) per share - basic............. $ (0.08) $ 0.70 $ 0.87 $ 1.15 $ 1.40
======= ======= ======== ======== ========
Weighted average common shares - basic.......... 8,800 15,189 17,239 17,065 18,491
======= ======= ======== ======== ========
Net income (loss) per share - diluted........... $ (0.08) $ 0.70 $ 0.86 $ 1.09 $ 1.35
======= ======= ======== ======== ========
Weighed average common shares - diluted......... 8,800 15,193 17,486 17,981 19,253
======= ======= ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Healthcare Services
Working capital................................. $ 3,384 $28,113 $ 24,513 $ 27,147 $ 45,477
Total assets.................................... 12,763 53,248 82,515 115,945 174,009
Long-term debt, including current portion....... 65 655 15,241 22,064 17,500
Notes payable to shareholder.................... 3,700 -- -- -- --
Financial Services (2)
Cash and cash equivalents.......................................................................... $ 9,698
Receivables........................................................................................ 17,362
Total assets........................................................................................ 35,695
Total deposits...................................................................................... 25,199
Total stockholders' equity (3)............. $ 5,296 $45,176 $ 58,297 $ 78,458 $ 24,305
- ----------------------
</TABLE>
(1) All periods presented reflect the effect of the three-for-two stock split
in the form of a stock dividend paid on May 4, 1998.
(2) The bank was acquired on August 31, 1999. UP&UP is required to divest the
bank as a condition to the merger.
(3) The bank's stockholders' equity was $8.4 million as of December 31, 1999.
10
<PAGE>
MARKET PRICE OF UP&UP COMMON STOCK
UP&UP common stock is quoted on the National Market System of the Nasdaq
Stock Market under the symbol "UPUP." The following table sets forth, for the
periods indicated, the high and low market prices per share for UP&UP common
stock as reported on the Nasdaq National Market System.
<TABLE>
<CAPTION>
----------------
High Low
------ -----
<S> <C> <C>
1998
First Quarter........................ $22.67 $11.50
Second Quarter....................... 24.38 19.00
Third Quarter........................ 29.75 14.00
Fourth Quarter....................... 29.63 14.25
1999
First Quarter........................ 29.25 20.00
Second Quarter....................... 23.25 16.38
Third Quarter........................ 24.25 16.69
Fourth Quarter....................... 19.00 13.75
2000
First Quarter (through _____, 2000)..
</TABLE>
The closing market price per share of UP&UP common stock on February 4,
2000, which was the last full trading day immediately preceding the public
announcement of the proposed merger, was $20.50. On ________, 2000, which is the
latest practicable date prior to the printing of this proxy statement, the
closing price for UP&UP common stock was $_____.
As of _______________, 2000, there were [19,053,781] shares of UP&UP common
stock outstanding, held by approximately ____ stockholders of record of UP&UP
common stock. This number does not reflect the number of persons or entities
who may hold their stock in nominee or "street" name through brokerage firms.
UP&UP has never paid any cash dividends on its common stock.
11
<PAGE>
THE SPECIAL MEETING OF UP&UP STOCKHOLDERS
Place, Date, Time and Purpose
The special meeting will be held at UP&UP's corporate headquarters, 2275
Research Boulevard, Sixth Floor, Rockville, Maryland 20850, on ____________,
2000 at 10:00 a.m., Eastern Time. The purpose of the special meeting is to
consider and vote on the proposal to approve and adopt the merger agreement.
THE UP&UP BOARD HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF
UP&UP AND ITS STOCKHOLDERS, HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT UP&UP STOCKHOLDERS VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
Who Can Vote at the Special Meeting
The holders of record of UP&UP common stock as of the close of business on
[March 1], 2000, which is the record date for the special meeting, are entitled
to receive notice of and to vote at the special meeting. On the record date,
there were [19,053,781] shares of UP&UP common stock outstanding held by
__________ stockholders of record.
Attending the Meeting
If you are a beneficial owner of UP&UP common stock held by a broker, bank
or other nominee (i.e., in "street name"), you will need proof of ownership to
be admitted to the meeting. A recent brokerage statement or letter from a bank
or broker are examples of proof of ownership. If you want to vote your shares
of UP&UP common stock held in street name in person at the meeting, you will
have to obtain a written proxy or authorization in your name from the broker,
bank or other nominee who holds your shares.
Vote Required
The approval and adoption of the merger agreement requires the affirmative
vote of the holders of a majority of the outstanding shares of common stock
entitled to vote. Each share of common stock is entitled to one vote. Failure
to return a properly executed proxy card or to vote in person will have the same
effect as a vote "AGAINST" the merger. Abstentions and broker non-votes also
will have the same effect as a vote against the merger. Your broker or nominee
does not have the right to vote your shares of UP&UP common stock. You must
instruct your broker on how to vote in order for your shares to be voted. It is
important that you instruct your broker or nominee on how to vote your shares of
UP&UP common stock in order for your shares to be represented at the special
meeting.
The holders of a majority of the outstanding shares of UP&UP common stock
as of the record date, represented in person or by proxy, will constitute a
quorum for purposes of the special meeting. A quorum is necessary to hold the
special meeting. Once a share is represented at the special meeting, it will be
counted for the purpose of determining a quorum and any adjournment of the
special meeting, unless the holder is present solely to object to the special
meeting. However, if a new record date is set for an adjourned meeting, then a
new quorum will have to be established.
12
<PAGE>
Thomas L. Blair, Chairman of the Board and Co-Chief Executive Officer of
UP&UP, and other officers and consultants, and their affiliates, and another
significant stockholder have committed to BCE Emergis to vote a total of 5.7
million shares of common stock, approximately 30.0% of outstanding common stock,
in favor of the merger. Further, the Independent Divestment Trust is required
to vote the 4,500,000 shares of UP&UP common stock it holds in the same
proportion as other stockholders vote their shares. In addition, Mr. Blair and
Edward S. Civera, Co-Chief Executive Officer and President of UP&UP, have
entered into an agreement with BCE Emergis which, in the case of Mr. Blair,
could require him to purchase 2,250,000 shares of UP&UP common stock, 11.8% of
outstanding common stock, he is obligated to purchase from Independent
Divestment Trust and, in the case of Mr. Civera, could require him to exercise
options he holds to purchase 640,625 shares of UP&UP common stock, 3.3% of
outstanding common stock (on a diluted basis). In each case, Messrs. Blair and
Civera would be required to vote shares they hold in favor of the merger. These
arrangements are explained in greater detail under "The Merger--Interests of
UP&UP's Directors and Officers in the Merger that Differ from Your Interests."
Neither BCE Emergis nor any of its directors and executive officers or
affiliates owned any shares of UP&UP common stock.
Voting by Proxy
This proxy statement is being sent to you on behalf of the Board of
Directors of UP&UP for the purpose of requesting that you allow your shares of
UP&UP common stock to be represented at the special meeting by the persons named
in the enclosed proxy card. All shares of UP&UP common stock represented at the
meeting by properly executed proxies will be voted in accordance with the
instructions indicated on the proxy card. If you sign and return a proxy card
without giving voting instructions, your shares will be voted as recommended by
UP&UP's Board of Directors. The Board recommends a vote "FOR" approval of the
merger agreement.
If any matters not described in this proxy statement are properly presented
at the special meeting, the persons named in the proxy card will use their own
judgment to determine how to vote your shares. This includes a motion to
adjourn or postpone the meeting in order to solicit additional proxies.
However, no proxy voted against the proposal to approve the merger will be voted
in favor of an adjournment or postponement to solicit additional votes in favor
of the merger. UP&UP does not know of any other matters to be presented at the
meeting.
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy, you must either advise the Corporate Secretary
of UP&UP in writing or deliver a later dated proxy, before your common stock has
been voted at the special meeting or attend the meeting and vote your shares in
person. Attendance at the special meeting will not in itself constitute
revocation of your proxy.
If your UP&UP common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet. Please see the
instruction form that accompanies this proxy statement.
13
<PAGE>
UP&UP will pay the cost of this proxy solicitation. In addition to
soliciting proxies by mail, directors, officers and employees of UP&UP may
solicit proxies personally and by telephone. None of these persons will receive
additional or special compensation for soliciting proxies. UP&UP will, upon
request, reimburse brokers, banks and other nominees for their expenses in
sending proxy materials to their customers who are beneficial owners and
obtaining their voting instructions. UP&UP has retained D.F. King to assist in
soliciting proxies for a fee of $6,500 plus reimbursable expenses.
THE PARTIES TO THE MERGER
United Payors & United Providers, Inc. UP&UP has developed a network of
providers offering nationwide access to discounted health care services for
payors of health care services who contract with it. UP&UP's provider network
consists of over 2,900 hospitals, 14,000 ancillary medical facilities and
150,000 physicians located in all 50 states and the District of Columbia.
During 1999, approximately $3 billion of medical claims were processed utilizing
UP&UP's provider network and other local and regional networks accessed through
UP&UP. UP&UP common stock is quoted on the Nasdaq National Market System under
the symbol "UPUP." In addition, UP&UP offers a broad array of utilization review
and case management services through its subsidiary, National Health Services,
Inc. UP&UP's principal executive offices are located at 2275 Research
Boulevard, Sixth Floor, Rockville, MD 20850, and its telephone number is (301)
548-1000.
BCE Emergis Inc. BCE Emergis is a Canadian corporation that delivers
network-centric Internet commerce business solutions that improve customer
processes through the exchange of secure transactions. Combining Internet
commerce services, network infrastructure, security services, and payment
solutions through industry vertical applications, BCE Emergis offers a full
suite of core technologies that are the essential building blocks for electronic
commerce. BCE Emergis generates revenues from charging fees for its electronic
commerce services and payment solutions, which fees are primarily monthly
charges and transaction-based charges. BCE Inc. is the principal stockholder of
BCE Emergis, currently holding approximately 64.8% of the outstanding common
shares of BCE Emergis. The BCE Emergis common shares are listed on The Toronto
Stock Exchange under the symbol "IFM". At the close of trading on February 15,
2000, BCE Emergis had a market capitalization of approximately Cdn$14.5 billion,
$10.0 billion, excluding the sale of common shares to BCE Inc. referred to
under "The Merger - Certain Aspects of the Merger -Source and Amount of Funds".
BCE Emergis' principal executive offices are located at 1155 Rene-Levesque
Boulevard West, Suite 2200, Montreal, Quebec, Canada H3B 4T3, and its telephone
number is (514) 868-2200.
Jetco Inc. Jetco is a wholly owned subsidiary of BCE Emergis formed solely
for the purpose of engaging in the merger. Pursuant to the terms of the merger
agreement, at the effective time, Jetco will be merged with and into UP&UP, with
UP&UP as the surviving corporation.
14
<PAGE>
THE MERGER
The discussion of the merger in this proxy statement is qualified by
reference to the merger agreement, which is attached to this proxy statement as
Appendix A. You should read the entire merger agreement carefully.
BACKGROUND AND REASONS FOR THE MERGER
In July 1999, UP&UP discussed with various investment banking firms an
engagement to identify strategic alternatives and acquisition and merger
partners for UP&UP. After interviewing various firms and evaluating their
capabilities to assist it, UP&UP selected J.P. Morgan as its financial advisor.
The nature of J.P. Morgan's engagement was to consider the potential to
reposition the public market perception of UP&UP as a financial transactions
and/or technology business and to be UP&UP's exclusive representative in merger
and acquisition activities. The management and Board of Directors of UP&UP did
not believe that UP&UP was being properly recognized by the investment
community. In addition, the relatively low price to earnings multiple for
UP&UP's stock was a hindrance to acquisitions by UP&UP. UP&UP and J.P. Morgan
agreed that UP&UP was being characterized by the investment community as a
managed care/health care company. UP&UP and J.P. Morgan believed the more
appropriate view of UP&UP was as a financial transaction business related to
medical claims which uses technology to interface with its payor clients. J.P.
Morgan advised management that a repositioning of UP&UP with new technology or
financial transaction analysts and a new shareholder base had the potential to
improve the investment community's response to UP&UP's earnings performance.
J.P. Morgan also advised management that the process to accomplish such a
repositioning could take a substantial period of time and involved substantial
uncertainty to its success. In light of these considerations, UP&UP management
determined that an acquisition or merger likely would be a better way to
accomplish an enhancement of shareholder value.
At the direction of UP&UP, J.P. Morgan contacted several companies in the
financial transactions/technology business that had expressed a strategic
interest in the health care/insurance sector. UP&UP management did not prepare
a briefing book on UP&UP and no formal selling process was initiated by J.P.
Morgan at this time. Rather, UP&UP relied upon J.P. Morgan's discussions with
third parties and those third parties' review of public information about UP&UP.
After several discussions with a number of candidates, J.P. Morgan
identified two companies that were interested in UP&UP and the United States
health care/insurance sector. These two companies are identified hereafter as
"Company A"and BCE Emergis. Company A visited UP&UP's headquarters in October
1999 and held various strategic discussions with management during the
October/November, 1999 time frame. During this period, UP&UP also evaluated the
strategic fit of its operations into Company A. UP&UP management advised Company
A that it could not enter into serious merger discussions unless an enterprise
value was placed on UP&UP and Company A had performed sufficient due diligence
to assure UP&UP management that merger discussions were serious and definitive.
Company A performed due diligence in December, 1999 and into January, 2000.
To facilitate this process, UP&UP signed a confidentiality arrangement with
Company A and provided Company A with detailed operational and financial
information concerning UP&UP's business. In January, 2000, Company A sent to
UP&UP a draft merger agreement that provided for the conversion of UP&UP shares
into $27.50 of Company A shares, to be valued at the date of the merger (using a
20-day trading
15
<PAGE>
average). The transaction was contingent upon continued due diligence of UP&UP's
operations by Company A and "pooling of interest" accounting treatment for the
merger transaction. J.P. Morgan held various conversations with Company A on the
enterprise value of UP&UP.
Concurrent with the discussions with Company A, BCE Emergis held similar
strategic discussions with UP&UP management at its headquarters and at BCE
Emergis' headquarters in Montreal, Canada. UP&UP would not enter into definitive
discussions with BCE Emergis until an appropriate value was placed on UP&UP's
business and a certain level of due diligence was performed by BCE Emergis to
ensure that its acquisition of UP&UP was a viable business strategy.
In January, 2000, BCE Emergis wrote a letter to Thomas L. Blair, Chairman
of UP&UP, outlining the structure and value of a proposed transaction. In
response to this letter, UP&UP management and J.P. Morgan negotiated with BCE
Emergis on value considerations and BCE Emergis agreed to a cash price of $27.00
per share, subject to due diligence. The Company provided BCE Emergis (after
signing a confidentiality agreement) with financial and operating data on
UP&UP's business equivalent to that furnished to Company A. During January and
early February, 2000, BCE Emergis completed due diligence on UP&UP's operations.
Concurrent with these merger discussions, UP&UP scheduled a series of
meetings with its Board of Directors to apprise them of the merger discussions
with Company A and BCE Emergis. These Board of Directors communications were
made first by individual telephone conversations and one meeting with
representatives of Capital Z Partners, Inc. in New York. Capital Z Partners is
the ultimate general partner of funds having a significant investment in UP&UP
and which have two representatives, Messrs. Gluckstern and Warren, on UP&UP's
Board. UP&UP then scheduled a series of Board of Directors meetings.
On January 10, 2000, UP&UP held a Board of Directors meeting at which the
Board members received a detailed briefing on the developments regarding Company
A and BCE Emergis. The briefing included a presentation by J.P. Morgan on each
prospective merger candidate and their respective proposals. The Board members
reviewed each proposed deal, evaluated management's presentation and considered
the following factors:
. that J.P. Morgan had solicited offers from several other possible
acquirors to determine their interest in an acquisition of UP&UP;
. information with respect to the financial condition, results of
operations, cash flow and business prospects of UP&UP;
. strategic alternatives;
. the value of each offer;
. UP&UP's stock price and historical trading ranges;
. the differences in the two proposed transactions, particularly the
stock-for-stock transactions nature of the Company A offer and the
cash transaction nature of the BCE Emergis offer;
16
<PAGE>
. complexities associated with pooling of interests accounting,
specifically the risks of an offer conditioned upon receiving pooling
of interest accounting treatment;
. the impact of Company A's proposal on UP&UP's clients and the future
profitability of its core business;
. information with respect to the financial condition, results of
operations, cash flow, business and prospects of Company A;
. the ability of BCE Emergis to fund the purchase;
. the federal income tax aspects of both transactions;
. the probabilities for the consummation of each of the proposed
transactions and the time required to consummate;
. the complexities associated with obtaining regulatory approval;
specifically from the Office of Thrift Supervision, or OTS, as a
result of UP&UP's ownership of a federally chartered thrift; and
. the volatility and risk associated with Company A's proposed
stock-for-stock merger after the transaction was completed as possibly
impacting UP&UP stockholders wishing to sell the Company A shares they
would receive in the merger for cash.
In summary, the Board of Directors concluded at the January 10th meeting
that management should proceed with the merger discussions with both Company A
and BCE Emergis and that consideration should be given to both the value and
probability of consummation of each of the transactions. The Board wanted
management to be in a position to have the merger discussions finalized,
including completion of due diligence, so that both offers could be fully
evaluated and compared. UP&UP management continued to hold merger discussions
with Company A and BCE Emergis. These merger discussions included the
following: (1) deal structure, (2) merger agreement provisions, (3) transaction
timing, (4) pooling issues, (5) strategy regarding obtaining OTS approval
relating to UP&UP's ownership of a federally chartered thrift, and (6) the
completion of due diligence by each company.
17
<PAGE>
A Special Meeting of the Board of Directors was held on January 18, 2000,
at which management updated the Board on both proposed merger transactions.
Also at that meeting, the Board received a report from J.P. Morgan in draft form
that evaluated the offer prices being proposed against several benchmarks,
including the following:
. the current market price of UP&UP's common stock and recent trading
ranges;
. the historical premiums for all merger deals, friendly merger deals,
stock merger deals and merger transactions ranging in value between
$200 million and $1 billion;
. the discounted cash flow values for UP&UP under various operating
scenarios;
. the trading values of health care and health care services sector
companies; and
. the trading values for electronic commerce companies.
After an extensive discussion by the Board, management and the Board
recommended that merger discussions be continued with both parties with the aim
of obtaining final offers and proposed agreement documents having as few
contingencies as possible. Thus, both merger discussions continued. The
individual Board members were briefed on the status of each proposed transaction
by Mr. Blair and/or Mr. Civera on February 1, 2000. These briefings covered
developments on each transaction, the status of merger discussions and risks
associated with consummating each merger. At this time, a Special Board Meeting
was called for February 3, 2000.
At the February 3, 2000 Special Board Meeting, Messrs. Blair and Civera
reported that they had offers in final form from both parties and discussed each
proposed merger transaction with the Board. At this meeting, J.P. Morgan
delivered its oral fairness opinion concerning both proposed merger
transactions. However, J.P. Morgan informed the Board that the BCE Emergis
transaction had an advantage over Company A's proposal, taking into
consideration the certainty of a cash merger offer as opposed to a stock-for-
stock transaction and the higher probability of consummation of the BCE Emergis
merger, particularly within a reasonable time frame. The Board particularly
considered the J.P. Morgan analysis, the opinion of J.P. Morgan that as of
February 3, 2000 the consideration to be received by stockholders of UP&UP
pursuant to the merger agreements was fair to UP&UP stockholders from a
financial point of view and the terms of the proposed merger agreements for both
transactions, including the provisions regarding the ability to consider
superior proposals and termination fees.
Based on the totality of information presented and the consideration given
by the Board at all of the meetings pertaining to the proposed merger
agreements, the Board determined that it was advisable, fair and in the best
interests of UP&UP stockholders to accept the BCE Emergis proposal. The Board
authorized Messrs. Blair and Civera to sign the merger agreement with BCE
Emergis assuming that management received adequate documentation from BCE
Emergis' parent company, BCE Inc., that it would unconditionally provide the
funds necessary to finance the cash merger.
On Friday, February 4, 2000, all open business items were resolved between
UP&UP and BCE Emergis and adequate documentation was received by UP&UP
management concerning the financing of the merger by BCE Inc. The merger
agreement was signed on Friday, February 4, 2000 at approximately 9:00 p.m.
18
<PAGE>
This discussion of the information and factors considered by the UP&UP
Board is not intended to be exhaustive, but identifies material factors
considered by the Board. In view of the wide variety of factors considered in
connection with the evaluation and determination to approve and recommend the
merger agreement with BCE Emergis, the UP&UP Board found it impracticable and
did not quantify or otherwise attempt to assign any relative or specific weights
to the factors considered, and individual directors may have weighted factors
differently.
The UP&UP Board considers that the merger is in the best interests of the
UP&UP stockholders. The UP&UP Board unanimously recommends that UP&UP
stockholders vote "FOR" approval and adoption of the merger agreement with BCE
Emergis.
OPINION OF UP&UP'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated July 22, 1999, UP&UP retained J.P.
Morgan to act as the sole financial advisor with respect to a possible
acquisition, merger, consolidation or other business combination of UP&UP. In
addition, pursuant to an engagement letter dated February 3, 2000, UP&UP
retained J.P. Morgan to deliver a fairness opinion in connection with any
proposed acquisition. At the meeting of UP&UP's Board of Directors on February
3, 2000, J.P. Morgan rendered its oral opinion to the Board, which was
subsequently confirmed in writing, that, as of that date and based upon and
subject to the various considerations set forth in the opinion, the
consideration to be paid to stockholders in the proposed merger was fair, from a
financial point of view, to UP&UP's stockholders. UP&UP's Board of Directors did
not limit J.P. Morgan in any way in the investigations it made or the procedures
it followed in giving its opinion.
We have attached as Appendix B to this document the full text of J.P.
Morgan's written opinion dated February 4, 2000. This opinion sets forth the
assumptions made, matters considered and limits on the review undertaken. We
incorporate J.P. Morgan's opinion into this document by reference. UP&UP's
stockholders are urged to read the opinion in its entirety. J.P. Morgan
addressed its opinion to UP&UP's Board of Directors. The opinion addresses only
the consideration to be paid in the transaction and is not a recommendation to
any UP&UP stockholder as to how that stockholder should vote at UP&UP's special
meeting.
In arriving at its opinion, J.P. Morgan reviewed:
. the merger agreement;
. certain publicly available information concerning the business of
UP&UP, BCE Emergis and BCE Inc. and of other companies engaged in
businesses comparable to those of UP&UP and BCE Emergis, and the
reported market prices for other companies' securities deemed
comparable;
. publicly available terms of certain transactions involving companies
comparable to UP&UP and the consideration received for such companies;
. current and historical market prices of UP&UP common stock;
19
<PAGE>
. the audited financial statements of UP&UP for the fiscal year ended
December 31, 1998, and the unaudited financial statements of UP&UP for
the period ended September 30, 1999;
. certain agreements with respect to outstanding indebtedness or
obligations of UP&UP;
. certain internal financial analyses and forecasts prepared by UP&UP
and its management;
. the terms of other business combinations that J.P. Morgan deemed
relevant; and
. financing commitment letters from BCE Inc.
J.P. Morgan also held discussions with certain members of the management of
UP&UP and BCE Emergis regarding numerous aspects of the transaction, the past
and current business operations of UP&UP, the financial condition and future
prospects and operations of UP&UP, the effects of the transaction on the
financial condition and future prospects of UP&UP, and other matters that J.P.
Morgan believed necessary or appropriate to its inquiry. In addition, J.P.
Morgan reviewed other financial studies and analyses and considered other
information that it considered appropriate for the purposes of its opinion.
J.P. Morgan relied upon and assumed, without independent verification, the
accuracy and completeness of all information that was publicly available or that
was furnished to it by UP&UP or otherwise reviewed by J.P. Morgan. J.P. Morgan
is not responsible or liable for that information or its accuracy. J.P. Morgan
has not conducted any valuation or appraisal of any assets or liabilities, nor
have any valuations or appraisals been provided to J.P. Morgan. In relying on
financial analyses and forecasts provided to it, J.P. Morgan has assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of UP&UP to which those
analyses or forecasts relate. J.P. Morgan has also assumed that the transaction
will have the tax consequences described in discussions with, and materials
furnished to J.P. Morgan by, representatives of UP&UP, and that the parties will
complete the transaction and other transactions contemplated by the transaction
agreement as described in that agreement. J.P. Morgan relied as to all legal
matters relevant to rendering its opinion upon the advice of counsel.
The projections furnished to J.P. Morgan for UP&UP were prepared by the
management of UP&UP. UP&UP does not publicly disclose internal management
projections of the type provided to J.P. Morgan in connection with J.P. Morgan's
analysis of the transaction, and such projections were not prepared with a view
toward public disclosure. These projections were based on numerous variables
and assumptions that are inherently uncertain and may be beyond the control of
J.P. Morgan, including, but not limited to, factors related to general economic
and competitive conditions and prevailing interest rates. Accordingly, actual
results could vary significantly from those set forth in the projections.
As is customary in the rendering of fairness opinions, J.P. Morgan based
its opinion on economic, market and other conditions as in effect on, and the
information made available to J.P. Morgan as of, the date of its opinion.
Subsequent developments may affect J.P. Morgan's opinion, and J.P. Morgan does
not have any obligation to update, revise or reaffirm its opinion.
20
<PAGE>
In accordance with customary investment banking practice, J.P. Morgan
employed generally accepted valuation methods in reaching its opinion. The
following is a summary of the material financial analyses that J.P. Morgan
utilized in providing its opinion. We have presented some of the summaries of
financial analyses in tabular format. In order to understand the financial
analyses used by J.P. Morgan more fully, you should read the tables together
with the text of each summary. The tables alone do not constitute a complete
description of J.P. Morgan's financial analyses.
Discounted Cash Flow Analysis
J.P. Morgan conducted a discounted cash flow analysis for the purpose of
determining the fully diluted equity value per share for UP&UP's common stock.
J.P. Morgan calculated the unlevered free cash flows that UP&UP is expected to
generate during fiscal years 2000 through 2004 based upon:
. An optimistic scenario, based on financial projections prepared by the
management of UP&UP, and adjusted in accordance with discussions
between the management of UP&UP and J.P. Morgan, for the years 2000
and 2001, indicating 25 percent revenue growth, which was assumed to
remain at 25 percent through 2004. J.P. Morgan also calculated a range
of terminal asset values of UP&UP at the end of the 5-year period
ending 2004 by applying a perpetual growth rate of 7.5 percent of the
unlevered free cash flow of UP&UP during the final year of the 5-year
period. The unlevered free cash flows and the range of terminal asset
values were then discounted to present values using a range of
discount rates from 11.0 percent to 13.0 percent, which were chosen by
J.P. Morgan based upon an analysis of the weighted average cost of
capital of UP&UP. The present value of the unlevered free cash flows
and the range of terminal asset values were then adjusted for UP&UP's
estimated 1999 fiscal year-end excess cash, option exercise proceeds
and total debt. Based on the adjusted management projections and
discount rates of 11.0 percent to 13.0 percent, the discounted cash
flow analysis indicated a range of equity values of between $36 and
$48 per share of UP&UP's Common Stock.
. A sensitivity scenario, based on financial projections prepared by the
management of UP&UP for the years 2000 and 2001, indicating 25 percent
revenue growth, which was scaled down thereafter, to 15 percent in
2002 and 10 percent in 2003 to 2004. This reflects more moderate
growth in revenues and lower operating margins through 2004. Other
assumptions include a terminal EBITDA multiple between 6x and 8x, and
a terminal value growth rate of 5.0 percent, which were applied to the
methodology described above. This scenario implied an equity value
per share of $23 to $30.
Selected Public Trading Multiples
Using publicly available information, J.P. Morgan compared selected
financial data of UP&UP with similar data for selected publicly traded companies
engaged in businesses which J.P. Morgan judged to be reasonably comparable to
UP&UP. The purpose of this analysis was to provide information regarding the
fairness of the proposed transaction consideration based upon a comparison of
specific financial information of UP&UP with several companies that may be
considered somewhat comparable to UP&UP. However, UP&UP's operations are
substantially distinct from all of these companies. In particular, J.P. Morgan
analyzed two universes of companies:
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<PAGE>
. United States HMO companies, which have typically been used by the Wall
Street research analysts and equity investors as benchmarks in determining the
equity value of UP&UP. These companies were:
- Cigna
- Coventry
- Firsthealth
- Foundation
- Humana
- Maxicare
- Mid-Atlantic
- Sierra
- Trigon
- United Health
These HMO companies suggest a value range for UP&UP of $17 to $22 per
share.
. Transaction processing companies, which include some electronic
processing companies, whose businesses are considered by J.P. Morgan
to be reasonably comparable to that of UP&UP, both operationally and
in terms of financial metrics such as growth and margins. These
companies were:
- Automatic Data Processing
- First Data Corp.
- BCE Emergis
- Concord EFS
- DST Systems
- Fiserv Inc.
