Execution Copy
AGREEMENT AND PLAN OF MERGER
by and among
NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC.
PAI ACQUISITION CORP.
PHARMACY ASSOCIATES, INC.
AND
EACH OF THE SHAREHOLDERS LISTED
ON SCHEDULE I HERETO
dated as of
June 27, 2000
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 27, 2000 (this "Agreement"),
by and among NATIONAL MEDICAL HEALTH CARD SYSTEMS, INC., a New York corporation
("Acquirer"), PAI ACQUISITION CORP., an Arkansas corporation and wholly-owned
subsidiary of Acquirer ("Acquirer Sub"), PHARMACY ASSOCIATES, INC., an Arkansas
corporation ("Target"), and the individuals and entities listed on Schedule I
hereto, constituting the holders of capital stock of Target (each a
"Shareholder" and collectively the "Shareholders").
RECITALS
WHEREAS, the respective Boards of Directors of Target, Acquirer and
Acquirer Sub have approved the acquisition of Target by Acquirer upon the terms
and subject to the conditions set forth in this Agreement; and
WHEREAS, to effect such acquisition, the respective Boards of Directors of
Target, Acquirer and Acquirer Sub have approved the merger of Acquirer Sub with
and into Target (the "Merger") upon the terms and subject to the conditions set
forth in this Agreement, whereby each issued and outstanding share of common
stock, par value $1.00 per share, of Target (the "Target Common Stock") will be
converted into the right to receive cash and unregistered shares of common
stock, par value $.001 per share, of Acquirer (the "Acquirer Common Stock"),
upon the terms and conditions set forth herein; and
WHEREAS, based upon the representations, warranties and agreements herein
made by Acquirer and Acquirer Sub and subject to the terms and conditions
contained in this Agreement, the Board of Directors of Target has approved this
Agreement, unanimously recommended to the shareholders of Target that they
approve the Merger and desire that Acquirer Sub be merged with and into Target
and that, as a result of the Merger, Target shall become a wholly owned
subsidiary of Acquirer; and
WHEREAS, the requisite shareholders of Target have approved the Merger and
approved and adopted this Agreement.
NOW, THEREFORE, in consideration of the premises, the representations,
warranties and agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
subject to the terms and conditions set forth herein, the parties hereto agree
as follows:
ARTICLE I. DEFINITIONS
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In this Agreement, the following words and phrases shall have the meanings
hereinafter set forth:
Section 1.01. "Acquisition" shall mean the acquisition of the Target Common
Stock pursuant to the terms of this Agreement.
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Section 1.02. "Acquirer Common Stock" shall have the meaning given such
term in the Recitals hereof.
Section 1.03. "Acquirer Disclosure Schedule" shall have the meaning given
such term in the preamble to Article V hereof.
Section 1.04. "Acquirer Indemnified Party" shall have the meaning given
such term in Section 11.01(a) hereof.
Section 1.05. "Affiliates" shall have the meaning as set forth in Rule 144
promulgated under the Securities Act.
Section 1.06. "Arkansas Law" shall have the meaning given such term in
Section 2.01 hereof.
Section 1.07. "Articles of Merger" shall have the meaning given such term
in Section 2.02(b) hereof.
Section 1.08. "Audited Financial Statements" shall have the meaning given
such term in Section 3.07(a) hereof
Section 1.09. "Business Day" shall mean any day, other than a Saturday,
Sunday or legal holiday under the Federal laws of the United States or the laws
of the State of New York.
Section 1.10. "Closing" shall have the meaning given such term in Section
2.02 hereof.
Section 1.11. "Closing Date" shall have the meaning given such term in
Section 2.02 hereof.
Section 1.12. "Code" shall mean the Internal Revenue Code of 1986, as
amended.
Section 1.13. "Commission" shall mean the Securities and Exchange
Commission of the United States.
Section 1.14. "Constituent Corporations" shall have the meaning given such
term in Section 2.01 hereof.
Section 1.15. "Contingent Payment" shall have the meaning given such term
in Section 2.10 hereof.
Section 1.16. "Contracts" shall have the meaning given such term in Section
3.16(a) hereof.
Section 1.17. "Dissenting Shares" shall have the meaning given such term in
Section 2.07(b) hereof.
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Section 1.18. "Effective Date" shall have the meaning given such term in
Section 2.02(b) hereof.
Section 1.19. "Effective Time" shall have the meaning given such term in
Section 2.02(b).
Section 1.20. "Employee Plan" shall have the meaning given such term in
Section 3.17(a) hereof.
Section 1.21. "Environmental Laws" shall mean, with respect to Target, any
federal, state, or local law, statute, rule, regulation, order or other
requirement of law relating to (i) the manufacture, transport, use, treatment,
storage, disposal, release or threatened release of Hazardous Substances, or
(ii) the protection of human health or the environment (including, without
limitation, natural resources, air, and surface or subsurface land or waters).
Section 1.22. "Environmental Liabilities" shall mean any and all
liabilities, responsibilities, claims, suits, losses, costs (including
remediation, removal, response, abatement, clean-up, investigative and/or
monitoring costs and any other related costs and expenses), other causes of
action recognized now or at any later time, damages, settlements, expenses,
charges, assessments, liens, penalties, fines, pre-judgment and post-judgment
interest, attorney fees and other legal fees (a) pursuant to any agreement,
order, notice, requirement, responsibility or directive (including directives
embodied in Environmental Laws), injunction, judgment or similar documents
(including settlements) arising out of or in connection with any Environment
Laws, or (b) pursuant to any claim by a governmental entity or other person or
entity for personal injury, property damage, damage to natural resources,
remediation or similar costs or expenses incurred or asserted by such entity or
person pursuant to common law or statute.
Section 1.23. "Environmental Material Adverse Effect" shall mean, with
respect to Target, any Environmental Liabilities that are reasonably expected to
exceed $5,000 per occurrence, or $10,000 in the aggregate.
Section 1.24. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as it now exists and is hereafter amended.
Section 1.25. "ERISA Affiliate" shall mean any person, firm or entity
(whether or not incorporated) which, by reason of its relationship with Target
is required to be aggregated with Target under Sections 414(b), 414(c) or 414(m)
of the Code, or which, together with Target, is a member of a controlled group
within the meaning of Section 4001(a)(14) of ERISA.
Section 1.26. "Escrowed Consideration" shall have the meaning given such
term in Section 2.07 hereof.
Section 1.27. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder.
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Section 1.28. "Financial Statements" shall have the meaning given such term
in Section 3.07(a) hereof.
Section 1.29. "Generally accepted accounting principles" shall mean
generally accepted accounting principles in the United States.
Section 1.30. "Governmental Entity" shall mean any court, administrative
agency or commission or other federal, provincial, state, local, municipal or
foreign government or governmental authority or instrumentality.
Section 1.31. "Hazardous Substance" shall mean any material or substance
that is: (i) listed, classified or regulated pursuant to or under any applicable
Environmental Law, or (ii) any petroleum product or by-product, asbestos, urea
formaldehyde insulation or polychlorinated biphenyls.
Section 1.32. "Indemnified Party" shall have the meaning given such term in
Section 11.04 hereof.
Section 1.33. "Indemnifying Party" shall have the meaning given such term
in Section 11.04 hereof.
Section 1.34. "Indemnified Target Parties" shall have the meaning given
such term in Section 7.05 hereof.
Section 1.35. "Indemnity Claim" shall have the meaning given such term in
Section 11.07 hereof.
Section 1.36. "Intellectual Property" shall have the meaning given such
term in Section 3.24 hereof.
Section 1.37. "Interim Financial Statements" shall have the meaning given
such term in Section 3.07(a) hereof.
Section 1.38. "IRS" shall mean the Internal Revenue Service.
Section 1.39. "Knowledge" shall mean, with respect to a Person, to the
actual knowledge of such Person after due investigation, including the knowledge
of such Person's directors and officers and employees of such Person with
responsibility for the particular matters referred to.
Section 1.40. "License" shall have the meaning given such term in Section
3.25 hereof.
Section 1.41. "Liens" shall mean all liens, charges, security interests,
pledges, rights or claims of others, restraints on transfer or other
encumbrances.
Section 1.42. "Management Shareholders" shall mean the Shareholders listed
on Schedule 6.07.
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Section 1.43. "Material Adverse Change" shall mean a change or a
development involving a prospective change which could have a Material Adverse
Effect.
Section 1.44. "Material Adverse Effect" shall mean, with respect to any
Person, a material adverse effect on the business, prospects, results of
operations, financial condition or assets of such Person and its Subsidiaries,
if any, taken as a whole. In determining whether any individual event would
result in a Material Adverse Effect, notwithstanding that such event does not of
itself have such effect, a Material Adverse Effect shall be deemed to have
occurred if the cumulative effect of such event and all other then existing
events would result in a Material Adverse Effect.
Section 1.45. "Merger" shall have the meaning given such term in the
Recitals hereof.
Section 1.46. "Merger Consideration" shall have the meaning given such term
in Section 2.07(a) hereof.
Section 1.47. "Nasdaq National Market" shall mean the National Association
of Securities Dealers Automated Quotation National Market
Section 1.48. "New York Law" shall have the meaning given such term in
Section 2.01 hereof.
Section 1.49. "Old Certificates" shall have the meaning given such term in
Section 2.09(a) hereof.
Section 1.50. "Person" shall mean an individual, corporation, partnership,
limited liability company, joint venture, trust or unincorporated organization,
or a government or any agency or political subdivision thereof.
Section 1.51. "Prospectus" shall have the meaning given such term in
Section 5.06 hereof.
Section 1.52. "Public Filings" shall have the meaning given such term in
Section 5.06 hereof.
Section 1.53. "Registration Statement" shall have the meaning given such
term in Section 5.06 hereof.
Section 1.54. "Regulatory Authority" shall mean any foreign, federal,
provincial, state, local or municipal government or governmental authority the
approval of which, or filing with, is legally required for consummation of the
transactions contemplated by this Agreement.
Section 1.55. "Related Costs" shall have the meaning given such term in
Section 12.01(a) hereof.
Section 1.56. "Release" shall mean any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment.
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Section 1.57. "Requisite Regulatory Approvals" shall have the meaning given
such term in Section 9.01(c) hereof.
Section 1.58. "Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations thereunder.
Section 1.59. "Seller Refunds" shall have the meaning given such term in
Section 12.02(a) hereof.
Section 1.60. "Software" shall have the meaning given such term in Section
3.19 hereof.
Section 1.61. "Surviving Corporation" shall have the meaning given such
term in Section 2.01 hereof.
Section 1.62. "Target Common Stock" shall have the meaning given such term
in the Recitals hereof.
Section 1.63. "Target Disclosure Schedule" shall have the meaning given
such term in the preamble to Article III hereof.
Section 1.64. "Target Indemnified Party" shall have the meaning given such
term in Section 11.02 hereof.
Section 1.65. "Tax Return(s)" shall have the meaning given such term in
Section 3.11 hereof.
Section 1.66. "Year 2000 Compliant" shall have the meaning given such term
in Section 3.19 hereof.
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ARTICLE II. THE MERGER
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Section 2.01. The Merger. At the Effective Time (as defined below) and
subject to and upon the terms of this Agreement, Acquirer Sub shall be merged
with and into Target in accordance with the provisions of the 1987 Business
Corporation Act of the State of Arkansas ("Arkansas Law") and the General
Corporation Law of the State of New York ("New York Law"). Following the Merger,
Target shall continue as the surviving corporation under the name Pharmacy
Associates, Inc. (the "Surviving Corporation"), and the separate corporate
existence of Acquirer Sub shall cease. Target and Acquirer Sub are sometimes
collectively referred to as the "Constituent Corporations."
Section 2.02. Closing and Effective Time. (a) The closing (the "Closing")
of the Merger shall take place at 9:30 a.m., New York time, on a date to be
specified by the parties, which shall be no later than the second Business Day
after satisfaction or waiver of the latest to occur of the conditions set forth
in Article IX hereof (the "Closing Date"), at the offices of Fulbright &
Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, unless another
time, place or date is agreed to in writing by the parties hereto.
(b) As soon as practicable on or after the Closing Date, (i) Target,
Acquirer and Acquirer Sub shall file articles of merger, substantially in
the form of Exhibit 2.02(b) hereof (the "Articles of Merger"), with the
Secretary of State of the State of Arkansas and make all other filings or
recordings required by Arkansas Law and New York Law in connection with the
Merger. The Merger shall become effective at such time as the Articles of
Merger is duly filed with the Secretary of State of the State of Arkansas
in accordance with Arkansas Law or at such other time as specified in the
Articles of Merger. The date and time when the Merger shall become
effective are hereinafter referred to as the "Effective Date" and
"Effective Time," respectively.
Section 2.03. Effects of the Merger. The separate corporate existence of
Target, as the Surviving Corporation, with all of its purposes, objects, rights,
privileges, powers, certificates and franchises, shall continue unimpaired by
the Merger. At the Effective Time, the Surviving Corporation shall succeed to
all the properties and assets of the Constituent Corporations and to all debts,
chooses in action and other interests due or belonging to the Constituent
Corporations and shall be subject to, and responsible for, all the debts,
liabilities and duties of the Constituent Corporations with the effects provided
by applicable provisions of law.
Section 2.04. Articles of Incorporation and Bylaws.
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(a) The Articles of Incorporation of Target in effect immediately
prior to the Effective Time shall be the Articles of Incorporation of the
Surviving Corporation until amended in accordance with the provisions of
the applicable provisions of law except that at the Effective Time the
Articles of Incorporation shall be amended in the discretion of the
Acquirer.
(b) The Bylaws of Target as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable provisions of law, the Articles of
Incorporation of the Surviving Corporation and such Bylaws.
Section 2.05. Director. The director(s) of Acquirer Sub immediately prior
to the Effective Time shall be the initial director(s) of the Surviving
Corporation and shall hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation from the Effective Time
until his or their successor is duly elected or appointed and qualified.
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Section 2.06. Officers. The officers of Acquirer Sub immediately prior to
the Effective Time shall be the initial officers of the Surviving Corporation
and shall hold office in accordance with the Articles of Incorporation and
Bylaws of the Surviving Corporation from the Effective Time until their
respective successors are duly elected or appointed and qualified.
Section 2.07. Conversion of Outstanding Target Capital Stock.
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(a) For the purposes of this Section 2.07, the cash and shares of
Acquirer Common Stock to be received in exchange for Target Capital Stock
are referred to in the aggregate as the "Merger Consideration."
(b) Except (i) as provided in Section 2.08 hereof and (ii) for shares,
if any, held by persons who have not voted such shares for approval of the
Merger and with respect to which such persons shall become entitled to
exercise dissenters' rights in accordance with Subchapter 1302 of Arkansas
Law (the "Dissenting Shares"), but subject to the indemnification
obligations of the Shareholders described in Article XI, as of the
Effective Time, by virtue of the Merger and without any action on the part
of the holders of any shares of Target Capital Stock or Acquirer Sub Stock:
(i) Each share of Target Common Stock outstanding immediately
prior to the Effective Time (which Target has represented to consist
of 300 shares) shall be converted at the Effective Time into the right
to receive $20,000 and 1,333.33 shares of Acquirer Common Stock.
(ii) Each share of Acquirer Sub Stock outstanding immediately
prior to the Effective Time shall be converted into one share of
common stock of the Surviving Corporation.
(c) Except as provided in Section 2.09 and Section 2.07(e) hereof, as
of and after the Effective Time, no holder of any certificate that
immediately before the Effective Time represented shares of Target Common
Stock shall have any rights as a holder of Target Common Stock, other than
to receive the consideration specified in this Section 2.07 and Section
2.10 hereof in accordance with the terms of such sections.
(d) Of the aggregate Merger Consideration payable to all holders of
Target Capital Stock pursuant to this Section 2.07, 200,000 shares of
Acquirer Common Stock (the "Escrowed Consideration") shall be deposited by
Acquirer at the Closing with the Escrow Agent pursuant to the terms of the
Escrow Agreement, a form of which is attached hereto as Exhibit 2.07. The
Escrowed Consideration shall be allocated among the Shareholders as
indicated on Schedule 2.07(d) hereto. The Escrowed Consideration will serve
as collateral security for the indemnification obligations of the
Shareholders as provided in Article XI hereof.