- Nova Corp. Ga
- BISYS Group
- National Data Corp.
- Choicepoint Inc.
These transaction processing companies support a value range for UP&UP of
$18 to $39 per share.
Although the business model of transaction processing companies is similar
to that of UP&UP, there are also meaningful differences between these companies
and UP&UP. In addition, J.P. Morgan believes that UP&UP would need a substantial
amount of time to reposition its with the analyst and investor communities.
22
<PAGE>
J.P. Morgan measured publicly available financial performance through the
twelve months ended September 30, 1999, as well as financial projections by the
equity analysts covering each of the following companies. The following tables
present the relevant multiples of the two sets of companies used as comparables:
<TABLE>
<CAPTION>
United States HMO companies
2000E 2001E 2000E PE/ 2001E PE/ Long-term
P/E P/E long-term long-term growth
growth growth
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Cigna 11.7x 10.1x 96% 82% 12.3%
Coventry 9.6 7.9 64 53 15.0
Firsthealth 18.5 16.0 123 107 15.0
Foundation 7.7 6.7 51 45 15.0
Humana 10.9 8.9 73 59 15.0
Maxicare 5.0 4.7 50 47 10.0
Mid-Atlantic 13.2 10.7 91 74 14.5
Sierra 5.4 4.7 36 31 15.0
Trigon 11.8 10.1 79 67 15.0
United Health 10.9 8.3 79 60 13.8
Mean 10.5x 8.8x 74% 63% 14.1%
Median 10.9x 8.6x 76% 60% 15.0%
</TABLE>
<TABLE>
<CAPTION>
Transaction processing companies
Firm value/
------------------------------------------------
LTM LTM LTM 2000E 2000E 2001E Long-term
revenues EBIT EBITDA EBITDA P/E P/E growth
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Automatic Data Processing 5.4x 30.5x 23.9x 17.8x 37.6x 32.6x 15%
First Data Corp. 4.3 21.3 14.5 11.9 24.4 NA 14
BCE Emergis 61.5 NM NM 193.5 29.6 24.9 19
Concord EFS 8.5 36 31.7 18.4 24.1 18.9 34
DST Systems 3.5 25.3 14.8 11.0 27.0 NA 20
Fiserv Inc. 3.3 17.7 13.2 11.7 25.4 21.3 20
Nova Corp. Ga 1.6 17.2 12.6 9.7 20.5 16.4 27
BISYS Group 3.3 16.8 13.3 12.5 24.6 20.6 20
National Data Corp. 1.7 10.2 7.8 6.7 14.4 12.6 20
Choicepoint Inc. 2.9 16.5 11.0 9.6 22.3 17.7 20
Mean 9.6x 21.3x 15.9x 30.3x 25.0x 20.8x 21%
Median 3.4x 17.7x 13.3x 11.7x 24.5x 19.8x 20%
</TABLE>
It should be noted that no company utilized in the analysis above is
identical to UP&UP. In evaluating HMO and transaction processing companies, J.P.
Morgan made judgments and assumptions with regard to industry performance,
general business, economic, market and financial conditions and other matters,
many of which are beyond the control of UP&UP, such as the impact of competition
on
23
<PAGE>
the business of UP&UP and the industry generally, industry growth and the
absence of any material change in the financial condition and prospects of UP&UP
or the industry or in the financial markets in general. Mathematical analysis
(such as determining the average or the median) is not in itself a meaningful
method of using selected company data.
Comparable Transaction Analysis
In comparing other transactions to the proposed merger, J.P. Morgan
reviewed transactions in the HMO sector, which is the market sector which
analysts generally treat as applicable to UP&UP, and in the transaction
processing sector.
The HMO transactions examined by J.P. Morgan are shown in the following
table:
<TABLE>
<CAPTION>
Announced Firm value/
(closed) Acquiror/target Price Consideration revenues
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11/22/99 WellPoint $ 200 Cash 0.40x
(pending) Rush Prudential Health Plans
11/18/99 Humana 62 Cash NA
(pending) Memorial Sisters of Charity
11/4/99 PacifiCare 118 Cash 0.18
(pending) Harris Methodist Health Plan
9/14/99 BCBS of Texas 500 Cash NA
(pending) NYLCare Texas operations (Aetna)
7/13/99 Anthem 120 Cash 0.27
(pending) BCBS of Maine
3/13/99 Anthem 215 Cash 0.41
(11/18/99) BCBS of Colorado
1/28/99 Anthem 120 Cash NA
(10/27/99) BCBS of New Hampshire
1/13/99 Aetna 120 Cash 0.80
(10/30/99) Asistencia Medica Social Argentina
12/10/98 Aetna 1,000 Cash 0.14
8/6/99 Prudential
10/14/98 BC/BS of Florida 95 Cash 0.42
(1/4/99) Principal Healthcare of Florida
7/7/98 WellPoint 500 Stock 0.31
(pending) BCBS of Georgia
6/12/98 United Healthcare 235 Cash 0.60
(10/15/98) Health Partners
5/29/98 Sierra Health Services 52 Cash 0.19
(11/2/98) HMO Texas L.C. (Kaiser)
3/18/98 Aetna 1,050 Cash 0.34
(9/30/98) NYLCare
11/4/97 Coventry 375 Stock 0.44
(4/1/98) Principal Health
Mean 0.38x
Median 0.37x
</TABLE>
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<PAGE>
These HMO transactions would suggest a value of $4 to $5 per share for
UP&UP. J.P. Morgan noted that they do not represent direct comparables for
UP&UP. There are several meaningful differences between UP&UP's business model
and those of the HMOs. For example, UP&UP's operations do not assume insurance
risk for the cost of providing medical care, as do those of the HMOs. Further,
UP&UP's revenues are derived primarily from fees it receives, and do not include
the receipt of insurance type payments that have to cover the costs of medical
services provided, as do the HMO revenues.
The table below shows the transactions in the transaction processing sector
compared by J.P. Morgan:
<TABLE>
<CAPTION>
Firm value/
-------------------
Premium paid
Date Firm value over market
Announced Acquiror Target ($MM) EBIT EBITDA cap
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Oct-1999 UICI Healthplan Services Corp. $ 218 12.7x NA 33%
Apr-1999 Healtheon MedE America 412 181.6 37.3x 42
Mar-1999 First Data Corp. Paymentech, Inc. 708 18.0 NA 70
Dec-1998 Quintiles Transnat'l Envoy Corp. 1,791 NA NA 70
Oct-1998 McKesson Corp. HBOC Inc. 14,528 36.6 31.1 17
Sep-1998 DST USCS 875 21.0 NA 44
Jun-1998 Nova Corp. PMT Services 1,239 39.4 NA 36
Oct-1997 National Data Physician Support Systems 218 11.7 NA 4
May-1997 Healthcare Compare First Health Strategies 200 NA NA NA
Mar-1997 HBO & Co. Enterprise Systems, Inc. 220 33.9 22.2 2
Mar-1997 IDX Systems Corp. Phamis, Inc. 124 36.5 20.7 27
Feb-1997 HBO & Co. Amisis Managed Care Systems 147 26.6 22.9 44
Sep-1996 HBO & Co. GMIS 232 35.7 18.5 69
May-1996 HBO & Co. Cycare Systems, Inc. 259 81.0 36.5 18
Feb-1996 National Data Corp. CIS Technologies 116 30.0 13.5 60
Mean 43.4x 25.4x 33%
Median 33.9x 22.6x 35%
</TABLE>
These transactions in the transaction processing sector, which include
some electronic commerce companies, would suggest a value range for UP&UP of $51
to $66 per share. Although the business model of transaction processing
companies is similar in some aspects to that of UP&UP, there are meaningful
business model differences as well. In addition, J.P. Morgan observed that UP&UP
is typically compared by Wall Street research analysts to companies in the HMO
sector and that UP&UP would need a substantial amount of time to reposition
itself as a transaction processing company with analysts and investors. Further,
there is substantial uncertainty to UP&UP's achieving a successful
repositioning.
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<PAGE>
It should be noted that the transactions utilized in the analysis above are
not identical to the UP&UP transaction.
Although J.P. Morgan undertook other analyses in connection with the
delivery of its opinion, the foregoing is a summary of the material analyses or
data presented by J.P. Morgan. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analyses or
summary description. J.P. Morgan believes that one must consider its opinion,
this summary and its analyses as a whole. Selecting portions of this summary and
these analyses, without considering the analyses as a whole, could create an
incomplete view of the processes underlying the analyses and opinion. In
arriving at its opinion, J.P. Morgan considered the results of all of the
analyses as a whole. No single factor or analysis was determinative of J.P.
Morgan's fairness determination. Rather, the totality of the factors considered
and analyses performed operated collectively to support its determination. J.P.
Morgan based the analyses on assumptions that it deemed reasonable, including
assumptions concerning general business and economic conditions which impact
growth rates, labor costs and price competition and industry-specific factors.
This summary sets forth under the description of each analysis the other
principal assumptions upon which J.P. Morgan based that analysis. J.P. Morgan's
analyses are not necessarily indicative of actual values or actual future
results that either company or combined company might achieve, which values may
be higher or lower than those indicated. Analyses based upon forecasts of future
results are inherently uncertain, as they are subject to numerous factors or
events beyond the control of the parties and their advisors. Accordingly, these
forecasts and analyses are not necessarily indicative of actual future results,
which may be significantly more or less favorable than suggested by those
analyses. Therefore, none of UP&UP, J.P. Morgan or any other person assume
responsibility if future results are materially different from those forecasted.
As a part of its investment banking business, J.P. Morgan and its
affiliates are continually engaged in the valuation of businesses and their
securities in connection with transactions and acquisitions, investments for
passive and control purposes, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements, and valuations for
estate, corporate and other purposes. J.P. Morgan was selected to advise UP&UP
with respect to the transaction on the basis of its experience and familiarity
with UP&UP.
For services rendered in connection with the transaction, UP&UP has agreed
to pay J.P. Morgan cash compensation in an amount equal to 0.75% of the
aggregate amount of consideration received by UP&UP stockholders, including
option and warrant holders, plus the amount of any debt securities or other
liabilities assumed, redeemed or remaining outstanding or equity securities
redeemed or remaining outstanding in connection with the merger, plus the value
of any securities, cash or other assets distributed to stockholders of UP&UP. In
addition, pursuant to the terms of the engagement letter dated February 3, 2000,
UP&UP agreed to pay J.P. Morgan an additional $500,000 to deliver the written
fairness opinion of J.P. Morgan. UP&UP also has agreed to reimburse J.P. Morgan
for its expenses incurred in connection with its services, including the fees
and disbursements of counsel, and will indemnify J.P. Morgan against certain
liabilities, including liabilities arising under the Federal securities laws.
In the ordinary course of their businesses, J.P. Morgan and its affiliates
may actively trade the debt and equity securities of UP&UP for their own
accounts or for the accounts of customers and, accordingly, they may hold long
and/or short positions in those securities at any given time.
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<PAGE>
The full text of J.P. Morgan's opinion, which sets forth the assumptions
made, procedures followed, matters considered and limits on the review
undertaken, is attached as Appendix B to this proxy statement and is
incorporated herein by reference. The J.P. Morgan opinion is addressed only to
the UP&UP Board and is directed only to the merger consideration to be received
in the merger by the holders of UP&UP common stock and does not constitute a
recommendation as to how you should vote at the special meeting.
CERTAIN ASPECTS OF THE MERGER
The Merger
The merger agreement provides for a business combination in which UP&UP
will merge with Jetco, a wholly owned subsidiary of BCE Emergis. Jetco will
cease to exist and UP&UP, as the surviving corporation, will become a wholly
owned subsidiary of BCE Emergis. The current directors of UP&UP will cease to
be directors of UP&UP upon completion of the merger and certain executive
officers of UP&UP will continue to be employed by the surviving corporation.
Conversion of UP&UP Shares
At the effective time of the merger, each share of UP&UP common stock
issued and outstanding immediately prior to the effective time of the merger
will be canceled and automatically converted into the right to receive $27.00 in
cash, without interest. At the effective time of the merger, each share held in
the treasury of UP&UP or any UP&UP subsidiary or owned by BCE Emergis or its
subsidiaries immediately prior to the effective time of the merger will be
canceled and retired and no payment will be made for those shares. After the
effective time of the merger, each certificate that previously represented
shares of UP&UP common stock will represent only the right to receive $27.00 in
cash, without interest.
Employee Stock Options. All outstanding options under UP&UP's 1996 Stock
Option Plan will be converted into the right to receive an amount of cash equal
to the product of the difference between $27.00 and the exercise price of the
stock option and the number of underlying shares of UP&UP common stock subject
to the stock option.
Warrants and Options. UP&UP has issued warrants to purchase 252,000 shares
of UP&UP common stock expiring October 24, 2000 and options not governed by its
Stock Option Plan to purchase 246,000 shares of UP&UP common stock expiring
November 20, 2001, at an exercise price of $10.67 and $8.34, respectively, per
share of UP&UP common stock. At the closing of the merger, the holders of the
warrants and options will be entitled to receive an amount in cash equal to the
product of the difference between $27.00 and the exercise price of the warrants
and options and the number of shares of UP&UP common stock covered by the
warrants and options.
Payment for UP&UP Shares
As soon as practicable after the closing of the merger (but in any event
within five business days), American Stock Transfer & Trust Company or another
bank or trust company designated by BCE Emergis, in its capacity as paying
agent, will send a transmittal letter to each former UP&UP stockholder. The
transmittal letter will contain instructions on how to surrender your shares of
UP&UP
27
<PAGE>
common stock for $27.00 per share in cash. UP&UP stockholders should not send
in their stock certificates until they receive the transmittal materials from
the paying agent.
Source and Amount of Funds
The total amount of funds required by BCE Emergis to acquire all the
outstanding shares of UP&UP common stock and to pay fees and expenses
associated with the merger is estimated to be approximately $560 million. UP&UP
has been advised by BCE Emergis that BCE Emergis has received the commitment of
BCE Inc., which expires December 31, 2000, to fund up to Cdn$800 million,
approximately $554 million, for the acquisition of UP&UP. This funding
commitment consists of Cdn$650 million, approximately $450 million, in
subscriptions for BCE Emergis common shares and a stand-by credit facility for
Cdn$150 million, approximately $104 million, convertible into common shares of
BCE Emergis. BCE Emergis will use internal funds for any additional funds
required and to the extent it does not use the credit facility.
Commitments Made by Thomas L. Blair to Facilitate the Merger
Purchase of the Bank
UP&UP owns a federal savings bank, which had total assets and book value of
approximately $36 million and $8.4 million, respectively, at December 31, 1999.
Under the Financial Services Modernization Act, the Gramm-Leach-Bliley Act,
enacted on November 12, 1999, BCE Emergis is prohibited from acquiring control
of the bank through an acquisition of control of UP&UP. Thus, in order to
facilitate the merger, Thomas L. Blair has agreed through arms' length
negotiations with BCE Emergis to purchase the bank, subject to applicable
regulatory approval, from UP&UP immediately prior to the merger. The purchase
price is the greater of $8.4 million or the book value of the bank and is to be
paid in immediately available funds at the closing for the merger. Mr. Blair is
Chairman of the Board, Co-Chief Executive Officer and a principal stockholder of
UP&UP. In addition, under applicable banking regulatory standards, Mr. Blair is
already considered to control the bank.
The Withholding of $10 million of Mr. Blair's Proceeds for his UP&UP Stock
by BCE Emergis
In order to facilitate the merger, Mr. Blair also has agreed that BCE
Emergis can withhold an aggregate of $10 million of the proceeds Mr. Blair is
otherwise entitled to receive from the sale of his UP&UP common stock in the
merger. This $10 million withholding supports various representations and
warranties, future employment commitments to BCE Emergis by Edward S. Civera,
Co-Chief Executive Officer of UP&UP, and BCE Emergis' business plan for UP&UP.
The aggregate $10 million withheld consists of:
. $5 million to be retained by BCE Emergis and released in accordance
with a consulting agreement with Mr. Blair pursuant to which he is to
use his best efforts to assist BCE Emergis and UP&UP, as the surviving
corporation in the merger, to achieve the goals of the business plan
for the surviving corporation to the extent possible;
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<PAGE>
. $3 million will be retained by BCE Emergis for the indemnification by
Mr. Blair against losses suffered or incurred by the BCE Emergis based
upon the representations and warranties made by him in the merger
agreement; and
. $2 million will be retained by BCE Emergis to secure the continued
employment of Mr. Civera at the surviving corporation.
Subject to any claims BCE Emergis may have under the promissory note
governing the loan to Mr. Blair discussed below, if Mr. Civera continues to be
employed by the surviving corporation on the first year anniversary of the
merger, $1 million of the $2 million withheld by BCE Emergis from Mr. Blair
which relates to Mr. Civera's continued employment, together with any interest
thereon, is to be released by BCE Emergis to Mr. Blair. If Mr. Civera continues
to be employed by the surviving corporation on the second year anniversary of
the merger, the remaining $1 million, together with any interest thereon, is be
released by BCE Emergis to Mr. Blair. However, if Mr. Civera's employment with
the surviving corporation is terminated prior to the second anniversary of the
merger other than for cause or pursuant to a voluntary termination, the full $2
million, or any remaining portion, together with any interest thereon, is be
released by BCE Emergis to Mr. Blair. A voluntary termination of employment by
Mr. Civera with the surviving corporation which would entitle BCE Emergis to
retain the $1 million, or any remaining portion, does not include a termination
of Mr. Civera's employment as a result of death or disability or after:
. a change in control of the surviving corporation;
. a material adverse reduction in Mr. Civera's responsibilities which
causes his position to become one of lesser status within the
surviving corporation without his consent;
. a change in the location of Mr. Civera's place of employment of more
than 50 miles from Rockville, Maryland without his consent; or
. a material adverse change in the benefits or perquisites payable to
Mr. Civera from those provided immediately after the merger pursuant
to his employment contract, unless such material adverse change is
imposed on employees of the surviving corporation generally.
BCE Emergis has agreed to lend to Mr. Blair, at closing, $8 million, at 7%
interest, for one year. The promissory note governing this loan will be secured
by the $10 million withheld by BCE Emergis from the merger consideration
otherwise payable to Mr. Blair for his ownership interest in UP&UP.
Interests of UP&UP's Directors and Officers in the Merger that Differ from Your
Interests
Commitments of Thomas L. Blair to Facilitate the Merger
As discussed under "The Merger--Certain Aspects of the Merger--Commitments
Made by Thomas L. Blair to Facilitate the Merger," Mr. Blair has agreed to
purchase UP&UP's bank and to accept restrictions relating to an aggregate of $10
million of the proceeds he otherwise would receive in the merger for his UP&UP
common stock.
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<PAGE>
Employment and Consulting Agreements
Thomas L. Blair, Chairman of the Board and Co-Chief Executive Officer of
UP&UP, has entered into a consulting agreement with BCE Emergis. Edward S.
Civera, the Co-Chief Executive Officer and President of UP&UP, S. Joseph Bruno,
Chief Financial Officer of UP&UP, and Spiro A. Karadimas, Vice President of
Operations of UP&UP, have entered into employment agreements with BCE Emergis.
Under his consulting agreement, Mr. Blair is to use his best efforts to assist
BCE Emergis and UP&UP, as the surviving corporation in the merger, to achieve
the goals of the business plan for the surviving corporation to the extent
reasonably practicable. If Mr. Blair satisfies this obligation and is providing
consulting services under the agreement on the first anniversary of the merger,
BCE Emergis is to release $5 million of Mr. Blair's merger consideration which
it retained. The consulting agreement also provides that BCE Emergis will grant
options to Mr. Blair to purchase 75,000 shares of BCE Emergis common stock.
The employment agreements for Messrs. Civera, Bruno and Karadimas call for
annual salaries of $250,000, $225,000 and $225,000, respectively, which amounts
are less than their current salaries with UP&UP, and for the grant of options to
purchase 75,000 shares, 50,000 shares and 50,000 shares, respectively, of BCE
Emergis common stock. These employment agreements also waive the entitlement of
Messrs. Civera, Bruno and Karadimas to the payment of severance benefits under
their existing employment contracts with UP&UP. Mr. Civera's employment
agreement also provides for a signing bonus of $1.75 million. If Mr. Civera's
employment is terminated for any reason other than cause, he will be entitled to
payments over time equal to two times his then current annual salary if
terminated before the first year anniversary of the closing of the merger, or
1.5 times his then current annual salary, if terminated after the first year
anniversary of the closing of the merger. If the employment of either Messrs.
Bruno or Karadimas is terminated for any reason other than cause, he will be
entitled to payments over time equal to 1.4 times his then current annual
salary.
Voting Agreement
Thomas L. Blair, Chairman of the Board and Co-Chief Executive Officer of
UP&UP, and other officers and consultants, and their affiliates, and another
significant stockholder have entered into a voting agreement simultaneously with
entering into the merger agreement where the stockholders have committed to BCE
Emergis to vote a total of 5.7 million shares of common stock, 30.0% of
outstanding common stock, in favor of the merger.
The obligations of the stockholders under the voting agreement will
terminate upon the earlier to occur of:
. the closing of the merger;
. 180 days after termination of the merger agreement if the merger
agreement is terminated because:
- UP&UP does not receive the required stockholder approval of the
merger and the merger agreement;
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<PAGE>
- the UP&UP Board withholds, withdraws, modifies or changes its
approval of the merger in a manner adverse to BCE Emergis;
- the UP&UP Board recommends a superior proposal to the
stockholders of UP&UP;
- UP&UP fails to include its Board's approval in this proxy
statement;
- the UP&UP Board does not reaffirm its recommendation in favor or
approval of the merger and the merger agreement within five days of
BCE Emergis' written request for reaffirmation;
- UP&UP breaches the no solicitation of transactions provision in
the merger agreement;
- the UP&UP Board does not recommend against acceptance of a tender
or exchange offer for 20% or more of the outstanding shares of
stock of UP&UP; or
- the termination of the merger agreement, if the merger agreement is
terminated for any other reason.
In addition, Messrs. Blair and Civera have entered into a separate
agreement with BCE Emergis. Under this agreement, if the Capital Z Funds
identified under "Beneficial Ownership of Management and Principal
Stockholders" exercise the option they hold to purchase an aggregate of
2,250,000 shares of UP&UP common stock from Mr. Blair, then Mr. Blair is
obligated to purchase 2,250,000 shares of UP&UP common stock from the
Independent Divestment Trust, which holds 4,500,000 shares of UP&UP common
stock. Also, under those circumstances, BCE Emergis can require Mr. Blair to
purchase the additional 2,250,000 shares, 11.8% of outstanding UP&UP common
stock, from the Independent Divestment Trust, if BCE Emergis loans Mr. Blair the
funds necessary to make this additional purchase. Mr. Blair is contractually
obligated to purchase on or before February 25, 2003, all 4,500,000 shares of
UP&UP common stock held by the Independent Divestment Trust. Additional
information regarding the Capital Z Funds, option to purchase UP&UP shares from
Mr. Blair, the ownership of UP&UP common stock by the Independent Divestment
Trust, and the agreement between the Trust and Mr. Blair for Mr. Blair to
purchase the Trust's shares of UP&UP common stock is set forth under "Beneficial
Ownership of Management and Principal Stockholders."
Also, under this agreement with BCE Emergis, BCE Emergis can require Mr.
Civera to exercise options to purchase 640,625 shares, 3.3% of outstanding UP&UP
common stock. BCE Emergis would have to lend Mr. Civera funds sufficient to
purchase those shares and to pay applicable taxes. Messrs. Blair and Civera
would be obligated to vote the additional UP&UP shares they acquire in favor of
the merger agreement.
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<PAGE>
Subscription Letter Agreement
On February 4, 2000, Mr. Blair and BCE Emergis entered into a subscription
letter agreement. Under the subscription letter agreement, Mr. Blair agreed to
subscribe for and purchase at the public offering price common shares of BCE
Emergis for a total value of $5 million when BCE Emergis completes its first
underwritten public offering of BCE Emergis common shares in the United States.
Under the subscription letter agreement, Mr. Blair agreed that he would not sell
any of the BCE Emergis common shares covered by the subscription letter
agreement until the first year anniversary of the public offering.
Acceleration of Vesting of Options Under UP&UP's Stock Option Plan
It is estimated that the vesting of options to purchase an aggregate of
718,375 shares of UP&UP common stock will accelerate as a result of the merger
under the terms of the stock option plan. These include options to purchase
234,375 shares held by Mr. Civera.
Indemnification of UP&UP Officers and Directors
UP&UP and the surviving corporation have agreed to indemnify and hold
harmless each present and former director and officer of UP&UP from liability
and expenses arising out of matters existing or occurring at or prior to the
consummation of the merger to the fullest extent allowed under Delaware law as
in effect at the time of closing. The surviving corporation has also agreed
that it will maintain in effect the current directors' and officers' liability
insurance policies maintained by UP&UP, for the benefit of UP&UP's directors and
officers for three years following the closing of the merger.
Regulatory Approvals
The closing of the merger is conditioned upon all material governmental
consents, approvals and authorizations legally required for the closing of the
merger and the transactions contemplated thereby having been obtained and being
in effect. However, no assurance can be given that the required consents,
approvals or authorizations will be obtained. UP&UP and BCE Emergis are not
currently aware of any governmental approvals or actions that may be required to
effect the merger, other than as described below.
OTS. The obligations of BCE Emergis to effect the merger under the merger
agreement are subject, among other things, to the condition that the OTS shall
have approved the sale of UP&UP's bank subsidiary, Baltimore American Savings
Bank, FSB, to Thomas L. Blair. On February 9, 2000, Thomas L. Blair filed a
Notice of Change of Control with the OTS for permission to acquire control of
UP&UP's subsidiaries, Quantum Financial Holdings, Inc. and, indirectly,
Baltimore American Savings Bank, FSB.
Hart-Scott-Rodino. The Federal Trade Commission and the Antitrust Division
of the Department of Justice frequently scrutinize the legality under the
antitrust laws of transactions such as the merger. At any time before or after
the merger, the Department of Justice or the Federal Trade Commission could take
such action under the antitrust laws as it deems necessary or desirable in the
public interest, including seeking to enjoin the merger or seeking divestiture
of substantial assets of UP&UP, BCE Emergis or their subsidiaries. Private
parties and state attorneys general may also bring
32
<PAGE>
an action under the antitrust laws under certain circumstances. There can be no
assurance that a challenge to the merger on antitrust grounds will not be made
or, if such a challenge is made, of the result. UP&UP and BCE Emergis will file
Pre-Merger Notification and Report Forms with the Federal Trade Commission and
the Department of Justice under the Hart-Scott-Rodino Act. The HSR Act, and the
rules and regulations of the Federal Trade Commission, provide that some merger
transactions, including the proposed merger, may not be consummated until
required information and materials have been furnished to the Department of
Justice and the Federal Trade Commission and certain waiting periods have
expired or been terminated.
When Will the Merger be Completed
We expect to complete the merger in the second calendar quarter of 2000.
However, we cannot guarantee when or if the required regulatory approvals will
be obtained. Furthermore, either BCE Emergis or UP&UP may terminate the merger
agreement if, among other reasons, the merger has not been completed on or
before August 31, 2000, unless failure to complete the merger by that time is
due to the breach of any representation, warranty or covenant by the party
seeking to terminate.
The closing of the merger will take place on a date that is no later than
the second business day after satisfaction or waiver of all of the conditions to
consummation of the merger or on date to which BCE Emergis and UP&UP mutually
agree. On the date of the closing, BCE Emergis will file a certificate of
merger with the Delaware Secretary of State. The merger will become effective
at the time stated in the certificate of merger.
Procedures for Exchanging Your Stock Certificates
Within five business days after the completion of the merger, American
Stock Transfer & Trust Company, as paying agent, will mail to each former holder
of record of UP&UP common stock a letter with instructions on how to exchange
UP&UP stock certificates for the cash merger consideration.
Please do not send in your UP&UP stock certificates until you receive the
letter of transmittal and instructions from American Stock Transfer & Trust
Company. Do not return your stock certificates with the enclosed proxy card.
After you mail the letter of transmittal and your stock certificates to
American Stock Transfer & Trust Company, your check will be mailed to you. The
UP&UP certificates you surrender will be canceled.
After the completion of the merger, there will be no further transfers of
UP&UP common stock. UP&UP stock certificates presented for transfer after the
completion of the merger will be canceled and exchanged for the merger
consideration.
If your UP&UP stock certificates have been lost, stolen or destroyed, you
will have to prove your ownership of these certificates and that they were lost,
stolen or destroyed before you receive any consideration for your shares.
American Stock Transfer & Trust Company will send you instructions on how to
provide such evidence.
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Certain Federal Income Tax Consequences
The following is a discussion of certain federal income tax consequences of
the merger to holders of UP&UP common stock. The discussion is based upon the
Internal Revenue Code, Treasury regulations, IRS rulings, and judicial and
administrative decisions in effect as of the date of this proxy statement. This
discussion assumes that the UP&UP common stock is generally held for investment.
In addition, this discussion does not address all of the tax consequences that
may be relevant to you in light of your particular circumstances or to UP&UP
stockholders subject to special rules, such as non-United States persons,
financial institutions, tax-exempt organizations, dealers in securities or
foreign currencies or insurance companies.
The receipt of cash for UP&UP common stock pursuant to the merger will be a
taxable transaction for federal income tax purposes to stockholders receiving
such cash, and may be a taxable transaction for state, local and foreign tax
purposes as well. You will recognize a gain or loss measured by the difference
between your tax basis for the UP&UP common stock owned by you at the time of
the merger and the amount of cash you receive for your UP&UP shares. Your gain
or loss will be a capital gain or loss if your UP&UP stock is a capital asset in
your hands.
The cash payments due to the holders of UP&UP common stock upon the
exchange of such UP&UP common stock pursuant to the merger generally will be
subject to "backup withholding"for federal income tax purposes unless certain
requirements are met. Under federal law, the third-party paying agent (in this
case, American Stock Transfer & Trust Company) must withhold 31% of the cash
payments to holders of UP&UP common stock to whom backup withholding applies,
and the federal income tax liability of such persons will be reduced by the
amount so withheld. To avoid backup withholding, you must provide American
Stock Transfer & Trust Company with your taxpayer identification number and
complete a form in which you certify that you have not been notified by the IRS
that you are subject to backup withholding as a result of a failure to report
interest and dividends. The taxpayer identification number of an individual is
his or her Social Security Number.
Neither BCE Emergis nor UP&UP has requested or will request a ruling from
the IRS as to any of the tax effects to UP&UP's stockholders of the transactions
discussed in this proxy statement, and no opinion of counsel has been or will be
rendered to UP&UP's stockholders with respect to any of the tax effects of the
merger to stockholders.
The tax consequences of the merger to you may vary depending upon your
particular circumstances. Therefore, you should consult your tax advisor to
determine the particular tax consequences of the merger to you, including those
relating to state, local and/or foreign taxes.
THE MERGER AGREEMENT
The merger agreement provides for a business combination in which UP&UP
will merge with Jetco Inc., a wholly owned subsidiary of BCE Emergis. Jetco
will cease to exist and UP&UP, as the surviving corporation, will become a
wholly owned subsidiary of BCE Emergis. The terms of the merger are discussed
under "The Merger--Certain Aspects of the Merger." The following discussion
presents information regarding other provisions in the merger agreement.
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Conversion of UP&UP Shares
At the effective time of the merger, each share of UP&UP common stock
issued and outstanding immediately prior to the effective time of the merger
will be canceled and automatically converted into the right to receive $27.00 in
cash, without interest. At the effective time of the merger, each share held in
the treasury of UP&UP or any UP&UP subsidiary or owned by BCE Emergis or its
subsidiaries immediately prior to the effective time of the merger will be
canceled and retired and no payment will be made for those shares. After the
effective time of the merger, each certificate that previously represented
shares of UP&UP common stock will represent only the right to receive $27.00 in
cash, without interest.
Employee Stock Options. All outstanding options under UP&UP's 1996 Stock
Option Plan will be converted into the right to receive an amount of cash equal
to the product of the difference between $27.00 and the exercise price of the
stock option and the number of underlying shares of UP&UP common stock subject
to the stock option.
Warrants and Options. UP&UP has issued warrants to purchase 252,000 shares
of UP&UP common stock expiring October 24, 2000 and options not governed by its
Stock Option Plan to purchase 246,000 shares of UP&UP common stock expiring
November 20, 2001, at an exercise price of $10.67 and $8.34, respectively, per
share of UP&UP common stock. At the closing of the merger, the holders of the
warrants and options will be entitled to receive an amount in cash equal to the
product of the difference between $27.00 and the exercise price of the warrants
and options and the number of shares of UP&UP common stock covered by the
warrants and options.
Payment for UP&UP Shares
As soon as practicable after the closing of the merger (but in any event
within five business days), American Stock Transfer & Trust Company or another
bank or trust company designated by BCE Emergis, in its capacity as paying
agent, will send a transmittal letter to each former UP&UP stockholder. The
transmittal letter will contain instructions on how to surrender your shares of
UP&UP common stock for $27.00 per share in cash. UP&UP stockholders should not
send in their stock certificates until they receive the transmittal materials
from the paying agent.
Representations and Warranties of UP&UP and Thomas L. Blair
UP&UP and Mr. Blair made representations and warranties in the merger
agreement regarding the following:
. corporate organization and qualification to do business of UP&UP and
each of its subsidiaries;
. validity and effectiveness of charters and bylaws;
. capitalization of UP&UP and each of its subsidiaries;
. authority to enter into the merger agreement;
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. absence of conflicts between the merger agreement and the merger, on
the one hand, and other contractual and legal obligations of UP&UP and
each of its subsidiaries, on the other hand;
. requirement of consents, approvals, filings or other authorizations to
enter into the merger agreement and consummate the merger;
. compliance with all applicable SEC filing requirements and accuracy
and completeness of SEC filings;
. financial statements contained in SEC filings filed since January 1,
1997;
. changes or events since December 31, 1998;
. material litigation;
. possession and effectiveness of permits and licenses and contracts
necessary to carry on business as currently conducted;
. operation of business in material compliance with permits, licenses
and applicable laws;
. employee benefit matters;
. labor matters;
. insurance matters;
. environmental matters;
. material contracts and commitments;
. intellectual property;
. tax matters;
. title to properties and absence of liens and encumbrances;
. opinion of financial advisor;
. board approval of the merger and the stockholder vote required to
adopt the merger agreement;
. use of brokers;
. undisclosed liabilities;
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. action by the Board of Directors of UP&UP to exempt the merger with
BCE Emergis from the applicability of the Delaware anti-takeover
statute;
. year 2000 compliance;
. the existence of transactions with affiliates of UP&UP;
. managed care matters;
. customers of UP&UP; and
. employees of UP&UP.
Survival of Representations and Warranties. The representations and
warranties made by Mr. Blair in the merger agreement survive the closing of the
merger for a period of one year except that representations and warranties
regarding:
. the corporate organization and qualification to do business of UP&UP
and each of its subsidiaries, the capitalization of UP&UP and each of
its subsidiaries, the authority to enter into the merger agreement and
the opinion of financial advisor will survive after the closing of the
merger without limitation;
. environmental matters will survive after the closing of the merger for
a period of six years; and
. tax matters will survive for a period of 90 days after the expiration
of the statute of limitations associated with the assertion of a claim
by any governmental entity or other party.
Indemnification. Mr. Blair has agreed to indemnify BCE Emergis, Jetco and
the surviving corporation against any losses suffered or incurred by BCE
Emergis, Jetco or the surviving corporation, up to $3 million, with respect to
any breach or inaccuracy of any representation or warranty made by Mr. Blair in
the merger agreement, or any breach by UP&UP of any covenant or agreement in the
merger agreement.
Representations and Warranties of BCE Emergis and Jetco
BCE Emergis and Jetco made representations and warranties in the merger
agreement regarding the following:
. corporate organization and qualification to do business of BCE Emergis
and Jetco Inc.;
. authority to enter into the merger agreement;
. absence of conflicts between the merger agreement and the merger, on
the one hand, and other contractual and legal obligations of BCE
Emergis and Jetco, on the other hand; and
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. financing of the merger consideration.
None of the representations and warranties made by BCE Emergis and Jetco in
the merger agreement survive the closing of the merger.
Conduct of Business Prior to the Closing
UP&UP has agreed that, subject to certain exceptions, between the execution
of the merger agreement and the effective time of the merger, UP&UP and its
subsidiaries will:
. conduct its businesses in the ordinary course of business and in a
manner consistent with past practice; and
. use its reasonable best efforts to preserve substantially intact its
business organizations and to keep available the services of its
current officers, employees and consultants and to preserve its
current relationships with customers, suppliers, licensors, licensees
and other persons that have significant business relations with UP&UP.
UP&UP has also agreed that, subject to certain exceptions, prior to the
effective time of the merger, without the prior written agreement of BCE
Emergis, UP&UP and its subsidiaries will not:
. amend or otherwise change its charter or bylaws;
. transfer, issue, sell or otherwise dispose of equity securities of
UP&UP, except for:
- the issuance of common stock upon the exercise of outstanding
employee stock options;
- the issuance of a maximum of 498,000 shares of common stock
issuable pursuant to the warrants and options; and
- the issuance of common stock in connection with UP&UP' employee
stock purchase plan;
. transfer, sell or otherwise dispose of any material property or assets
other than in the ordinary course of business consistent with past
practice;
. reclassify, combine, split, subdivide or redeem, purchase or otherwise
acquire, directly or indirectly, any of its or its subsidiaries'
capital stock;
. acquire any interest in or assets of any corporation, partnership or
other business;
. incur any indebtedness or issue any debt securities or assume,
guarantee or endorse, or otherwise become responsible to, the
obligations of any person, or make any loans, advances or capital
contributions to any person;
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. make or authorize any capital expenditures which are in excess of the
amounts currently budgeted for fiscal year 2000;
. increase compensation to directors, officers or employees, except for
increases in accordance with past practice and consistent with current
budgets in salaries or wages of officers and employees;
. grant any rights to severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or
employee or establish, adopt, enter into or amend any collective
bargaining, bonus, option, retirement, employment, termination,
severance or other plan, agreement, trust, fund, policy or arrangement
for the benefit of any director, officer or employee;
. take any affirmative action to accelerate the vesting of any stock-
based compensation;
. hire or retain any person for compensation in excess of $150,000;
. sell, assign or grant any security interest in any of its intellectual
property;
. grant any licenses for its intellectual property other than grants of
licenses of software to any customers of UP&UP and any of its
subsidiaries to whom they license software in the ordinary course of
their business;
. develop any intellectual property jointly with any third party or
disclose any confidential intellectual property unless the
intellectual property is subject to a confidentiality agreement;
. authorize, declare or set aside any dividend payment or distribution
in respect of any its capital stock or enter into any voting agreement
with respect to the voting of its capital stock;
. enter into or modify any material contracts or agreements other than
provider and payor contracts in the ordinary course of business;
. waive any stock repurchase or acceleration rights, amend or change the
terms of any options or restricted stock, or reprice options granted
under any employee stock option plan or authorize cash payments in
exchange for any options granted under any employee stock option
plans;
. settle any material action other than any settlement which involves
the payment of damages that are not material in amount and does not
involve injunctive or equitable relief;
. change its accounting practices;
. make any tax election that is inconsistent with past practices;
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. take any action that is intended or would reasonably be expected to
result in any of the closing conditions to the merger not being
satisfied, except for action permissible with respect to unsolicited
acquisition proposals or any action that may be required by law; or
. announce an intention to enter into any formal or informal agreement
or commitment to do any of the foregoing.
No Solicitation Provision
UP&UP has agreed, subject to fiduciary obligations discussed below, not to,
or permit any of its subsidiaries to, through any officer, director, employees,
accountants consultants, legal counsel or agent, encourage or provide
confidential information to:
. facilitate any proposal that constitutes an acquisition proposal; or
. enter into any letter of intent, term sheet or other agreement with
respect to an acquisition proposal or participate in any way in
discussions or negotiations with any person in connection with any
proposal that constitutes or could reasonably be expected to lead to
an acquisition proposal.
An acquisition proposal is defined in the merger agreement as any offer or
proposal concerning any:
. merger, consolidation, business combination or similar transaction
involving UP&UP;
. sale, lease or other disposition directly or indirectly by merger,
consolidation, business combination, share exchange, joint venture, or
otherwise of the assets of UP&UP or its subsidiaries, representing 10%
or more of the assets of UP&UP or its subsidiaries;
. issuance, sale, or other disposition of securities (or options, rights
or warrants to purchase, or securities convertible into or
exchangeable for, such securities) of UP&UP; or
. transaction in which any person or group would beneficially own or
have the right to acquire 10% or more of the outstanding voting
capital stock of UP&UP.
UP&UP has also agreed to cease and cause to be terminated all existing
discussions or negotiations with respect to an acquisition proposal and to
request promptly all confidential information furnished on behalf of UP&UP.
UP&UP has agreed to notify BCE Emergis promptly of all inquiries and proposals
that UP&UP may receive relating to any of the foregoing matters, such notice to
set out the terms and conditions of such inquiry or proposal and the identity of
the person making it.
However, if, prior to the adoption of the merger agreement by the
stockholders of UP&UP, the UP&UP board determines in good faith, based on the
advice of outside counsel, that it is necessary to do so to discharge properly
its fiduciary duties to its stockholders, the UP&UP Board, in response to a
superior proposal, is not prohibited from:
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. participating in discussions with respect to a superior proposal;
. furnishing information with respect to UP&UP and its subsidiaries to
the person making a superior proposal, pursuant to a confidentiality
agreement the terms of which are no less favorable to UP&UP than the
terms of the confidentiality agreement, between UP&UP and BCE Emergis
dated January 24, 2000; or
. withdrawing or modifying its approval of the merger if a superior
proposal is made, provided that it does so no earlier than two
business days following written notice to BCE Emergis of its intention
to do so.
A superior proposal is defined in the merger agreement as a bona fide
acquisition proposal made by a third party which was not solicited by UP&UP, its
subsidiaries, its officers, directors, employees, accountants, consultants,
legal counsel, agents or other representatives and which, in the good faith
judgment of the UP&UP Board, taking into account the various legal, financial
and regulatory aspects of the proposal and the person making the proposal:
. if accepted, is reasonably likely to be consummated; and
. if consummated, is reasonably likely to result in a transaction that
is more favorable to UP&UP stockholders from a financial point of
view, than the transactions contemplated with BCE Emergis.
Mutual Covenants of BCE Emergis and UP&UP
BCE Emergis and UP&UP have agreed as follows:
. each company will cooperate to file the SEC documents necessary to
complete the merger;
. each company will use its reasonable best efforts to make all
governmental filings necessary to consummate the merger, and to obtain
all required consents, licenses, permits, waivers, approvals,
authorizations or orders;
. the certificate of incorporation and bylaws of the surviving
corporation following the merger will contain the indemnification
provisions in favor of officers and directors that are contained in
UP&UP's current certificate of incorporation and bylaws, and such
provisions will not be repealed or amended for six years following the
merger;
. subject to dollar limitations, for three years following the merger,
the surviving corporation will use its reasonable best efforts to
maintain directors' and officers' liability insurance covering those
persons who are currently covered by UP&UP's directors' and officers'
liability insurance policy on terms comparable to UP&UP's existing
coverage;
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. UP&UP will call a stockholders' meeting as promptly as practicable for
the purpose of voting on the merger and use its reasonable best
efforts to solicit votes in favor of the merger;
. each company will consult with the other regarding any public
announcements it makes concerning the merger;
. UP&UP will give notices to third parties and use its reasonable best
efforts to obtain any third party consents:
- necessary, proper or advisable to consummate the merger;
- required by the merger agreement to be disclosed by UP&UP; or
- required to prevent a material adverse effect from occurring
prior to or after the merger;
. UP&UP, at the option of BCE Emergis, will terminate all contracts,
commitments, guarantees or arrangements between UP&UP and any of its
subsidiaries and HealthExtras, Inc., except for UP&UP's option to
purchase 4,330,000 shares of HealthExtras, Inc.;
. prior to the closing, UP&UP will use its best efforts to dissolve its
inactive subsidiaries;
. UP&UP will, prior to the closing of the merger, sell to Mr. Blair all
of its interest in Quantum Financial Holdings, Inc. and Baltimore
American Savings Bank, F.S.B., subject to the approval of banking
regulatory authorities. If the banking regulatory authorities do not
approve the sale, then BCE Emergis, UP&UP and Mr. Blair will cooperate
to determine alternative means of divesting the bank from UP&UP,
including by way of spin-off, dividend or pro rata distribution of the
bank to stockholders of UP&UP;
. for a period of one year after the effective time, BCE Emergis will
cause the surviving corporation to provide benefits which are not
substantially less favorable than the employee benefits provided by
UP&UP immediately prior to the merger;
. UP&UP will take all actions so that individuals that dispose of UP&UP
common stock and who are subject to reporting requirements under
Section 16(a) of the Securities Exchange Act of 1934, as amended, to
be exempt from Rule 16b-3 under the Securities Exchange Act of 1934;
and
. each company will use reasonable best efforts to cause the conditions
to the merger to be fulfilled.
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Conditions to Closing
The obligations of BCE Emergis and UP&UP to consummate the merger are
subject to the satisfaction or waiver of the following conditions:
. UP&UP stockholders approve the adoption of the merger and the merger
agreement;
. expiration or termination of any applicable waiting period under the
HSR Act;
. no governmental authority or court having entered an order making the
merger illegal or otherwise prohibiting its consummation, or taken any
legal actions which seek to prevent or delay consummation of the
merger;
. the receipt of all material governmental consents, approvals or other
authorizations legally required to consummate the merger from all
governmental authorities and receipt by UP&UP of all required third
party consents in respect of material contracts; and
. the continued truthfulness and accuracy in all material respects of
the representations and warranties made by each company, and the
performance or compliance in all material respects with all material
agreements and covenants required by the merger agreement, and receipt
from the other party of a certificate of an officer certifying to the
foregoing.
Additional Conditions to Closing
The obligations of BCE Emergis to consummate the merger are subject to the
satisfaction or waiver of the following additional conditions:
. the executive agreements entered into by Messrs. Blair, Civera, Bruno
and Karadimas must be in effect at the effective time;
. there must not have been any materially adverse development in UP&UP's
litigation with First Health Group Corporation;
. UP&UP must have divested all its interest in the bank it currently
owns;
. no event or circumstances shall have occurred since February 4, 2000
which would have a material adverse effect on the business,
operations, conditions, assets or results of operations of UP&UP; and
. holders of less than 15% of all shares of UP&UP common stock
outstanding as of the date of the special meeting shall have demanded
dissenters' rights under the Delaware General Corporation Law.
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Termination and Termination Fees
Termination. The merger agreement may be terminated and the merger
abandoned at any time prior to the effective time:
. by mutual consent of BCE Emergis and UP&UP;
. by either BCE Emergis or UP&UP if the transaction is not completed on
or prior to August 31, 2000;
. by either BCE Emergis or UP&UP if a governmental authority has taken
any final and non-appealable action prohibiting the consummation of
the merger;
. by either BCE Emergis or UP&UP upon the other company's breach,
subject to any materiality thresholds, of a representation, warranty,
covenant or agreement, or if any representation or warranty becomes
untrue and the breach company does not exercise best efforts to cure
the breach;
. by either BCE Emergis or UP&UP if UP&UP does not receive the required
stockholder approval of the merger and the merger agreement; or
. by BCE Emergis if:
- the UP&UP Board withholds, withdraws, modifies or changes its
approval of the merger in a manner adverse to BCE Emergis;
- the UP&UP Board recommends a superior proposal to the
stockholders of UP&UP;
- UP&UP fails to include its Board's approval in this proxy
statement;
- the UP&UP Board does not reaffirm its recommendation in favor or
approval of the merger and the merger agreement within five days
of BCE Emergis' written request for reaffirmation;
- UP&UP breaches the no solicitation of transactions provision in
the merger agreement; or
- the UP&UP Board does not recommend against acceptance of a tender
or exchange offer for 20% or more of the outstanding shares of
stock of UP&UP.
Fees. UP&UP is required to pay BCE Emergis $22 million in the following
circumstances:
. if either BCE Emergis or UP&UP terminates the merger agreement and the
UP&UP stockholders voted against the merger and the merger agreement
and:
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- prior to the stockholder vote against the merger and the merger
agreement an acquisition proposal had been made; and
- on or prior to the one year anniversary of the termination, UP&UP
or any of its subsidiaries enters into an agreement or letter of
intent with respect to any acquisition proposal or consummates
any transaction pursuant to an acquisition proposal; or
. if BCE Emergis terminates the merger agreement because:
- the UP&UP Board withheld, withdrew, modified or changed its
approval of the merger in a manner adverse to BCE Emergis;
- the UP&UP Board recommended a superior proposal to the
stockholders of UP&UP;
- UP&UP failed to include its Board's approval in this proxy
statement;
- the UP&UP Board did not reaffirm its recommendation in favor or
approval of the merger and the merger agreement within five days
of BCE Emergis' written request for reaffirmation;
- UP&UP breached the no solicitation of transactions provision in
the merger agreement; or
- the UP&UP Board did not recommend against acceptance of a tender
or exchange offer for 20% or more of the outstanding shares of
stock of UP&UP.
Expenses
All expenses incurred by either party will be paid by the party incurring
the expenses whether or not the merger is consummated. However, in the event of
termination of the merger agreement by either party due to the failure of the
transaction to be completed by August 31, 2000, or receipt of a final and non-
appealable governmental order preventing the transaction due to the failure to
divest Baltimore American Savings Bank, F.S.B., UP&UP must reimburse BCE Emergis
for all reasonable expenses in connection with the transaction up to $750,000.
If UP&UP is required to pay the $22 million termination fee, it may deduct from
that amount any expenses paid to BCE Emergis and Jetco.
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YOU HAVE APPRAISAL RIGHTS IN THE MERGER
Under Delaware law, if you do not wish to accept the cash payment provided
for in the merger agreement, you have the right to dissent from the merger and
to receive payment in cash for the fair value of your UP&UP common stock. UP&UP
stockholders electing to exercise dissenters' rights must comply with the
provisions of Section 262 of the Delaware General Corporation Law in order to
perfect their rights. UP&UP will require strict compliance with the statutory
procedures. A copy of Section 262 is attached as Appendix C.
The following is intended as a brief summary of the material provisions of
the Delaware statutory procedures required to be followed by a stockholder in
order to dissent from the merger and perfect the stockholder's dissenters'
rights. This summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to Section 262 of the
Delaware General Corporation Law, the full text of which appears in Appendix C
of this proxy statement.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that dissenters' appraisal
rights will be available. A copy of Section 262 must be included with such
notice. This proxy statement constitutes UP&UP's notice to its stockholders of
the availability of dissenters' rights in connection with the merger in
compliance with the requirements of Section 262. If you wish to consider
exercising your dissenters' rights, you should carefully review the text of
Section 262 contained in Appendix C because failure to timely and properly
comply with the requirements of Section 262 will result in the loss of your
dissenters' rights under Delaware law.
If you elect to demand appraisal of your shares, you must satisfy each of
the following conditions:
1. You must deliver to UP&UP a written demand for appraisal of your shares
before the vote with respect to the merger is taken. This written demand
for appraisal must be in addition to and separate from any proxy or vote
abstaining from or against the merger. Voting against or failing to vote
for the merger by itself does not constitute a demand for appraisal within
the meaning of Section 262.
2. You must not vote in favor of the merger. An abstention or failure to
vote will satisfy this requirement, but a vote in favor of the merger, by
proxy or in person, will constitute a waiver of your dissenters' rights in
respect of the shares so voted and will nullify any previously filed
written demands for appraisal.
If you fail to comply with either of these conditions and the merger is
completed, you will be entitled to receive the cash payment for your shares of
UP&UP common stock as provided for in the merger agreement, but you will have no
dissenters' rights with respect to your shares of UP&UP common stock.
All demands for appraisal should be addressed to the Corporate Secretary,
United Payors & United Providers, Inc., 2275 Research Boulevard, Sixth Floor,
Rockville, Maryland 20850, before the vote on the merger is taken at the special
meeting and should be executed by, or on behalf of, the record
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holder of the shares of UP&UP common stock. The demand must reasonably inform
UP&UP of the identity of the stockholder and the intention of the stockholder to
demand appraisal of his or her shares.
To be effective, a demand for appraisal by a holder of UP&UP common stock
must be made by, or in the name of, such registered stockholder, fully and
correctly, as the stockholder's name appears on his or her stock certificate(s)
and cannot be made by the beneficial owner if he or she does not also hold the
shares of record. The beneficial holder must, in such cases, have the
registered owner submit the required demand in respect of such shares.
If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity; and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including an
authorized agent for two or more joint owners, may execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner or owners and expressly disclose the fact that, in executing the
demand, he or she is acting as agent for the record owner. A record owner, such
as a broker, who holds shares as a nominee for others, may exercise his or her
right of appraisal with respect to the shares held for one or more beneficial
owners, while not exercising this right for other beneficial owners. In such
case, the written demand should state the number of shares as to which appraisal
is sought. Where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares held in the name of such record owner.
If you hold your shares of UP&UP common stock in a brokerage account or in
other nominee form and you wish to exercise appraisal rights, you should consult
with your broker or such other nominee to determine the appropriate procedures
for the making of a demand for appraisal by such nominee.
Within 10 days after the effective date of the merger, BCE Emergis must
give written notice that the merger has become effective to each UP&UP
stockholder who has properly filed a written demand for appraisal and who did
not vote in favor of the merger. Within 120 days after the effective date,
either BCE Emergis or any stockholder who has complied with the requirements of
Section 262 may file a petition in the Delaware Court of Chancery demanding a
determination of the fair value of the shares held by all stockholders entitled
to appraisal. BCE Emergis does not presently intend to file such a petition in
the event there are dissenting stockholders and has no obligation to do so.
Accordingly, the failure of a stockholder to file such a petition within the
period specified could nullify such stockholder's previously written demand for
appraisal.
At any time within 60 days after the effective date, any stockholder who
has demanded an appraisal has the right to withdraw the demand and to accept the
cash payment specified by the merger agreement for his or her shares of UP&UP
common stock. If a petition for appraisal is duly filed by a stockholder and a
copy of the petition is delivered to BCE Emergis, BCE Emergis will then be
obligated within 20 days after receiving service of a copy of the petition to
provide the Chancery Court with a duly verified list containing the names and
addresses of all stockholders who have demanded an appraisal of their shares.
After notice to dissenting stockholders, the Chancery Court is empowered to
conduct a hearing upon the petition, to determine those stockholders who have
complied with Section 262 and who have become entitled to the appraisal rights
provided thereby. The Chancery Court may require the stockholders who have
demanded payment for their shares to submit their stock certificates to the
47
<PAGE>
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Chancery Court may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their
shares of UP&UP common stock, the Chancery Court will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest. When the value is determined, the Chancery Court will direct the
payment of such value, with interest thereon accrued during the pendency of the
proceeding, if the Chancery Court so determines, to the stockholders entitled to
receive the same, upon surrender by such holders of the certificates
representing such shares.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of your
shares as determined under Section 262 could be more, the same, or less than the
value that you are entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon BCE Emergis and the
stockholders participating in the appraisal proceeding by the Chancery Court as
the Chancery Court deems equitable in the circumstances. Upon the application
of a stockholder, the Chancery Court may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal. Any stockholder who had demanded appraisal rights will
not, after the effective date, be entitled to vote shares subject to such demand
for any purpose or to receive payments of dividends or any other distribution
with respect to such shares (other than with respect to payment as of a record
date prior to the effective date); however, if no petition for appraisal is
filed within 120 days after the effective date of the merger, or if such
stockholder delivers a written withdrawal of his or her demand for appraisal and
an acceptance of the merger within 60 days after the effective date of the
merger, then the right of such stockholder to appraisal will cease and such
stockholder will be entitled to receive the cash payment for shares of his or
her UP&UP common stock pursuant to the merger agreement. Any withdrawal of a
demand for appraisal made more than 60 days after the effective date of the
merger may only be made with the written approval of the surviving corporation
and must, to be effective, be made within 120 days after the effective date.
In view of the complexity of Section 262, UP&UP stockholders who may wish
to dissent from the merger and pursue appraisal rights should consult their
legal advisors.
48
<PAGE>
BENEFICIAL OWNERSHIP OF
MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock of UP&UP as of [March 1], 2000, by (a) each person
known by UP&UP to be the beneficial owner of more than 5% of the outstanding
shares of common stock, (b) each executive officer identified in the summary
compensation table in UP&UP's most recent annual meeting proxy statement, (c)
each director, and (d) all executive officers and directors as a group. Except
as otherwise noted, the named stockholders had sole voting and investment power
with respect to such securities. Unless indicated otherwise, the address of each
of these persons is c/o United Payors & United Providers, Inc., 2275 Research
Boulevard, Sixth Floor, Rockville, Maryland 20850.