(e) Any Dissenting Shares shall not be converted into Acquirer Common
Stock but shall instead be converted into the right to receive such
consideration as may be determined to be due with respect to such
Dissenting Shares pursuant to Arkansas Law. Target agrees that, except with
the prior written consent of Acquirer, or as required under Arkansas Law,
it will not voluntarily
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make any payment with respect to, or settle or offer to settle, any such
purchase demand. Each holder of Dissenting Shares who, pursuant to the
provisions of Arkansas Law, becomes entitled to payment of the fair value
for shares of Target Common Stock shall receive payment therefor (but only
after such value shall have been agreed upon or finally determined pursuant
to such provisions). If, after the Effective Time, any Dissenting Shares
shall lose their status as Dissenting Shares, Acquirer shall issue and
deliver, upon surrender by such holder of certificate or certificates
representing shares of Target Common Stock, the number of shares of
Acquirer Common Stock and other consideration to which such holder would
otherwise be entitled under this Agreement and the Articles of Merger.
Section 2.08. Cancellation of Target Capital Stock. At the Effective Time,
any and all shares of capital stock of Target that are owned directly or
indirectly by Target as treasury stock shall be canceled without any
consideration being payable therefor.
Section 2.09. Exchange of Certificates.
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(a) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, each holder of record of a certificate or certificates that
immediately prior thereto represented issued and outstanding shares of
Target Common Stock ("Old Certificates") shall surrender such Old
Certificates, together with a properly completed letter of transmittal
(specifying that delivery shall be effected, and that risk of loss and
title to the Old Certificates shall pass, only upon delivery of the Old
Certificates to the Surviving Corporation) in exchange for the
consideration specified in Section 2.07, except as otherwise specifically
provided in this Section 2.09. Until so surrendered, the Old Certificates
shall represent, after the Effective Time, solely the right to receive the
consideration specified in Section 2.07, except as otherwise provided in
this Section 2.09. Old Certificates surrendered to the Surviving
Corporation shall be canceled.
(b) No Fractional Shares. No fractional shares of Acquirer Common
Stock and no certificates or scrip therefor, or other evidence of ownership
thereof, will be issued upon the surrender for exchange of the Old
Certificates. In lieu of any such fractional share, each holder of shares
of Target Capital Stock who would otherwise have been entitled to a
fraction of a share of Acquirer Common Stock upon consummation of the
Merger shall be paid upon surrender of the Old Certificates cash (rounded
to the nearest whole cent), without interest, in an amount equal to the
product of such fraction multiplied by the last reported trading price of a
share of Acquirer Common Stock on the business day preceding the Closing
Date.
(c) Dissenting Shares. The provisions of this Section 2.09 shall also
apply to Dissenting Shares that lose their status as such, except that the
obligations of Acquirer under this Section 2.09 shall commence on the date
of loss of such status and the holder of such shares shall be entitled to
receive in exchange for such shares the number of shares of Acquirer Common
Stock to which such holder is entitled pursuant to Section 2.07 hereof.
(d) Distributions with Respect to Unexchanged Shares. Notwithstanding
any other provision of this Agreement, no dividends or other distributions
declared or made after the Effective Date on Acquirer Common Stock shall be
paid to any Person holding an Old Certificate
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evidencing Target Capital Stock until such Old Certificate is surrendered
for exchange as provided herein. Subject to the effect of applicable laws,
following surrender of any such Old Certificate by any holder thereof,
there shall be paid to the holder of such surrendered Old Certificate,
without interest (i) at the time of such surrender, the amount of dividends
or other distributions with a record date after the Effective Date
theretofore payable with respect to the Acquirer Common Stock represented
thereby and not paid, less the amount of any withholding taxes which may be
required thereon, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the Effective
Date but prior to the time of such surrender and a payment date subsequent
to the time of such surrender payable with respect to the Acquirer Common
Stock represented thereby, less the amount of any withholding taxes which
may be required thereon.
(e) Closing of Target Transfer Books. At the Effective Time, the stock
transfer books of Target shall be closed and no transfer of shares of
capital stock of Target shall thereafter be made. If, after the Effective
Time, Old Certificates are presented to the respective Surviving
Corporation or the Exchange Agent, they shall be canceled and exchanged for
the consideration as provided in Section 2.07 hereof.
Section 2.10. Contingent Payments. In addition to the Merger Consideration
and subject to the provisions contained in Schedule 2.10 hereto, Acquirer shall,
to the extent applicable, pay to the Shareholders as additional consideration
for the Merger, cash and shares of Acquirer Common Stock as calculated in
accordance with Schedule 2.10 hereto (the "Contingent Payment").
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF TARGET
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Except as set forth (by reference to the applicable Section of this
Agreement) in the disclosure schedule delivered by Target and each of the
Shareholders to Acquirer on the date hereof (the "Target Disclosure Schedule"),
a copy of which is attached hereto as Schedule 3.0, Target and each Shareholder
hereby represent and warrant to Acquirer and Acquirer Sub as of the date hereof
and as of the Closing Date (other than the representations contained in
paragraphs (b), (c) and (d) of Section 3.07, which are made only as of the
Closing Date) as follows:
Section 3.01. Organization, Etc. Target is a corporation duly organized and
validly existing under the laws of the State of Arkansas and has full corporate
power and authority to conduct its business as it is now being conducted and to
own, operate or lease the properties and assets it currently owns, operates or
holds under lease. Target is duly qualified or licensed to do business and is in
good standing as a foreign corporation in each jurisdiction where the character
of its business or the nature of its properties makes such qualification or
licensing necessary (all of which jurisdictions are set forth on the Target
Disclosure Schedule). Target has heretofore delivered to Acquirer true and
correct copies of its Articles of Incorporation and Bylaws as in effect on the
date hereof.
Section 3.02. Subsidiaries and Other Target Interests. Except as described
in Section 3.02 of the Target Disclosure Schedule, Target does not have any
subsidiaries or, directly or indirectly, any legal or beneficial interest in any
partnership, joint venture or other entity.
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Section 3.03. Capitalization. The authorized, issued and outstanding
capital stock of Target is as set forth on the Target Disclosure Schedule. All
of the issued and outstanding shares of capital stock of Target are owned, of
record and beneficially, by the Shareholders in the amounts set forth on the
Target Disclosure Schedule. No Persons other than the Shareholders are or will
be entitled to receive any payment with respect to any shares of capital stock
of Target. The designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series of authorized
capital stock of Target are as set forth in its Articles of Incorporation, and
all such designations, powers, preferences, rights, qualifications, limitations
and restrictions are valid, binding and enforceable and in accordance with all
applicable corporate laws. All outstanding shares of capital stock of Target
have been duly authorized and validly issued and are fully paid and
non-assessable. All of the outstanding securities of Target were issued in
compliance with all applicable securities (federal and state) and corporate
laws. None of the outstanding securities have been issued in violation of any
preemptive rights, rights of first refusal or similar rights. There are no
outstanding options, warrants, convertible securities, calls, rights,
commitments, preemptive rights or agreements or instruments or understandings of
any character to which Target is a party or by which Target is bound, obligating
Target to issue, deliver or sell, or cause to be issued, delivered or sold,
contingently or otherwise, additional shares of its capital stock or any
securities or obligations convertible into or exchangeable for such shares or to
grant, extend or enter into any such option, warrant, convertible security,
call, right, commitment, preemptive right or agreement. There are no outstanding
obligations, contingent or other, of Target to purchase, redeem or otherwise
acquire any shares of its capital stock. There are no voting trust agreements or
other contracts, agreements, arrangements, commitments, plans or understandings
restricting or otherwise relating to voting (i) between or among Target and any
of its shareholders or (ii) between or among any of Target's shareholders.
Section 3.04. Authorization. Target has all requisite corporate power and
authority to enter into this Agreement and each of the other agreements
contemplated hereby, to carry out its obligations under this Agreement and each
of the other agreements contemplated hereby and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and each of the other agreements contemplated hereby, the consummation of the
transactions contemplated hereby and thereby and the performance by Target of
its obligations hereunder and thereunder have been duly authorized by all
necessary corporate action on the part of Target and the Shareholders. Each of
this Agreement and the other agreements contemplated hereby have been duly
executed and delivered by Target and constitute the legal, valid and binding
obligation of Target, enforceable against Target in accordance with their
respective terms (except as the enforceability thereof may be limited by any
applicable bankruptcy, insolvency or other laws affecting creditors' rights
generally or by general principles of equity, regardless of whether
enforceability is considered in equity or at law).
Section 3.05. No Violation. The execution and delivery of this Agreement
and each of the other agreements contemplated hereby by Target do not, and the
consummation by Target of the transactions contemplated hereby and thereby, and
compliance with the terms hereof and thereof will not, (a) conflict with, or
result in any violation of or default under, any provision of its Articles of
Incorporation or Bylaws ; (b) conflict with, or result in any violation of or
default or loss of any benefit under, any License, or any statute, law, rule or
regulation, or any judgment, decree or order
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of any court or other governmental agency or instrumentality to which Target is
a party or to which any its property is subject; (c) conflict with, or result in
a breach or violation of or default or loss of any benefit under, or accelerate
the performance required by, any agreement (written or unwritten),
understanding, arrangement, contract, indenture or other instrument to which
Target is a party or to which any of its property is subject, or constitute a
default or loss of any right thereunder or an event which, with the lapse of
time or notice or both, will result in a default or loss of any right thereunder
or the creation of any Lien upon any of the assets or properties of Target; (d)
result in any suspension, revocation, impairment, forfeiture or nonrenewal of
any License or (e) result in Target being required to pay any material amount or
refund to any Affiliate or licensee of Target in respect of amounts received by
Target in advance of the performance of services. Target is in compliance with
all applicable laws, rules or regulations relating to or affecting the
operation, conduct or ownership of its property or business, other than
violations that individually or in the aggregate does not and will not have a
Material Adverse Effect on Target.
Section 3.06. Approvals. The execution and delivery of this Agreement and
each of the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby by Target will not require the
consent, approval, order or authorization of any Governmental Entity or
Regulatory Authority or any other Person under any statute, law, rule,
regulation, permit, license, agreement, indenture or other instrument to which
Target is a party or to which its properties are subject, and no declaration,
filing or registration with any Governmental Entity or Regulatory Authority is
required by Target in connection and with the execution and delivery of this
Agreement and each of the other agreements contemplated hereby, the consummation
of the transactions contemplated hereby and thereby, or the performance by
Target of its obligations hereunder and thereunder, except for (i) the filing of
the Articles of Merger, together with the required officers' certificates, (ii)
such consents, approvals, orders, authorizations, registrations, declarations
and filing as may be required under the Exchange Act, the Securities Act,
applicable state securities laws and the securities laws of any foreign country;
and (iii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Target and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement.
Section 3.07. Financial Statements and Other Information.
------------ ------------------------------------------
(a) Within 15 days following the date of this Agreement, Target will
use its best efforts to deliver to Acquirer (i) true, correct and complete
copies of the audited balance sheet of Target as of December 31, 1999 and
December 31, 1998 and the related audited statements of operations,
accumulated deficit and cash flows for each of the years in the three-year
period ended December 31, 1999 (the "Audited Financial Statements"), and
(ii) true, correct and complete copies of the unaudited balance sheet of
Target as of March 31, 2000 and the related unaudited statements of
operations, accumulated deficit and cash flows for Target for the
three-month period ended March 31, 2000 (the "Interim Financial
Statements"). The Audited Financial Statements and Interim Financial
Statements are herein collectively referred to as the "Financial
Statements." The Audited Financial Statements shall be audited, and the
Interim Financial Statements shall be subject to a SAS 71 review, by Marcum
& Kliegman LLP.
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(b) The Financial Statements are in accordance with the books and
records of Target, have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods covered
thereby and the balance sheets included therein present fairly as of their
respective dates the financial condition of Target. All material
liabilities and obligations, whether absolute, accrued, contingent or
otherwise, whether direct or indirect, and whether due or to become due,
which existed at the date of such Financial Statements have been disclosed
in the balance sheets included in the Financial Statements or in notes to
the Financial Statements to the extent such liabilities were required,
under generally accepted accounting principles, to be so disclosed. The
statements of operations, accumulated deficit and cash flows included in
the Financial Statements present fairly the results of operations,
accumulated deficit and cash flows of Target for the periods indicated. The
statements of operations included in the Financial Statements do not
contain any material items of special or non-recurring income or other
income not earned in the ordinary course of business except as expressly
specified therein.
(c) All properties, investments, tangible assets and deferred costs
reflected in the latest balance sheets included in the Financial Statements
have a fair market or realizable value at least equal to the value thereof
as reflected therein.
(d) The accounts and notes receivable of Target included in the latest
balance sheet of Target included in their respective Financial Statements,
are, net of reserves reflected on the balance sheet, collectible in full
over the period of usual trade terms (by use of Target's normal collection
methods without resort to litigation or reference to a collection agency),
and there do not exist any defenses, counterclaims and set-offs which could
materially adversely affect such receivables, and all such receivables are
actual and bona fide receivables representing obligations for the total
dollar amount thereof shown on the books of Target. Target has fully
performed all obligations with respect thereto which it was obligated to
perform to the date hereof.
(e) Since January 1, 1997, there has been no Material Adverse Change
in Target, whether as a result of any legislative or regulatory change,
revocation of any License or right to do business, fire, explosion,
accident, casualty, labor trouble, riot, condemnation, or act of God. Since
March 31, 2000, there has been no Material Adverse Change in Target.
Section 3.08. No Undisclosed Liabilities. Except as set forth in the notes
to the Financial Statements, the liabilities on the latest balance sheet of
Target included in the Financial Statements consist solely of accrued
obligations and liabilities incurred by Target in the ordinary course of
business to Persons which are not Affiliates of Target. There are no liabilities
of Target of any kind whatsoever, whether or not accrued and whether or not
contingent or absolute, including without limitation documentary or standby
letters of credit, bid or performance bonds, or customer or third party
guarantees, other than (a) liabilities disclosed in the Financial Statements,
(b) liabilities incurred in the ordinary course of business and not required to
be set forth in the Financial Statements under generally accepted accounting
principles, (c) liabilities which have arisen after December 31, 1999 in the
ordinary course of business and consistent with past practice (none of which is
a liability for breach of contract, breach of warranty, tort, infringement claim
or lawsuit or a liability to repay or refund to any person any amounts
previously received by Target)
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<PAGE>
and (d) liabilities incurred in connection with the execution of this Agreement
which, individually or in the aggregate, do not have a Material Adverse Effect.
There are no asserted claims for indemnification by any Person against Target
under any law or agreement or pursuant to Target's Articles of Incorporation or
Bylaws, and Target is unaware of any facts or circumstances that might give rise
to the assertion of such a claim against Target thereunder.
Section 3.09. Corporate Action. All corporate action of the Board of
Directors and of the Shareholders of Target taken on or prior to the date hereof
has been duly authorized, adopted or ratified in accordance with applicable law
and Target's Articles of Incorporation and Bylaws and has been duly recorded in
Target's corporate minute books (true, correct and complete copies of which have
been delivered to or made available for inspection by Acquirer).
Section 3.10. Events Subsequent to December 31, 1999. Except as disclosed
in Section 3.10 of the Target Disclosure Schedule, since December 31, 1999,
Target has not (a) issued any stock, bond or other corporate security (including
without limitation securities convertible into or rights to acquire capital
stock of Target); (b) borrowed any amount or incurred or become subject to any
liability (absolute, accrued or contingent), except current liabilities incurred
and liabilities under contracts entered into, all in the ordinary course of
business; (c) discharged or satisfied any Lien or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on its balance sheet included in the Audited Financial
Statements for the period ended December 31, 1999 and current liabilities
incurred since December 31, 1999 in the ordinary course of business; (d)
declared or made any payment or distribution to shareholders or purchased or
redeemed any shares of its capital stock or other securities, or entered into,
any agreement or commitment or currently has an intention to do so; (e)
mortgaged, pledged or subjected to Lien any of its assets, tangible or
intangible, other than liens for current taxes not yet due and payable; (f)
sold, assigned or transferred any of its tangible assets except in the ordinary
course of business, or canceled any debt or claim; (g) sold, assigned,
transferred or granted any license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset; (h)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business; (i) suffered any adverse change in
its relations with, or any loss or threatened loss of, any of its suppliers or
customers disclosed pursuant to Section 3.23; (j)(i) granted any severance or
termination pay to any of its directors, officers, employees or consultants,
(ii) entered into any employment, deferred compensation or other similar
agreement (or any amendment to any such existing agreement) or arrangement with
any of its directors, officers, employees or consultants, (iii) increased any
benefits payable under any existing severance or termination pay policies or
employment agreements, (iv) increased the compensation, bonus or other benefits
payable to any of its directors, officers, consultants or employees, except in
each case in the ordinary course of business consistent with past practices; (k)
made any material change in the manner of its business or operations; (l) made
any material change in any method of accounting or accounting practice, except
as specifically disclosed in the Financial Statements; (m) entered into any
transaction except in the ordinary course of business or as otherwise
contemplated hereby; or (n) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
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Section 3.11. Taxes. Except as set forth in Section 3.11 of the Target
Disclosure Schedule:
(a) Target (or any affiliated, combined, consolidated unitary or
similar group of which any Constituent Member is or has been a member) has
duly and timely filed with the appropriate taxing authorities all Tax
Returns that are required to have been filed for, by, on behalf of or with
regard to it and its assets, operations and businesses, and such returns
are true, correct and complete and reflect all liabilities for Taxes for
the periods covered thereby.
(b) All Taxes due and payable by or with respect to Target, either
directly or as a part of a consolidated, combined or similar return, for
all periods through the Closing Date have been or will be fully and timely
paid when due. The reserves or accruals for Taxes provided in the books and
records of Target with respect to any period for which Tax Returns have not
yet been filed or for which Taxes are not yet due and owing are or, prior
to the Effective Time, will be sufficient for all unpaid Taxes of Target
through the close of business on the date of the Effective Time. The amount
of the reserves or accruals for the Taxes of Target through March 31, 2000
is set forth on the Disclosure Schedule. Target has not incurred any Taxes
other than in the ordinary course of business. Target has no tax liability
(including interest and penalties) of any person under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local, foreign or
federal law), as transferee or successor, by contract, or otherwise.
(c) Target has complied in all material respects with all applicable
laws, rules and regulations relating to the payment and withholding of
Taxes and has duly and timely withheld from employee salaries, wages and
other compensation and have paid over to the appropriate taxing authorities
all amounts required to be so withheld and paid over for all periods under
all applicable laws.
(d) Any deficiencies asserted, assessed or proposed as a result of any
governmental audits of the Tax Returns of Target have been paid or settled,
and there are no present disputes as to Taxes payable by it. There is no
audit, investigation, or proceeding in progress, pending, expected or
threatened against Target by any governmental agency in connection with
Taxes; nor, to the knowledge of Target, is there any reasonable basis for
any such audit, investigation or proceeding. No issue has been raised by a
federal, state, local or foreign taxing authority in any current or prior
examination of Target which, by application of the same or similar
principles, could reasonably be expected to result in a proposed deficiency
for any subsequent taxable period.
(e) Target has not (i) executed or filed with any taxing authority any
agreement extending the period for assessment or collection of any Taxes,
including but not limited to any applicable statute of limitations; (ii)
requested any extension of time within which to file any Tax Return, which
Tax Return has not since been filed; (iii) received any written ruling of a
taxing authority related to Taxes or entered into any written and legally
binding agreement with a taxing authority relating to Taxes or (iv) made
any payments, or is obligated to make any payments, or is a party to any
agreement that could require it to make payments that are not deductible
under Section 280(G) of the Code.
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<PAGE>
(f) Target is not a party to any tax allocation or sharing agreement
or similar document or arrangement.
(g) No Power of Attorney with respect to any Tax matter is currently
in force with respect to Target.
(h) After the date hereof, no election or consent with respect to any
Tax (or the computation thereof) affecting Target will be made without
Acquirer's prior written consent.
(i) Acquirer has received complete copies of (i) all income Tax
Returns for Target for all applicable taxable periods since 1990 and (ii)
any audit report issued within the last three years relating to any Taxes
due from or with respect to Target, or its income, assets or operations.
The Disclosure Schedule sets forth the jurisdictions in which Target filed
Tax Returns since its inception, and as of the date hereof no claim has
ever been made by any taxing authority in a jurisdiction in which Target
does not (or did not) file Tax Returns that it is or may be subject to
taxation by that jurisdiction.
(j) Neither Target nor any other person on behalf of Target has (i)
agreed to or is required to make any adjustments pursuant to Section 481(a)
of the Code or any similar provision of state, local or foreign law by
reason of a change in accounting method, nor has any such change been
proposed or threatened or (ii) executed or entered into a closing agreement
pursuant to Section 7121 of the Code or any similar provision of state,
local or foreign law. Neither Target nor any other person on behalf of
Target has filed a consent pursuant to Section 341(f) of the Code or agreed
to have Section 341(f)(2) of the Code apply to any disposition of a
subsection (f) asset (as that term is defined in Section 341(f)(4) of the
Code) owned by Target.
(k) No property owned by Target is (i) "tax-exempt use property"
within the meaning of Section 168(h)(1) of the Code or (ii) is "tax-exempt
bond financed property" within the meaning of Section 168(g) of the Code.
(l) Target is not subject to any private letter rulings of the
Internal Revenue Service or comparable rulings of other Tax authorities.
(m) There are no Liens as a result of unpaid Taxes upon any of the
assets or properties of Target.
(n) Target is not a party to any joint venture, partnership or other
arrangement that is treated as a partnership for federal income tax
purposes.
(o) Target is not and has never been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Internal
Revenue Code.
(p) Target has not made any payments, is not obligated to make any
payments, nor is it a party to any agreement that could obligate it to make
any payments that will be an
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"excess parachute payment" under Section 280G of the Code as a result of
the transaction contemplated by this Agreement.
"Tax" and "Taxes" includes any federal, state, local or foreign
income, gross receipts, capital, franchise, import, goods and services,
value added, sales and use, estimated, alternative minimum, add-on minimum,
sales, use, transfer, registration, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs,
duties, real property, personal property, capital stock, social security,
unemployment, disability, payroll, license, employee withholding, or other
tax, of any kind whatsoever, including any interest, penalties or additions
to tax or additional amounts in respect of the foregoing; the foregoing
shall include any transferee or secondary liability for a Tax and any
liability assumed by agreement or arising as a result of being (or ceasing
to be) a member of any Affiliated group, as defined in Section 1504 of the
Code (or being included (or required to be included) in any Tax Return
relating thereto).
"Tax Returns" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
Schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of any Taxes of
any party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
Section 3.12. Litigation. Except as described in Section 3.12 of the Target
Disclosure Schedule, there is no action, suit, investigation, arbitration or
proceeding pending or threatened in writing against or affecting Target or any
of its properties or rights (including without limitation no charge of patent
and/or trademark infringement), by or before any Governmental Entity, or any
basis in fact therefor known to Target, against or involving Target or any of
its officers, directors, employees or consultants (in all instances, in their
capacity as such), assets, business or products, whether at law or in equity.
The Target Disclosure Schedule accurately describes each action, suit,
investigation, arbitration or proceeding brought against or affecting Target or
any of its properties or assets (including any of its patents, trademarks or
other intellectual property) or to which Target was a party. With respect to
each litigation or claim described in the Target Disclosure Schedule, copies of
all pleadings, filings, correspondence with opposing parties and their counsel,
opinions of counsel, results of studies, judgments, orders, attachments,
impositions of or recordings of Liens and other documents have been furnished or
made available to Acquirer.
Section 3.13. Compliance with Laws. Target has complied in all material
respects with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings and charges thereunder) of any
Governmental Entity relating to or affecting the operation, conduct or ownership
of its properties or businesses. No investigation or review by any Governmental
Entity (including without limitation any audit or similar review by any federal,
foreign, state or local taxing authority) with respect to Target is pending or
threatened, nor has any Governmental Entity indicated in writing to Target an
intention to conduct the same. Neither Target nor any director, officer,
consultant or employee of Target (in all instances, in their capacity as such),
is in default with respect to any order, writ, injunction or decree known to or
served upon Target of any Governmental Entity. There is no existing law, rule,
regulation or order, whether
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federal, state, local, municipal or foreign, which would prohibit or materially
restrict Target from, or otherwise materially adversely affect Target in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it currently proposes to conduct business.
Section 3.14. Title to and Condition of Property.
------------ ----------------------------------
(a) Target owns no real property. Each lease or agreement under which
Target is a lessee or lessor of any property, real or personal, is a valid
and binding agreement of Target and without any default thereunder by any
other party thereto. No event has occurred and is continuing which, with
due notice or lapse of time or both, would constitute a default or event of
default by Target under any such lease or agreement or by any other party
thereto. Target's possession of such property has not been disturbed and no
claim has been asserted in writing against Target adverse to its rights in
such leasehold interests.
(b) All buildings, structures, appurtenances and material items of
machinery, equipment and other tangible assets used by Target are in good
operating condition and repair, normal wear and tear excepted, are usable
in the ordinary course of business, are adequate and suitable for the uses
to which they are being put and conform in all material respects to all
applicable laws, ordinances, codes, rules, regulations and authorizations
relating to its use and operation. Target's premises or equipment are not
in need of maintenance or repairs other than ordinary routine maintenance
and repairs which are not material, individually or in the aggregate, in
nature or cost, and no such maintenance or repair has intentionally been
delayed, deferred or prolonged.
Section 3.15. Environmental Matters.
------------ ---------------------
(a) Except as would not have an Environmental Material Adverse Effect,
Target has been and is currently being operated in compliance with all
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements and obligations of Environmental Laws and related orders of
any court or other governmental authority; Target is not required to obtain
any permits or licenses pursuant to any Environmental Law to conduct its
business as presently conducted;
(b) There are not any existing, pending or threatened actions, suits,
claims, investigations, inquiries or proceedings by or before any court or
any other governmental entity directed against any Target that pertain or
relate to (1) any remedial obligations under any applicable Environmental
Law, (2) violations by Target of any Environmental Law, (3) personal injury
or property damage claims relating to a Release of chemicals or Hazardous
Substances, or (4) response, removal, or remedial costs under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), 42 U.S.C.ss.9601 et seq. the Resource ------ Conservation and
Recovery Act ("RCRA"), 42 U.S.C.ss.6901 et seq., or any similar state or
federal ---- laws;
(c) No portion of any real property leased by Target is listed on the
National Priorities List ("NPL") or the Comprehensive Environmental
Response, Compensation, and
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Liability Information System ("CERCLIS") under CERCLA, or any similar
ranking or listing under any state law. Except as would not have an
Environmental Material Adverse Effect, no facts or circumstances exist
which could reasonably be expected to result in any liability to Target or
Acquirer with respect to the current or past business and operations of
Target in connection with (i) any Release, transportation or disposal of
any Hazardous Substances, or (ii) any action taken or omitted that was not
in full compliance with or was in violation of any applicable Environmental
Law.
Section 3.16. Contracts.
------------ ---------
(a) The Target Disclosure Schedule contains a complete list of all
currently effective written or oral (i) employment contracts, arrangements
or policies of Target which may not be immediately terminated without
penalty (or any augmentation or acceleration of benefits); (ii) leases,
sales contracts and other agreements with respect to any property, real or
personal, of Target, except for leases of personal property involving, on
an annual basis, less than $10,000 individually and $50,000 in the
aggregate; (iii) contracts or commitments for capital expenditures or
acquisitions in excess of $10,000 on an annual basis for one project or set
of related projects; (iv) agreements, contracts, indentures or other
instruments relating to the borrowing of money, or the guarantee of any
obligation (third party or otherwise) for the borrowing of money (excluding
routine checking account overdraft agreements); (v) contracts or agreements
providing for any covenant not to compete by Target or otherwise
restricting in any way Target's engaging in any business activity
(including a description of the businesses to which the covenant not to
compete applies); (vi) contracts or agreements relating to consultancies,
professional retentions, agency, sales or distributorship arrangements
pertaining to Target or its products or activities involving in excess of
$10,000 on an annual basis; (vii) contracts, agreements or commitments
requiring Target to indemnify or hold harmless any Person; (viii) all
contracts with any customer or supplier that cannot be terminated without
penalty in excess of $10,000 by Target within one year; (ix) any written
agreement, contract, arrangement or understanding with any Affiliate,
licensee or Shareholder; (x) any license or agreement granting or
restricting the right of Target to use a trade name, trademark, logo,
patent, software or other Intellectual Property; and (xi) contracts,
agreements, arrangements or commitments, other than the foregoing, which
could reasonably be considered material to Target's business (all
contracts, agreements, arrangements or commitments to which Target is a
party, whether or not listed on the Target Disclosure Schedule, being
hereinafter referred to as "Contracts"). True and correct copies of all the
Contracts listed on the Target Disclosure Schedule have been furnished or
made available to Acquirer. Each Contract is a valid and binding obligation
of Target and Target has duly performed its obligations thereunder to the
extent such obligations have accrued, and no breach or default thereunder
by Target or any other party thereto has occurred that could impair the
ability of Target to enforce any rights thereunder. There are no material
liabilities of Target arising directly from any breach of or default in any
provision of any of the Contracts, nor has there occurred any breach or
default thereof by Target which would permit the acceleration of any
obligation of any party thereto or the creation of a Lien upon any asset(s)
of Target.
(b) The consummation of the Merger or the other transactions
contemplated hereby will not result in any violation or termination of,
default or loss of benefit under, or give
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rise to a right of termination under, the terms of any Contract. There are
no negotiations pending or in progress to revise, in any material respect,
any Contract.
Section 3.17. Employee Plans.
------------ --------------
(a) Section 3.17 of the Target Disclosure Schedule lists each of the
following plans, contracts, policies and arrangements which is sponsored,
maintained or contributed to by, or otherwise binding upon Target or its
ERISA Affiliates for the benefit of any current or former employee,
director or other personnel: (i) any "employee benefit plan," as such term
is defined in Section 3(3) of ERISA, whether or not subject to the
provisions of ERISA, (ii) any personnel policy, and (iii) any other
employment, consulting (for annual compensation in excess of $20,000),
collective bargaining, stock option, stock bonus, stock purchase, phantom
stock, incentive, bonus, deferred compensation, retirement, severance,
vacation, dependent care, employee assistance, fringe benefit, medical,
dental, sick leave, death benefit, change in control, golden parachute or
other compensatory plan, contract, policy or arrangement which is not an
employee benefit plan as defined in Section 3(3) of ERISA (each such plan,
contract, policy and arrangement described in (i), (ii) or (iii) above
being herein referred to as an "Employee Plan").
(b) With respect to each Employee Plan, Target has delivered to
Acquirer true and complete copies of (i) each contract, plan document,
policy statement, summary plan description and other written material
governing or describing the Employee Plan and/or any related funding
arrangements (including, without limitation, any related trust agreement or
insurance company contract) or, if there are no such written materials, a
summary description of the Employee Plan, and (ii) where applicable, (A)
the last annual report (5500 series) filed with the Internal Revenue
Service or the Department of Labor; (B) the most recent balance sheet and
financial statement; (C) the most recent actuarial report or valuation
statement; and (D) the most recent determination letter issued by the
Internal Revenue Service, as well as any other determination letter,
private letter ruling, opinion letter or prohibited transaction exemption
issued by the Internal Revenue Service or the Department of Labor since
inception and any application therefor which is currently pending.
(c) Each Employee Plan has been maintained and administered in
accordance with its terms and in compliance with the provisions of
applicable law, including, without limitation, applicable disclosure,
reporting, funding and fiduciary requirements imposed by ERISA and/or the
Code. All contributions, insurance premiums, benefits and other payments to
or under each Employee Plan with respect to all periods prior to the
Closing have been made (in accordance with the governing documents and
applicable law) or fully accrued on the Financial Statements. With respect
to each Employee Plan, (i) no application, proceeding or other matter is
pending before the Internal Revenue Service, the Department of Labor or any
other governmental agency, (ii) no action, suit, proceeding or claim (other
than routine claims for benefits) is pending or threatened, and (iii) no
facts exist which could give rise to an action, suit, proceeding or claim
which, if asserted, could result in a material liability or expense to
Target, any of its ERISA Affiliates or the plan assets.