<TABLE>
<CAPTION>
Shares Beneficially Owned
-----------------------------------------
Name of Beneficial Owner Number Percentage
------------------------ --------------- --------------------
<S> <C> <C>
Thomas L. Blair (1)........................................................... 7,183,150 37.7%
Independent Divestment Trust ("Trust") (2).................................... 4,500,000 23.6
Capital Z Financial Services Fund II, L.P. and Capital Z Financial
Services Private Fund II, L.P. (collectively, the "Capital Z Funds") (3).... 4,000,000 21.0
Other Directors and Named Executive Officers
Edward S. Civera (4).......................................................... 703,942 3.6
Spiro A. Karadimas (5)........................................................ 501,162 2.6
S. Joseph Bruno (6)........................................................... 434,839 2.3
Bette B. Anderson (7)......................................................... 16,500 --(10)
William E. Brock (8).......................................................... 17,250 --(10)
Frederick H. Graefe (9)....................................................... 37,120 --(10)
All executive officers and directors as a group (13 persons) (11)............. 10,858,800 54.8
- ---------------------------
(1) Represents 2,424,500 shares owned by Mr. Blair jointly with his wife, 200,000 shares owned solely by his wife, 58,650 shares
owned by companies Mr. Blair may be deemed to control and 4,500,000 shares that Mr. Blair has agreed to purchase from
Independent Divestment Trust. Includes shares represented by an option granted by Mr. Blair to the Capital Z Funds (the "Capital
Z Option") to purchase 2,250,000 shares of Common Stock. In addition, Mr. Blair has entered into an agreement to vote his shares
in favor of the merger.
(2) The Trust is obligated to sell these shares to Mr. Blair and he is a beneficial owner of these shares. The Trust is required to
vote these shares in the same proportion as other stockholders vote their shares. Mr. Blair has agreed, under certain
circumstances, to purchase the shares from the Trust and vote 2,250,000 of the shares in favor of the merger.
(3) Includes (i) 1,742,482 shares owned by Capital Z Financial Services Fund II, L.P. ("Capital Z Qualified Fund"), a limited
partnership of which Capital Z Partners, Ltd. ("Capital Z Partners") is the ultimate general partner, (ii) 7,518 shares owned by
Capital Z Financial Services Private Fund II, L.P. ("Capital Z Private Fund"), a limited partnership of which Capital Z Partners
is the ultimate general partner, (iii) 2,240,334 shares which may be acquired by Capital Z Qualified Fund upon exercise of the
Capital Z Option and (iv) 9,666 shares which may be acquired by Capital Z Private Fund upon exercise of the Capital Z Option.
Steven M. Gluckstern and Robert A. Spass are members of the Investment Committee of Capital Z Partners' Board of Directors. As
members of such committee, Messrs. Gluckstern and Spass may be deemed indirect beneficial owners of the shares owned by Capital
Z Qualified Fund and Capital Z Private Fund. Each of Messrs. Gluckstern and Spass disclaims beneficial ownership of any shares
not held of record by him. At the request of the Capital Z Funds, Messrs. Gluckstern and Paul H. Warren, a Senior Vice President
of Capital Z Partners, have been elected by stockholders to fill the remaining terms as directors which expire at the annual
meeting of stockholders in 2001. The address of Capital Z Partners and Messrs. Gluckstern, Spass and Warren is 54 Thompson
Street, New York, New York 10012.
(4) Includes options to purchase 640,625 shares which are exercisable as of the record date and 46,875 shares which are exercisable
within 60 days other than as a result of any acceleration by virtue of stockholder approval of the merger. Also includes 10,000
shares held in trust under the Uniform Gift to Minors Act for Mr. Civera's children. In addition, Mr. Civera has entered into an
agreement to vote his shares in favor of the merger.
(5) Of this number, 105,000 shares are held in trust under the Uniform Gift to Minors Act for Mr. Karadimas' children and 120,000
are in Mr. Karadimas' wife's name. In addition, Mr. Karadimas has entered into an agreement to vote his shares in favor of the
merger.
(6) Of this number, 230,000 shares are held in trust under the Uniform Gift to Minors Act for Mr. Bruno's children and 25,750 shares
are in Mr. Bruno's wife's name. In addition, Mr. Bruno has entered into an agreement to vote his shares in favor of the merger.
(7) Includes options to purchase 3,000 shares of common stock.
(8) Includes options to purchase 7,500 shares of common stock.
(9) Includes options to purchase 7,500 shares of common stock.
(10) Represents less than 1.0% of UP&UP common stock.
(11) Includes shares owned by the Capital Z Funds.
</TABLE>
49
<PAGE>
FORWARD-LOOKING STATEMENTS
This proxy statement contains certain forward-looking statements. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The words "believe,"
"expect," "anticipate" and other similar expressions generally identify forward-
looking statements. You are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. These forward-
looking statements are based largely on UP&UP's current expectations and are
subject to a number of risks and uncertainties. UP&UP undertakes no obligation
to publicly revise the forward-looking statements to reflect any future events
or circumstances.
WHERE YOU CAN FIND MORE INFORMATION
UP&UP files annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any reports, statements or
other information that UP&UP files at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
UP&UP's public filings are also available to the public from commercial document
retrieval services and at the Internet website maintained by the SEC at
"http://www.sec.gov."
For information regarding the participants on behalf of UP&UP in the proxy
solicitation to which this proxy statement relates, please see the information
set forth in the Current Report on Form 8-K filed by UP&UP on February 7, 2000.
You should rely only on the information contained in this proxy statement to
vote your shares at the meeting. UP&UP has not authorized anyone to provide you
with information that is different from what is contained in this proxy
statement. This proxy statement is dated _______________, 2000. You should not
assume that the information contained in this proxy statement is accurate as of
any date other than that date, and the mailing of this document to stockholders
is not intended to create any implication to the contrary.
In this proxy statement, unless otherwise specified, all dollar amounts are
expressed in United States dollars. References to "$" are to United States
dollars and references to "Cdn$"are to Canadian dollars. All Canadian dollar
amounts contained in this proxy statement have been converted to U.S. dollar
amounts at the rate of $1.00 equals Cdn.$1.4440. The noon buying rates in The
City of New York on December 31, 1999 and February 16, 2000 were $1.00 equals
Cdn$1.4440 and Cdn$1.4520, respectively.
STOCKHOLDER PROPOSALS
UP&UP expects that it would hold its 2000 annual meeting of stockholders in
June of 2000 if the merger is not completed before that date. Any proposal to
be presented by any stockholder for action at the 2000 annual meeting must have
been received by the Corporate Secretary of UP&UP no later than January 15, 2000
in order to be eligible for inclusion in UP&UP's proxy materials for the annual
meeting. As of that date, UP&UP had not received any stockholder proposals for
inclusion in the proxy materials for the 2000 annual meeting.
50
<PAGE>
APPENDIX A
EXECUTION
COPY
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
BCE EMERGIS INC,
JETCO INC.,
UNITED PAYORS &
UNITED PROVIDERS, INC. and
THOMAS L. BLAIR
Dated as of February 4, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
THE MERGER
1.01. The Merger......................................................................................... 2
1.02. Closing............................................................................................ 2
1.03. Effective Time..................................................................................... 2
1.04. Effects of the Merger.............................................................................. 2
1.05. Certificate of Incorporation and By-Laws of the Surviving Corporation.............................. 2
1.06. Directors and Officers of the Surviving Corporation................................................ 3
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
2.01. Conversion of Company Common Stock................................................................. 3
2.02. Dissenting Shares.................................................................................. 4
2.03. Anti-Dilution Provisions........................................................................... 4
2.04. Surrender of Shares................................................................................ 4
2.05. Stock Transfer Books............................................................................... 6
2.06. Company Stock Options.............................................................................. 6
2.07. Company Warrants................................................................................... 7
2.08. Application of Certain Amounts of the Principal Stockholder's Merger Consideration................ 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Qualification; Subsidiaries....................................................... 10
3.02. Certificate of Incorporation and By-Laws........................................................... 11
3.03. Capitalization..................................................................................... 11
3.04. Authority Relative to This Agreement............................................................... 12
3.05. No Conflict; Required Filings and Consents......................................................... 12
3.06. Permits; Compliance With Law....................................................................... 14
3.07. SEC Filings; Financial Statements.................................................................. 14
3.08. Undisclosed Liabilities............................................................................ 15
3.09. Absence of Certain Changes or Events............................................................... 15
3.10. Absence of Litigation.............................................................................. 16
3.11. Employee Benefit Matters........................................................................... 16
3.12. Labor Matters...................................................................................... 18
</TABLE>
<PAGE>
ii
<TABLE>
<S> <C>
3.13. Employees of the Company........................................................................... 19
3.14. Company Material Contracts......................................................................... 19
3.15. Customers.......................................................................................... 21
3.16. Environmental Matters.............................................................................. 21
3.17. Title to Properties; Absence of Liens and Encumbrances............................................. 22
3.18. Intellectual Property.............................................................................. 22
3.19. Year 2000 Compliance............................................................................... 25
3.20. Taxes.............................................................................................. 26
3.21. Insurance.......................................................................................... 26
3.22. Affiliate Transactions............................................................................. 27
3.23. Managed Care Matters............................................................................... 27
3.24. State Takeover Statutes............................................................................ 27
3.25. Board Approval; Vote Required...................................................................... 28
3.26. Opinion of Financial Advisor....................................................................... 28
3.27. Brokers............................................................................................ 28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
4.01. Organization and Qualification; Subsidiaries....................................................... 28
4.02. Authority Relative to This Agreement............................................................... 29
4.03. No Conflict; Required Filings and Consents......................................................... 29
4.04. Financing.......................................................................................... 30
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
5.01. Conduct of Business by the Company Pending the Merger.............................................. 30
5.02. Notification of Certain Matters.................................................................... 33
ARTICLE VI
ADDITIONAL AGREEMENTS
6.01. Proxy Statement.................................................................................... 33
6.02. Company Stockholders' Meeting...................................................................... 34
6.03. Access to Information; Confidentiality............................................................. 34
6.04. No Solicitation of Transactions.................................................................... 35
6.05. Directors' and Officers' Indemnification and Insurance............................................. 36
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C>
6.06. Further Action; Consents; Filings.................................................................. 37
6.07. Public Announcements............................................................................... 38
6.08. Certain Employee Benefits Matters.................................................................. 39
6.09. HealthExtras Inc................................................................................... 39
6.10. Sale of the Company Bank........................................................................... 39
6.11. Inactive Company Subsidiaries...................................................................... 40
6.12. Warrants........................................................................................... 40
6.13. Section 16 Matters................................................................................. 40
ARTICLE VII
CONDITIONS TO THE MERGER
7.01. Conditions to the Obligations of Each Party........................................................ 40
7.02. Conditions to the Obligations of Parent and Merger Sub............................................. 41
7.03. Conditions to the Obligations of the Company....................................................... 42
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.01. Termination........................................................................................ 43
8.02. Effect of Termination.............................................................................. 44
8.03. Amendment.......................................................................................... 44
8.04. Waiver............................................................................................. 44
8.05. Expenses........................................................................................... 45
8.06. Fees............................................................................................... 45
ARTICLE IX
SURVIVAL; INDEMNIFICATION
9.01. Survival of Representation and Warranties.......................................................... 46
9.02. Indemnification.................................................................................... 46
9.03. Notice of Claim.................................................................................... 47
9.04. Defense............................................................................................ 47
</TABLE>
<PAGE>
iv
<TABLE>
<S> <C>
ARTICLE X
GENERAL PROVISIONS
10.01. Notices........................................................................................... 48
10.02. Assignment; Binding Effect; Benefit............................................................... 49
10.03. Certain Definitions............................................................................... 50
10.04. Severability...................................................................................... 51
10.05. Specific Performance.............................................................................. 51
10.06. Governing Law; Forum.............................................................................. 51
10.07. Headings.......................................................................................... 51
10.08. Counterparts...................................................................................... 51
10.09. Entire Agreement.................................................................................. 52
10.10. Waiver of Jury Trial.............................................................................. 52
</TABLE>
<PAGE>
Glossary of Defined Terms
Location of
Defined Term Definition
- ------------ -----------
Acquisition Proposal........................................ (S) 6.04(c)
Action...................................................... (S) 3.10
Adjustment Amounts.......................................... (S) 2.08(a)
affiliate................................................... (S) 10.03(a)
Agreement................................................... Preamble
Bank Regulatory Agreement................................... (S) 3.05(c)
Bank Regulatory Authorities................................. (S) 3.05(b)
Bank Sale................................................... (S) 6.10(a)
Blue Sky Laws............................................... (S) 3.05(b)
business day................................................ (S) 10.03(b)
Canadian Securities Laws.................................... (S) 3.05(b)
Certificate of Merger....................................... (S) 1.03
Certificates................................................ (S) 2.04(b)
Closing..................................................... (S) 1.02
Closing Date................................................ (S) 1.02
Code........................................................ (S) 2.04(f)
Company..................................................... Preamble
Company Bank................................................ (S) 6.06(a)
Company Benefit Plans....................................... (S) 3.11(a)
Company Board Approval...................................... (S) 3.25
Company Common Stock........................................ Recitals
Company Disclosure Schedule................................. (S) 3.01(b)
Company Licensed Intellectual Property...................... (S) 3.18(h)
Company Material Contracts.................................. (S) 3.14(a)
Company Owned Intellectual Property......................... (S) 3.18(h)
Company Permits............................................. (S) 3.06(a)
Company Preferred Stock..................................... (S) 3.03
Company SEC Reports......................................... (S) 3.07(a)
Company Software............................................ (S) 3.18(h)
Company Stock Option Plan................................... (S) 2.06(a)
Company Stock Options....................................... (S) 2.06(a)
Company Stockholders' Approval.............................. (S) 3.04
Company Stockholders' Meeting............................... (S) 3.24
Company Subsidiaries........................................ (S) 3.01(a)
Company Systems............................................. (S) 3.19
<PAGE>
Confidentiality Agreement................................... (S) 6.03(b)
control..................................................... (S) 10.03(c)
DGCL........................................................ Recitals
Dissenting Shares........................................... (S) 2.02
$ or dollar................................................. (S) 10.03(i)
Effective Time.............................................. (S) 1.03
Employee Amount............................................. (S) 2.08(a)
Environmental Law........................................... (S) 3.16
Environmental Permits....................................... (S) 3.16
ERISA....................................................... (S) 3.11(a)
ESPP........................................................ (S) 2.06(b)
Exchange Act................................................ (S) 3.05(b)
Executive................................................... (S) 2.08(c)
Executive Agreements........................................ Recitals
Executive Employees......................................... Recitals
Expenses.................................................... (S) 8.05(a)
FDIC........................................................ (S) 3.05(b)
Fee......................................................... (S) 8.06(a)
FRB......................................................... (S) 3.05(b)
Governmental Entity......................................... (S) 3.05(b)
Hazardous Substances........................................ (S) 3.16
HealthExtras Option......................................... (S) 6.09(c)
HSR Act..................................................... (S) 3.05(b)
Inactive Company Subsidiaries............................... (S) 3.01(b)
Indemnified Parties......................................... (S) 6.05(b)
Indemnity Amount............................................ (S) 2.08(a)
Intellectual Property....................................... (S) 3.18(h)
IRS......................................................... (S) 3.11(a)
knowledge................................................... (S) 10.03(d)
Law......................................................... (S) 3.05(a)
Licenses.................................................... (S) 3.18(h)
Liens....................................................... (S) 3.17(b)
Loss........................................................ (S) 9.02(b)
JP Morgan................................................... (S) 3.26
Material Adverse Effect..................................... (S) 10.03(e)
Merger...................................................... Recitals
Merger Consideration........................................ (S) 2.01(a)
Merger Sub.................................................. Preamble
Multiemployer Plan.......................................... (S) 3.11(b)
Multiple Employer Plan...................................... (S) 3.11(b)
NASDAQ...................................................... (S) 3.05(b)
<PAGE>
Note........................................................ (S) 2.07(a)(i)
Optionee.................................................... (S) 2.06(a)
Order....................................................... (S) 7.01(b)
OTS......................................................... (S) 3.05(b)
Parent...................................................... Preamble
Parent Indemnified Parties.................................. (S) 9.02(a)
Payor....................................................... (S) 3.15
Paying Agent................................................ (S) 2.04(a)
person...................................................... (S) 10.03(f)
Principal Stockholder....................................... Preamble
Proxy Statement............................................. (S) 6.01(a)
Representatives............................................. (S) 6.03(a)
Required Consents........................................... (S) 3.05(b)
SEC......................................................... (S) 3.07(a)
Securities Act.............................................. (S) 3.05(b)
Software.................................................... (S) 3.18(h)
subsidiary or subsidiaries.................................. (S) 10.03(g)
Superior Proposal........................................... (S) 6.04(c)
Surviving Corporation....................................... (S) 1.01
Taxes....................................................... (S) 3.20
Third Party Provisions...................................... (S) 10.02
TSE......................................................... (S) 3.05(b)
U.S. GAAP................................................... (S) 3.07(b)
Voting Agreement............................................ Recitals
Warrants.................................................... (S) 10.03(h)
Year 2000 Compliant......................................... (S) 3.19
<PAGE>
AGREEMENT AND PLAN OF MERGER dated as of February 4, 2000 (this
"Agreement") among BCE EMERGIS INC., a corporation organized under the laws of
---------
Canada ("Parent"), JETCO INC., a Delaware corporation and a wholly owned
------
subsidiary of Parent ("Merger Sub"), UNITED PAYORS & UNITED PROVIDERS, INC., a
----------
Delaware corporation (the "Company"), and THOMAS L. BLAIR (the "Principal
------- ---------
Stockholder").
- -----------
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved and declared advisable this Agreement and the merger
of Merger Sub with and into the Company (the "Merger") in accordance with the
------
General Corporation Law of the State of Delaware (the "DGCL") and upon the terms
----
and subject to the conditions set forth in this Agreement, whereby each issued
and outstanding share of common stock, par value $0.01 per share, of the Company
("Company Common Stock"), other than shares of Company Common Stock owned by
--------------------
Parent, Merger Sub or the Company, and other than Dissenting Shares (as defined
in Section 2.02 below), will be converted into the right to receive $27.00 per
share of Company Common Stock, without interest thereon, as provided for herein;
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Parent's willingness to enter
into this Agreement, Parent and the Principal Stockholder, along with certain
other stockholders of the Company, are entering into a voting agreement (the
"Voting Agreement") pursuant to which such stockholders agree to vote to approve
- -----------------
the Merger and adopt this Agreement, and to take certain other actions in
furtherance of the Merger upon the terms and subject to the conditions set forth
in the Voting Agreement;
WHEREAS, certain executive officers (the "Executive Employees")
-------------------
continue to be employed by the Company and the Company has executed employment
agreements with each of the Executive Employees and has executed a consulting
agreement with the Principal Stockholder (such employment agreements and
consulting agreement being, collectively, the "Executive Agreements"); and
--------------------
WHEREAS, the Principal Stockholder has agreed to indemnify Parent and
Merger Sub in respect of certain matters and has agreed to purchase all of the
Company's right, title and interest in and to the Company Bank (as defined
herein), in each case as provided for herein;
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, Parent, Merger Sub and the Company hereby agree as
follows:
<PAGE>
2
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
----------
conditions set forth in this Agreement and in accordance with the DGCL, Merger
Sub shall be merged with and into the Company at the Effective Time (as defined
in Section 1.03). Following the Effective Time, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation (the "Surviving Corporation") and shall succeed to and
---------------------
assume all the rights and obligations of the Company in accordance with the
DGCL.
SECTION 1.02. Closing. The closing of the Merger (the "Closing")
------- -------
shall take place at 10:00 a.m. (New York time) at the offices of Shearman &
Sterling, 599 Lexington Avenue, New York, New York on a date to be specified by
the parties hereto (the "Closing Date"), which shall be no later than the second
------------
business day after satisfaction or waiver of the conditions set forth in Article
VII (other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of such conditions), unless
another time, date or place is agreed to by the parties hereto.
SECTION 1.03. Effective Time. Subject to the provisions of this
--------------
Agreement, as soon as practicable on or after the Closing Date, the parties
shall file a certificate of merger (the "Certificate of Merger") with the
---------------------
Secretary of State of the State of Delaware executed in accordance with the
relevant provisions of the DGCL and shall make all other filings or recordings
required by applicable law in connection with the Merger. The Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State of the State of Delaware or at such later date or time as
is agreed upon by the parties and specified in the Certificate of Merger (the
time the Merger becomes effective being hereinafter referred to as the
"Effective Time").
- ---------------
SECTION 1.04. Effects of the Merger. The Merger shall have the
---------------------
effects as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property 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 1.05. Certificate of Incorporation and By-Laws of the
-----------------------------------------------
Surviving Corporation. (a) At the Effective Time, the Certificate of
- ---------------------
Incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended, subject to Section 6.05(a), as provided by law and
such Certificate of Incorporation; provided, however, that, at the Effective
-------- -------
Time, Article I of the Certificate of Incorporation of the Surviving Corporation
shall be amended to read as follows: "The name of the corporation is United
Payors & United Providers, Inc."
<PAGE>
3
(b) Unless otherwise determined by Parent prior to the Effective Time,
the By-laws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the By-laws of the Surviving Corporation until thereafter amended as
provided by law, the Certificate of Incorporation of the Surviving Corporation
and such By-laws.
SECTION 1.06. Directors and Officers of the Surviving Corporation.
---------------------------------------------------
(a) The directors of Merger Sub immediately prior to the Effective Time shall
be the directors of the Surviving Corporation until the earlier of their
resignation or removal or until their successors are duly elected and qualified,
as the case may be.
(b) The officers of Merger Sub immediately prior to the Effective Time
shall be the officers of the Surviving Corporation until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
CONVERSION OF SHARES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Company Common Stock. At the Effective
----------------------------------
Time, by virtue of the Merger and without any action on the part of Parent,
Merger Sub, the Company or the holders of any of the following securities:
(a) Conversion of Company Common Stock. Subject to Section 2.02 and
Section 2.04(e), each issued and outstanding share of Company Common Stock
(other than shares to be canceled pursuant to Section 2.01(b)) shall be
automatically converted into the right to receive $27.00 in cash, without
interest thereon (the "Merger Consideration"). As of the Effective Time,
--------------------
all such shares of Company Common Stock shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares of Company Common
Stock shall cease to have any rights with respect thereto, except the right
to receive the Merger Consideration, without interest.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share
of Company Common Stock owned by Parent or any direct or indirect wholly
owned subsidiary of Parent or held in the treasury of the Company or any
Subsidiary of the Company shall be canceled and extinguished without any
conversion thereof and no payment or distribution shall be made with
respect thereto.
(c) Conversion of Merger Sub Common Stock. Each share of common
stock, par value $0.01 per share, of Merger Sub issued and outstanding
immediately prior to the Effective Time shall be converted into and
exchanged for one validly issued, fully paid
<PAGE>
4
and nonassessable share of common stock, par value $0.01 per share, of the
Surviving Corporation.
SECTION 2.02. Dissenting Shares. Notwithstanding any provision of
-----------------
this Agreement to the contrary, shares of Company Common Stock that are
outstanding immediately prior to the Effective Time and which are held by
stockholders who shall have not voted in favor of the Merger or consented
thereto in writing and who shall have demanded properly in writing appraisal for
such shares in accordance with section 262 of the DGCL (collectively, the
"Dissenting Shares") shall not be converted into or represent the right to
-----------------
receive the Merger Consideration. Such stockholders shall be entitled to
receive payment of the appraised value of such shares held by them in accordance
with the provisions of such section 262, except that all Dissenting Shares held
by stockholders who shall have failed to perfect or who effectively shall have
withdrawn or lost their rights to appraisal of such shares 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 the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.04, of the certificate or certificates that formerly
evidenced such shares. The Company shall give Parent (i) prompt notice of any
demands for appraisal received by the Company, withdrawals of such demands, and
any other instruments served pursuant to the DGCL and received by the Company
and (ii) the opportunity to direct all negotiations and proceedings with respect
to demands for appraisal under the DGCL. The Company shall 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 demands.
SECTION 2.03. Anti-Dilution Provisions. Subject to the terms and
------------------------
conditions of this Agreement, in the event the Company changes the number of
shares of Company Common Stock issued and outstanding prior to the Effective
Time as a result of a stock split, stock dividend, recapitalization,
reclassification, redenomination of share capital or other similar transaction,
the Merger Consideration shall be proportionately adjusted to reflect such stock
split, stock dividend, recapitalization, reclassification, redenomination of
share capital or other similar transaction.
SECTION 2.04. Surrender of Shares. (a) Prior to the Effective Time,
-------------------
Merger Sub shall designate a bank or trust company to act as agent (the "Paying
------
Agent") for the holders of shares of Company Common Stock to receive the funds
- -----
to which such holders shall become entitled pursuant to Section 2.01(a). On or
prior to the Effective Time, Parent shall deposit, or shall cause to be
deposited, with the Paying Agent, for the benefit of the holders of shares of
Company Common Stock for payment in accordance with this Article II through the
Paying Agent, cash required to pay the aggregate Merger Consideration. Such
funds shall be invested by the Paying Agent as directed by Parent.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each person who was, at the Effective Time, a holder of
record of shares of Company Common Stock entitled to receive the Merger
Consideration pursuant to
<PAGE>
5
Section 2.01(a) a form of letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the certificates
evidencing such shares of Company Common Stock (the "Certificates") shall pass,
------------
only upon proper delivery of the Certificates to the Paying Agent), which shall
be in customary form and shall have such other conditions as Parent may
reasonably specify and instructions for use in effecting the surrender of the
Certificates pursuant to such letter of transmittal. Upon surrender to the
Paying Agent of a Certificate, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto, and
such other documents as may be required pursuant to such instructions, the
holder of such Certificate shall be entitled to receive in exchange therefor the
Merger Consideration for each share of Company Common Stock formerly evidenced
by such Certificate, and such Certificate shall then be canceled. No interest
shall accrue or be paid on the Merger Consideration payable upon the surrender
of any Certificate for the benefit of the holder of such Certificate. If the
payment equal to the Merger Consideration is to be made to a person other than
the person in whose name the surrendered Certificate formerly evidencing shares
of Company Common Stock is registered on the stock transfer books of the
Company, it shall be a condition of payment that the Certificate so surrendered
shall be endorsed properly or otherwise be in proper form for transfer,
accompanied by all documents required to effect such transfer and the ownership
of such shares by such transferor and evidence that all transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered have been paid, or
shall have established to the satisfaction of Merger Sub that such taxes either
have been paid or are not applicable.
(c) No Further Rights in Company Common Stock. The Merger
-----------------------------------------
Consideration paid upon conversion of the shares of Company Common Stock in
accordance with the terms hereof shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock.
(d) Return of Funds. At any time following the sixth month after the
---------------
Effective Time, the Surviving Corporation shall be entitled to require the
Paying Agent to deliver to it any funds which had been made available to the
Paying Agent and not disbursed to holders of shares of Company Common Stock
(including, without limitation, all interest and other income received by the
Paying Agent in respect of all funds made available to it), and, thereafter,
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat and other similar Law) only as general creditors
thereof with respect to any Merger Consideration that may be payable upon due
surrender of the Certificates held by them.
(e) No Liability. Neither Parent nor the Surviving Corporation shall
------------
be liable to any holder of shares of Company Common Stock in respect of any
Merger Consideration that is delivered to a public official pursuant to any
abandoned property, escheat or similar Law. If any Certificate shall not have
been surrendered prior to six months after the Effective Time (or immediately
prior to such earlier date on which any Merger Consideration would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.05(b)), any such Merger Consideration, to the extent permitted by
applicable Law, will become the
<PAGE>
6
property of the Surviving Corporation, free and clear of all claims or interest
of any person previously entitled thereto.
(f) Withholding. Each of the Surviving Corporation, Parent and the
-----------
Paying Agent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of shares of Company
Common Stock such amounts as it is required to deduct and withhold under the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
----
any state, local or foreign tax law, with respect to the making of such payment.
To the extent that amounts are so withheld by the Surviving Corporation, Parent
or the Paying 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 shares
of Company Common Stock in respect of which such deduction and withholding were
made by the Surviving Corporation, Parent or the Paying Agent, as the case may
be.
(g) 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 and, if required by
the Surviving Corporation, the posting by such person of a bond, in such
reasonable amount as the Surviving Corporation may direct, as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent will issue in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration, without any interest thereon.
SECTION 2.05. Stock Transfer Books. At the Effective Time, the stock
--------------------
transfer books of the Company shall be closed and, thereafter, there shall be no
further registration of transfers of shares of Company Common Stock theretofore
outstanding on the records of the Company. From and after the Effective Time,
the holders of Certificates representing shares of Company Common Stock
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Company Common Stock formerly represented
thereby, except as otherwise provided in this Agreement or by Law.
SECTION 2.06. Company Stock Options. (a) At the Effective Time, all
---------------------
outstanding stock options (the "Company Stock Options") issued under the
---------------------
Company's 1996 Stock Option Plan (the "Company Stock Option Plan") shall become
-------------------------
vested according to the terms of the Company Stock Option Plan and, at the
Effective Time, for each Company Stock Option, the holder of each such Company
Stock Option (an "Optionee") shall be entitled to receive, and shall receive, in
--------
settlement and cancellation thereof, an amount of cash equal to the product of
(A) the difference between the Merger Consideration and the exercise price of
each Company Stock Option, and (B) the number of shares of Company Common Stock
covered by such Company Stock Option, which payment shall be made to each
Optionee as soon as practicable after the Effective Time. As of the Effective
Time, the Company shall cause the Company Stock Option Plan to terminate. In
the event any Optionee exercises any Company Stock Option prior to the Effective
Time, the Company shall deposit and preserve the proceeds
<PAGE>
7
from the exercise of any such Company Stock Option in a separate bank account to
be established by the Company.