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(d) With respect to each Employee Plan which is an "employee benefit
plan" within the meaning of Section 3(3) of ERISA or which is a "plan"
within the meaning of Section 4975(e) of the Code, there has occurred no
transaction which is prohibited by Section 406 of ERISA or which
constitutes a "prohibited transaction" under Section 4975(c) of the Code
and with respect to which a prohibited transaction exemption has not been
granted and is not currently in effect.
(e) With respect to each funded Employee Plan which is an employee
pension plan within the meaning of Section 3(2) of ERISA, (i) the Employee
Plan has been, since its inception a qualified plan under Section 401(a) of
the Code, and its related trust has been, since its inception exempt from
federal income taxation under Section 501(a) of the Code, (ii) a favorable
IRS determination letter is currently in effect and, since the date of the
last determination letter, the Employee Plan has not been amended or
operated in a manner which would adversely affect its qualified status and
no event has occurred which has caused or could cause the loss of such
status, and (iii) there has been no termination or partial termination
within the meaning of Section 411(d)(3) of the Code.
(f) Neither Target nor its ERISA Affiliates has ever maintained or
been obligated to contribute to a single employer, multiple employer or
multi-employer pension plan (within the meaning of Section 3(2) of ERISA)
which is or was covered by Title IV of ERISA or by Section 302 of ERISA or
Section 412 of the Code, and neither Target nor its ERISA Affiliates has
incurred or may incur any direct or indirect liability under Title IV of
ERISA or Section 302 of ERISA or Section 412 of the Code, contingent or
otherwise.
(g) Target and its ERISA Affiliates have complied in all respects with
the provisions of Section 4980B of the Code with respect to any Employee
Plan which is a group health plan within the meaning of Section 5001(b)(1)
of the Code. Neither Target nor its ERISA Affiliates maintains, contributes
to, or is obligated under any plan, contract, policy or arrangement
providing health or death benefits (whether or not insured) to current or
former employees or other personnel beyond the termination of their
employment or other services, except as required in Section 4980B of the
Code. Each Employee Plan may be unilaterally terminated and/or amended by
Target or its ERISA Affiliates at any time without damage or penalty.
(h) The consummation of the transactions contemplated by this
Agreement will not (either alone or in conjunction with another event, such
as a termination of employment or other services) entitle any employee or
other person to receive severance or other compensation which would not
otherwise be payable absent the consummation of the transactions
contemplated by this Agreement or cause the acceleration of the time of
payment or vesting of any award or entitlement under any Employee Plan.
Section 3.18. Labor Matters. Target is not a party to or otherwise bound by
any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization, nor, as of the date
hereof, is Target the subject of any proceeding asserting that Target has
committed an unfair labor practice or is seeking to compel it to bargain with
any labor
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union or labor organization nor, as of the date of this Agreement, is there
pending or threatened, any material labor strike, dispute, walkout, work
stoppage, slow-down or lockout involving Target.
Section 3.19. Year 2000 Compliance. All proprietary software applications
written, designed, developed, sold or licensed by Target (the "Software") are
Year 2000 Compliant, except to the extent that any failure to be Year 2000
Compliant, either individually or in the aggregate, would not have a Material
Adverse Effect on Target. The term "Year 2000 Compliant" as used herein means
that the Software is (1) capable of recognizing, processing, managing,
representing, interpreting, and manipulating correctly date related data for
dates earlier and later than January 1, 2000, including, but not limited to,
calculating, comparing, sorting, storing, tagging and sequencing, without
resulting in or causing logical or mathematical errors or inconsistencies in any
user-interface functionalities or otherwise, including data input and retrieval,
data storage, data fields, calculations, reports, processing, or any other input
or output, (2) has the ability to provide data recognition for any date-related
data represented without a century designation, date-related data whose year is
represented by only two digits and date fields assigned special values, (3) has
the ability to automatically function into and beyond the year 2000 without
human intervention and without any change in operations associated with the
advent of the year 2000, (4) has the ability to correctly interpret data, dates
and time into and beyond the year 2000, (5) have the ability not to produce
noncompliance in existing information, nor otherwise corrupt such data into and
beyond the year 2000, (6) has the ability to correctly process after January 1,
2000 data containing dates before that date, and (7) has the ability to
recognize all "leap years," including February 29, 2000.
Target does not believe that the lack of ability of its Software or
computer systems to properly interface with internal and external applications
and systems of third parties with whom Target exchanges data electronically
(including without limitation panelists, customers, clients, suppliers, service
providers, subcontractors, processors, converters, shippers, warehousemen,
outsources, data processors, regulatory agencies and banks) will have a Material
Adverse Effect on Target.
Section 3.20. Insurance Policies. The Target Disclosure Schedule contains a
correct and complete description of all insurance policies covering Target, its
businesses, employees, agents and assets. Each such policy is in full force and
effect and Target believes each such policy is of the type and in the amount
customarily carried by Persons conducting businesses or owning assets similar to
those of the Target. Such policies shall not, pursuant to their terms, in any
way be affected by, or terminate or lapse by reason of, this Agreement. All
retroactive premium adjustments under any worker's compensation policy of Target
have been recorded in the Financial Statements in accordance with generally
accepted accounting principles and are reflected in the Financial Statements.
All premiums with respect to such insurance policies have been paid on a timely
basis, and no notice of cancellation or termination has been received with
respect to any such policy. Target has not failed to give any notice or present
any claim thereunder in due and timely fashion. There are no pending claims
against such insurance by or on behalf of Target as to which the insurers have
denied coverage or otherwise reserved rights. Target has not been refused any
insurance with respect to its assets or operations, nor has their coverage been
limited,
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by any insurance carrier to which it has applied for any such insurance with
which it has carried insurance since the date of its inception.
Section 3.21. Records. Target has records that accurately and validly
reflect its transactions and accounting controls sufficient to insure that such
transactions are (a) in all material respects executed in accordance with their
respective management's general or specific authorization and (b) recorded in
conformity with generally accepted accounting principles.
Section 3.22. Brokerage Fees. Neither Target nor any of its Affiliates has
retained any financial advisor, broker, agent or finder or paid or agreed to pay
any financial advisor, broker, agent or finder on account of this Agreement or
any of the agreements contemplated hereby or any transaction contemplated hereby
or thereby or any transaction of like nature that would be required to be paid
by Target.
Section 3.23. Suppliers and Customers.
------------ -----------------------
(a) The Target Disclosure Schedule lists (i) all suppliers of Target
to which Target made payments during the period beginning January 1, 1999
through December 31, 1999, or expects to make payments during the period
beginning January 1, 2000 through December 31, 2000, in excess of $10,000
in the aggregate, (ii) all customers of Target during the period beginning
January 31, 1999 through December 31, 1999, or customers that Target
expects will pay to Target during the period beginning January 1, 2000
through December 31, 2000, more than $10,000 in the aggregate and (iii) all
other suppliers and customers the loss of any of which, individually or in
the aggregate with all other suppliers or customers affiliated with such
supplier or customer, could have a Material Adverse Effect on Target.
(b) To Target's and the Shareholders' Knowledge, none of Target's
customers or suppliers listed on the Target Disclosure Schedule intend to
cease purchasing from, selling to or dealing with Target nor has any
information been brought to their attention which might lead them to
believe any such customer or supplier intends to alter in any material
respect the amount of such purchases, sales or the extent of dealings with
Target or to materially alter such purchases, sales or dealings in the
event of the consummation of the Merger. No customer has informed Target
that it intends to cancel outstanding or currently anticipated contracts
with Target.
(c) Neither Target nor any of its officers, directors or Affiliates,
nor any entity controlled by one of more of the foregoing:
(i) owns, directly or indirectly, any interest in (excepting less
than 1% stock holdings for investment purposes in securities of
publicly held and traded companies), or is an officer, director,
employee or consultant of, any Person which is, or is engaged in
business as, a competitor of Target;
(ii) owns, directly or indirectly, in whole or in part, any
material tangible or intangible property that Target uses in the
conduct of its business, except as disclosed in the Target Disclosure
Schedule; or
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(iii) has any cause of action or other claim whatsoever against,
or owes any amount to, Target, except for claims in the ordinary
course of business such as for accrued vacation pay, accrued benefits
under employee benefit plans, and similar matters and agreements
existing on the date hereof.
Section 3.24. Intellectual Property. The Target Disclosure Schedule
contains an accurate and complete list of all domestic and foreign patents,
patent applications, patent licenses, software licenses (other than generally
available pre-packaged "off-the-shelf" software) and licenses, trade names,
trademarks, copyrights, service marks, trademark registrations and applications,
service mark registrations and applications, and copyright registrations and
applications owned (in whole or in part), licensed to any extent or used or
anticipated to be used by Target in the conduct of its business (collectively,
and, together with the know how, "Intellectual Property"). Target either owns
all right, title and interest in and to, or possesses the exclusive right to
use, the Intellectual Property, trade secrets and technology used in the conduct
of its business (including, without limitation, the exclusive right to use and
license the same (in the jurisdiction(s) where registered in the case of
trademarks, service marks and copyrights)) and each item constituting part of
the Intellectual Property in which Target has an ownership or license interest
has been, to the extent indicated on the Target Disclosure Schedule, duly
registered with, filed in or issued by, as the case may be, the United States
Patent and Trademark Office or such other Governmental Entities as are indicated
on the Target Disclosure Schedule and such registrations, filings and issuances
remain in full force and effect. No claim of infringement or misappropriation of
patents, trademarks, trade names, service marks, copyrights or trade secrets of
any other Person has been made nor threatened against Target. Target is not
infringing or misappropriating any patents, trademarks, trade names, service
marks, copyrights or trade secrets of any other Person. Except as set forth on
the Target Disclosure Schedule and without limiting any other provisions hereof,
Target has not granted any license, franchise or permit to any Person to use any
of the Intellectual Property of Target and no other Person has the right to use
the same trademarks, service marks or trade names used by Target or any similar
trademarks, service marks or trade names likely to lead to confusion. Since
inception Target has not conducted its business under any corporate, trade or
fictitious name, except Pharmacy Associates, Inc. and PAI. The Target Disclosure
Schedule sets forth all trademark registrations and applications, service mark
registrations and applications and copyright registrations and applications
abandoned by Target since its inception.
Section 3.25. Licenses. Target has all licenses, permits, consents and
other governmental certificates, authorizations and approvals required by
applicable federal, state and local Governmental Entity for the conduct of its
business and the use of its properties as presently conducted or used,
including, without limitation, all licenses required under applicable federal,
state, local or municipal law relating to public health and safety, or employee
health and safety except where the failure to have such license, permit,
consent, certificate, authorization or approval could not have a Material
Adverse Effect on Target (collectively, "Licenses"). The Target Disclosure
Schedule contains a true and complete list of the Licenses. All of the Licenses
are in full force and effect and no action or claim is pending nor is threatened
to revoke or terminate any License or declare any License invalid in any
material respect. Target has taken all necessary action to maintain such
Licenses.
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The Target Disclosure Schedule contains a true and complete list of all
federal, state, local, municipal and foreign governmental or judicial consents,
orders, decrees and other compliance agreements relating to Target or any of its
businesses under which Target is operating or bound.
Section 3.26. No Illegal or Improper Transactions. Neither Target nor any
of its directors, officers, employees, agents or Affiliates, has directly or
indirectly used funds or other assets of Target or made any promise or
undertaking in such regard, for (a) illegal contributions, gifts, entertainment
or other expenses relating to political activity; (b) illegal payments to or for
the benefit of governmental officials or employees, whether domestic or foreign;
(c) illegal payments to or for the benefit of any person, firm, corporation or
other entity, or any director, officer, employee, agent or representative
thereof; or (d) the establishment or maintenance of a secret or unrecorded fund;
and there have been no false or fictitious entries made in the books or records
of Target with respect to any of the foregoing.
Section 3.27. Restrictive Documents and Territorial Restrictions. Target is
not subject to, or a party to, any charter, by-law, mortgage, Lien, lease,
license, permit, agreement, contract, instrument, law, rule, ordinance,
regulation, order, judgment or decree, or any other restriction of any kind or
character, which adversely affects the business, prospects, operations or
condition (financial or otherwise) of its business or any of its assets or
properties in any material respect, or which would prevent consummation of the
transactions contemplated hereby, or the continued operation of its business
after the date hereof on substantially the same basis as heretofore operated or
which would materially restrict the ability of Target to acquire any property or
conduct business in any area.
Section 3.28. Bank Accounts. The Target Disclosure Schedule contains a
true, correct and complete list of the names and locations of all banks, trust
companies, savings and loan associations and other financial institutions at
which Target maintains safe deposit boxes or accounts of any nature.
Section 3.29. No Misleading Statements. This Agreement, the information and
schedules referred to herein, when considered as a whole, and the certificates
that have been furnished to Acquirer in connection with the transactions
contemplated hereby do not include any untrue statement of a material fact and
do not omit to state any material fact necessary to make the statements
contained herein or therein, in light of the circumstances under which they were
made, not misleading. There is no fact known to Target which materially
adversely affects or in the future could reasonably be expected to materially
adversely affect the business, condition (financial or otherwise), property or
assets of its business which has not been set forth herein.
Section 3.30. Hart-Scott-Rodino. Target is not an entity engaged in
manufacturing which has total assets of $10,000,000 or more and does not meet
the requirements set forth in Section 7a of the Clayton Act, 15 U.S.C.ss.18a.
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
--------------------------------------------------
Each Shareholder severally but not jointly agrees and represents and
warrants to Acquirer and Acquirer Sub as follows:
Section 4.01. Ownership. Such Shareholder holds of record and owns
beneficially the number of shares of Target Common Stock set forth next to his,
her or its name in Schedule 4.01 hereto, free and clear of any Liens. There are
no outstanding options, warrants, convertible securities, calls, rights,
commitments, court orders, proceedings, preemptive rights or agreements or
instruments or understandings of any character to which such Shareholder is a
party or by which he, she or it is bound, obligating him, her or it to deliver
or sell, or cause to be issued, delivered or sold, contingently or otherwise,
any shares of Target Common Stock owned by him, her or it or any securities or
obligations convertible into or exchangeable for such shares or to grant, extend
or enter into any such option, warrant, convertible security, call, right,
commitment, preemptive right or agreement. Such Shareholder is not a party to
any voting trust, proxy, or other agreement, commitment or understanding, or any
court order proceeding, with respect to the voting, dividend rights or
disposition of any capital stock of Target, except as disclosed on the Target
Disclosure Schedule. At the Closing, good and marketable title to the shares of
Target Common Stock being sold by such Shareholder will pass to Acquirer Sub
free and clear of all Liens.
Section 4.02. Authorization. Such Shareholder has all requisite power and
authority to enter into this Agreement and each of the other agreements
contemplated hereby, and to carry out his, her or its obligations under this
Agreement and each of the other agreements contemplated hereby and to consummate
the transactions contemplated hereby and thereby. The execution and delivery by
such Shareholder of this Agreement and each of the other agreements contemplated
hereby, the consummation of the transactions contemplated hereby and thereby and
the perfor mance by such Shareholder of his, her or its obligations hereunder
and thereunder have been duly authorized by all necessary corporate,
partnership, trust or analogous action on the part of such Shareholder, if
applicable. Each of this Agreement and the other agreements contemplated hereby
have been duly executed and delivered by such Shareholder and, assuming due
authorization, execution and delivery by Target, Acquirer, Acquirer Sub
constitutes the legal, valid and binding obligation of such Shareholder,
enforceable against such Shareholder in accordance with their respective terms
(except as the enforceability thereof may be limited by any applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally or by
general principles of equity, regardless of whether such enforceability is
considered in equity or at law).
Section 4.03. No Violation. The execution and delivery of this Agreement
and each of the other agreements contemplated hereby by such Shareholder does
not, and the consummation by such Shareholder of the transactions contemplated
hereby and thereby, and compliance with the terms hereof and thereof will not,
(a) conflict with, or result in any violation of or default under, any provision
of such Shareholder's certificate of incorporation or by-laws, partnership
agreement or trust agreement (or other analogous organizational documents), if
applicable, or (b) conflict with, or result in a breach or violation of or
default under, or accelerate the performance required by, the terms of any law,
statute, regulation, order, judgment or decree or any agreement, contract,
indenture or other instrument to which such Shareholder is a party or to which
any of his,
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her or its properties are subject, or constitute a default or loss of any right
thereunder or an event which, with the lapse of time or notice or both, might
result in a default or loss of any right thereunder or the creation of any Lien
upon the shares of Target owned by, or any consideration to be received by, such
Shareholder pursuant to the Agreement.