(b) Employee Stock Purchase Plan. The Company's 1996 Employee Stock
----------------------------
Purchase Plan, as amended (the "ESPP"), will continue in effect according to its
----
terms until the end of the "offering period" (as such term is defined in the
ESPP) ending on March 31, 2000, on which date the Company shall terminate the
ESPP and cease making any payroll deductions in connection with the ESPP.
SECTION 2.07. Company Warrants. (a) At the Effective Time, the
----------------
holder of each Warrant (as defined in Section 10.03(a)) shall be entitled to
receive, and shall receive, in settlement and cancellation thereof, an amount of
cash equal to the product of (A) the difference between the Merger Consideration
and the exercise price of each such Warrant, and (B) the number of shares of
Company Common Stock covered by such Warrant, which payment shall be made to
each such Warrant holder as soon as practicable after the Effective Time. In
the event, any holder of a Warrant exercises such Warrant prior to the Effective
Time, the Company shall deposit and preserve the proceeds from the exercise of
any such Warrant in the bank account to be established by the Company pursuant
to Section 2.06(a).
SECTION 2.08. Application of Certain Amounts of the Principal
------------------------------------------------
Stockholder's Merger Consideration.
- ----------------------------------
(a) The aggregate amount of Merger Consideration the Principal
Stockholder would be entitled to receive pursuant to Section 2.01(a) in respect
of shares of Company Common Stock held by the Principal Stockholder at the
Effective Time which shall be paid to the Principal Stockholder in accordance
with the other provisions of this Article shall be reduced by the following
amounts (such amounts referred to in clauses (i) through (iii) of Section
2.08(a) being referred to collectively as the "Adjustment Amounts"):
------------------
(i) Subject to any claim Parent may have under the secured
promissory note that the Principal Stockholder shall issue to Parent or its
designee on or before the Effective Time (the "Note") on the collateral
----
represented by such amount, $5,000,000 shall be retained by Parent, to be
released to the Principal Stockholder in accordance with the terms of the
consulting agreement executed by the Company and the Principal Stockholder
upon the achievement of the goals of the business plan of the Surviving
Corporation to the extent reasonably practicable, which business plan shall
be developed by Parent prior to the Effective Date;
(ii) $3,000,000, representing the "Indemnity Amount", shall be
----------------
retained by Parent and released to the Principal Stockholder in accordance
with this Section 2.08 and Article IX; and
<PAGE>
8
(iii) $2,000,000, representing the "Employee Amount", shall be
---------------
retained by Parent and released to the Principal Shareholder in accordance
with this Section 2.08.
(b) The Adjustment Amounts retained by Parent shall bear interest at
the rate of seven percent per annum, to be calculated annually and paid to the
Principal Stockholder on the release of the funds, if any, represented by such
Adjustment Amounts in accordance with the provisions of this Section 2.08(a);
provided, however, that the Principal Stockholder shall only be entitled to
- -------- -------
interest on the actual Adjustment Amounts, if any, released to the Principal
Stockholder and not on any Adjustment Amounts retained by Parent in accordance
with this Section 2.08 and Article IX.
(c) Subject to any claims Parent may have under the Note on the
collateral represented by the Employee Amount, if Edward S. Civera (the
"Executive") continues to be employed by the Surviving Corporation on the first
---------
year anniversary of the Effective Time, $1,000,000 of the Employee Amount,
together with any interest thereon, shall be released by Parent to the Principal
Stockholder within five business days of such first year anniversary and if the
Executive continues to be employed by the Surviving Corporation on the second
year anniversary of the Effective Time, the remaining Employee Amount, together
with any interest thereon, shall be released by Parent to the Principal
Stockholder within five business days of such second year anniversary; provided,
--------
however, in the event the Executive's employment with the Surviving Corporation
- -------
is terminated other than for Cause (as defined in the Executive Agreement) or
pursuant to a Voluntary Termination (as defined below) at any time prior to the
second year anniversary of the Effective Time, the Employee Amount, together
with any interest thereon, shall be released by Parent to the Principal
Stockholder within five business days of such termination.
For purposes of this Section 2.08(c), the Executive shall be deemed to
continue to be employed by the Surviving Corporation unless: (i) the Executive's
employment is terminated for Cause by the Surviving Corporation in accordance
with his Executive Agreement or (ii) the Executive's employment is terminated by
a "Voluntary Termination" as defined below.
---------------------
Voluntary Termination of employment shall be a termination by the
Executive of his employment with the Surviving Corporation, but shall not
include any termination as a result of:
(i) death or disability;
(ii) a termination of employment by the Executive after:
(A) a change in control of the Surviving Corporation, including a
change in control of any entity directly or indirectly controlling the
Surviving Corporation (collectively for purposes of the definition or
change in control set forth below, the "Surviving Corporation");
<PAGE>
9
(B) a material adverse reduction in the Executive's responsibilities
which causes the Executive's position to become one of lesser status within
the Surviving Corporation from the Executive's position with the Surviving
Corporation immediately following the Effective Time without his consent;
(C) a change in the location of the Executive's place of employment
of more than 50 miles from Rockville, Maryland without his consent; or
(D) a material adverse change in the benefits or perquisites payable
to the Executive from those provided immediately after the Effective Time,
pursuant to his Executive Agreement unless such material adverse change is
imposed on employees of the Surviving Corporation generally.
For purpose of this Section 2.08(c), a change in control shall have
occurred if:
(i) any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934) is or becomes the
beneficial owner, directly or indirectly, of securities of the
Surviving Corporation representing 50% or more of the combined voting
power of the Surviving Corporation's then outstanding securities; or
(ii) during any period of twenty-four consecutive months,
individuals who at the beginning of such period constitute the Board
of Directors of the Surviving Corporation cease for any reason to
constitute at least a majority thereof unless the election, or the
nomination for election by the Surviving Corporation's shareholders,
of each new director was approved by a vote of at least two-thirds of
the directors then still in office who were directors at the beginning
of the period; or
(iii) the stockholders of the Surviving Corporation approve a
definitive agreement:
(A) for the merger or other business combination of the
Surviving Corporation with or into another corporation pursuant to
which the Surviving Corporation will not survive or will survive only
as a subsidiary of another corporation;
(B) for the sale or other disposition of all or substantially
all of the assets of the Surviving Corporation;
(C) for the merger of another corporation into the Surviving
Corporation which survives if, as a result of such merger, less than fifty
percent (50%) of the outstanding voting securities of the Surviving
Corporation shall be owned in the
<PAGE>
aggregate immediately after such merger by the owners of the voting shares
of the Surviving Corporation outstanding immediately prior to such merger;
(D) for the liquidation or dissolution of the Surviving
Corporation; or
(E) any combination of the foregoing.
(d) Subject to any claims Parent may have under the Note on the
collateral represented by the Indemnity Amount and subject further to any
reductions of the Indemnity Amount under Article IX, Parent shall release to the
Principal Stockholder the Indemnity Amount remaining on deposit with Parent
within five business days of the first year anniversary of the Effective Time;
provided, however, that if a notice of indemnification has been given to the
- -------- -------
Principal Stockholder prior to the end of such period, the Indemnity Amount
shall be retained by Parent and not released to the Principal Stockholder, as
long as necessary to permit final resolution of such matter.
(e) On or before the Effective Time, Parent shall, or shall cause
its designee to, loan to the Principal Stockholder in immediately available
funds, the principal amount of the Note, which Parent and the Principal
Stockholder reasonably estimate will be $8,000,000. The Principal Stockholder
shall repay the principal amount of the Note, together with interest thereon at
the rate of seven percent per annum no later than one year from the issue date
of the Note.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Each of the Company and the Principal Stockholder, jointly and
severally, hereby represent and warrant to Parent and Merger Sub that:
SECTION 3.01. Organization and Qualification; Subsidiaries. (a)
--------------------------------------------
Each of the Company and each subsidiary of the Company (collectively, the
"Company Subsidiaries") is a corporation or other legal entity duly organized,
--------------------
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, as the case may be, and has all requisite power
and authority to own, lease and operate its properties and to carry on its
business as it is now being conducted, except where the failure to be so
organized, existing or in good standing or to have such power and authority
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect (as defined in Section 10.03(e)) or prevent or
materially delay the consummation of transactions contemplated by this
Agreement. Each of the Company and the Company Subsidiaries is duly qualified
or licensed to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing or good standing necessary,
except for such failures to be so qualified or licensed and in good standing
that would not, individually or in the aggregate, reasonably be expected to have
a Material
<PAGE>
11
Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
(b) Section 3.01(b) of the disclosure schedule delivered by the
Company to Parent prior to the execution of this Agreement (the "Company
-------
Disclosure Schedule") sets forth a true and complete list of all the Company
- -------------------
Subsidiaries and separately identifies all inactive Company Subsidiaries (the
"Inactive Company Subsidiaries"). Except as set forth in Section 3.01 of the
- ------------------------------
Company Disclosure Schedule, neither the Company nor any Company Subsidiary
directly or indirectly owns, or has outstanding contractual obligations to
acquire, any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
SECTION 3.02. Certificate of Incorporation and By-Laws. The Company
----------------------------------------
has heretofore made available to Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws of the Company, each as amended to
date. Such Certificate of Incorporation and By-Laws are in full force and
effect. The Company is not in violation of any of the provisions of its
Certificate of Incorporation or By-Laws. True and complete copies of all minute
books of the Company have been made available by the Company to Parent.
SECTION 3.03. Capitalization. The authorized capital stock of the
--------------
Company consists of 35,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $0.01 per share ("Company Preferred
-----------------
Stock"). As of February 4, 2000, (a) 19,052,939 shares of Company Common Stock
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (b) 33,000 shares of Company Common Stock are held in the
treasury of the Company, (c) no shares of Company Common Stock are held by the
Company Subsidiaries, (d) 1,786,500 shares of Company Common Stock are reserved
for future issuance pursuant to outstanding Company Stock Options granted
pursuant to the Company Stock Option Plan and (e) 498,000 shares of Company
Common Stock are reserved for future issuance pursuant to outstanding Warrants.
As of the date hereof, no shares of Company Preferred Stock are issued and
outstanding. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. The Company has previously
provided Parent with a true and complete list, as of the date hereof, of the
prices at which outstanding Company Stock Options may be exercised under the
applicable Company Stock Option Plan, the number of Company Stock Options
outstanding at each such price, the vesting schedule and the expiration date of
the Company Stock Options for each holder thereof. There are no other options,
warrants or other rights to acquire Company Common Stock. Except as contained
in the Voting Agreement or as set forth in Section 3.03 of the Company
Disclosure Schedule, there are no outstanding contractual obligations,
securities, warrants or undertakings of any kind of the Company or any Company
Subsidiary (A) restricting the transfer of, (B) affecting the voting rights of,
(C) requiring the repurchase, redemption, issuance, sale or disposition of, or
containing any right of first refusal
<PAGE>
12
with respect to, (D) requiring the registration for sale of, or (E) granting any
preemptive or antidilutive right with respect to, any shares of Company Common
Stock or any capital stock of, or other equity interests in, any Company
Subsidiary. Except as set forth in Section 3.03 of the Company Disclosure
Schedule, each outstanding share of capital stock of, or other equity interest
in, each Company Subsidiary is duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights and is owned by the Company or
another Company Subsidiary free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, agreements, limitations on
the Company's or such other Company Subsidiary's voting rights, charges and
other encumbrances of any nature whatsoever. Except as set forth in Section 3.03
of the Company Disclosure Statement, there are no outstanding contractual
obligations of the Company or any Company Subsidiary to provide funds to, or
make any investment (in the form of a loan, capital contribution or otherwise)
in, any Company Subsidiary or any other person.
SECTION 3.04. Authority Relative to This Agreement. The Company has
------------------------------------
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the Merger and
the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the Merger and the other transactions contemplated by this Agreement have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or to consummate the Merger and the other transactions contemplated by
this Agreement other than, with respect to the Merger, the adoption of this
Agreement by the affirmative vote of holders of a majority of the outstanding
shares of Company Common Stock entitled to vote thereon (the "Company
-------
Stockholders' Approval") and the filing of the Certificate of Merger with the
- ----------------------
Secretary of State of the State of Delaware as required by the DGCL. This
Agreement has been duly authorized and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Parent
and Merger Sub, constitutes the legal, valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by the Company do not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate any provision of the Certificate of Incorporation or By-Laws of the
Company or any equivalent organizational documents of any Company Subsidiary,
(ii) assuming that all consents, approvals, authorizations and permits described
in Section 3.05(b) have been obtained and all filings and notifications
described in Section 3.05(b) have been made, conflict with or violate any
foreign or domestic law, statute, code, ordinance, rule, regulation, order,
injunction, writ, stipulation, award, judgment or decree ("Law") applicable to
---
the Company or any Company Subsidiary or by which any property or asset of the
Company or any Company Subsidiary is bound or affected, or (iii) except as set
forth in Section 3.05(a) of the Company Disclosure Schedule, require any consent
or approval under, result in any breach of, any loss of any benefit under or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of
<PAGE>
13
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the Company
or any Company Subsidiary pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, Company Permit (as defined in Section
3.06(a)) or other instrument or obligation, except, with respect to clauses (ii)
and (iii) of this Section 3.05(a), for any such conflicts, violations, breaches,
defaults or other occurrences that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any foreign or domestic governmental, administrative, judicial or regulatory
authority (a "Governmental Entity"), except (i) pursuant to the applicable
-------------------
requirements of (A) the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (B) the
-------
statutes, regulations, or ordinances enforced by the Office of Thrift
Supervision (the "OTS"), the Board of Governors of the Federal Reserve System
---
(the "FRB"), the Federal Deposit Insurance Corporation (the "FDIC"), or the
--- ----
staff thereof (collectively, the "Bank Regulatory Authorities"), (C) the
---------------------------
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), the Securities Act of 1933, as
------------
amended, and the rules and regulations promulgated thereunder (the "Securities
----------
Act"), and state securities or "blue sky" laws ("Blue Sky Laws"), (D) the
- --- -------------
securities laws, rules, regulations and published policy statements applicable
in the Province of Quebec, as applied by the Quebec Securities Commission and
other Canadian provincial and territorial regulatory authorities (collectively,
the "Canadian Securities Laws"), (E) the rules and regulations of the NASDAQ
------------------------
National Market System ("NASDAQ") and the Toronto Stock Exchange (the "TSE") and
------ ---
(F) the filing and recordation of the Certificate of Merger as required by the
DGCL (collectively, the "Required Consents") and (ii) when the failure to obtain
-----------------
such consents, approvals, authorizations or permits or to make such filings or
notifications would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
(c) Except as set forth in Section 3.05(c) of the Company Disclosure
Schedule, none of the Company or any of the Company Subsidiaries has received
any written notification or communication from the Bank Regulatory Authorities
(i) asserting that the Company or any of the Company Subsidiaries is not in
compliance with any of the statutes, regulations, or ordinances which such Bank
Regulatory Authority enforces, which noncompliance, individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect, (ii)
threatening to revoke any license, franchise, Company Permit or governmental
authorization the loss of which would, individually or in the aggregate, have a
Material Adverse Effect or (iii) requiring or threatening to require the Company
or any of the Company Subsidiaries, or indicating that the Company or any of the
Company Subsidiaries may be required, to adopt a board resolution, to enter into
a cease and desist order, agreement or
<PAGE>
14
memorandum of understanding, or to enter into any other agreement or arrangement
restricting or limiting or purporting to restrict or limit in any manner the
operations of the Company or any of the Company Subsidiaries, or requiring the
Company or any Company Subsidiary to take or refrain from taking any action,
including, without limitation, any restriction on or prior notification relating
to the payment of dividends (any such notice, communication, board resolution,
memorandum, agreement or order described in this clause (iii) of Section 3.05(c)
being referred to as a "Bank Regulatory Agreement"), which, individually or in
-------------------------
the aggregate, would reasonably be expected to have a Material Adverse Effect.
Except as set forth in Section 3.05(c) of the Company Disclosure Schedule, none
of the Company or any of the Company Subsidiaries has consented to or entered
into any Bank Regulatory Agreement which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect.
SECTION 3.06. Permits; Compliance With Law. (a) Each of the Company
----------------------------
and the Company Subsidiaries is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals and orders of any Governmental Entity necessary for the
Company or any Company Subsidiary to own, lease and operate its properties and
to carry on its business as it is now being conducted (the "Company Permits"),
---------------
and all such Company Permits are valid and in full force and effect, except
where the failure to have, or the suspension or cancellation of, or the failure
to be valid or in full force and effect of, any of the Company Permits would
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
(b) Except as disclosed in Section 3.06(b) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary is in conflict with, or
in default or violation of, (i) any Law applicable to the Company or any Company
Subsidiary or by which any property or asset of the Company or any Company
Subsidiary is bound or affected, (ii) any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any Company Subsidiary is a party or by which
the Company or any Company Subsidiary or any property or asset of the Company or
any Company Subsidiary is bound or affected or (iii) any Company Permits, except
in each case for any such conflicts, defaults or violations that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
SECTION 3.07. SEC Filings; Financial Statements. (a) The Company
---------------------------------
has timely filed all registration statements, prospectuses, forms, reports and
other documents required to be filed by it with the Securities and Exchange
Commission (the "SEC") since January 1, 1997 (collectively, the "Company SEC
--- -----------
Reports"). As of the respective dates they were filed, (i) the Company SEC
- -------
Reports were prepared in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and (ii) none of the Company SEC
Reports contained
<PAGE>
15
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading. No Company Subsidiary is required to file any form, report or other
document with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company SEC Reports was prepared in
accordance with United States generally accepted accounting principles ("U.S.
----
GAAP") applied on a consistent basis throughout the periods indicated (except as
- ----
may be indicated in the notes thereto or, in the case of unaudited statements,
as permitted by Form 10-Q under the Exchange Act) and each presented or will
present fairly, in all material respects, the consolidated financial position,
results of operations and cash flows of the Company and the consolidated Company
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein (subject, in the case of unaudited statements, to normal and
recurring year-end adjustments which are not expected to be material,
individually or in the aggregate). The books and records of the Company and the
Company Subsidiaries have been, and are being, maintained in accordance with
applicable legal and accounting requirements.
(c) The Company has heretofore furnished to Parent a complete and
correct copy of any amendments or modifications (which have not yet been filed
with the SEC but which will be required to be filed) to agreements, documents or
other instruments which previously had been filed by the Company with the SEC
pursuant to the Securities Act or the Exchange Act.
SECTION 3.08. Undisclosed Liabilities. Except as and to the extent
-----------------------
specifically disclosed in the Company SEC Reports filed prior to the date of
this Agreement or set forth in Section 3.08 of the Company Disclosure Schedule,
neither the Company nor any Company Subsidiary has any liability or obligation
of any nature (whether absolute, accrued, contingent or otherwise and whether
due or to become due), except for liabilities or obligations incurred since
December 31, 1998 in the ordinary course of business consistent with past
practice and which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect or prevent or materially delay the
consummation of the transactions contemplated by this Agreement.
SECTION 3.09. Absence of Certain Changes or Events. Since December
------------------------------------
31, 1998 through the date hereof, except as and to the extent set forth in
Section 3.09 of the Company Disclosure Schedule or specifically disclosed in the
Company SEC Reports filed prior to the date of this Agreement, each of the
Company and the Company Subsidiaries has conducted its business only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (a) any event, occurrence, change or effect that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect or prevent or materially delay the consummation of the
transactions contemplated by this Agreement or (b) any action taken by the
Company or any Company Subsidiary during the period from December 31,
<PAGE>
16
1998 through the date hereof that, if taken during the period from the date
hereof through the Effective Time, would constitute a breach of any of clauses
(a) through (p) of Section 5.01.
SECTION 3.10. Absence of Litigation. Except as specifically
---------------------
disclosed in the Company SEC Reports filed prior to the date of this Agreement
or in Section 3.10 of the Company Disclosure Schedule, there is no material
litigation, suit, claim, action, proceeding or investigation (an "Action")
------
pending or, to the knowledge of the Company, threatened against the Company or
any Company Subsidiary, or against any property or asset of the Company or any
Company Subsidiary, before any court, arbitrator or Governmental Entity,
domestic or foreign. Neither the Company nor any Company Subsidiary is subject
to any outstanding order, writ, injunction, decree or arbitration ruling, award
or other finding which has had or, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect.
SECTION 3.11. Employee Benefit Matters. (a) Plans and Material
------------------------ ------------------
Documents. Section 3.11(a) of the Company Disclosure Schedule lists (i) all
- ---------
employee benefit plans (as defined in section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
-----
stock purchase, restricted stock, incentive, deferred compensation, retiree
medical or life insurance, supplemental retirement, severance or other benefit
plans, programs or arrangements, and all employment, consulting, termination,
severance or other contracts or agreements, whether legally enforceable or not,
to which the Company or any Company Subsidiary is a party, with respect to which
the Company or any Company Subsidiary has any obligation or which are
maintained, contributed to or sponsored by the Company or any Company Subsidiary
for the benefit of any current or former employee, consultant, officer or
director of the Company or any Company Subsidiary, (ii) each employee benefit
plan for which the Company or any Company Subsidiary could incur liability under
section 4069 of ERISA in the event such plan has been or were to be terminated,
(iii) any plan in respect of which the Company or any Company Subsidiary could
incur liability under section 4212(c) of ERISA and (iv) any contracts,
arrangements or understandings between the Company or any Company Subsidiary or
any of their affiliates and any employee of the Company or any Company
Subsidiary relating to a sale of the Company or any Company Subsidiary
(collectively, the "Company Benefit Plans"). Each Company Benefit Plan is in
---------------------
writing and, to the knowledge of the Company, the Company has furnished the
Parent with a true and complete copy of each Company Benefit Plan and has
delivered to Parent a true and complete copy of each material document, if any,
prepared in connection with each such Company Benefit Plan, including, without
limitation, a copy of (i) each trust or other funding arrangement, (ii) each
summary plan description and summary of material modifications, (iii) the most
recently filed Internal Revenue Service ("IRS") Form 5500, (iv) the most
---
recently received IRS determination letter for each such Company Benefit Plan
and (v) the most recently prepared actuarial report and financial statement in
connection with each such Company Benefit Plan. Except as disclosed in Section
3.11(a) of the Company Disclosure Schedule, there are no other employee benefit
plans, programs, arrangements or agreements, whether formal or informal, whether
in writing or not, to which the Company or any Company Subsidiary is a party,
with respect to which the Company or any Company Subsidiary has any obligation
or which are maintained, contributed to or sponsored
<PAGE>
17
by the Company or any Company Subsidiary for the benefit of any current or
former employee, consultant, officer or director of the Company or any Company
Subsidiary. Except as disclosed in Section 3.11(a) of the Company Disclosure
Schedule, neither the Company nor any Company Subsidiary has any express or
implied commitment, whether legally enforceable or not, (i) to create, incur
liability with respect to or cause to exist any other employee benefit plan,
program or arrangement, (ii) to enter into any other contract or agreement to
provide compensation or benefits to any individual or (iii) to modify, change or
terminate any Company Benefit Plan, other than with respect to a modification,
change or termination required by ERISA or the Code.
(b) Absence of Certain Types of Plans. None of the Company Benefit
---------------------------------
Plans is a multiemployer plan (within the meaning of section 3(37) or 4001(a)(3)
of ERISA) (a "Multiemployer Plan") or a single employer pension plan (within the
------------------
meaning of section 4001(a)(15) of ERISA) for which the Company or any Company
Subsidiary could incur liability under section 4063 or 4064 of ERISA (a
"Multiple Employer Plan"). Except as disclosed in Section 3.11(b) of the
- -----------------------
Company Disclosure Schedule, none of the Company Benefit Plans provides for or
promises to any current or former employee, consultant, officer or director of
the Company or any Company Subsidiary retiree medical, disability or life
insurance benefits.
(c) Compliance. Except as disclosed in Section 3.11(c) of the Company
----------
Disclosure Schedule, to the knowledge of the Company, each Company Benefit Plan
is now and always has been operated in all respects in accordance with its terms
and the requirements of all applicable laws and regulations and rules
promulgated thereunder, including, without limitation, ERISA and the Code. The
Company and all Company Subsidiaries have performed all obligations required to
be performed by them under, are not in any respect in default under or in
violation of, and have no knowledge of any default or violation by any party
with respect to, any Company Benefit Plan. No action, claim or proceeding is
pending or, to the knowledge of the Company, threatened with respect to any
Company Benefit Plan (other than claims for benefits in the ordinary course) and
no fact or event exists that could give rise to any such action, claim or
proceeding.
(d) Qualification of Certain Plans. Except as disclosed in Section
------------------------------
3.11(d) of the Company Disclosure Schedule, each Company Benefit Plan that is
intended to be qualified under section 401(a) or 401(k) of the Code has timely
received a favorable determination letter from the IRS, covering all of the
provisions applicable to the Company Benefit Plan for which determination
letters are currently available, stating that the Company Benefit Plan is so
qualified and each trust established in connection with any Company Benefit Plan
which is intended to be exempt from federal income taxation under section 501(a)
of the Code has received a determination letter from the IRS, stating that it is
so exempt, and no fact or event has occurred since the date of such
determination letter or letters from the IRS to adversely affect the qualified
status of any such Company Benefit Plan or the exempt status of any such trust.
(e) Absence of Certain Liabilities. Neither the Company nor any
------------------------------
Company Subsidiary has incurred any liability under, arising out of or by
operation of Title IV of ERISA
<PAGE>
18
(other than liability for premiums to the Pension Benefit Guaranty Corporation
arising in the ordinary course), including, without limitation, any liability in
connection with (i) the termination or reorganization of any employee benefit
plan subject to Title IV of ERISA or (ii) withdrawal from any Multiemployer Plan
or Multiple Employer Plan, and no fact or event exists which could give rise to
any such liability.
(f) Plan Contributions and Funding. All contributions, premiums or
------------------------------
payments required to be made with respect to any Company Benefit Plan have been
made on or before their due dates. All such contributions have been fully
deducted for income tax purposes, no such deduction has been challenged or
disallowed by any Governmental Entity and no fact or event exists which could
give rise to any such challenge or disallowance.
(g) Severance Payments. Except as disclosed in Section 3.11(g) of the
------------------
Company Disclosure Schedule, no amounts payable under the Company Benefit Plans
solely as a result of the consummation of the transactions contemplated by this
Agreement will fail to be deductible for federal income tax purposes by virtue
of section 280G of the Code. Except as disclosed in Section 3.11(g) of the
Company Disclosure Schedule, the consummation of the transactions contemplated
by this Agreement will not, either alone or in combination with another event,
(i) entitle any current or former employee, officer or director of the Company
or any Company Subsidiary to severance pay, unemployment compensation or any
other payment, except as expressly provided in this Agreement, (ii) accelerate
the time of payment or vesting, or increase the amount, of compensation due any
such employee, officer or director, (iii) constitute a "change of control" under
any Company Benefit Plan or (iv) accelerate the vesting or the exercisability of
any Company Stock Option.
SECTION 3.12. Labor Matters. Except as set forth in Section 3.12 of
-------------
the Company Disclosure Schedule, (a) neither the Company nor any Company
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any Company
Subsidiary, and currently there are no organizational campaigns, petitions or
other unionization activities seeking recognition of a collective bargaining
unit which could affect the Company or any Company Subsidiary; (b) there are no
controversies, strikes, slowdowns or work stoppages pending or, to the best
knowledge of the Company after due inquiry, threatened between the Company or
any Company Subsidiary and any of their employees, and neither the Company nor
any Company Subsidiary has experienced any such controversy, strike, slowdown or
work stoppage within the past three years; (c) neither the Company nor any
Company Subsidiary has breached or otherwise failed to comply with the
provisions of any collective bargaining or union contract and there are no
grievances outstanding against the Company or any Company Subsidiary under any
such agreement or contract that could have a Material Adverse Effect; (d) there
are no unfair labor practice complaints pending against the Company or any
Company Subsidiary before the National Labor Relations Board or any other
Governmental Entity nor any current union representation questions involving
employees of the Company or any Company Subsidiary that could have a Material
Adverse Effect; (e) the Company and all Company Subsidiaries are currently in
compliance with all
<PAGE>
19
applicable laws relating to the employment of labor, including those related to
wages, hours, collective bargaining and the payment and withholding of taxes and
other sums as required by the appropriate Governmental Entity, have withheld and
paid to the appropriate Governmental Entity or are holding for payment not yet
due to such Governmental Entity all amounts required to be withheld from
employees of the Company or any Company Subsidiary and are not liable for any
arrears of wages, taxes, penalties or other sums for failure to comply with any
of the foregoing; (f) the Company and all Company Subsidiaries have paid in full
to all employees, or adequately accrued for in accordance with U.S. GAAP
consistently applied, all wages, salaries, commissions, bonuses, benefits and
other compensation due to or on behalf of such employees; (g) there is no claim
with respect to payment of wages, salary or overtime pay that has been asserted
or is now pending or threatened before any Governmental Entity with respect to
any persons currently or formerly employed by the Company or any Company
Subsidiary; (h) neither the Company nor any Company Subsidiary is a party to, or
otherwise bound by, any consent decree with, or citation by, any Governmental
Entity relating to employees or employment practices; (i) there is no charge or
proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect to
the Company or any Company Subsidiary; and (j) there is no charge of
discrimination in employment or employment practices, for any reason, including,
without limitation, age, gender, race, religion or other legally protected
category, which has been asserted or is now pending or threatened before the
United States Equal Employment Opportunity Commission, or any other Governmental
Entity in any jurisdiction in which the Company or any Company Subsidiary has
employed or currently employs any person.
SECTION 3.13. Employees of the Company. Section 3.13 of the Company
------------------------
Disclosure Schedule lists the name, the place of employment, the current annual
salary rates (including descriptions of any raises in the preceding twelve
months), total Form W-2 compensation for 1999, deferred or contingent
compensation, pension, accrued vacation, "golden parachute" and other like
benefits paid or payable (in cash or otherwise) in the year ended December 31,
1999 and the current fiscal year; the date of employment and a description of
the position of each current salaried employee and officer of the Company.
SECTION 3.14. Company Material Contracts. (a) Sections 3.14(a)(i)
--------------------------
through (xii) of the Company Disclosure Schedule set forth a list of the
following types of contracts, agreements (including all amendments thereto),
commitments and other instruments to which the Company or any Company Subsidiary
is a party (such contracts, agreements, commitments and other instruments as are
required to be set forth in Sections 3.14(a)(i) through (x) of the Company
Disclosure Schedule, together with all contracts, agreements, commitments and
other instruments required to be set forth in Sections 3.11, 3.17 and 3.18 of
the Company Disclosure Schedule, being the "Company Material Contracts"):
--------------------------
(i) each contract, agreement, commitment or other instrument,
including, without limitation, each customer and supplier contract which
(A) is likely to involve consideration of more than $250,000, in the
aggregate, during the fiscal years ending
<PAGE>
20
December 31, 1999 and December 31, 2000 or (B) is likely to involve
consideration of more than $1,000,000, in the aggregate, over the remaining
term of such contract, and which, in either case, cannot be canceled by the
Company or any Company Subsidiary without penalty or further payment and
without more than 60 days' notice;
(ii) all contracts, agreements, commitments and instruments
relating to indebtedness for borrowed money;
(iii) all contracts, agreements, commitments and instruments that
would be required to be listed as an exhibit to the Company's Annual Report
on Form 10-K under the rules and regulations of the SEC and which were not
listed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and any contracts that would be required to be so listed
but for the exception with respect to contracts made in the ordinary course
of business;
(iv) all contracts, agreements, commitments and instruments that
obligate the Company or any Company Subsidiary to make any payments or
issue or pay in excess of $100,000 to any employee or consultant or make
any payments or issue or pay anything of value to any affiliate, director
or officer;
(v) all contracts, agreements, commitments and instruments
relating to any obligation to engage in a merger, consolidation, business
combination, share exchange or business acquisition, or for the purchase or
sale of any assets of the Company or any of the Company Subsidiaries other
than in the ordinary course of business consistent with past practice;
(vi) all contracts, agreements, commitments and instruments that
(A) provide for the Company or any Company Subsidiary to be the exclusive
provider of any product or service to any person in any geographic area or
during any period of time; (B) limit or purport to limit the ability of the
Company or any Company Subsidiary to compete in any line of business or
with any person in any geographic area or during any period of time; or (C)
would, after the Effective Time, limit or otherwise restrict Parent or any
subsidiary or affiliate of Parent from engaging or competing in any line of
business or in any geographical area;
(vii) all contracts, agreements, commitments and instruments that
include any indemnification, contribution or support obligations in an
amount which would reasonably be expected to exceed $100,000, or which in
the aggregate would reasonably be expected to exceed $500,000;
(viii) all contracts, agreements, commitments and instruments that
obligate capital expenditures involving total payments of more than
$250,000;
<PAGE>
21
(ix) all contracts, agreements, commitments and instruments that
obligate the Company or any Company Subsidiary to issue or sell any capital
stock; and
(x) other than provider contracts, all contracts and agreements with
any Governmental Entity to which the Company or any Company Subsidiary is a
party.
(b) Except as would not, individually or in the aggregate, reasonably
be expected to have a Material Adverse Effect, (i) each Company Material
Contract is a legal, valid and binding agreement in full force and effect, and
none of the Company Material Contracts is in default by its terms or has been
canceled by the other party and no event has occurred that with notice or lapse
of time or both would constitute a default; (ii) to the Company's knowledge, no
other party is in breach or violation of, or default under, any Company Material
Contract; and (iii) no Company or Company Subsidiary is in receipt of any claim
of default under any such agreement. The Company has furnished or made
available to Parent true and complete copies of all Company Material Contracts,
including any amendments thereto.
SECTION 3.15. Customers. Section 3.15 of the Company Disclosure
---------
Schedule contains a list of the top 20 Payors (as defined below) sorted by 1999
revenue, during the years ended December 31, 1998 and 1999, together with the
amounts of revenues from each such customer or client during such years. The
Company is not aware of any facts indicating that any of these Payors or any
other material customers or clients intend to cease doing business with the
Company or any Company Subsidiary or that the Company will incur a material
reduction in the amount of the aggregate revenues derived from its top 20 Payors
doing business with the Company and the Company Subsidiaries. "Payor" means any
-----
insurance company, health maintenance organization, preferred provider
organization, independent practice association or other Person to whom medical
claims or encounters are submitted.
SECTION 3.16. Environmental Matters. Except as described in Section
---------------------
3.16 of the Company Disclosure Schedule or as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect: (a) the
Company and the Company Subsidiaries have not violated and are not in violation
of any Environmental Law (as defined below); (b) none of the properties
currently or formerly owned, leased or operated by the Company and the Company
Subsidiaries (including, without limitation, soils and surface and ground
waters) are contaminated with any Hazardous Substance (as defined below); (c)
the Company and the Company Subsidiaries are not actually, potentially or
allegedly liable for any off-site contamination by Hazardous Substances; (d) the
Company and the Company Subsidiaries are not actually, potentially or allegedly
liable under any Environmental Law (including, without limitation, pending or
threatened liens); (e) the Company and the Company Subsidiaries have all
permits, licenses and other authorizations required under any Environmental Law
("Environmental Permits"); (f) the Company and the Company Subsidiaries are in
---------------------
compliance with their Environmental Permits; and (g) neither the execution of
this Agreement nor the consummation of the transactions contemplated herein will
require any investigation, remediation or other action with respect to Hazardous
Substances, or any notice to or consent of
<PAGE>
22
Governmental Entities or third parties, pursuant to any applicable Environmental
Law or Environmental Permit.
"Environmental Law" means any federal, state, local or foreign law (A)
-----------------
relating to releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (B) relating to the manufacture,
handling, transport, use, treatment, storage or disposal of Hazardous Substances
or materials containing Hazardous Substances; or (C) otherwise relating to
pollution or protection of the environment, health, safety or natural resources.
"Hazardous Substances" means (i) those substances defined in or
--------------------
regulated under the following federal statutes and their state counterparts, as
each may be amended from time to time, and all regulations thereunder: the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act,
the Clean Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the
Federal Insecticide, Fungicide, and Rodenticide Act and the Clean Air Act; (ii)
petroleum and petroleum products, including crude oil and any fractions thereof;
(iii) natural gas, synthetic gas, and any mixtures thereof; (iv) polychlorinated
biphenyls, asbestos and radon; (v) any other contaminant; and (vi) any
substance, material or waste regulated by any federal, state, local or foreign
Governmental Entity pursuant to any Environmental Law.
SECTION 3.17. Title to Properties; Absence of Liens and Encumbrances.
-------------------------------------------------------
(a) Section 3.17(a)(i) of the Company Disclosure Schedule lists the real
property interests owned by the Company and the Company Subsidiaries. Section
3.17(a)(ii) of the Company Disclosure Schedule lists all real property leases to
which the Company or any Company Subsidiary is a party, and each amendment
thereto, that provide for annual payments in excess of $250,000. Other than the
owned real property identified in Section 3.17(a)(i) of the Company Disclosure
Schedule and leaseholds created under the real property leases identified in
Section 3.17(a) of the Company Disclosure Schedule, the Company and the Company
Subsidiaries have no ownership or leasehold interest in any real property.
(b) Each of the Company and the Company Subsidiaries has good and
valid title to, or, in the case of leased properties and assets, valid leasehold
interests in, all of its tangible properties and assets, real, personal and
mixed, used or held for use in its business, free and clear of any liens,
pledges, charges, claims, security interests or other encumbrances of any sort
("Liens"), except for Liens imposed by Law in respect of obligations not yet
-----
due, which are owed in respect of taxes or which otherwise are owed to carriers,
warehousepersons or laborers, except as reflected in the financial statements
contained in the Company SEC Reports and except for such Liens or other
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present or contemplated use, of the property
subject thereto or affected thereby.
<PAGE>
23
SECTION 3.18. Intellectual Property. (a) Section 3.18 of the
---------------------
Company Disclosure Schedule sets forth a true and complete list of all (i)
patents and patent applications, registered trademarks and trademark
applications, registered copyrights and copyright applications and domain names
included in the Company Owned Intellectual Property, (ii) Company Software,
(iii) Licenses, other than licenses of commercial off-the-shelf, shrink-wrap or
click-wrap computer software, and (iv) other material Intellectual Property
included in the Company Owned Intellectual Property. Except as set forth in
Section 3.18 of the Company Disclosure Schedule, the Company and the Company
Subsidiaries have not granted any license or other rights to any third party
with respect to the Company Owned Intellectual Property or the Company Licensed
Intellectual Property.
(b) The Company Owned Intellectual Property and the Company Licensed
Intellectual Property include all of the Intellectual Property used in the
ordinary day-to-day conduct of the business of the Company and the Company
Subsidiaries, and there are no other items of Intellectual Property that are
material to the conduct of such business. The Company and the Company
Subsidiaries are entitled to use the Company Owned Intellectual Property and the
Company Licensed Intellectual Property without limitation, subject only to the
terms of the Licenses.
(c) The Company or a Company Subsidiary is the exclusive owner of the
entire and unencumbered right, title and interest in and to each item of the
Company Owned Intellectual Property.
(d) The Company Owned Intellectual Property and the Company Licensed
Intellectual Property are subsisting, valid and enforceable, and have not been
adjudged invalid or unenforceable in whole or in part. The consummation of the
transactions contemplated by this Agreement will not result in the termination
or impairment of any of the Company Owned Intellectual Property or the Company
Licensed Intellectual Property.
(e) The operation of the business of the Company and the Company
Subsidiaries as currently conducted or as contemplated to be conducted by the
Company and the Company Subsidiaries, including services provided by, processes
used by, or products manufactured, created, developed or sold by the Company and
the Company Subsidiaries, the use of the Company Owned Intellectual Property and
Company Licensed Intellectual Property in connection therewith and the Company
and the Company Subsidiaries' transmission, use, linking and other practices
related to its web sites, the content thereof and data do not conflict with,
infringe, misappropriate or otherwise violate the Intellectual Property rights
of any third party or Law; and no Actions have been asserted, are pending or
have been threatened against the Company or a Company subsidiary (i) alleging
any of the foregoing, (ii) based upon, challenging, seeking to deny or restrict
the use by the Company or any Company Subsidiary of any of the Company Owned
Intellectual Property or the Company Licensed Intellectual Property, or (iii)
alleging that the Licenses are in conflict with the terms of any license or
other agreement. No
<PAGE>
24
third party is engaging in any activity that infringes, misappropriates or
otherwise violates the Company Owned Intellectual Property or the Company
Licensed Intellectual Property.
(f) The Company and the Company Subsidiaries have delivered or made
available to Parent true and complete copies of all the agreements included in
the Licenses, other than licenses of commercial off-the-shelf, shrink-wrap or
click-wrap computer software. With respect to each such agreement:
(i) such agreement is valid and binding and in full force
and effect and represents the entire agreement between the respective
parties with respect to the subject matter of such agreement, and no
party to such agreement has made any oral promises or agreements
amending, modifying or supplementing such agreements;
(ii) such agreement will not cease to be valid and binding
and in full force and effect on terms identical to those currently in
effect as a result of the consummation of the transactions
contemplated by this Agreement, nor will the consummation of the
transactions contemplated by this Agreement constitute a breach or
default under such agreement or otherwise give the other party to such
agreement a right to terminate, materially modify or accelerate such
agreement;
(iii) neither the Company nor any Company Subsidiary has
(A) received any notice of termination or cancellation under such
agreement, (B) received any notice of breach or default under such
agreement, which breach has not been cured, or (C) granted to any
other third party any rights, adverse or otherwise, under such
agreement that would constitute a breach of such agreement; and
(iv) neither the Company or any Company subsidiary, nor,
to the Company or any Company Subsidiary's knowledge, after due
inquiry, any other party to such agreement, is in breach or default
thereof in any material respect, and no event has occurred that, with
notice or lapse of time, would constitute such a breach or default or
permit termination, modification or acceleration under such agreement.
(g) The Company Software is free of all viruses, worms, trojan horses
and other material known contaminants, and does not contain any bugs, errors, or
problems of a material nature that disrupt its operation or have a materially
adverse impact on the operation of other software programs or operating systems.
The Company and Company Subsidiaries have the right to use all software
development tools, library functions, compilers, and other third party software
that is material to the business of the Company and Company Subsidiaries, or
that is required to operate or modify the Company Software.
<PAGE>
25
(h) The Company and the Company Subsidiaries have taken reasonable
steps in accordance with normal industry practice to maintain the
confidentiality of their trade secrets and other confidential Intellectual
Property. To the knowledge of the Company and the Company Subsidiaries (i)
there has been no misappropriation of any material trade secrets or other
material confidential Intellectual Property of the Company or the Company
Subsidiaries by any person, and (ii) no employee, independent contractor or
agent of the Company or the Company Subsidiaries has misappropriated any trade
secrets of any other person in the course of such performance as an employee,
independent contractor or agent; and (iii) no employee, independent contractor
or agent of the Company or the Company Subsidiaries is in default or breach of
any term of any employment agreement, non-disclosure agreement, assignment of
invention agreement or similar agreement or contract relating in any way to the
protection, ownership, development, use or transfer of Intellectual Property.
"Intellectual Property" means (i) patents, patent applications and
---------------------
statutory invention registrations, (ii) trademarks, service marks, domain names,
trade dress, logos, and other source identifiers, including registrations and
applications for registration thereof, (iii) copyrights and copyrightable works,
including registrations and applications for registration thereof, (iv)
Software, (v) confidential and proprietary information, including trade secrets,
know-how, customer lists, confidential marketing and customer information, and
(vi) intangible property protected by the rights of privacy, person, publicity
and endorsement in any jurisdiction.
"Company Licensed Intellectual Property" means all Intellectual
--------------------------------------
Property licensed to the Company or any of the Company Subsidiaries by a third
party pursuant to the Licenses.
"Company Owned Intellectual Property" means all Intellectual Property
-----------------------------------
owned by the Company or any of the Company Subsidiaries.
"Company Software" means all Software (i) material to the operation of
----------------
the business of the Company and the Company Subsidiaries or (ii) manufactured,
distributed, sold, licensed or marketed by the Company or any Company
Subsidiary.
"Licenses" mean all agreements, whether express or implied, and all
--------
rights and obligations deriving therefrom, governing (i) licenses of
Intellectual Property by the Company or any Company Subsidiary to third parties,
(ii) licenses of Intellectual Property by third parties to the Company or any
Company Subsidiary, and (iii) the rights between the Company or any Company
Subsidiary and third parties relating to the development or use of Intellectual
Property.
"Software" means computer software, programs, data, databases in any
--------
form, files, applications, including Internet web sites, including content
thereof and all links and advertisements contained therein, source code, object
code, operating systems, specifications, database management code, data formats,
utilities, graphical user interfaces, methods of processing, software engines,
platforms, encryption keys and other security features, all versions,
<PAGE>
26
conversions, updates, patches, corrections, enhancements and modifications
thereof and all related documentation, developer notes, comments and
annotations.
SECTION 3.19. Year 2000 Compliance. Except as would not,
--------------------
individually or in the aggregate, have a Material Adverse Effect, all Company
Systems are Year 2000 Compliant. For purposes hereof, "Company Systems" shall
---------------
mean all computer hardware, software, Company Software, systems, and equipment
(including embedded microcontrollers in non-computer equipment) embedded within
or required to operate the current products of the Company and the Company
Subsidiaries, and/or material to or necessary for the Company and the Company
Subsidiaries to carry on their businesses as currently conducted. For purposes
hereof, "Year 2000 Compliant" means that the Company Systems provide
-------------------
uninterrupted millennium functionality in that the Company Systems will record,
store, process and present calendar dates falling on or after January 1, 2000
(including, without limitation, February 29, 2000 and all other intercalary
dates occurring after the year 2000), in the same manner and with the same
accuracy and functionality as the Company Systems record, store, process, and
present calendar dates falling on or before December 31, 1999.
SECTION 3.20. Taxes. Except as set forth in Section 3.20 of the
-----
Company Disclosure Schedule, (a) the Company and each of the Company
Subsidiaries have timely filed or will timely file all returns and reports
required to be filed by them with any taxing authority with respect to Taxes for
any period ending on or before the Effective Time, taking into account any
extension of time to file granted to or obtained on behalf of the Company and
the Company Subsidiaries, (b) all Taxes that are due prior to the Effective Time
have been paid or will be paid, (c) no deficiency for any material amount of Tax
has been asserted or assessed by a taxing authority against the Company or any
of the Company Subsidiaries, (d) the Company and each of the Company
Subsidiaries have provided adequate reserves in their financial statements in
accordance with U.S. GAAP for any Taxes that have not been paid, whether or not
shown as being due on any returns, (e) neither the Company nor any of the
Company Subsidiaries has any income reportable for a Taxable period ending after
the date on which the Effective Time occurs that is attributable to an activity
or a transaction occurring in or a change in accounting method made for a period
ending on or prior to the date on which the Effective Time occurs, including,
without limitation, any adjustment pursuant to section 481 of the Code and (f)
neither the Company nor any of the Company Subsidiaries has made an election
under section 341(f) of the Code. As used in this Agreement, "Taxes" shall mean
-----
any and all taxes, fees, levies, duties, tariffs, imposts and other charges of
any kind (together with any and all interest, penalties, additions to tax and
additional amounts imposed with respect thereto) imposed by any government or
taxing authority, including, without limitation (i) taxes or other charges on or
with respect to income, franchise, windfall or other profits, gross receipts,
property, sales, use, stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth; (ii) taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer, value
added or gains taxes; (iii) license, registration and documentation fees; and
(iv) customers' duties, tariffs and similar charges.
<PAGE>
27
SECTION 3.21. Insurance. (a) Section 3.21(a) of the Company
---------
Disclosure Schedule sets forth, with respect to each insurance policy under
which the Company or any Company Subsidiary has been an insured, a named insured
or otherwise the principal beneficiary of coverage at any time within the past
two years, (i) the names of the insurer, the principal insured and each named
insured, (ii) the policy number, (iii) the period, scope and amount of coverage
and (iv) the premium charged. All material insurable risks of the Company and
the Company Subsidiaries in respect of the businesses of each are covered by
such insurance policies and the types and amounts of coverage provided therein
are usual and customary in the context of the businesses and operations in which
the Company and the Company Subsidiaries are engaged.
(b) With respect to each such insurance policy: (i) the policy is
legal, valid, binding and enforceable in accordance with its terms and, except
for policies that have expired under their terms in the ordinary course, is in
full force and effect; (ii) neither the Company nor any Company Subsidiary is in
material breach or default (including any such breach or default with respect to
the payment of premiums or the giving of notice), and no event has occurred
that, with notice or the lapse of time, would constitute such a breach or
default, or permit termination or modification, under the policy; and (iii) to
the knowledge of the Company, no insurer on the policy has been declared
insolvent or placed in receivership, conservatorship or liquidation.
(c) At no time subsequent to January 1, 1997 has the Company or any
Company Subsidiary (i) been denied any insurance or indemnity bond coverage
which it has requested, (ii) made any material reduction in the scope or amount
of its insurance coverage, or (iii) received notice from any of its insurance
carriers that any insurance premiums will be subject to increase in an amount
materially disproportionate to the amount of the increases with respect thereto
(or with respect to similar insurance) in prior years or that any insurance
coverage listed in Section 3.21(a) of the Company Disclosure Schedule will not
be available in the future substantially on the same terms as are now in effect.
SECTION 3.22. Affiliate Transactions. Except as disclosed in Section
----------------------
3.22 of the Company Disclosure Schedule, there are no contracts, commitments,
agreements, arrangements or other transactions between the Company or any of the
Company Subsidiaries, on the one hand, and any (i) officer or director of the
Company or any of the Company Subsidiaries, (ii) record or beneficial owner of
5% or more of the voting securities of the Company or (iii) affiliate (as such
term is defined in regulation 12b-2 under the Exchange Act) of any such officer,
director or beneficial owner, on the other hand.
SECTION 3.23. Managed Care Matters. Except as described in Section
--------------------
3.23 of the Company Disclosure Schedule or as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect: (a) the
Company and the Company Subsidiaries have not been and are not subject to any
federal or state laws pertaining to entities which deliver health care or
managed care and related administrative operations, including, without
limitation (i) the federal Fraud and Abuse Statute set forth in 42 U.S.C.A.
1320a-7b(b) or similar state laws, (ii) the federal False Claims Act set forth
in 42 U.S.C.A. 1320a-7b or similar state laws, (iii) state
<PAGE>
28
corporate practice of medicine laws, and (iv) state "any willing provider" laws;
(b) the Company and the Company Subsidiaries have not contracted with any health
care providers who have violated or are in violation of state licensing or
credentialing laws; (c) the Company and the Company Subsidiaries are in
compliance with all applicable (i) state utilization review laws and (ii) state
medical privacy laws; and (d) the Company and the Company Subsidiaries are not
fiduciaries as such term is defined in Section 404 of ERISA, applicable
Department of Labor regulations and relevant caselaw with respect to the
provision of any services to ERISA welfare plans and are not subject to Sections
404 or 406 of ERISA.
SECTION 3.24. State Takeover Statutes. (a) Except for section 203
-----------------------
of the DGCL, no "fair price", "moratorium", "control share acquisition" or other
similar anti-takeover statute or regulation is applicable, by reason of the
Company's being a party to the Merger or this Agreement or the transactions
contemplated hereby or thereby or by reason of the execution by certain
stockholders of the Voting Agreement and the transactions contemplated thereby.
Neither the Company nor any of the Company Subsidiaries is a party to any
"stockholder rights" plan or any similar anti-takeover plan or device.
(b) Prior to the time this Agreement was executed, the Board of
Directors of the Company has taken all action necessary, if any, to exempt under
or make not subject to section 203 of the DGCL (i) the execution of this
Agreement, (ii) the Merger and (iii) the other transactions contemplated hereby
and by the Voting Agreement.
SECTION 3.25. Board Approval; Vote Required. The Board of Directors
-----------------------------
of the Company, by resolutions duly adopted by unanimous vote at a meeting duly
called and held and not subsequently rescinded or modified in any way on or
prior to the date hereof (the "Company Board Approval"), has duly (i) determined
----------------------
that this Agreement and the Merger are fair to and in the best interests of the
Company and its stockholders, (ii) approved this Agreement and the Merger, and
determined that the execution, delivery and performance of this Agreement is
advisable and (iii) recommended that the stockholders of the Company approve the
Merger and adopt this Agreement and directed that this Agreement and the
transactions contemplated hereby be submitted for consideration by the Company's
stockholders at a meeting of the Company's stockholders (the "Company
-------
Stockholders' Meeting").
- ---------------------
SECTION 3.26. Opinion of Financial Advisor. The Company has received
----------------------------
the written opinion of J.P. Morgan & Company Inc. ("JP Morgan") dated the date
---------
of this Agreement to the effect that, as of the date of this Agreement, the
Merger Consideration is fair to the Company's stockholders from a financial
point of view, a copy of which opinion has been delivered to Parent.
SECTION 3.27. Brokers. No broker, finder or investment banker (other
-------
than Morgan Stanley) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger or the other transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company.
The Company has heretofore made available to Parent a complete and correct copy
of all agreements between the Company and JP
<PAGE>
29
Morgan pursuant to which JP Morgan would be entitled to any payment relating to
the Merger or any other transactions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
-------------------------------------------------------
Parent and Merger Sub hereby jointly and severally represent and
warrant to the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries. Parent
--------------------------------------------
is a corporation duly organized and validly existing under the laws of Canada,
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and each of Parent and Merger
Sub has all requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to be so organized,
existing or in good standing or to have such power, authority and governmental
approvals would not prevent or materially delay the consummation of the
transactions contemplated by this Agreement.
SECTION 4.02. Authority Relative to This Agreement. Each of Parent
------------------------------------
and Merger Sub has all necessary corporate power and authority to execute and
deliver this Agreement and the Voting Agreement, to perform its obligations
hereunder and thereunder and to consummate the Merger and the other transactions
contemplated by this Agreement and the Voting Agreement. The execution and
delivery of each of this Agreement and the Voting Agreement by each of Parent
and Merger Sub and the consummation by each of Parent and Merger Sub of the
Merger and the other transactions contemplated by this Agreement and the Voting
Agreement have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of Parent or Merger Sub
are necessary to authorize this Agreement or to consummate the Merger and the
other transactions contemplated by this Agreement other than, with respect to
the Merger, the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware as required by the DGCL. Each of this Agreement and
the Voting Agreement has been duly authorized and validly executed and delivered
by each of Parent and Merger Sub and, assuming the due authorization, execution
and delivery by the Company, constitutes the legal, valid and binding obligation
of each of Parent and Merger Sub, enforceable against each of Parent and Merger
Sub in accordance with its terms.
SECTION 4.03. No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by each of Parent and Merger Sub and of
the Voting Agreement by Parent do not, and the performance of this Agreement and
the Voting Agreement by Parent will not, (i) conflict with or violate any
provision of the Articles of Incorporation or By-Laws of Parent, the Certificate
of Incorporation or By-Laws of Merger Sub, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 4.03(b) have been
obtained and all filings and notifications described in Section 4.03(b) have
been made, conflict with or
<PAGE>
30
violate any Law applicable to Parent or Merger Sub or by which any property or
asset of Parent or Merger Sub is bound or affected, or (iii) require any consent
or approval under, result in any breach of, any loss of any benefit under or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or other encumbrance on any property or asset of Parent or Merger Sub pursuant
to any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation, except, with respect to
clauses (ii) and (iii) of this Section 4.03(a), for any such conflicts,
violations, breaches, defaults or other occurrences that would not prevent or
materially delay the consummation of the transactions contemplated by this
Agreement.
(b) The execution and delivery of this Agreement by each of Parent
and Merger Sub and of the Voting Agreement by Parent do not, and the performance
of this Agreement by each of Parent and Merger Sub and of the Voting Agreement
by Parent will not require any consent, approval, authorization or permit of, or
filing with or notification to any Governmental Entity, except (i) for the
Required Consents and (ii) when the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications would not
prevent or materially delay the consummation of the transactions contemplated by
this Agreement.
SECTION 4.04. Financing. Parent has, or shall have, sufficient funds
---------
to cause Merger Sub to pay the aggregate Merger Consideration in connection with
the Merger and consummate the Merger and has previously made available to the
Company commitment letters from its lenders in respect thereof.
ARTICLE V
CONDUCT OF BUSINESSES PENDING THE MERGER
----------------------------------------
SECTION 5.01. Conduct of Business by the Company Pending the Merger.
-----------------------------------------------------
The Company agrees that, between the date of this Agreement and the Effective
Time, except as set forth in Section 5.01 of the Company Disclosure Schedule or
as specifically permitted by any other provision of this Agreement, unless
Parent shall otherwise agree in writing, the businesses of the Company and the
Company Subsidiaries shall be conducted only in, and the Company and the Company
Subsidiaries shall not take any action except in, the ordinary course of
business and in a manner consistent with past practice, and the Company shall
use its reasonable best efforts to preserve substantially intact its business
organization, maintain its rights and keep available the services of the current
officers, employees and consultants of the Company and the Company Subsidiaries
and to preserve the current relationships of the Company and the Company
Subsidiaries with customers, suppliers, licensors, licensees and other persons
with which the Company or any Company Subsidiary has significant business
relations.