Section 4.04. Approvals. The execution and delivery of this Agreement and
each of the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby and thereby by such Shareholder will not
require the consent, approval, order or authorization of any Governmental Entity
or Regulatory Authority or any other Person under any statute, law, rule,
regulation, permit, license, agreement, indenture or other instrument to which
such Shareholder is a party or to which any of his, her or its properties are
subject, and no declaration, filing or registration with any Governmental Entity
or Regulatory Authority is required by such Shareholder in connection with the
execution and delivery of this Agreement and each of the other agreements
contemplated hereby, the consummation by such Shareholder of the transactions
contemplated hereby and thereby or the performance by such Shareholder of his,
her or its obligations hereunder and thereunder.
Section 4.05. Brokerage Fees. Such Shareholder has not retained any
financial advisor, broker, agent or finder or paid or agreed to pay any
financial advisor, broker, agent or finder on account of this Agreement or any
transaction contemplated hereby or any transaction of like nature that would be
required to be paid by such Shareholder.
Section 4.06. Litigation. There is no claim, suit, action, proceeding or
investigation (whether at law or equity, before or by any Federal, state,
foreign, local or municipal commission, court, tribunal, board, agency or
instrumentality, or before any arbitrator) pending or threatened against or
affecting such Shareholder, the outcome of which would in any manner impair his,
her or its ability to perform his, her or its obligations hereunder or against
the transactions contemplated by this Agreement.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND
----------------------------------------------
ACQUIRER SUB
------------
Except as set forth (by reference to the applicable Section of this
Agreement) in the disclosure schedule delivered by Acquirer and Acquirer Sub to
Target and the Shareholders on the date hereof (the "Acquirer Disclosure
Schedule"), a copy of which is attached hereto as Schedule 5.0, Acquirer and
Acquirer Sub hereby jointly and severally agree and represent and warrant to
Target and the Shareholders as follows:
Section 5.01. Organization, Etc. Acquirer is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York
and has full corporate power and authority to conduct its business as it is now
being conducted and to own, operate or lease the properties and assets it
currently owns, operates or holds under lease and is duly qualified to do
business and is in good standing in each jurisdiction in which the failure to be
so qualified and in good standing would have a Material Adverse Effect on
Acquirer. Acquirer Sub is a corporation duly organized and validly existing and
in good standing under the laws of the State of Arkansas
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and has full corporate power and authority to conduct its business as it is now
being conducted and to own, operate or lease the properties and assets it
currently owns, operates or holds under lease.
Section 5.02. Capitalization. The authorized capital stock of Acquirer
consists of (i) 25,000,000 shares of common stock, of which, as of March 31,
2000, 6,912,496 shares are issued and 6,801,496 shares are outstanding and (ii)
10,000,000 shares of preferred stock of which no shares are issued and
outstanding. The shares of Acquirer Common Stock to be issued pursuant to the
Merger at the Closing, when issued pursuant to this Agreement, will be duly
authorized, validly issued, fully paid and nonassessable and will not have been
issued in violation of any preemptive rights or of any federal or state law. The
authorized capital stock of Acquirer Sub consists of 100 shares of common stock,
par value $.01 per share, all of which have been validly issued, are fully paid
and nonassessable and are owned by Acquirer free and clear of any Liens.
Section 5.03. Authorization. Each of Acquirer and Acquirer Sub has all
requisite corporate power and authority to enter into this Agreement and each of
the other agreements contemplated hereby, to carry out their respective
obligations under this Agreement and each of the other agreements contemplated
hereby and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Acquirer and Acquirer Sub of this Agreement and each
of the other agreements contemplated hereby to which it is a party, the
consummation of the transactions contemplated hereby and thereby and the
performance by Acquirer and Acquirer Sub of their respective obligations
hereunder and thereunder have been duly authorized by all necessary corporate
action on the part of Acquirer and Acquirer Sub, as applicable. Each of this
Agreement and the other agreements contemplated hereby to which it is a party
has been duly executed and delivered by Acquirer and Acquirer Sub and
constitutes the legal, valid and binding obligation of Acquirer and Acquirer
Sub, as applicable, enforceable against Acquirer and Acquirer Sub, as
applicable, in accordance with their respective terms (except as the
enforceability thereof may be limited by any applicable bankruptcy, insolvency
or other laws affecting creditors' rights generally or by general principles of
equity, regardless of whether such enforceability is considered in equity or at
law).
Section 5.04. No Violation. The execution and delivery of this Agreement
and each of the other agreements contemplated hereby by Acquirer and Acquirer
Sub do not, and the consummation by Acquirer and Acquirer Sub of the
transactions contemplated hereby and thereby, and compliance with the terms
hereof and thereof will not, (a) conflict with, or result in any violation of or
default or loss of any benefit under, any provision of Acquirer's Certificate of
Incorporation or Bylaws or the Articles of Incorporation or Bylaws of Acquirer
Sub; (b) conflict with, or result in a breach or violation of or default or loss
of any benefit under, or accelerate the performance required by, the terms of
any agreement, contract, indenture or other instrument to which Acquirer or
Acquirer Sub is a party or to which any of their respective properties are
subject, or constitute a default or loss of any right thereunder or an event
which, with the lapse of time or notice or both, might result in a default or
loss of any right thereunder or the creation of any Lien upon any of the assets
or properties of Acquirer or Acquirer Sub; or (c) result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any material Acquirer
license.
Section 5.05. Approvals. The execution and delivery of this Agreement and
each of the
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agreements contemplated hereby by Acquirer and Acquirer Sub and the consummation
of the transactions contemplated hereby and thereby will not require the
consent, approval, order or authorization of any Governmental Entity or
Regulatory Authority or any other Person under any statute, law, rule,
regulation, permit, license, agreement, indenture or other instrument to which
Acquirer or Acquirer Sub is a party or to which any of their respective
properties are subject, and no declaration, filing or registration with any
Governmental Entity or Regulatory Authority is required or advisable by Acquirer
or Acquirer Sub in connection with the execution and delivery of this Agreement
and each of the other agreements contemplated hereby, the consummation by
Acquirer or Acquirer Sub of the transactions contemplated hereby and thereby or
the performance by Acquirer or Acquirer Sub of their respective obligations
hereunder and thereunder, other than (a) the filing of the Articles of Merger in
accordance with Arkansas Law and New York Law, (b) compliance with any
applicable requirements under the Exchange Act, the Securities Act and the
Nasdaq National Market and state securities and "blue sky" laws, and (c) such
other filings or registrations with, or authorizations, consents or approvals
of, governmental bodies, agencies, officials or authorities the failure of which
to make or obtain would not have a Material Adverse Effect, or would not
materially adversely affect the ability of Acquirer or Acquirer Sub to
consummate the Merger.
Section 5.06. Commission Filings. Acquirer has delivered to Target and the
Shareholders true, correct and complete copies of Acquirer's Prospectus (the
"Prospectus") dated as of July 28, 1999 included as part of Acquirer's
registration statement on Form S-1 as declared effective by the Commission on
July 28, 1999 (the "Registration Statement") and a copy of its Quarterly Report
on Form 10-Q for the quarter ended December 31, 1999 (the "10-Q") and each
report, registration statement (on a form other than S-8) and definitive proxy
statement filed by Acquirer with the Commission between January 1, 1999 and the
date of this Agreement (together with the Prospectus, the Registration
Statement, and the 10-Q, the "Public Filings"). Acquirer has timely filed since
the date of the Public Filings all the material required to be filed pursuant to
the applicable provisions of the Securities Act and pursuant to Section 13, 14
or 15(d) of the Exchange Act. The Public Filings, as of their respective filing
dates, did not contain any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they were made, not misleading.
Section 5.07. Valid Issuance. The Acquirer Common Stock to be issued in the
Merger will, when issued in accordance with the provisions of this Agreement, be
validly issued, fully paid and nonassessable and free and clear of any Liens.
Section 5.08. Broker's and Finder's Fees. Acquirer has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar charges
in connection with this Agreement or any transaction contemplated hereby.
Section 5.09. No Vote Required. No vote of the stockholders of Acquirer
is necessary to adopt and approve this Agreement, the Merger and the other
transactions contemplated by this Agreement, or to issue the Acquirer Common
Stock to be issued in the Merger.
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Section 5.10. Ownership of Acquirer Sub; No Prior Activities. Acquirer Sub
is a newly formed corporation that has conducted no business activity and was
formed solely for the purpose of engaging in the transactions contemplated by
this Agreement.
Section 5.11. Financial Statement and Other Information. The consolidated
financial statements contained in the Public Filings: (i) complied in all
material respects with the published rules and regulations of the Commission
applicable thereto; (ii) were prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to such financial statements
and (in the case of unaudited statements) as permitted by Form 10-Q, and except
that unaudited financial statements may not contain footnotes and are subject to
year-end audit adjustments; and (iii) fairly present in all material respects
the consolidated financial position of Acquirer and its subsidiaries as of the
respective dates thereof and the consolidated results of operations of Acquirer
and its subsidiaries for the periods covered thereby.
ARTICLE VI. COVENANTS OF TARGET
-------------------
Target and the Shareholders agrees that:
Section 6.01. Conduct of Target. From the date hereof until the Closing,
Target shall conduct its business in the ordinary course, consistent with past
practice, and not enter into any transaction outside the ordinary course of
business. Without limiting the generality of the foregoing, from the date hereof
until the Closing, except as contemplated hereby, and except to the extent that
Acquirer gives prior written consent:
(a) Target will not adopt or propose any change in its Articles of
Incorporation or enter into any agreement or incur any obligation, the
terms of which would be violated by the consummation of the transactions
contemplated by this Agreement;
(b) except as contemplated by this Agreement, Target will not:
(i) enter into any written contract, agreement, plan or
arrangement covering any director, officer or employee of Target that
provides for the making of any payments, the acceleration of vesting
of any benefit or right or any other entitlement contingent upon (A)
the Merger or (B) the termination of employment after the Merger;
(ii) enter into or amend any employment, consulting or similar
agreement (oral or written) to increase the compensation payable or to
become payable by it to, or otherwise materially alter its employment
or consulting relationship with, any of its officers, directors or
consultants over the amount payable as of the date hereof, or increase
the compensation payable to any other employees (other than (A)
increases in the ordinary course of business, consistent with past
practice, which, in the aggregate do not exceed $50,000 on an annual
basis or otherwise have a Material Adverse Effect on Target, or (B)
pursuant to
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plans disclosed in the Target Disclosure Schedule), or adopt or,
except as required by applicable law to maintain a plan's
tax-qualified status, amend any employee benefit plan or arrangement
(oral or written); or
(iii) loan or advance any money to any officer, director,
employee, shareholder or consultant of Target other than advances in
the ordinary course of business which do not exceed $5,000 at any time
outstanding to any one person;
(c) Target will not (i) purchase, acquire, issue, deliver, sell or
authorize the issuance, delivery or sale of any stock appreciation rights
or of any shares of its capital stock of any class or any securities
convertible into or exchangeable for, or rights, warrants or options to
acquire, any such shares or convertible or exchangeable securities, (ii)
make any changes in its capital structure or (iii) enter into any agreement
or understanding or take any preliminary action with respect to the matters
referred to in clause (i) or (ii) of this paragraph (c);
(d) Target will keep in full force and effect its existing insurance
policies and will not modify or reduce the coverage thereunder;
(e) Target will not (i) pay any dividend or make any other
distribution to holders of its capital stock, (ii) split, combine or
reclassify any of its or their capital stock or propose or authorize the
issuance of any other securities in respect of or in lieu of or in
substitution for any shares of its capital stock, (iii) repurchase, redeem
or otherwise acquire any shares of its capital stock, or (iv) take any
preliminary action with respect thereto;
(f) Target will not incur any additional indebtedness for borrowed
money (including, without limitation, by way of guarantee or the issuance
and sale of debt securities or rights to acquire debt securities), or incur
any account payable except in the ordinary course of business, or enter
into or modify any contract, agreement, commitment or arrangement with
respect to the foregoing;
(g) Target will not enter into any transaction that would, in the
reasonable judgment of Acquirer, delay the occurrence of the Closing beyond
August 31, 2000.
(h) Other than sales of products and services in the ordinary course
of business and consistent with present practice Target will not (i) sell,
lease or otherwise dispose of any of its assets having a book or market
value in excess of $25,000 in the aggregate or that are otherwise material,
individually or in the aggregate, to the business, results of operations or
financial condition of Target or (ii) enter into, or consent to the
entering into of, any agreement granting a preferential right to sell,
lease or otherwise dispose of any of such assets;
(i) Target will not (i) enter into any new line of business; (ii)
change its investment, liability management and other material policies in
any material respect; (iii) incur or commit to any capital expenditures,
obligations or liabilities in connection therewith other than capital
expenditures, obligations or liabilities that (a) are listed on the Target
Disclosure Schedule or (b) individually do not exceed $25,000 and in the
aggregate do not exceed $100,000;
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(iv) acquire or agree to acquire by merging or consolidating with, or
acquire or agree to acquire by purchasing a substantial portion of the
assets of, or in any other manner, any business or Person; (v) otherwise,
except as to the acquisition of materials and supplies for its products,
services and activities in the ordinary course of business and consistent
with past practices, acquire or agree to acquire any assets for a total
consideration in the aggregate in excess of $25,000; (vi) make any
investment in any Person; or (vii) enter into any license, technology
development or technology transfer agreement with any other Person in
excess of $25,000;
(j) Target will not (i) change its methods of accounting as currently
in effect except as required by changes in generally accepted accounting
principles; (ii) change any of its methods of accounting for income and
deductions for income tax purposes from those employed in the preparation
of the income tax returns of Target for the period ending December 31,
1999; or (iii) change its fiscal year;
(k) Target will not settle or compromise, or agree to settle or
compromise any suit or other litigation matter or matter in an arbitration
proceeding for any material amount (after taking into account any insurance
proceeds to which Target is entitled) or otherwise on terms which would
have a Material Adverse Effect on Target; and
(l) Target will not agree or commit to do any of the foregoing.
Section 6.02. Access to Records and Personnel. At all reasonable times from
and after the date hereof until the Closing, Target shall afford Acquirer and
its accountants, counsel, financial advisor and other representatives full and
complete access to the properties, employees and officers of Target and to all
books, accounts, financial and other records and contracts of every kind of
Target; provided, however, that no investigation pursuant to this Section 6.02
shall affect any representation or warranty given by Target or the Shareholders
to Acquirer hereunder.
Section 6.03. No Other Offers. Target shall not, nor shall Target authorize
or permit any officer, director, employee or Shareholder of, any investment
banker, attorney, accountant or other representative retained by, Target or the
Shareholders to, (i) entertain, encourage, solicit or initiate any inquiries or
the making of any proposal that may reasonably be expected to lead to any
"takeover proposal" or (ii) participate in any discussions or negotiations, or
provide third parties with any information, relating to any such inquiry or
proposal. Target shall immediately advise Acquirer of any such inquiries or
proposals and shall provide Acquirer with the terms of such proposal. As used in
this Section 6.03, "takeover proposal" shall mean any proposal outside of the
ordinary course of Target's business, for a merger or other business combination
involving, directly or indirectly, Target or for the acquisition of a
substantial equity interest in Target, or a substantial portion of the assets of
Target other than the transactions contemplated hereby, and "substantial equity
interest" shall mean any equity ownership representing beneficial ownership of
five percent or more of the outstanding capital stock of Target.
Section 6.04. Maintenance of Business. Target will use its commercial best
efforts to carry on, preserve and maintain its business, preserve and retain its
employees, properties and goodwill, keep available the services of its officers
and employees and preserve its relationships
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with those of its customers, suppliers, licensors, licensees and others having
business relationships with it that are material to its business in
substantially the same manner as if it had prior to the date hereof. If Target
becomes aware of a material deterioration or facts which are likely to result in
a material deterioration in the relationship with any material customer,
supplier, licensor, licensee or others having business relationships with
Target, it will promptly bring such information to the attention of Acquirer in
writing.
Section 6.05. Compliance with Obligations. Prior to the Closing Date,
Target will comply with (a) all applicable federal, state, local and foreign
laws, rules and regulations, (b) all material agreements and obligations,
including its Articles of Incorporation, by which Target, its properties or its
assets may be bound, and (c) all decrees, orders, writs, injunctions, judgments,
statutes, rules and regulations applicable to Target, its properties or its
assets.
Section 6.06. Shareholder Approval. Target will use all reasonable efforts
to obtain the necessary approvals by its Shareholders of this Agreement and the
transactions contemplated hereby. Each Shareholder of Target has entered into a
Voting Agreement in the form attached hereto as Exhibit 6.06.
Section 6.07. Noncompetition and Confidentiality.
(a) Noncompetition. Each of the Shareholders listed on Schedule 6.07
(the "Management Shareholders") acknowledges that he, she or it has
extensive knowledge and a unique understanding of the business of Target,
has been directly involved with the establishment and continued development
of its customer relations and has had access to all of the proprietary and
confidential information used in the business of Target. Each of the
Management Shareholders further acknowledges that if he, she or it has or
any of his, her or its Affiliates were to compete with Acquirer or Target
in such business following the Closing, great harm would come to Acquirer
thereby destroying any value associated with the purchase of Target and the
goodwill of Target. In furtherance of the Merger and to more effectively
protect the value of Target, each of the Management Shareholders covenants
and agrees that, for a period beginning on the date hereof and ending on
the date which is three years thereafter (the "Term"), such Management
Shareholder shall not, and shall cause his, her or its Affiliates not to,
directly or indirectly, as employee, agent, consultant, director, partner
or in any other individual or representative capacity, own, operate,
manage, control, engage in, act as a consultant or advisor to, render
services for (alone or in association with any person, firm, corporation or
entity), or otherwise assist any person or entity that engages in or owns,
operates, manages or controls any venture or enterprise that engages or
proposes to engage in "pharmacy benefit management" anywhere in the United
States except on behalf of Target or Acquirer or their respective
Affiliates. "Pharmacy benefit management" means the business of (i)
contracting with pharmacies or pharmacists to provide pharmaceutical
products and/or services to sponsors of pharmacy benefit plans or
individuals covered by pharmacy benefit plans; (ii) managing a network of
pharmacies or pharmacists, (iii) processing the claims for such services,
and (iv) providing appropriate consulting services to managers of pharmacy
benefit plans and their clients; provided that, except for claims
processing, such services shall not include services which Acquirer did not
provide for clients as of June 1, 2000. Notwithstanding the foregoing,
nothing contained in this Section 6.07
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shall prohibit any Management Shareholder or his, her or its Affiliates
from (i) owning not more than an aggregate of one percent (1%) of any class
of stock of any company which is listed on a national securities exchange
or traded in the over-the-counter market and (ii) in the case of Management
Shareholders who are attorneys, practicing law in the ordinary course of
such Management Shareholder's business.
(b) Nonsolicitation. Each Management Shareholder agrees that, during
the Term, none of said Management Shareholders or his, her or its
respective Affiliates will, directly or indirectly, as employee, agent,
consultant, principal or otherwise (i) solicit any business from or in any
way transact or seek to transact any business with or otherwise seek to
influence or alter the relationship between Target or its Affiliates with
any person or entity to whom Target or its Affiliates provided services or
to whom Target or any of its Affiliates made a presentation at any time
during the three-month period preceding the Closing, or (ii) solicit for
employment or other services or otherwise seek to influence or alter the
relationship between Target or its Affiliates of any person who is or was
an employee of Target or its Affiliates at any time during the three- month
period preceding the Closing, except on behalf of Target and Acquirer. Each
of the Management Shareholders acknowledges that the covenants contained in
this Section 6.06(b) are essential conditions for Acquirer entering into
this Agreement without which Acquirer would not have entered into this
Agreement or have paid the consideration payable by it. The Management
Shareholders acknowledge that the restrictions set forth herein are
reasonable, valid and necessary for the protection of the legitimate
interest of Acquirer and Target.
(c) Confidentiality. After the Closing, each Management Shareholder
shall strictly maintain the confidentiality of all information, documents
and materials relating to Target, except to the extent disclosure of any
such information is required by law or authorized by Acquirer.
In the event that any Management Shareholder reasonably believes after
consultation with counsel that he, she or it is required by law to disclose any
confidential information described in this Section 6.07(c), such Management
Shareholder will (i) provide Acquirer with prompt notice before such disclosure
in order that Acquirer may attempt to obtain a protective order or other
assurance that confidential treatment will be accorded to confidential
information, and (ii) cooperate with Acquirer in attempting to obtain such order
or assurance. The provisions of this Section 6.07(c) shall not apply to any
information, documents or materials which are in the public domain or shall come
into the public domain, other than by reason of default by any Management
Shareholder of this Agreement or becomes known in the industry through no
wrongful act on the part of any Management Shareholder.
(d) Remedies. Without limiting the right of Acquirer to pursue all
other legal and equitable rights available to it, including without
limitation, damages for the actual or threatened violation of this Section
6.07 by any Management Shareholder or any of his, her or its respective
Affiliates, it is agreed that other remedies cannot fully compensate
Acquirer for such a violation and that Acquirer shall be entitled to
injunctive relief and/or specific performance to prevent violation or
continuing violation thereof, without bond and without the necessity of
showing actual monetary damages. It is the intent and understanding of each
party hereto that if,
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in any action before any court or agency legally empowered to enforce this
Section 6.07, any term, restriction, covenant or promise in this Section
6.07 is found to be unreasonable and for that reason unenforceable, then
such term, restriction, covenant or promise shall be deemed modified to the
extent necessary to make it enforceable by such court or agency.
ARTICLE VII. COVENANTS OF ACQUIRER
---------------------
Section 7.01. Commission Filings. Acquirer shall timely file all reports
required to be filed by it with the Commission required under the Securities Act
or Exchange Act between the date hereof and the Closing and shall deliver to
Target copies of all such reports promptly after the same are filed.
Section 7.02. Maintenance of Business. Acquirer will use its commercially
reasonable efforts to carry on, preserve and maintain its business, preserve and
retain its employees, properties and goodwill, keep available the services of
its officers and employees and preserve its relationships with those of its
customers, suppliers, licensors, licensees and others having business
relationships with it that are material to its business in substantially the
same manner as it has prior to the date hereof.
Section 7.03. Compliance with Obligations. Prior to the Closing Date,
Acquirer will comply in all material respects with (i) all applicable Federal,
state, local and foreign laws, rules and regulations, (ii) all material
agreements and obligations, including its Certificate of Incorporation and
Bylaws, by which it, its properties or its assets may be bound, and (iii) all
decrees, orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to it, its properties or its assets.
Section 7.04. Consents. Acquirer shall promptly apply for or otherwise
seek, and use its commercially reasonable efforts to obtain all consents and
approvals required to be obtained by it for the consummation of the Merger.
Section 7.05. Maintenance of Target Indemnification Obligations.
(a) Subject to and following the Effective Time, Target shall, and
Acquirer shall cause Target to, indemnify and hold harmless the Indemnified
Target Parties (as defined below) to the extent provided in the Bylaws or
Articles of Incorporation of Target, in each case as in effect as of the
date of this Agreement without amendment, for three years after the
Effective Time; provided, however, that all rights to indemnification in
respect of any claim asserted or made within such period shall continue
until the final disposition of such claim. For purposes of this Section
7.05, "Indemnified Target Parties" shall mean the individuals who were
officers, directors and employees of Target on or prior to the Effective
Time.
(b) The provisions of this Section 7.05 shall be in addition to any
other rights available to the Indemnified Target Parties, shall survive the
Effective Time of the Merger, and are expressly intended for the benefit of
the Indemnified Target Parties.
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ARTICLE VIII. COVENANTS OF TARGET AND ACQUIRER
--------------------------------
Section 8.01. Advice of Changes Each party will promptly advise the other
such party in writing of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
Merger;
(b) any notice or other communication from any Governmental Entity or
Regulatory Authority in connection with the Merger;
(c) any actions, suits, claims, investigation or other judicial
proceedings commenced or threatened against it which, if pending on the
date of this Agreement, would have been required to have been disclosed
pursuant to this Agreement or which relate to the consummation of the
Merger;
(d) any event known to its executive officers occurring subsequent to
the date of this Agreement that would render any representation or warranty
of such party contained in this
Agreement, if made on or as of the date of such event or the Closing Date,
untrue, inaccurate or misleading in any material respect (other than an event so
affecting a representation or warranty which is expressly limited to a state of
facts existing at a time prior to the occurrence of such event);
(e) any Material Adverse Change in the business condition of the
party; and
(f) from time to time prior to the Closing, Target and Acquirer will
promptly supplement or amend its respective Disclosure Schedule with
respect to any matter hereafter arising which, if existing or occurring at
the date of this Agreement, would have been required to be set forth or
described in such Disclosure Schedule hereto. No supplement or amendment of
a Disclosure Schedule made pursuant to this Section shall be deemed to cure
any breach of, affect or otherwise diminish any representation or warranty
made in this Agreement unless the other party hereto specifically agrees
thereto in writing.
Section 8.02. Regulatory Approvals. Prior to the Closing, each party shall
execute and file, or join in the execution and filing of, any application or
other document that may be necessary in order to obtain the authorization,
approval or consent of any Governmental Entity or Regulatory Authority which may
be reasonably required, or that the other party may reasonably request, in
connection with the consummation of the Merger. Each party shall use its best
efforts to obtain all such authorizations, approvals and consents.
Section 8.03. Actions Contrary to Stated Intent. Neither party shall take
any action that would, or reasonably might be expected to, result in any of its
representations and warranties set forth herein being or becoming untrue in any
material respect, or in any of the conditions to the Acquisition set forth in
Article IX hereof not being satisfied.
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Section 8.04. Certain Filings. Target and Acquirer shall cooperate with one
another:
(a) in determining whether any action by or in respect of, or filing
with, any Governmental Entity or Regulatory Authority is required, or any
actions, consents, approvals or waivers are required to be obtained from
parties to any material contracts, in connection with the consummation of
the transactions contemplated by this Agreement; and
(b) in seeking any such actions, consents, approvals or waivers or
making any such filings, furnishing information required in connection
therewith and seeking timely to obtain any such actions, consents,
approvals or waivers.
Section 8.05. Public Disclosure. Acquirer and Target shall consult with
each other before issuing any press release or otherwise making any public
statement with respect to the Merger or this Agreement and shall not issue any
such press release or make any such public statement prior to such consultation,
except as, in the reasonable judgment of the Board of Directors of either
Acquirer or Target, may be required by law or the rules and regulations of
Nasdaq.
Section 8.06. Satisfaction of Conditions Precedent. Target and Acquirer
will use their commercially reasonable efforts to satisfy or cause to be
satisfied all the conditions precedent that are set forth in Article VIII
hereof, as applicable to each of them, and to cause the transactions
contemplated by this Agreement to be consummated by June 30, 2000 and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby. Target and
Acquirer agree to negotiate in good faith with respect to any additional
agreement reasonably requested by another party hereto which such requesting
party determines in good faith is necessary to effect the transactions
contemplated hereby.
ARTICLE IX. CONDITIONS OF CLOSING
---------------------
Section 9.01. Conditions to All Parties' Obligations. The obligations of
all the parties to this Agreement to effect the Acquisition shall be subject to
the fulfillment or satisfaction, at or prior to the execution of this Agreement
of the following conditions or the mutual waiver by the parties:
(a) Illegality or Legal Constraint. No temporary restraining order,
preliminary or permanent injunction or other order or restraint issued by
any court of competent jurisdiction, no statute, rule, regulation, order,
decree, restraint or pronouncement by any Governmental Entity, and no other
legal restraint or prohibition which would prevent or have the effect of
preventing the consummation of the Acquisition shall have been issued or
adopted or be in effect.
(b) Governmental Authorizations. All permits, approvals, filings and
consents required or advisable to be obtained or made prior to the
consummation of the Acquisition under applicable federal laws or applicable
laws of any state or municipality or foreign country having jurisdiction
over the Acquisition and the other transactions contemplated herein shall
have been
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obtained or made, as the case may be, on terms and conditions satisfactory
to Target, the Shareholders, Acquirer and Acquirer Sub, acting reasonably,
(all such permits, approvals, filings and consents and the lapse of all
such waiting periods being referred to as the "Requisite Regulatory
Approvals"), and all such Requisite Regulatory Approvals shall be in full
force and effect.
(c) Escrow Agreement. Acquirer, the Shareholders and the Escrow Agent
shall have executed the Escrow Agreement in the form of Exhibit 2.07
hereof.
Section 9.02. Conditions to the Obligations of Acquirer and Acquirer Sub to
Effect the Acquisition. The obligations of Acquirer and Acquirer Sub under this
Agreement to effect the Acquisition are subject to the fulfillment or
satisfaction, at or prior to the execution of this Agreement, of the following
conditions, unless waived by Acquirer in its sole discretion:
(a) Accuracy of Representations and Warranties. Each of the
representations and warranties of Target and the Shareholders set forth in
Articles III and IV hereof that is expressly qualified by a reference to
materiality shall be true and correct in all respects as so qualified, and
each of the representations and warranties of Target and the Shareholders
set forth in Articles III and IV hereof that is not so qualified shall be
true and correct in all material respects, each as of the date when made
and at and as of the Closing, except for such changes as are permitted by
this Agreement and except to the extent a representation or warranty speaks
only as of an earlier date.
(b) Covenants and Agreements. Target and the Shareholders shall have
duly performed and complied with the covenants and agreements required by
this Agreement to be performed by or complied with by it, him or her prior
to or at the Closing. None of the events or conditions entitling Acquirer
to terminate this Agreement under Article X hereof shall have occurred and
be continuing.
(c) Consents. Any consent required for the consummation of the
Acquisition under any material Contract or License or for the continued
enjoyment by Target of the benefits of any such contract or license after
the Acquisition shall have been obtained.
(d) Opinion of Counsel. Acquirer shall have received the opinion of
Dover & Dixon, P.A., a professional corporation, counsel to Target, dated
as of the Closing Date, in the form of Exhibit 9.02(d) hereto.
(e) Certificate of Target. Acquirer shall have received a certificate
of Target, executed on behalf of Target by the President of Target,
satisfactory in form and substance to Acquirer, as to compliance with the
matters set forth in paragraphs (a), (b) and (c) of this Section 9.02.
(f) No Adverse Decision. There shall not be any action taken or
threatened, or any statute, rule, regulation or order enacted, entered,
threatened, or deemed applicable to the transactions contemplated hereby,
by any foreign or United States Federal or state government or
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Governmental Entity or Regulatory Authority or court that, whether in
connection with the grant of a Requisite Regulatory Approval, any agreement
proposed by any foreign or United States Federal or state government or
Governmental Entity or Regulatory Authority, or otherwise, which (i)
requires or could reasonably be expected to require any divestiture of a
portion of its business that Acquirer in its reasonable judgment believes
will have a Material Adverse Effect on Target or (ii) imposes any condition
upon Target that in Acquirer's reasonable judgment (x) would be materially
burdensome to Target or (y) would materially increase the costs incurred or
that will be incurred by Acquirer as a result of consummating the
Acquisition and the other transactions contemplated hereby. There shall be
no action, suit, investigation or proceeding pending or threatened by or
before any Governmental Entity which (i) seeks to restrain, enjoin, prevent
the consummation of or otherwise materially affect the transactions
contemplated by this Agreement or (ii) questions the validity or legality
of any such transactions or seeks to recover damages or to obtain other
relief in connection with any such transactions.
(g) Litigation. There shall not have been any litigation or claim
pending or threatened against Target as of Closing Date that could
reasonably be expected to have a Material Adverse Effect on Target.
(h) Proceedings; Receipt of Documents. All corporate and other
proceedings taken or required to be taken in connection with the
transactions contemplated hereby and all documents incident thereto shall
be reasonably satisfactory in form and substance to Acquirer and Acquirer's
counsel, and Acquirer and Acquirer's counsel shall have received all such
information and such counterpart originals or certified or other copies of
such documents as Acquirer or its counsel may reasonably request. Acquirer
shall have received such other instruments, approvals and other documents
as it may reasonably request to make effective the transactions
contemplated hereby.
(i) Adverse Change. From the date hereof through and including the
Closing Date, Target shall not have suffered any Material Adverse Change in
its business, financial condition, assets, properties or prospects (whether
or not described in any supplement to a schedule hereto).