<PAGE>
31
By way of amplification and not limitation, except as set forth in
Section 5.01 of the Company Disclosure Schedule or as specifically permitted by
any other provision of this Agreement, neither the Company nor any Company
Subsidiary shall, between the date of this Agreement and the Effective Time,
directly or indirectly, do or propose to do any of the following without the
prior written consent of Parent:
(a) amend or otherwise change its Certificate of Incorporation or By-
Laws or equivalent organizational documents;
(b) (i) issue, sell, pledge, dispose of, grant, transfer, encumber,
or authorize the issuance, sale, pledge, disposition, granting, transfer or
encumbrance of, any shares of capital stock of, or other equity interest
in, the Company or any Company Subsidiary of any class, or securities
convertible into or exchangeable for any shares of such capital stock or
other equity interest, or any options, warrants or other rights of any kind
to acquire any shares of such capital stock or other equity interest or
such convertible or exchangeable securities, or any other ownership
interest (including, without limitation, any phantom interest), of the
Company or any Company Subsidiary (except for (A) the issuance of Company
Common Stock upon the exercise, in accordance with their terms, of the
Company Stock Options, (B) the issuance of a maximum of 498,000 shares of
Company Common Stock issuable pursuant to Warrants, or (C) the issuance of
shares of Company Common Stock pursuant to the ESPP, in respect of payroll
deductions under the ESPP that occur until the end of the offering period
ending on March 31, 2000) or (ii) except in the ordinary course of business
consistent with past practice, sell, pledge, dispose of, transfer, lease,
license, guarantee or encumber, or authorize the sale, pledge, disposition,
transfer, lease, licensing, guarantee or encumbrance of, any material
property or assets of the Company or any Company Subsidiary;
(c) (i) sell, assign, or grant any security interest in and to any
item of the Company Owned Intellectual Property or Company Licensed
Intellectual Property, in whole or in part, (ii) grant any licenses with
respect to any Company Owned Intellectual Property, other than grants of
licenses of Company Software to the customers of the Company and Company
Subsidiaries to whom the Company and Company Subsidiaries license such
Company Software in the ordinary course of their business, (iii) develop,
create or invent any Intellectual Property jointly with any third party, or
(iv) disclose, or allow to be disclosed, any confidential Company Owned
Intellectual Property, unless such Company Owned Intellectual Property is
subject to a confidentiality or non-disclosure covenant satisfactory to
Parent protecting against disclosure thereof;
(d) authorize, declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or in any other form, with
respect to any of its capital stock (other than dividends paid by wholly
owned Company Subsidiaries to the Company or to other wholly owned Company
Subsidiaries) or enter into any agreement
<PAGE>
32
with respect to the voting of its capital stock, other than a distribution
contemplated by Section 6.10;
(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(f) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or any division thereof of any
assets;
(g) incur any indebtedness for borrowed money or issue any debt
securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible to, the obligations of any person, or make
any loans, advances or capital contributions to any person;
(h) enter into any contract that would become a Company Material
Contract other than provider and payor contracts in the ordinary course of
business, or modify, amend or terminate any Company Material Contract other
than modifications, amendments or terminations in the ordinary course of
business consistent with past practice;
(i) make or authorize any capital expenditures, other than capital
expenditures reflected in the Company's capital expenditure budget for the
fiscal year ending December 31, 2000 previously delivered by the Company to
Parent;
(j) waive any stock repurchase or acceleration rights, amend or
change the terms of any options or restricted stock, or reprice options
granted under any Company Stock Option Plan or authorize cash payments in
exchange for any options granted under any such plans;
(k) (i) increase the compensation payable or to become payable to its
directors, officers or employees (except for increases in accordance with
past practice and consistent with current budgets in salaries or wages of
officers and employees of the Company or any Company Subsidiary), (ii)
grant any rights to severance or termination pay to, or enter into any
employment or severance agreement with, any director, officer or other
employee of the Company or any Company Subsidiary, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee, (iii) take any affirmative action to
accelerate the vesting of any stock-based compensation, or (iv) hire or
retain any person if such person's aggregate annual compensation is
expected to be in excess of $150,000;
<PAGE>
33
(l) settle any material Action other than any settlement which
involves the payment of damages that are not material and does not involve
injunctive or other equitable relief;
(m) make or revoke any material Tax election, adopt or change any
method of Tax accounting, settle any material Tax liabilities or take any
action with respect to the computation of Taxes or the preparation of Tax
returns that is inconsistent with past practice;
(n) take any action, other than as required by U.S. GAAP or by the
SEC, with respect to accounting principles or procedures, including,
without limitation, any revaluation of assets;
(o) take any action that is intended or would reasonably be expected
to result in any of the conditions to the Merger set forth in Article VII
not being satisfied, except any action permissible under Section 6.04 or
other action as may be required by applicable Law; or
(p) announce an intention to authorize or enter into any formal or
informal agreement or otherwise make any commitment to do any of the
foregoing.
SECTION 5.02. Notification of Certain Matters. Parent shall give
-------------------------------
prompt notice to the Company, and the Company shall give prompt notice to
Parent, of (i) the occurrence or nonoccurrence of any event the occurrence or
nonoccurrence of which would be likely to cause (A) any representation or
warranty contained in this Agreement to be untrue or inaccurate or (B) any
covenant, condition or agreement contained in this Agreement not to be complied
with or satisfied and (ii) any failure of Parent or the Company, as the case may
be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
-------- -------
of any notice pursuant to this Section 5.02 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
ARTICLE VI
ADDITIONAL AGREEMENTS
---------------------
SECTION 6.01. Proxy Statement. (a) As promptly as practicable after
---------------
the execution of this Agreement, Parent and the Company shall prepare and the
Company shall file with the SEC a proxy statement (together with all amendments
or supplements thereto, the "Proxy Statement") relating to the Company
---------------
Stockholders' Meeting to be held in connection with the Merger. Each of Parent
and the Company shall use all reasonable efforts to cause the Proxy Statement to
be cleared by the SEC as promptly as practicable after such filing, and the
Company shall use all reasonable efforts to cause the Proxy Statement to be
mailed to the Company's
<PAGE>
34
stockholders as promptly as practicable after the Proxy Statement is cleared by
the SEC. Subject to Section 6.04(d), the Proxy Statement shall include the
Company Board Approval.
(b) No amendment or supplement to the Proxy Statement will be made by
the Company without the approval of Parent (such approval not to be unreasonably
withheld or delayed). The Company will advise Parent, promptly after it
receives notice thereof, of any request by the SEC for amendment of the Proxy
Statement or comments thereon and responses thereto or requests by the SEC for
additional information.
(c) The information supplied by Parent for inclusion in the Proxy
Statement shall not at (i) the time the Proxy Statement is cleared by the SEC,
(ii) the time the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the shareholders of the Company, (iii) the time of
the Company Stockholders' Meeting, and (iv) the Effective Time, contain any
untrue statement of a material fact or fail to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. If, at
any time prior to the Effective Time, any event or circumstance relating to
Parent or any subsidiary of Parent, or any of their respective officers or
directors, that should be set forth in an amendment or a supplement to the Proxy
Statement should be discovered by Parent, Parent shall promptly inform the
Company thereof. All documents that Parent is responsible for filing with the
SEC in connection with the Merger or the other transactions contemplated by this
Agreement will comply as to form and substance in all material aspects with the
applicable requirements of the Exchange Act.
(d) The information supplied by the Company for inclusion in the
Proxy Statement shall not, at (i) the time the Proxy Statement is cleared by the
SEC, (ii) the time the Proxy Statement (or any amendment thereof or supplement
thereto) is first mailed to the shareholders of the Company, (iii) the time of
the Company Stockholders' Meeting, and (iv) the Effective Time, contain any
untrue statement of a material fact or fail to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. If, at
any time prior to the Effective Time, any event or circumstance relating to the
Company or any Company Subsidiary, or any of their respective officers or
directors, that should be set forth in an amendment or a supplement to the Proxy
Statement should be discovered by the Company, the Company shall promptly inform
Parent. All documents that the Company is responsible for filing with the SEC in
connection with the Merger or the other transactions contemplated by this
Agreement will comply as to form and substance in all material respects with the
applicable requirements of the Exchange Act.
SECTION 6.02. Company Stockholders' Meeting. The Company shall call
-----------------------------
and hold the Company Stockholders' Meeting as promptly as practicable for the
purpose of voting upon the approval of the Merger and this Agreement and the
Company shall use its reasonable best efforts to hold the Company Stockholders'
Meeting as soon as practicable after the date on which the Proxy Statement is
cleared by the SEC. The Company shall use its reasonable best efforts to
solicit from its stockholders proxies in favor of the approval of the Merger and
this
<PAGE>
35
Agreement and shall take all other action advisable to secure the vote or
consent of stockholders of the Company. Without limiting the generality of the
foregoing, the Company agrees that it shall continue to be obligated to call and
hold a meeting pursuant to the first sentence of this Section 6.02 even if the
withdrawal or modification in any adverse manner of its approval or
recommendation of this Agreement is permitted under Section 6.04(d).
SECTION 6.03. Access to Information; Confidentiality. (a) Except as
--------------------------------------
required pursuant to any confidentiality agreement or similar agreement or
arrangement to which the Company or any Company Subsidiary is a party (which the
Company shall use reasonable best efforts to cause the counterparty thereto to
waive) or pursuant to applicable Law, from the date of this Agreement to the
Effective Time, the Company shall (and shall cause its subsidiaries to): (i)
provide to Parent (and to the officers, directors, employees, accountants,
consultants, legal counsel, agents and other representatives (together,
"Representatives") of Parent) access, at reasonable times upon prior notice, to
---------------
its officers, employees, agents, properties, offices and other facilities and to
its books and records; and (ii) furnish promptly to Parent such information
concerning its business, properties, contracts, assets, liabilities, personnel
and other aspects as Parent or its Representatives may reasonably request.
(b) Parent shall comply with, and shall cause its Representatives to
comply with, all of their obligations under the Confidentiality Agreement dated
January 24, 2000 (the "Confidentiality Agreement") between the Company and
-------------------------
Parent. All information obtained by Parent pursuant to paragraph (a) above
shall be subject to the Confidentiality Agreement.
SECTION 6.04. No Solicitation of Transactions. (a) Neither the
-------------------------------
Company nor any of the Company Subsidiaries shall, directly or indirectly, take
(nor shall the Company authorize or permit its Representatives or, to the extent
within the Company's control, other affiliates to take) any action to (i)
encourage (including by way of furnishing nonpublic information), solicit,
initiate or facilitate any Acquisition Proposal (as defined in Section 6.04(c)),
(ii) enter into any letter of intent, term sheet or other agreement with respect
to any Acquisition Proposal or (iii) participate in any way in discussions or
negotiations with, or furnish any information to, any person in connection with,
or take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or could reasonably be expected to lead to, any
Acquisition Proposal; provided, however, that if, at any time prior to the
-------- -------
obtaining of the Company Stockholders' Approval, the Board of Directors of the
Company determines in good faith, based on the advice of outside counsel, that
it is necessary to do so to discharge properly its fiduciary duties to
stockholders, the Company may, in response to a Superior Proposal (as defined
below) and subject to such party's compliance with Section 6.04(b), (A) furnish
information with respect to the Company and the Company Subsidiaries to the
person making such Superior Proposal pursuant to a customary confidentiality
agreement the terms of which are no less favorable to the Company than the terms
of the Confidentiality Agreement and (B) participate in discussions with respect
to such Superior Proposal. Without limiting the foregoing, it is agreed that
any violation of the restrictions set forth in this Section 6.04(a) by any
Representative of the Company shall be deemed to be a breach of this Section
6.04(a) by the
<PAGE>
36
Company. The Company shall cease immediately and cause to be terminated any and
all existing discussions or negotiations with any parties conducted heretofore
with respect to an Acquisition Proposal and promptly request that all
confidential information furnished on behalf of the Company be returned.
(b) The Company will as promptly as practicable communicate to Parent
orally and in writing any inquiry received by it relating to any potential
Acquisition Proposal and the material terms of any proposal or inquiry,
including the identity of the person and its affiliates making the same, that it
may receive in respect of any such negotiations or discussions being sought to
be initiated with it. The Company shall (i) keep Parent fully informed on a
prompt basis with respect to any developments with respect to the foregoing and
(ii) provide to Parent as soon as practicable after receipt or delivery thereof
with copies of all correspondence and other written material sent or provided to
the Company from any third party in connection with any Acquisition Proposal.
(c) "Acquisition Proposal" means any offer or proposal concerning any
--------------------
(i) merger, consolidation, business combination or similar transaction involving
the Company, (ii) sale, lease or other disposition directly or indirectly by
merger, consolidation, business combination, share exchange, joint venture, or
otherwise of assets of the Company or the Company Subsidiaries representing 10%
or more of the consolidated assets of the Company and the Company Subsidiaries,
(iii) issuance, sale, or other disposition of (including by way of merger,
consolidation, business combination, share exchange, joint venture, or any
similar transaction) securities (or options, rights or warrants to purchase, or
securities convertible into or exchangeable for, such securities ) of the
Company or (iv) transaction in which any person shall acquire beneficial
ownership (as such term is defined in rule 13d-3 under the Exchange Act), or the
right to acquire beneficial ownership of any "group" (as such term is defined
under the Exchange Act) shall have been formed which beneficially owns or has
the right to acquire beneficial ownership of, 10% or more of the outstanding
voting capital stock of the Company. "Superior Proposal" means a bona fide
-----------------
Acquisition Proposal made by a third party which was not solicited by the
Company, its subsidiaries, Representatives or other affiliates and which, in the
good faith judgment of the Company's Board of Directors, taking into account the
various legal, financial and regulatory aspects of the proposal and the person
making such proposal, (A) if accepted, is reasonably likely to be consummated,
and (B) if consummated, is reasonably likely to result in a transaction that is
more favorable to the Company's stockholders, from a financial point of view,
than the transactions contemplated by this Agreement.
(d) Neither the Company nor the Board of Directors of the Company nor
any committee thereof shall (i) withdraw or modify, or propose publicly to
withdraw or modify, in a manner adverse to Parent, the approval or
recommendation by the Board of Directors or such committee of the adoption and
approval of the Merger and the matters to be considered at the Company
Stockholders' Meeting, (ii) other than the Merger, approve or recommend, or
propose publicly to approve or recommend, any Acquisition Proposal, or (iii)
other than the Merger, cause the Company to enter into any letter of intent,
agreement in principle, acquisition
<PAGE>
37
agreement or other similar agreement related to any Acquisition Proposal.
Nothing contained in this Section 6.04 shall prohibit the Company (A) from
taking and disclosing to its stockholders a position contemplated by rule 14d-9
or rule 14e-2(a) promulgated under the Exchange Act or from making any
disclosure to its stockholders if, in the good faith judgment of its Board of
Directors, based on the advice of outside counsel, failure to so disclose would
result in a violation of applicable Law, or (B) in the event that a Superior
Proposal is made, from withdrawing or modifying its recommendation of the Merger
no earlier than two business days following written notice to Parent of its
intention to do so, so long as the Company continues to comply with all other
provisions of this Agreement, including, without limitation, Section 6.02.
SECTION 6.05. Directors' and Officers' Indemnification and Insurance.
------------------------------------------------------
(a) The Certificate of Incorporation of the Surviving Corporation shall contain
the provisions that are set forth, as of the date of this Agreement, in Article
X of the Certificate of Incorporation of the Company, which provisions shall not
be amended, repealed or otherwise modified for a period of six years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at or at any time prior to the Effective Time were directors,
officers, employees, fiduciaries or agents of the Company.
(b) The Company shall, to the fullest extent permitted under
applicable Law and regardless of whether the Merger becomes effective, indemnify
and hold harmless, and, after the Effective Time, the Surviving Corporation
shall, to the fullest extent permitted under applicable Law, indemnify and hold
harmless, each present and former director or officer of the Company and each
Company Subsidiary and each such person who served at the request of the Company
or any Company Subsidiary as a director, officer, trustee, partner, fiduciary,
employee or agent of another corporation, partnership, joint venture, trust,
pension or other employee benefit plan or enterprise (collectively, the
"Indemnified Parties") against all costs and expenses (including reasonable
-------------------
attorneys' fees), judgments, fines, losses, claims, damages, liabilities and
settlement amounts paid in connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the Effective Time), whether
civil, administrative or investigative, arising out of or pertaining to any
action or omission in their capacities as officers or directors, in each case
occurring before the Effective Time (including the transactions contemplated by
this Agreement).
(c) For a period of three years after the Effective Time, the
Surviving Corporation shall use its reasonable best efforts to maintain in
effect the current directors' and officers' liability insurance policies
maintained by the Company (provided that the Surviving Corporation may
--------
substitute therefor policies reasonably satisfactory to the Indemnified Parties
of at least the same coverage containing terms and conditions that are no less
advantageous) with respect to claims arising from facts or events that occurred
prior to the Effective Time; provided, however, that in no event shall the
-------- -------
Surviving Corporation be required to expend pursuant to this Section 6.05(c)
more than an amount per year equal to 150% of current annual premiums paid by
<PAGE>
38
the Company for such insurance (which premiums the Company represents and
warrants to be approximately $135,000 per year in the aggregate).
(d) In the event the Surviving Corporation or any successors thereof
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity in such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, then, and in each case, proper provision shall be made so that the
successors and assigns of the Surviving Corporation honor the indemnification
obligations set forth in this Section 6.05.
SECTION 6.06. Further Action; Consents; Filings. (a) Upon the terms
---------------------------------
and subject to the conditions hereof, each of the parties hereto shall use its
reasonable 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 consummate and make effective the Merger
and the other transactions contemplated by this Agreement, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Parent or the
Company or any of their subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement and (iii) make all
necessary filings, and thereafter make any other required submissions, with
respect to this Agreement, the Merger and the other transactions contemplated by
this Agreement that are necessary to obtain the Required Consents; provided,
--------
however, that nothing in this Section 6.06(a) shall require Parent to agree to
- -------
(x) the imposition of any conditions or (y) the requirement of any divestiture,
other than the divestiture of the Baltimore American Savings Bank, F.S.B. (the
"Company Bank") in accordance with the terms of the Agreement. The parties
------------
hereto shall cooperate with each other in connection with the making of all such
filings, including by providing copies of all such documents to the nonfiling
party and its advisors prior to filing and, if requested, by accepting all
reasonable additions, deletions or changes suggested in connection therewith.
Without limiting the generality of the Parent's and the Company's undertakings
in Section 6.06(a), Parent, the Principal Stockholder and the Company shall act
promptly to obtain the consent of the Bank Regulatory Authorities under any law,
rule or regulation enforced or promulgated by such Bank Regulatory Authorities
to the transfer and assignment to the Principal Stockholder at the Effective
Time of all of the Company's right, title and interest in and to the Company
Bank and shall take all other action necessary to effect such transfer.
(b) (i) The Company shall give any notices to third parties, and use
its reasonable best efforts to obtain any third party consents, (A) necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement, (B) required to be disclosed in the Company Disclosure Schedule or
(C) required to prevent a Material Adverse Effect from occurring prior to or
after the Effective Time.
<PAGE>
39
(ii) In the event that the Company shall fail to obtain any third
party consent described in clause (i) above, the Company shall use its
reasonable best efforts, and shall take any such actions reasonably requested by
Parent, to minimize any adverse effect upon the Company and Parent and their
respective businesses resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such consent.
(c) From the date of this Agreement until the Effective Time, the
Company shall promptly notify Parent in writing of any pending or, to the
knowledge of the Company, threatened action, suit, arbitration or other
proceeding or investigation by any Governmental Entity or any other person (i)
challenging or seeking material damages in connection with the Merger or the
conversion of Company Common Stock into the Merger Consideration pursuant to the
Merger, (ii) seeking to restrain or prohibit the consummation of the Merger or
otherwise limiting the right of Parent or its subsidiaries to own or operate all
or any portion of the businesses or assets of the Company or its subsidiaries,
or (iii) which could reasonably be expected to have a Material Adverse Effect.
SECTION 6.07. Public Announcements. The initial press release
--------------------
relating to this Agreement shall be a joint press release the text of which has
been agreed to by each of Parent and the Company. Thereafter, each of Parent
and the Company shall consult with the other before issuing any press release or
otherwise making any public statements with respect to this Agreement, the
Merger or any of the other transactions contemplated by this Agreement.
SECTION 6.08. Certain Employee Benefits Matters. For a period of one
---------------------------------
year following the Effective Time, Parent shall, or shall cause the Surviving
Corporation to, provide employee benefits that, in the aggregate, are not
substantially less favorable than the employee benefit plans, programs,
contracts and arrangements of the Company and the Subsidiaries as in effect
immediately prior to the Effective Time and that have been disclosed to Parent;
provided, however, that, except to the extent required pursuant to Section 2.06,
- -------- -------
Parent and the Surviving Corporation shall not be required to provide employee
benefits in respect of stock options, stock purchase rights, restricted stock,
phantom stock or other stock-based compensation. To the extent that the length
of service is relevant for purposes of eligibility, participation or vesting
under any employee benefit plan, program or arrangement established or
maintained by the Company, employees of the Surviving Company shall be credited
with service accrued prior to the Effective Time with the Company and the
Company Subsidiaries to the extent such service was recognized by the Company
under such plans; provided, however, that such crediting of service shall not
-------- -------
operate to duplicate any benefit or the funding of any benefit.
SECTION 6.09. HealthExtras Inc. (a) At the option of Parent, upon
-----------------
notice to the Company and the Principal Stockholder, the Company prior to the
Closing shall cause the termination of all contracts, commitments, guarantees,
agreements or arrangements (except for the HealthExtras Option (as defined
below)) between the Company or any Company Subsidiary
<PAGE>
40
and HealthExtras Inc., including, without limitation, the network access
contract expiring December 31, 2003 and the administrative services contract
expiring December 31, 2001.
(b) In the event Parent exercises its option pursuant to Section
6.09(a), the Principal Stockholder shall use his best efforts to cause to be
terminated prior to the Closing, all such contracts, commitments, guarantees,
agreements or other arrangements referred to in Section 6.09(a).
(c) The Principal Stockholder shall not rescind and hereby waives any
right to terminate the option agreement between the Principal Stockholder and
the Company, dated October 8, 1999, whereby the Company was granted an option
(the "HealthExtras Option") to purchase 4,330,000 shares of HealthExtras Inc.
-------------------
for an aggregate exercise price of $4,000,000.
SECTION 6.10. Sale of the Company Bank. (a) Subject to the approval
------------------------
of the Bank Regulatory Authorities, on or prior to the Closing, the Principal
Stockholder shall purchase all of the Company's right, title and interest in and
to the outstanding capital stock of Quantum Financial Holdings, Inc. and
Baltimore American Savings Bank, F.S.B., and the Company shall transfer and
assign such interest to the Principal Stockholder (the "Bank Sale") for a
---------
purchase price of the greater of $8,400,000 or the book-value of such capital
stock at such date to be paid in immediately available funds at Closing. All
existing liabilities of the Company Bank shall remain with the Company Bank
after the Bank Sale. The Company and the Principal Stockholder agree that each
party shall bear its own expenses in connection with the Bank Sale.
(b) Prior to the Bank Sale, the Company shall, and shall cause each
Company Subsidiary to, terminate or repay, as the case may be, all contracts,
agreements, commitments or other instruments between such party and the Company
Bank, including, without limitation, all contracts, agreements, commitments or
other instruments relating to indebtedness for borrowed money, and any
indemnification, contribution or support obligations in respect of the Company
Bank, but not including normal depository relationships in the ordinary course
of business on prevailing terms in the marketplace.
(c) In the event that the Bank Regulatory Authorities do not approve
the Bank Sale, Parent shall cooperate with the Company and the Principal
Stockholder to determine alternative means of divesting the Bank from the
Company, including, by way of a spin-off, dividend or pro rata distribution of
the Bank to the Company's stockholders; provided, however, that Parent shall not
-------- -------
obliged to agree to any such alternative means of divesting the Company Bank, if
the Company's expenses under such alternative proposal would reasonably be
expected to be greater than the expenses of the Company and the Principal
Stockholder pursuant to Section 6.10(a) or the period of time required to effect
such alternative proposal would materially delay consummation of the Merger.
<PAGE>
41
SECTION 6.11. Inactive Company Subsidiaries. Prior to the Closing,
-----------------------------
the Company shall use it best efforts to dissolve or otherwise terminate the
corporate existence of the Inactive Company Subsidiaries and, prior to the
Closing, shall inform Parent of the status of such dissolutions.
SECTION 6.12. Warrants. Prior to the Closing, the Company shall
--------
cause the holders of the Warrants to consent to receive the cash consideration
set forth in Section 2.07.
SECTION 6.13. Section 16 Matters. Prior to the Effective Time,
------------------
Company shall take all such steps as may be required to cause any dispositions
of Company Common Stock (including derivative securities with respect to Company
Common Stock) resulting from the transactions contemplated by this Agreement by
each individual who is subject to the reporting requirements of Section 16(a) of
the Exchange Act with respect to the Company to be exempt under Rule 16b-3
promulgated under the Exchange Act.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The
-------------------------------------------
respective obligations of the Company, Parent and Merger Sub to consummate the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions, any or all of which may be waived, in whole or in part, to
the extent permitted by applicable Law:
(a) Company Stockholders' Approval. The Company Stockholders'
------------------------------
Approval shall have been obtained.
(b) No Order. No Governmental Entity, nor any court of competent
--------
jurisdiction or arbitrator, shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, judgment, decree,
injunction, executive order or award (whether temporary, preliminary or
permanent) (collectively, "Order") that is in effect, pending or threatened
-----
and has, or would have, the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger or any other transactions
contemplated by this Agreement.
(c) Antitrust Waiting Periods. Any waiting period (and any extensions
-------------------------
thereof) applicable to the consummation of the Merger under the HSR Act
shall have expired or been terminated.
<PAGE>
42
SECTION 7.02. Conditions to the Obligations of Parent and Merger Sub.
------------------------------------------------------
The obligations of Parent and Merger Sub to consummate the Merger are subject to
the satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company contained in this Agreement shall be true and
correct in all material respects as of the date hereof and as of the
Effective Time as though made at and as of the Effective Time, except that
those representations and warranties that address matters only as of a
particular date shall remain true and correct in all material respects as
of such date (provided that any representation or warranty that is
--------
qualified by materiality or Material Adverse Effect shall be true in all
respects as of the date hereof and as of the Effective Time, or as of such
particular date, as the case may be), and Parent shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
the Company to that effect.
(b) Agreements and Covenants. The Company shall have performed or
------------------------
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent shall have received a certificate
of the Chief Executive Officer or Chief Financial Officer of the Company to
that effect.
(c) Consents. All filings required to be made prior to the Closing
--------
with, and all consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from and made
with all Governmental Entities and all consents from third parties under
any Company Material Contract or other material agreement, contract,
license, lease or other instrument to which the Company or any Company
Subsidiary is a party or by which it is bound required as a result of the
transactions contemplated by this Agreement shall have been obtained.
(d) Material Adverse Effect. There shall have been no circumstance,
-----------------------
event, occurrence, change or effect that would, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect since
the date of this Agreement.
(e) Actions. No Action shall have been brought and remain pending by
-------
any Governmental Entity or other person, entity or group that (i) seeks to
prevent or delay the consummation of the transactions contemplated by this
Agreement or (ii) would reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect.
(f) Executive Agreements. The Executive Agreements shall be in full
--------------------
force and effect.
<PAGE>
43
(g) First Health Group Litigation. There shall have been no material
-----------------------------
adverse development in the Company's litigation with First Health Group
Corporation.
(h) Divestiture of the Company Bank. In accordance with all
-------------------------------
applicable Law, the Company shall have transferred and assigned or
otherwise divested all of its right, title and interest in and to the
Company Bank.
(i) Dissenting Shares. The aggregate number of Dissenting Shares
-----------------
shall constitute less than 15% of all shares of Company Common Stock as of
the date of the Company Stockholders' Meeting.
SECTION 7.03. Conditions to the Obligations of the Company. The
--------------------------------------------
obligations of the Company to consummate the Merger are subject to the
satisfaction or waiver (where permissible) of the following additional
conditions:
(a) Representations and Warranties. Each of the representations and
------------------------------
warranties of Parent and Merger Sub contained in this Agreement shall be
true and correct in all material respects as of the date hereof and as of
the Effective Time as though made on and as of the Effective Time, except
that those representations and warranties that address matters only as of a
particular date shall remain true and correct in all material respects as
of the date hereof and as of such date (provided that any representation or
--------
warranty that is qualified by materiality shall be true in all respects as
of the Effective Time, or as of such particular date, as the case may be),
and the Company shall have received a certificate of the Chief Executive
Officer or Chief Financial Officer of Parent to that effect.