(j) Non-Disclosure and Non-Solicitation Agreements. Each of the
employees of Target who are to be employed or otherwise retained by
Acquirer shall have entered into an agreement with Acquirer, in the form of
Exhibit 9.02(j) hereto.
(k) Financial Statements. Acquirer shall have received from Target
true, correct and complete copies of each of the financial statements
referenced in Section 3.07(a) hereto, which financial statements shall be
satisfactory to Acquirer in all respects in Acquirer's sole discretion.
(l) Shareholder Representation Letters. Each Shareholder shall have
delivered to Acquirer a letter in the form of Exhibit 9.02(l) relating to
such Shareholder's status as an "accredited investor" for purposes of the
Securities Act.
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(m) FIRPTA Affidavit. Target shall have executed and delivered to
Acquirer an affidavit pursuant to Section 1445(b) of the Code in the form
attached hereto as Exhibit 9.02(m).
(n) Supporting Documents. Acquirer and its counsel shall have received
copies of the following documents:
(i) (A) the Articles of Incorporation of Target certified as of a
recent date by the Secretary of State of the State of Arkansas (B) a
certificate of said Secretary dated as of a recent date as to the due
incorporation of Target and (C) a certificate from the Secretary of
State of each state or jurisdiction listed on the Target Disclosure
Schedule, as to Target's qualification, good standing (if applicable)
and payment of taxes in each such state;
(ii) a certificate of the Secretary or an Assistant Secretary (or
other officer or director executing such certificate) of Target dated
the Closing Date and certifying (A) that attached thereto is a true
and complete copy of the Bylaws of such company as in effect on the
date of such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors and
the shareholders of such company authorizing the execution, delivery
and performance of this Agreement and the other agreements
contemplated hereby to which such company is a party, and the
consummation of the Agreement and the other agreements contemplated
hereby to which such company is a party, and that all such resolutions
are in full force and effect and are all the resolutions adopted in
connection with the transactions contemplated hereby, and (C) to the
incumbency and specimen signature of each officer or director of such
company executing this Agreement and any certificate or instrument
furnished pursuant hereto, and a certification by another officer or
director of such company as to the incumbency and signature of the
officer or director signing the certificate referred to in this clause
(ii); and
(iii) such additional similar supporting documents and other
information with respect to the operations and affairs of Target as
Acquirer or its counsel may reasonably request.
(o) Lock-up Agreements. Each of the Shareholders shall have executed a
lock- up agreement regarding their shares of Acquirer Common Stock received
as consideration hereunder substantially in the form of Exhibit 9.02(m).
Section 9.03. Conditions to the Obligations of Target and the Shareholders
to Effect the Merger. The obligations of Target and the Shareholders under this
Agreement to effect the Merger are subject to the fulfillment or satisfaction,
at or prior to the execution of this Agreement of the following conditions,
unless waived by Target and the Shareholders in their sole discretion:
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(a) Accuracy of Representations and Warranties. The representations
and warranties of Acquirer and Acquirer Sub set forth in Article V hereof
that is expressly qualified by a reference to materiality shall be true and
correct in all respects as so qualified, and each of the representations
and warranties of Acquirer and Acquirer Sub set forth in Article V hereof
that is not so qualified shall be true and correct in all material respects
as of the date when made and at and as of the Closing (except to the extent
a representation or warranty speaks only as of an earlier date and except
for changes contemplated by this Agreement).
(b) Covenants and Agreements. Acquirer and Acquirer Sub shall have
complied with the covenants and agreements required by this Agreement to be
performed or complied with by it prior to or at the Closing. None of the
events or conditions entitling Target and the Shareholders to terminate
this Agreement under Article X hereof shall have occurred and be
continuing.
(c) Opinion of Counsel. Target and the Shareholders shall have
received the opinion of Fulbright & Jaworski L.L.P., counsel to Acquirer
and Acquirer Sub, in the form of Exhibit 9.03(c) hereto.
(d) Certificates of Acquirer and Acquirer Sub. Target shall have
received certificates of Acquirer and Acquirer Sub, satisfactory in form
and substance to Target, executed on behalf of Acquirer by the Chief
Executive Officer and Chief Financial Officer of Acquirer and on behalf of
Acquirer Sub by the Chief Executive Officer and Chief Financial Officer of
Acquirer Sub, as to compliance with the matters set forth in paragraphs (a)
and (b) of this Section 9.03.
(e) Proceedings; Receipt of Documents. All corporate and other
proceedings taken or required to be taken in connection with the
transactions contemplated hereby and all documents incident thereto shall
be reasonably satisfactory in form and substance to Target and the
Management Shareholders and counsel to Target and the Management
Shareholders, and Target, the Management Shareholders and counsel to Target
and the Management Shareholders shall have received all such information
and such counterpart originals or certified or other copies of such
documents as Target, the Management Shareholders or their counsel may
reasonably request. Target and the Management Shareholders shall have
received such other instruments, approvals and other documents as it may
reasonably request to make effective the transactions contemplated hereby.
(f) Supporting Documents. Target and its counsel shall have received
copies of the following documents:
(i) (A) the Certificate of Incorporation of Acquirer certified as
of a recent date by the Secretary of State of the State of New York,
(B) a certificate of said Secretary dated as of a recent date as to
the corporate and tax good standing of Acquirer, (C) the Certificate
of Incorporation of Acquirer Sub certified as of a recent date by the
Secretary of State of the State of Arkansas and (D) a certificate of
said Secretary dated as of a recent date as to the corporate and tax
good standing of Acquirer Sub;
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(ii) certificates of the Secretary or an Assistant Secretary (or
other officer or director executing such certificate) of Acquirer and
Acquirer Sub dated the Closing Date and certifying (A) that attached
thereto is a true and complete copy of the Bylaws of such company as
in effect on the date of such certification; (B) that attached thereto
is a true and complete copy of all resolutions adopted by the Board of
Directors and the shareholders (if any) of such company authorizing
the execution, delivery and performance of this Agreement and the
other agreements contemplated hereby to which such company is a party,
and the consummation of the Agreement and the other agreements
contemplated hereby to which such company is a party, and that all
such resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions contemplated
hereby, and (C) to the incumbency and specimen signature of each
officer or director of such company executing this Agreement and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer or director of such company as to the
incumbency and signature of the officer or director signing the
certificate referred to in this clause (ii); and
(iii) such additional similar supporting documents and other
information with respect to the operations and affairs of Acquirer and
Acquirer Sub as Target or its counsel may reasonably request.
(g) Adverse Change. From the date hereof through the Closing Date,
Acquirer shall not have suffered any Material Adverse Change in its
business, financial condition, assets, properties or prospects.
ARTICLE X. TERMINATION, AMENDMENTS AND WAIVERS
-----------------------------------
Section 10.01. Termination. This Agreement may be terminated at any time
prior to the Closing:
(a) by the mutual consent of the Boards of Directors of Target,
Acquirer and Acquirer Sub;
(b) by Acquirer and Acquirer Sub, or Target, if the Closing shall not
have occurred on or before the close of business on August 31, 2000
provided that the terminating party is not at fault for the delay;
(c) by Acquirer and Acquirer Sub, if they are not in material breach
of their obligations under this Agreement, and if (i) there has been a
breach by Target or the Shareholders of any of their respective
representations and warranties hereunder such that Section 9.02(a) will not
be satisfied, (ii) there has been a willful breach on the part of Target or
the Shareholders of any of their respective covenants or agreements
contained in this Agreement such that the first sentence of Section 9.02(b)
will not be satisfied, and, in both case (i) and case (ii), such breach has
not been cured within ten (10) days after notice to Target or the
Shareholders;
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(d) by Target and the Shareholders (acting by a majority in interest),
if they are not in material breach of their obligations under this
Agreement, and if (i) there has been a breach by Acquirer or Acquirer Sub
of any of their representations and warranties hereunder such that Section
9.03(a) will not be satisfied or (ii) there has been the willful breach on
the part of Acquirer or Acquirer Sub of any of their covenants or
agreements contained in this Agreement such that the first sentence of
Section 9.03(b) will not be satisfied, and, in both case (i) and (ii), such
breach has not been cured within ten (10) days after notice to Acquirer;
(e) by Acquirer or Target, if, after the date of this Agreement, there
shall have occurred a Material Adverse Change in the business of Target or
Acquirer, respectively, of their respective financial condition, assets,
properties or prospects.
Section 10.02. Effect of Termination. In the event of termination of this
Agreement by either Target and the Shareholders or Acquirer and Acquirer Sub as
provided in Section 10.01 hereof, this Agreement shall, except as provided
herein, forthwith become void and there shall not be any liability or obligation
with respect to the terminated provisions of this Agreement on the part of the
parties hereto or their respective officers or directors, except and to the
extent such termination results from the willful breach by a party of any of its
representations, warranties or agreements hereunder.
ARTICLE XI. INDEMNIFICATION
---------------
Section 11.01. Indemnification by the Shareholders.
(a) Indemnification. Subject to the provisions of Section 11.03
hereof, the Shareholders (whether or not a Shareholder is a party to this
Agreement) shall, jointly and severally, indemnify, defend and hold
harmless Acquirer and its officers, directors, employees, agents and
representatives (each an "Acquirer Indemnified Party") from and against and
in respect of any and all losses, damages, expenses, liabilities, claims,
settlements, assessments and judgments (including reasonable costs and
attorney's fees and other expenses arising out of claim, or the defense,
settlement or investigation thereof, made with respect to any of the
foregoing) (collectively, "Losses") incurred or suffered by an Acquirer
Indemnified Party, arising out of, based upon or resulting from (i) any
litigation set forth in Section 3.12 of the Target Disclosure Schedule,
(ii) any employee benefit or employment matter, or (iii) any inaccuracy,
misrepresentation or breach of representation and warranty contained in
Article III of this Agreement or non-fulfillment of any covenant or
agreement of Target contained in this Agreement or any certificate or
instrument furnished pursuant hereto. Notwithstanding the foregoing the
maximum indemnification liability of any Shareholder with respect to any
Loss shall not exceed such Shareholder's pro rata share of such Loss based
on such Shareholder's ownership of outstanding Target Capital Stock on the
Closing Date.
(b) Several Indemnification. Subject to the provisions of Section
11.03 hereof, each Shareholder shall severally but not jointly indemnify,
defend and hold harmless each Acquirer Indemnified Party from and against
and in respect of any and all losses, damages, expenses, liabilities,
claims, settlements, assessments and judgments (including reasonable costs
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and attorney's fees and other expenses arising out of any claim, or the
defense, settlement or investigation thereof, made with respect to any of
the foregoing) incurred or suffered by Acquirer, arising out of, based upon
or resulting from any inaccuracy, misrepresentation or breach by such
Shareholder of any of his/her/its representations and warranties contained
in Article IV of this Agreement, or any non-fulfillment of any of
his/her/its respective covenants or agreements or any certificate or
instrument furnished pursuant hereto.
Section 11.02. Indemnification by Acquirer. Subject to the provisions of
Section 11.03 hereof, Acquirer shall indemnify, defend and hold harmless Target,
its officers, directors, employees, agents and representatives and each of the
Shareholders (each a "Target Indemnified Party") from and against and in respect
of any and all losses, damages, expenses, liabilities, claims, settlements,
assessments and judgments (including the reasonable costs and attorney's fees
and other expenses arising out of any claim, or the defense, settlement or
investigation thereof, made with respect to any of the foregoing) incurred or
suffered by any Target Indemnified Party, arising out of, based upon or
resulting from any inaccuracy, misrepresentation or breach by Acquirer or
Acquirer Sub of the representations or warranties contained in Article V of this
Agreement, or any non-fulfillment of any of their respective covenants or
agreements contained in this Agreement or any certificate or instrument
furnished pursuant hereto.
Section 11.03. Limitations.
(a) An Indemnifying Party (as defined in Section 11.05 below) shall
not be entitled to make any claim for indemnification under this Article XI
with respect to the inaccuracy, misrepresentation or breach of any
representation and warranty contained in this Agreement after the date on
which such representation or warranty ceases to survive pursuant to Section
11.06 hereof.
(b) Notwithstanding anything to the contrary contained herein, no
Indemnified Party (as defined in Section 11.04 below) shall be entitled to
indemnification from an Indemnifying Party (as defined in Section 11.04
below) with respect to the inaccuracy, misrepresentation or breach or any
representation and warranty until the losses suffered by such Indemnified
Party and for which indemnification is available hereunder exceed $50,000
in the aggregate, whereupon the Indemnified Party shall be entitled to
claim indemnification for all losses suffered in excess of $50,000 by such
Indemnified Party and for which indemnification is available hereunder;
provided, however, that this $50,000 threshold shall not be applicable with
respect to the representations and warranties contained in Sections 3.03,
3.22 and 4.01.
(c) Except as set forth below, the total indemnification liability of
all Shareholders shall not exceed, in the aggregate, the sum of (i)
$3,000,000 and (ii) the product of (x) 200,000 and (y) the average of the
last reported per share trading price of Acquirer Common Stock over the 30
business day period immediately preceding the Closing Date; provided that
with respect to any breach of the representations and warranties set forth
in Sections 3.01, 3.03, 3.04, 3.09, 3.22 and 4.01, such limitation on
indemnification liability shall not apply, and instead the total
indemnification liability of each Shareholder shall not exceed, in the
aggregate, the value of the Merger Consideration and the Contingent Payment
delivered to such Shareholder hereunder.
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The total indemnification liability of Acquirer shall not exceed the value
of one-half of the Merger Consideration on the Closing Date, plus one-half
of the value of the Contingent Payment, if any. No limitation provided in
this Section 11.03, however, shall be applicable with respect to any claim
for fraud, willful misconduct or intentional misrepresentation.
Section 11.04. Notice and Defense of Claims.
(a) Each Acquirer Indemnified Party and Target Indemnified Party (the
"Indemnified Party") shall give notice to the party or parties required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and, in the event of any claim or demand asserted by a third
party; but the failure of any Indemnified Party to timely give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Agreement unless such failure to give notice materially
adversely affected the ability of the Indemnifying Party to defend such
claim. Upon receipt of any such notice, the Indemnifying Party may elect to
defend the Indemnified Party against such claim, suit, action or
proceeding, at its own expense, through counsel of its own choice that is
reasonably acceptable to the Indemnified Party, and from and after such
election and for so long as the Indemnifying Party is diligently
prosecuting such defense, the Indemnifying Party shall not be responsible
for any legal fees or expenses of the Indemnified Party, other than
reasonable costs of investigation. Failing such election or reasonably
diligent prosecution, the Indemnified Party shall have the right to (but
shall not be obligated to) pay, compromise or defend the same. In any
claim, suit, action or proceeding defended by the Indemnifying Party, the
Indemnified Party may participate, at its expense, in the defense of the
same. The Indemnifying Party in the defense of any such claim, suit, action
or proceeding shall not, except with the consent of the Indemnified Party,
consent to the entry of any judgment or entry into any settlement which (i)
does not include as an unconditional term thereof the giving by the
claimant or plaintiff to the Indemnified Party of a release from all
liability in respect to such claim, suit, action or proceeding or (ii)
requires the performance of any act (other than the payment of moneys for
which such Indemnified Party is held harmless hereunder) or the agreement
not to perform any act by the Indemnified Party. The Indemnified Party
shall not settle or compromise any such claim without the prior written
consent of the Indemnifying Party, which consent shall not be unreasonably
withheld. The Indemnified Party shall furnish such information regarding
itself or the claim in question as the Indemnifying Party may reasonably
request in writing and as shall be reasonably required in connection with
defense of such claim, suit, action or proceeding resulting therefrom.
Section 11.05. Exclusive Remedy. In the absence of fraud, willful
misconduct or intentional misrepresentation (for which liability shall be
governed by applicable law), the indemnification provisions of this Article XI
will be the sole and exclusive remedy of Acquirer and the other Indemnified
Parties after the Closing Date for any damages suffered by the Indemnified
Parties in connection with this transaction.
Section 11.06. Survival of Representations and Warranties. All of the
representations, warranties and agreements contained in this Agreement shall
survive the Closing and shall remain in full force and effect until the
expiration of two years from the Closing Date and, thereafter, to
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the extent a claim is made prior to such expiration with respect to any breach
of such representation, warranty or agreement, until such claim is finally
determined or settled. Notwithstanding the foregoing, the representations and
warranties contained in Sections 3.01, 3.03, 3.04, 3.11, 3.15 and 3.17 shall
remain in full force and effect until the expiration of the applicable statute
of limitations.