(b) Agreements and Covenants. Each of Parent and Merger Sub shall
------------------------
have performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it
on or prior to the Effective Time and the Company shall have received a
certificate of the Chief Executive Officer or Chief Financial Officer of
Parent to that effect.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
SECTION 8.01. Termination. This Agreement may be terminated at any
-----------
time prior to the Effective Time, whether before or after adoption of this
Agreement by the stockholders of the Company, as follows:
(a) by mutual consent of Parent and the Company;
<PAGE>
44
(b) by either Parent or the Company, if the Effective Time shall not
have occurred on or before August 31, 2000; provided, however, that the
-------- -------
right to terminate this Agreement under this Section 8.01(b) shall not be
available to any party whose action or failure to act has caused the
failure of the Merger to occur on or before such date;
(c) by either Parent or the Company, if there shall be any Order of a
Governmental Entity which is final and nonappealable preventing the
consummation of the Merger; provided that the provisions of this Section
--------
8.01(c) shall not be available to any party whose failure to fulfill its
obligations hereunder shall have been the cause of, or shall have resulted
in, such Order;
(d) by Parent if (i) the Board of Directors of the Company withholds,
withdraws, modifies or changes the Company Board Approval in a manner
adverse to Parent, or shall have resolved to do so, (ii) the Board of
Directors of the Company shall have recommended to the stockholders of the
Company a Superior Proposal or shall have resolved to do so or shall have
entered into any letter of intent or similar document or any agreement,
contract or commitment accepting any Superior Proposal, (iii) the Company
shall have failed to include the Company Board Approval in the Proxy
Statement, (iv) the Company's Board of Directors fails to reaffirm its
recommendation in favor of the approval of the Merger and this Agreement
within five business days after Parent requests in writing that such
recommendation be reaffirmed, (v) the Company shall have breached its
obligations under Section 6.04 or (vi) a tender offer or exchange offer for
20% or more of the outstanding shares of stock of the Company is commenced,
and the Board of Directors of the Company fails to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders);
(e) by either Parent or the Company if this Agreement shall fail to
receive the requisite vote for approval at the Company Stockholders'
Meeting;
(f) by Parent upon a breach of any representation, warranty, covenant
or agreement on the part of the Company set forth in this Agreement, or if
any representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in either Section 7.02(a) or
(b) would not be satisfied; provided, however, that if such breach is
-------- -------
curable by the Company through the exercise of its best efforts and for as
long as the Company continues to exercise such best efforts, Parent may not
terminate this Agreement under this Section 8.01(f); or
(g) by the Company upon a breach of any representation, warranty,
covenant or agreement on the part of Parent and Merger Sub set forth in
this Agreement, or if any representation or warranty of Parent and Merger
Sub shall have become untrue, in either case in such a way that the
conditions set forth in either Section 7.03(a) or (b) would not be
satisfied; provided, however, that if such breach is curable by Parent and
-------- -------
Merger
<PAGE>
45
Subsidiary through the exercise of their respective best efforts and for as
long as Parent and Merger Subsidiary continue to exercise such best
efforts, the Company may not terminate this Agreement under this Section
8.01(g).
SECTION 8.02. Effect of Termination. Except as provided in Section
---------------------
9.01, in the event of termination of this Agreement pursuant to Section 8.01,
this Agreement shall forthwith become void, there shall be no liability under
this Agreement on the part of Parent, Merger Sub or the Company or any of their
officers or directors, and all rights and obligations of each party hereto shall
cease, subject to the remedies of the parties set forth in Section 8.05;
provided, however, that nothing herein shall relieve any party from liability
- -------- -------
for the willful breach of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
SECTION 8.03. Amendment. This Agreement may be amended by the
---------
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that after
-------- -------
the approval of the Merger and this Agreement by the stockholders of the
Company, no amendment may be made that would reduce the amount or change the
type of consideration into which each Share shall be converted upon consummation
of the Merger. This Agreement may not be amended, except by an instrument in
writing signed by the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any
------
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (c) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth in
an instrument in writing signed by the party or parties to be bound thereby.
SECTION 8.05. Expenses. (a) Except as set forth in Section 8.06,
--------
all Expenses incurred in connection with this Agreement and the transactions
contemplated by this Agreement shall be paid by the party incurring such
expenses, whether or not the Merger or any other transaction is consummated.
"Expenses", as used in this Agreement, shall include all reasonable out-of-
--------
pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to a party
hereto and its affiliates) incurred or accrued by a party or on its behalf in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement, the preparation, printing, filing
and mailing of the Proxy Statement, the solicitation of shareholder approvals
(including, without limitation, any advertising expenses), any filings relating
to the Required Consents or other similar regulations and all other matters
related to the closing of the Merger and the other transactions contemplated by
this Agreement.
(b) If this Agreement is terminated by either Parent or the Company
pursuant to Section 8.01(b) or Section 8.01(c) due to the failure to divest the
Company Bank in accordance with all Laws by the date of such termination, the
Company shall reimburse each of
<PAGE>
46
Parent and Merger Sub (not later than one business day after submission of
statements therefor) for all Expenses up to $750,000 in the aggregate; provided
--------
that in the event the Company is required to pay the Fee pursuant to Section
8.06(a), the Company may deduct from such Fee any Expenses paid by the Company
pursuant to this Section 8.05(b).
SECTION 8.06. Fees. (a) The Company agrees to pay to Parent (such
----
payment to be made prior to the occurrence of any event described in clause (x)
or (y) thereof in the case of termination by the Company pursuant to clause (ii)
below or within two business days of a request from Parent in the case of
termination by Parent pursuant to clause (i) or (ii) below) a fee equal to
$22,000,000 (the "Fee") if:
---
(i) Parent terminates this Agreement pursuant to Section 8.01(d); or
(ii) (A) Parent or the Company terminates this Agreement pursuant to
Section 8.01(e), (B) prior to the time of such termination an Acquisition
Proposal had been made, and (C) on or prior to the twelve month anniversary
of the termination of this Agreement the Company or any of its subsidiaries
or affiliates (x) enters into an agreement or letter of intent (or if the
Company's Board of Directors resolves or announces an intention to do so)
with respect to any Acquisition Proposal with any person, entity or group
or (y) consummates any transaction pursuant to an Acquisition Proposal with
any person, entity or group.
(b) In the event that the Company shall fail to pay the Fee or any
Expenses when due, the Company shall reimburse Parent for all Expenses incurred
or accrued by Parent in connection with the collection under and enforcement of
this Section 8.06, together with interest on such unpaid Fee and Expenses,
commencing on the date that such Fee or Expenses became due, at a rate equal to
the rate of interest publicly announced by Citibank, N.A., from time to time, in
The City of New York, as such bank's Prime Rate, plus 1.00%.
ARTICLE IX
SURVIVAL; INDEMNIFICATION
-------------------------
SECTION 9.01. Survival of Representation and Warranties. (a) The
-----------------------------------------
representations and warranties of the Principal Stockholder contained in this
Agreement shall not be extinguished by the Closing but shall survive for a
period of one year following the Closing Date; provided that:
--------
(i) the representations and warranties contained in Sections 3.01,
3.03, 3.04 and 3.26 shall survive the Closing Date without limitation;
<PAGE>
47
(ii) the representations and warranties obtained in Section 3.16
shall survive for a period of six years following the Closing Date; and
(iii) the representations and warranties contained in Section 3.20
shall terminate ninety days following the expiration of the applicable
statute of limitations with respect to the assertion of any claim in
respect thereof by any Governmental Entity or other party.
(b) Any indemnification obligation of any party under any
representation or warranty set forth in this Agreement will terminate as of the
date set forth in Section 9.01(a) for the termination of the applicable
representation warranty, except for matters as to which notice is given prior to
the end of such period, in which event indemnification shall survive as long as
necessary to permit the final resolution of such matter.
SECTION 9.02. Indemnification. (a) Subject to the limitations set
---------------
forth in Section 9.02(c), the Principal Stockholder shall indemnify, defend and
hold harmless Parent, Merger Sub and the Surviving Corporation from and against
any and all Losses (as defined below) suffered or incurred by any of Parent,
Merger Sub or the Surviving Corporation or any successors or assigns thereof
(the "Parent Indemnified Parties") as a result of, or with respect to:
--------------------------
(i) any breach or inaccuracy of any representation or warranty of
the Principal Stockholder set forth in this Agreement, whether such breach
or inaccuracy exists or is made on the date of this Agreement or as of the
Closing Date; and
(ii) any breach of or noncompliance by the Company with any covenant
or agreement of the Company contained in this Agreement.
(b) "Loss" shall mean any loss, damage, liability, cost or expense
----
including, without limitation, any interest, fine, penalty, criminal or civil
judgment or settlement, court costs, reasonable attorneys' and expert witnesses'
fees, reasonable accountants' fees, disbursements and expenses, and any
indemnification or similar payments required to be made to officers, directors,
employees or agents under duly enacted charter provisions or bylaws, board
resolutions or undertakings, commitments or other understandings or under
applicable corporate law, together with interest thereon from the later of the
Closing Date and the date suffered or incurred.
(c) No amounts of indemnity shall be payable as a result of any
claim made pursuant to Section 9.02(a)(i) unless and until the Persons making
claims thereunder shall have suffered, incurred, sustained or become subject to
indemnifiable Losses in the aggregate in excess of $1,000,000, in which case the
Parent Indemnified Parties shall be entitled to recover all Losses incurred, up
to and exceeding such amount; and in no event shall the amount of
indemnification payable by the Principal Stockholder to the Parent Indemnified
Parties for any claims pursuant to Section 9.02(a)(i) exceed $3,000,000. In
determining whether any amount of
<PAGE>
48
indemnification is payable for any claim made pursuant to Section 9.02(a), any
materiality or Material Adverse Effect qualifier in the relevant representation
and warranty shall be disregarded.
SECTION 9.03. Notice of Claim. The Parent Indemnified Parties shall
---------------
promptly notify the Principal Stockholder, in writing, of any claim for
recovery, specifying in reasonable detail the nature of the Loss, the facts that
form the basis of the Loss and, if known, the amount, or an estimate of the
amount, of the liability arising therefrom. The Parent Indemnified Parties
shall provide to the Principal Stockholder as promptly as practicable thereafter
information and documentation reasonably requested by the Principal Stockholder
to support and verify the claim asserted, unless the Parent Indemnified Parties
have been advised by counsel that there are no reasonable grounds to assert the
joint defense privilege with respect to such information and documentation. A
notice of claim furnished by the Parent Indemnified Parties under this Section
9.03 shall also be deemed to constitute timely notice by the Parent Indemnified
Parties of any claim that may at any time thereafter be made by any Person
claiming entitlement to indemnity under any charter, bylaws or other governing
documents or any board resolutions, undertakings, commitments or other
understandings, with respect to the state of facts or circumstances which gave
rise to the claim by the Parent Indemnified Parties which is the subject of such
notice.
SECTION 9.04. Defense. (a) If the facts pertaining to a Loss arise
-------
out of the claim of any third party, or if there is any claim against a third
party available by virtue of the circumstances of the Loss, the Principal
Stockholder may assume the defense or the prosecution thereof by written notice
to the Parent Indemnified Parties agreeing to indemnify and defend the Parent
Indemnified Parties from and against all indemnifiable Losses under this Article
IX arising from such claim; provided that the third party claim seeks only
--------
monetary damages and does not seek injunctive or other relief against the Parent
Indemnified Parties.
(b) If the Principal Stockholder agrees to assume the defense and
prosecution of such claim, then the Parent Indemnified Parties shall have no
further obligation with respect to such claim. In any such case, the Parent
Indemnified Parties shall have the right to employ counsel separate from counsel
employed by the Principal Stockholder in any such action and to participate
therein and the fees and expenses of such counsel employed by the Parent
Indemnified Parties shall be at the Principal Stockholders' expense. The
Principal Stockholder shall not agree to a settlement of any claim without the
Parent Indemnified Parties' prior written consent, which consent shall not be
unreasonably withheld in light of the Parent Indemnified Parties' circumstances.
(c) If the Principal Stockholder shall not assume the defense and
prosecution of any such claim, the Parent Indemnified Parties shall keep the
Principal Stockholder reasonably informed of the progress of any proceedings
relating to such claim and shall consult regularly with the Principal
Stockholder with respect thereto and shall not agree to a settlement of such
claim without the Principal Stockholder's prior written consent, which consent
shall not be unreasonably withheld in light of the Principal Stockholder's
circumstances.
<PAGE>
49
(d) All parties hereto shall cooperate in the defense or prosecution
of any third party claim and shall furnish all witnesses and testimony, records,
materials and other information, and attend such conferences, discovery
proceedings, hearings, trials and appeals, as may be reasonably requested in
connection therewith.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Notices. All notices and other communications
-------
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by facsimile 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
10.01):
if to Parent or Merger Sub:
BCE Emergis Inc.
155 Rene-Levesque Boulevard West
Montreal, Quebec
H3B 4T3 Canada
Facsimile No.: (514) 868-2340
Attention: Corporate Secretary
with a copy to:
Shearman & Sterling
599 Lexington Avenue
New York, NY 10022
Facsimile No.: (212) 848-7179
Attention: John J. Madden
if to the Company:
United Payors & United Providers, Inc.
2275 Research Boulevard
Sixth Floor
Rockville, MD 20850
Facsimile No.: (301) 921-2400
Attention: Edward S. Civera
with a copy to:
<PAGE>
50
Muldoon, Murphy & Faucette LLP
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Facsimile No.: (202) 966-9409
Attention: Thomas Haggerty
if to the Principal Stockholder:
Thomas L. Blair
c/o United Payors & United Providers, Inc.
2275 Research Boulevard
Sixth Floor
Rockville, MD 20850
Facsimile No.: (301) 921-2400
SECTION 10.02. Assignment; Binding Effect; Benefit. 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; provided, however, that
-------- -------
Parent may assign its rights (but not its obligations) to a wholly owned
subsidiary of Parent without the prior written consent of the other parties
hereto. Subject to the preceding sentence, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement to
the contrary, except for the provisions of Section 6.05 (the "Third Party
-----------
Provisions"), nothing in this Agreement, expressed or implied, is intended to
- ----------
confer on any person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement. The Third Party Provisions may be enforced by the
beneficiaries thereof.
SECTION 10.03. Certain Definitions. For purposes of this Agreement,
-------------------
the term:
(a) "affiliate" of a specified person means a person that, directly or
---------
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with such specified person;
(b) "business day" means any day on which both the principal offices
------------
of the SEC in Washington, D.C. are open to accept filings, or, in the case
of determining a date when any payment is due, any day (other than a
Saturday or a Sunday) on which banks are not required or authorized to
close in The City of New York;
(c) "control" (including the terms "controlled by" and "under common
------- ------------- ------------
control with") means the possession, directly or indirectly or as trustee
------------
or executor, of the power to direct or cause the direction of the
management and policies of a person, whether
<PAGE>
51
through the ownership of voting securities, as trustee or executor, by
contract or credit arrangement or otherwise;
(d) "knowledge" means the actual knowledge of any executive officer
---------
(determined in accordance with rule 16a-1(f) under the Exchange Act), after
due inquiry;
(e) "Material Adverse Effect" means any circumstance, event,
-----------------------
occurrence, change or effect that materially and adversely affects the
business, operations, properties, condition (financial or otherwise),
assets (tangible or intangible), liabilities (including contingent
liabilities) or results of operations of the Company and the Company
Subsidiaries taken as a whole;
(f) "person" means an individual, corporation, partnership, limited
------
partnership, syndicate, person (including, without limitation, a "person"
as defined in section 13(d)(3) of the Exchange Act), trust, association or
entity or government, or political subdivision, agency or instrumentality
of a government;
(g) "subsidiary" or "subsidiaries" of any person means any
---------- ------------
corporation, partnership, joint venture or other legal entity of which such
person (either alone or through or together with any other subsidiary)
owns, directly or indirectly, more than 50% of the stock or other equity
interests, the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such
corporation partnership, joint venture or other legal entity;
(h) "Warrants" means the warrants to purchase 252,000 shares of
--------
Company Common Stock expiring October 24, 2000 and the option to purchase
246,000 shares of Company Common Stock expiring November 20, 2001, at an
exercise price of $10.67 and $8.34, respectively, per share of Company
Common Stock; and
(i) "$" or "dollar" means a United States dollar.
- ------
SECTION 10.04. 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 as long as the economic or legal
substance of the transactions contemplated by this Agreement is not affected in
any manner materially adverse to any party. Upon determination that any such
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 by this Agreement
be consummated as originally contemplated to the fullest extent possible.
SECTION 10.05. Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement were
not performed in
<PAGE>
52
accordance with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at law
or in equity.
SECTION 10.06. Governing Law; Forum. Except to the extent that the
--------------------
Merger is mandatorily governed by the DGCL, 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 and without regard to
any applicable conflicts of law principles. All actions and proceedings arising
out of or relating to this Agreement shall be heard and determined in the United
States District Court for the Southern District of New York. Each of the
parties to this Agreement (a) consents to submit itself to the personal
jurisdiction of the United States District Court for the Southern District of
New York in the event that any dispute arises out of this Agreement or any of
the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
in relation to this Agreement, the Merger or any of the other transactions
contemplated by this Agreement in any court other than the United States
District Court for the Southern District of New York.
SECTION 10.07. Headings. The descriptive headings contained in this
--------
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 10.08. Counterparts. This Agreement may be executed and
------------
delivered (including by facsimile transmission) in one or more counterparts, and
by the different parties hereto in separate counterparts, each of which when
executed and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
SECTION 10.09. Entire Agreement. This Agreement, the Voting
----------------
Agreement and the Confidentiality Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
SECTION 10.10. Waiver of Jury Trial. Each of the parties hereto
--------------------
irrevocably and unconditionally waives all right to trial by jury in any action,
proceeding or counterclaim (whether based in contract, tort or otherwise)
arising out of or relating to this Agreement or the actions of the parties
hereto in the negotiation, administration, performance and enforcement thereof.
<PAGE>
53
IN WITNESS WHEREOF, each of Parent, Merger Sub and the Company has
caused this Agreement to be executed by their officers thereunto duly authorized
and the Principal Stockholder has executed this Agreement, in each case as of
the date first written above.
BCE EMERGIS INC.
By: /s/ W. Brian Edwards
-----------------------------
Name: W. Brian Edwards
Title: President & CEO
JETCO INC.
By: /s/ Francois Cote
-----------------------------
Name: Francois Cote
Title: Chairman & President
UNITED PAYORS & UNITED PROVIDERS INC.
By: /s/ Edward S. Civera
-----------------------------
Name: Edward S. Civera
Title: Co-CEO & President
/s/ Thomas L. Blair
-----------------------------
THOMAS L. BLAIR
<PAGE>
APPENDIX B
[J.P. MORGAN LETTERHEAD]
February 4, 2000
Board of Directors
United Payors and United Providers
Rockville, MD
Attention: Thomas Blair
Chairman and CEO
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of United Payors and United Providers, Inc. (the
"Company") of the consideration to be paid in connection with the proposed
merger (the "Merger") of the Company with a subsidiary of BCE Emergis Inc. (the
"Buyer"). Pursuant to the Agreement and Plan of Merger dated as of February 4,
2000 (the "Agreement"), by and among the Company and the Buyer, the Company will
merge with a subsidiary of the Buyer, thereby becoming a subsidiary of the
Buyer, and each share of common stock, $.01 par value per share, of the Company
that is issued and outstanding immediately before the effective time of the
Merger (other than certain shares to be canceled pursuant to the Agreement) will
be purchased by the Buyer for $27.00 in cash.
In arriving at our opinion, we have reviewed (i) the Agreement; (ii) certain
publicly available information concerning the business of the Company and the
Buyer and of certain other companies engaged in businesses comparable to those
of the Company, and the reported market prices for certain other companies'
securities deemed comparable; (iii) publicly available terms of certain
transactions involving companies comparable to the Company and the consideration
received for such companies; (iv) current and historical market prices of the
common stock of the Company; (v) the audited financial statements of the Company
for the fiscal year ended December 31, 1998, and the unaudited financial
statements of the Company for the period ended September, 30 1999; (vi) certain
agreements with respect to outstanding indebtedness or obligations of the
Company; (vii) certain internal financial analyses and forecasts prepared by the
Company and its management; (viii) the terms of other business combinations that
we deemed relevant, and (ix) financing commitment letters from BCE Inc.
In addition, we have held discussions with certain members of the management of
the Company and the Buyer with respect to certain aspects of the Merger, the
past and current business operations of the Company, the financial condition and
future prospects and operations of the Company, the effects of the Merger on the
financial condition and future prospects of the Company, and certain other
matters we believed necessary or appropriate to our inquiry. We have reviewed
such other financial studies and analyses and considered such other information
as we deemed appropriate for the purposes of this opinion.
In giving our opinion, we have relied upon and assumed, without independent
verification, the accuracy and completeness of all information that was publicly
available or was furnished to us by the Company and the Buyer or otherwise
reviewed by us, and we have not assumed any responsibility or liability
B-1
<PAGE>
therefor. We have not conducted any valuation or appraisal of any assets or
liabilities, nor have any such valuations or appraisals been provided to us. In
relying on financial analyses and forecasts provided to us, we have assumed that
they have been reasonably prepared based on assumptions reflecting the best
currently available estimates and judgments by management as to the expected
future results of operations and financial condition of the Company to which
such analyses or forecasts relate. We have also assumed that the Merger will
have the tax consequences described in discussions with, and materials furnished
to us by, representatives of the Company, and that the other transactions
contemplated by the Agreement will be consummated as described in the Agreement.
We have relied as to all legal matters relevant to rendering our opinion upon
the advice of counsel.
Our opinion is necessarily based on economic, market and other conditions as in
effect on, and the information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect this opinion and
that we do not have any obligation to update, revise, or reaffirm this opinion.
We have acted as financial advisor to the Company with respect to the proposed
Merger and if the proposed Merger is consummated, we will recieve a fee from the
Company for our services.
We will receive a fee from the Company for the delivery of this opinion. In the
ordinary course of their businesses, J.P. Morgan Securities Inc. and its
affiliates may actively trade the debt and equity securities of the Company or
the Buyer for their own account or for the accounts of customers and,
accordingly, they may at any time hold long or short positions in such
securities.
On the basis of and subject to the foregoing, it is our opinion as of the date
hereof that the consideration to be paid to the Company's stockholders in the
proposed Merger is fair, from a financial point of view, to the such
stockholders.
This letter is provided to the Board of Directors of the Company in connection
with and for the purposes of its evaluation of the Merger. This opinion does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger. This opinion may not be
disclosed, referred to, or communicated (in whole or in part) to any third party
for any purpose whatsoever except with our prior written consent in each
instance. This opinion may be reproduced in full in any proxy or information
statement mailed to stockholders of the Company but may not otherwise be
disclosed publicly in any manner without our prior written approval and must be
treated as confidential.
Very truly yours,
J.P. MORGAN SECURITIES INC.
By: _________________________
Name: Steven C. Crowley
Title: Managing Director
B-2
<PAGE>
APPENDIX C
DELAWARE CODE ANNOTATED
8 Del. C. (S) 262 (1999)
(S) 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to (S) 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to (S) 251 (other than a merger effected pursuant to (S)
251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or (S) 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at
the record date fixed to determine the stockholders entitled to
receive notice of and to vote at the meeting of stockholders to
act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or
(ii) held of record by more than 2,000 holders; and further
provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger
if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in
subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of
any class or series of stock
C-1
<PAGE>
of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant
to (S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to
accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in
respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or
depository receipts in respect thereof) or depository
receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security
on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by
more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b.
of this paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or
substantially all of the assets of the corporation. If the certificate of
incorporation contains such a provision, the procedures of this section,
including those set forth in subsections (d) and (e) of this section, shall
apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior
to the meeting, shall notify each of its stockholders who was such on
the record date for such meeting with respect to
C-2
<PAGE>
shares for which appraisal rights are available pursuant to subsection
(b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in
such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such
stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder
electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger
or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or (S)
253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation
to all such holders of any class or series of stock of a constituent
corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation
the appraisal of such holder's shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation,
either (i) each such constituent corporation shall send a second
notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided,
however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need
only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance
with
C-3
<PAGE>
this subsection. An affidavit of the secretary or assistant secretary
or of the transfer agent of the corporation that is required to give
either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either
notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice
is given, provided, that if the notice is given on or after the
effective date of the merger or consolidation, the record date shall
be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close
of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the
effective date of the merger or consolidation, any stockholder shall have
the right to withdraw such stockholder's demand for appraisal and to accept
the terms offered upon the merger or consolidation. Within 120 days after
the effective date of the merger or consolidation, any stockholder who has
complied with the requirements of subsections (a) and (d) hereof, upon
written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement
setting forth the aggregate number of shares not voted in favor of the
merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of
the period for delivery of demands for appraisal under subsection (d)
hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register
in Chancery in which the petition was filed a duly verified list containing
the names and addresses of all stockholders who have demanded payment for
their shares and with whom agreements as to the value of their shares have
not been reached by the surviving or resulting corporation. If the petition
shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified
mail to the surviving or resulting corporation and to the stockholders
shown on the list at the addresses therein stated. Such notice shall also
be given by 1 or more publications at least 1 week before the day of the
hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The
forms of the notices by mail and by publication shall be approved by the
Court, and the costs thereof shall be borne by the surviving or resulting
corporation.
C-4
<PAGE>
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by
certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining
such fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of
the proceeding. Upon application by the surviving or resulting corporation
or by any stockholder entitled to participate in the appraisal proceeding,
the Court may, in its discretion, permit discovery or other pretrial
proceedings and may proceed to trial upon the appraisal prior to the final
determination of the stockholder entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has
submitted such stockholder's certificates of stock to the Register in
Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that such stockholder is not entitled to
appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation
to the stockholders entitled thereto. Interest may be simple or compound,
as the Court may direct. Payment shall be so made to each such stockholder,
in the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a
C-5
<PAGE>
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed
within the time provided in subsection (e) of this section, or if such
stockholder shall deliver to the surviving or resulting corporation a
written withdrawal of such stockholder's demand for an appraisal and an
acceptance of the merger or consolidation, either within 60 days after the
effective date of the merger or consolidation as provided in subsection (e)
of this section or thereafter with the written approval of the corporation,
then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of
Chancery shall be dismissed as to any stockholder without the approval of
the Court, and such approval may be conditioned upon such terms as the
Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-6
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
UNITED PAYORS & UNITED PROVIDERS, INC.
SPECIAL MEETING OF STOCKHOLDERS
________, 2000
10:00 a.m. Eastern Time
The undersigned hereby appoints Thomas L. Blair, Edward S. Civera, S.
Joseph Bruno and Joseph M. Mott or any one or more of them acting in the absence
of the others, each with full power of substitution, to act as proxy for the
undersigned, and to vote all shares of common stock of United Payors & United
Providers, Inc. (the "Company") which the undersigned is entitled to vote at the
Special Meeting of Stockholders, to be held on _______, 2000, at 10:00 a.m.,
Eastern Time, at 2275 Research Boulevard, Sixth Floor, Rockville, Maryland
20850, and at any and all adjournments thereof, with all of the powers the
undersigned would possess if personally present at such meeting, as follows:
(Continued and to be signed on reverse side.)
<PAGE>
A [X] Please mark your votes as in this example.
The Board of Directors recommends a vote "FOR" the proposal
to approve and adopt the merger agreement.
1. Approval and adoption of the Agreement and Plan of Merger among BCE Emergis
Inc., Jetco Inc., United Payors & United Providers, Inc. and Thomas L.
Blair, dated as of February 4, 2000, pursuant to which Jetco, a wholly
owned subsidiary of BCE Emergis Inc., will merge with and into the Company
and each share of common stock of the Company, par value at $0.01 per
share, will be converted into the right to receive $27.00 in cash, all on
and subject to the terms and conditions contained herein.
FOR AGAINST ABSTAIN
[__] [__] [__]
This proxy is revocable and will be voted as directed, but if no instructions
are specified, this proxy will be voted "FOR" the proposal to approve and adopt
the merger agreement. If any other business is presented at the Special
Meeting, including whether or not to adjourn the meeting, this proxy will be
voted by the proxies in their best judgment. At the present time, the Board of
Directors knows of no other business to be presented at the Special Meeting.
The undersigned acknowledges receipt from the Company prior to the execution of
this proxy of a Notice of Special Meeting of Stockholders and of a Proxy
Statement dated __________, 2000.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE
PRE-PAID ENVELOPE.
Dated:
- ------------------------ ------------------------ ______________, 2000
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
(if held jointly)
NOTE: Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your
full title. If shares are held jointly, each holder may sign but only one
signature is required.