Section 11.07. Reimbursement. Subject to Section 11.02 hereof, at the time
that the Indemnified Party shall suffer a loss because of a breach of any
warranty, representation or covenant by the Indemnifying Party or at the time
the amount of any liability on the part of the Indemnifying Party under this
Agreement is determined (which in the case of payment to third persons shall be
the earlier of (i) the date of such payment, provided that the Indemnified Party
has fully complied with Section 11.03, or (ii) the date that a court of
competent jurisdiction shall enter a final judgment, order or decree (after
exhaustion or expiration of appeal rights) establishing such liability) (such
loss or amount being hereinafter referred to as the "Indemnity Claim"), the
Indemnifying Party shall forthwith, upon notice from the Indemnified Party, pay
to the Indemnified Party the amount of the Indemnity Claim. In the case of an
Indemnity Claim against a Target Indemnified Party, such claim shall be payable,
at the option of the Indemnifying Party, either in cash or shares of Acquirer
Common Stock. For purposes of satisfying any indemnity claim in shares of
Acquirer Common Stock pursuant to this Section 11.07, such shares shall be
valued at the average of the last reported per share trading price of Acquirer
Common Stock over the 30 business day period immediately preceding the date a
claim is finally determined in accordance with the terms of this Agreement and
the Escrow Agreement. In the case of an Indemnity Claim against an Acquirer
Indemnified Party, such claim shall be paid in cash. If such amount is not paid
forthwith, then the Indemnified Party may, at its option, take legal action
against the Indemnifying Party for reimbursement in the amount of its Indemnity
Claim. For purposes hereof the Indemnity Claim shall include the amounts so
paid, or determined to be owing by the Indemnified Party together with costs and
reasonable attorney's fees and interest on the foregoing items (but only to the
extent pre-judgment interest due the Indemnified Party is not already included
within such items) at the rate of ten percent (10%) per annum from the date the
Indemnity Claim is due from the Indemnifying Party to the Indemnified Party as
hereinabove provided until the Indemnity Claim shall be paid.
ARTICLE XII. TAX MATTERS
-----------
Section 12.01. Tax Indemnities
(a) The Shareholders be responsible for, shall pay or cause to be
paid, and shall indemnify, defend and hold harmless Acquirer and its
Affiliates against and reimburse Acquirer and its Affiliates for any and
all Taxes that may be imposed upon or assessed against Target or the assets
thereof (other than Taxes disclosed in the Financial Statements or Taxes
provided for in the books and records of Target , with such provisions in
the Financial Statements and books and records determined in accordance
with the practices employed in connection with the preparation of the tax
returns of Target for the year ended December 31, 1999): (i) with respect
to any Pre-Closing Period; (ii) arising by reason of any breach or
inaccuracy of the representations contained in Section 3.11 hereof; (iii)
with respect to any and all Taxes of any member of an
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affiliated group of which Target (or any predecessor thereof) is or was a
member on or prior to the Closing Date, including any Taxes for which the
Target may be liable under Section 1.1502-6 of the Treasury regulations
promulgated under the Code (or any similar provision of state, local or
foreign Law); (iv) by reason of being a successor-in-interest or transferee
of another Person on or prior to the Closing Date; the Shareholders shall
also pay and shall indemnify and hold harmless Acquirer and its Affiliates
from and against any losses, damages, liabilities, obligations, costs and
expenses (including, without limitation, reasonable expenses and fees for
attorneys, consultants, expert witnesses and accountants and expenses
reasonably incurred in prosecution, investigation, remediation, defense or
settlement) ("Related Costs") incurred in connection with the Taxes for
which the Shareholders are responsible to indemnify Acquirer hereunder.
(b) Acquirer shall be responsible for, shall pay or cause to be paid,
and shall indemnify, defend and hold harmless the Shareholders against and
reimburse the Shareholders for all Taxes that they may at any time suffer
or incur, or become subject to, as a result of, or in connection with,
Target with respect to Post-Closing periods.
(c) Payment by the indemnitor of any amount due to the indemnitee
under this Section 12.01 shall be made within 10 days following written
notice by the indemnitee that payment of such amount to the appropriate Tax
authority is due by the indemnitee; provided, that the indemnitor shall not
be required to make any payment earlier than two Business Days before it is
due to the appropriate Tax authority. In the case of a Tax that is
contested in accordance with the provisions of Section 12.03 payment of the
Tax to the appropriate Tax authority will not be considered to be due
earlier than the date that a final determination to such effect is made by
such Tax authority or a court.
(d) For purposes of this Agreement, "Pre-Closing Period " shall mean a
taxable period or portion thereof that ends on or prior to the Closing
Date. If a taxable period begins on or prior to the Closing Date and ends
after the Closing Date, then the portion of the taxable period that ends on
(and including) the Closing Date shall constitute a Pre-Closing Period. In
the case of any Tax that is imposed on a periodic basis and is payable for
a period that begins before the Closing Date and ends after the Closing
Date, the portion of such Taxes payable for the Pre- Closing Period shall
be (i) in the case of any Tax other than a Tax based upon or measured by
income, the amount of such Tax for the entire period multiplied by a
fraction, the numerator of which is the number of days in the period ending
on the Closing Date and the denominator of which is the number of days in
the entire period and (ii) in the case of any Tax based upon or measured by
income, the amount which would be payable if the taxable year ended on the
Closing Date. Any credit shall be prorated based upon the fraction employed
in clause (i) of the preceding sentence. In the case of any Tax based upon
or measured by capital (including net worth or long- term debt) or
intangibles, any amount thereof required to be allocated under this Section
12.01(d) shall be computed by reference to the level of such items on the
Closing Date. For purposes of this Agreement, "Post-Closing Period" means
any period other than a Pre-Closing Period.
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Section 12.02. Contests.
(a) After the Closing, Acquirer and the Shareholders shall promptly
notify each other in writing of any demand or claim received by the
Shareholders, Acquirer or Target from any Tax authority or other party with
respect to Taxes for which the Shareholders are liable pursuant to Section
12.01(a). Such notice shall contain factual information (to the extent
known) describing the asserted Tax liability in reasonable detail and shall
include copies of any notice or other document received from any Tax
authority in respect of any such asserted Tax liability.
(b) The Shareholders (or their designee) may elect to control the
conduct, through counsel of its own choosing and at its own expense, of any
audit, claim for refund and administrative or judicial proceeding involving
any asserted liability with respect to which indemnity may be sought under
Section 12.01(a) (any such audit, claim for refund or proceeding relating
to an asserted Tax liability is referred to herein as a "Contest "). If the
Shareholders (or their designee) elect to control a Contest, it shall
within 20 calendar days of receipt of the notice of asserted Tax liability
notify Acquirer of its intent to do so, and the Shareholders (or their
designee) shall have all rights to settle, compromise and/or concede such
asserted liability; provided, however, that Acquirer shall have the right
to consult with the Shareholders regarding any Contest that may affect the
Acquirer or Target for any Post-Closing Period and provided further that
the Shareholders shall not have the right to settle, compromise and/or
concede any Contest that may affect the Acquirer or Target for any period
after the Closing Date without Acquirer's prior written consent, which
consent shall not be unreasonably withheld. If the Shareholders elect not
to control the Contest or fails to notify Acquirer of its election as
herein provided, Acquirer may pay, compromise or contest, at its own
expense, subject to (i) reimbursement by the Shareholders for reasonable
third party expenses and (ii) the Shareholders' indemnification obligations
under Section 12.01(a). Acquirer shall have the sole right to represent
Target in any other Contest.
(c) In the event that the Shareholders shall after the Closing take
any position in any Tax Return, or reach any settlement or agreement on
audit, which is in any manner inconsistent with any position taken by the
Target in any filing, settlement or agreement made by Target prior to the
Closing and such inconsistent position (i) requires the payment by Acquirer
or Target of more Tax than would have been required to be paid had such
position not been taken or such settlement or agreement not been reached,
(ii) affects the determination of useful life, basis or method of
depreciation, amortization or accounting of any of the assets or properties
of Target or (iii) accelerates the time at which any Tax must be paid by
Acquirer or Target, then the Shareholders, in each such case, shall provide
timely and reasonable notice to Acquirer of such position and shall
indemnify Acquirer and hold it harmless from any Tax liability or Tax cost
or any Related Costs arising from, in connection with or otherwise with
respect to such position.
Section 12.03. Preparation of Tax Returns. Acquirer shall prepare and file
or shall cause to be prepared and filed all U.S. federal, state, local and
foreign income and franchise Tax Returns relating to Target for any Tax period
ending on or prior to the Closing Date and which are required to be filed after
the Closing Date, and shall pay any and all Taxes due with respect to such Tax
Returns. The parties agree that if Target is permitted, but not required, under
applicable Tax Laws
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to treat the Closing Date as the last day of a Tax period, they will treat the
Tax period as ending on the Closing Date. The Shareholders or their designee
shall prepare and file all other Tax Returns of or which include Target that are
required to be filed on or prior to the Closing Date, and shall pay any and all
Taxes due with respect to such Tax Returns. All such Tax Returns shall be
prepared in a manner consistent with prior practice. Acquirer shall prepare and
file or cause Target to prepare and file all Tax Returns for which the
Shareholders not responsible pursuant to this Section 12.03; provided, that the
Shareholders shall pay to Acquirer the amount, if any, determined pursuant to
Section 12.01 in accordance with the procedures thereof.
Section 12.04. Cooperation and Exchange of Information. The Shareholders,
Acquirer and Target will provide each other with such cooperation and
information as any of them reasonably may request of another in filing any Tax
Return, amended Tax Return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes or participating in or conducting any
audit or other proceeding in respect of Taxes. Each such party shall make its
employees available on a mutually convenient basis to provide explanations of
any documents or information provided hereunder. Each such party will retain all
Tax Returns, schedules and work papers and all material records or other
documents relating to Tax matters of Target for the Tax period first ending
after the Closing Date and for all prior Tax periods until the later of (a) the
expiration of the statute of limitations of the Tax periods to which such Tax
Returns and other documents relate, without regard to extensions except to the
extent notified by another party in writing of such extensions for the
respective Tax periods, or (b) eight years following the due date (without
extension) for such Tax Returns. Any information obtained under this Section
12.03 shall be kept confidential, except as may be otherwise necessary in
connection with the filing of Tax Returns or claims for refund or in conducting
an audit or other proceeding.
Section 12.05. Conveyance Taxes. The Shareholders agree to assume liability
for and to pay any and all sales, value added, transfer, stamp, registration,
real property transfer or gains and similar Taxes incurred as a result of the
transactions contemplated hereby and to file all required change of ownership
and similar statements.
ARTICLE XIII. GENERAL PROVISIONS
------------------
Section 13.01. Taking of Necessary Action. In case at any time after the
Closing any further action is necessary or desirable to carry out the purposes
of this Agreement, each of the parties hereto agrees, subject to applicable
laws, to use all reasonable efforts promptly to take or cause to be taken all
further action and promptly to do or cause to be done all further things
(including the execution and delivery of such further instruments and documents)
as any party reasonably may request.
Section 13.02. Effect of Due Diligence. No investigation by or on behalf of
Acquirer or Acquirer Sub into the business, operations, prospects, assets or
condition (financial or otherwise) of Target shall diminish in any way the
effect of any representations or warranties made by Target or any of the
Shareholders in this Agreement or shall relieve Target or any of the
Shareholders of any of their obligations under this Agreement. No investigation
by or on behalf of Target or the
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Shareholders into the business, operations, prospects, assets or condition
(financial or otherwise) of Acquirer or Acquirer Sub shall diminish in any way
the effect of any representations or warranties made by Acquirer or Acquirer Sub
in this Agreement or shall relieve Acquirer or Acquirer Sub of any of their
obligations under this Agreement.
Section 13.03. Successors and Assigns. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns, heirs, executors, administrators and legal
representatives. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto without the
prior written consent of the other parties hereto.
Section 13.04. Entire Agreement. This Agreement and the other documents
referred to herein contain the entire agreement among the parties hereto with
respect to the transactions contemplated hereby, and controls and supersedes any
prior understandings, agreements or representations by or between the parties,
written or oral, which conflicts with, or may have related to, the subject
matter hereof in any way, including without limitation that certain letter dated
January 26, 2000 by and among Acquirer and Target.
Section 13.05. Notices. All notices or other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally or sent by telefax communication, by recognized overnight courier
marked for overnight delivery, or by registered or certified mail, postage
prepaid, addressed as follows:
(a) If to Target, Pharmacy Associates, Inc., 320 Executive Ct., Suite
201, Little Rock, AR 72205, with a copy to John Peace, Esq., Dover &
Dixon, 420 West Capital Avenue, 37th Floor, Little Rock, AR 72201
(b) If to Acquirer or Acquirer Sub, 26 Harbor Park Drive, Port
Washington, NY 11050, with a copy to: Fulbright & Jaworski L.L.P., 666
Fifth Avenue, New York, New York 10103, Attention: Steven Suzzan, Esq.
(c) If to the Shareholders, to the address specified in Schedule I
hereto.
(d) Or such other addresses as shall be furnished by like notice by
such party. All such notices and communications shall, when telefaxed
(immediately thereafter confirmed by telephone), be effective when
telefaxed, or if sent by nationally recognized overnight courier
service, be effective one Business Day after the same has been
delivered to such courier service marked for overnight delivery, or,
if mailed, be effective when received.
Section 13.06. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the internal laws of the State of New York,
without reference to or application of any conflicts of laws principles.
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Section 13.07. No Third Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the parties and their
respective successors and permitted assigns.
Section 13.08. Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
each of the parties hereto; provided, however, that the holders of a majority of
the outstanding Target Capital Stock shall have the right to amend any provision
of this Agreement on behalf of the Shareholders unless any nonconsenting
Shareholder is adversely affected by such amendment in a manner different from
other Shareholders. No waiver by any party of any default, misrepresentation or
breach of warranty or covenant hereunder, whether intentional or not, shall be
deemed to extend to any prior or subsequent default, misrepresentation or breach
of warranty or covenant hereunder or affect in any way any rights arising by
virtue of any prior or subsequent such occurrence. At any time prior to the
Closing, the parties hereto, by action taken by their respective Boards of
Directors and, in the case of the Shareholders, by action taken by the holders
of a majority of the outstanding Target Capital Stock, may (i) extend the time
for the performance of any of the obligations or other acts of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties of the
other party hereto contained herein or in any document delivered pursuant hereto
and (iii) waive compliance with any of the agreements or conditions contained
herein.
Section 13.09. Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
Section 13.10. Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement.
Section 13.11. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.12. Headings. The headings used in this Agreement are for
convenience only and are not to be considered in construing or interpreting any
term or provision of this Agreement.
Section 13.13. Consent to Jurisdiction; Receipt of Process. Each party
hereby consents to the jurisdiction of, and confers non-exclusive jurisdiction
upon, any federal or state court located in the City of New York, New York and
appropriate appellate courts therefrom, over any action, suit or proceeding
arising out of or relating to this Agreement, or any of the transactions
contemplated hereby. Each party hereby irrevocably waives, and agrees not to
assert as a defense in any such action, suit or proceeding, any objection which
it may now or hereafter have to venue of any such action, suit or proceeding
brought in any such federal or state court and hereby
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irrevocably waives any claim that any such action, suit or proceeding brought in
any such court or tribunal has been brought in an inconvenient forum. Process in
any such action, suit or proceeding may be served on any party anywhere in the
world, whether within or without the State of New York provided that notice
thereof is provided pursuant to provisions for notice under this Agreement.
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
NATIONAL MEDICAL HEALTH CARD
SERVICES, INC.
By:/s/ Bert E. Brodsky
------------------------------
Title: Chairman of the Board
PHARMACY ASSOCIATES, INC.
By: \s\ Tery Baskin
------------------------------
Title: President
PAI ACQUISITION CORP.
By: \s\ Bert E. Brodsky
------------------------------
Name: Bert E. Brodsky
Title: Chief Executive Officer
SHAREHOLDERS:
/s/ Tery Baskin
----------------------------------
Tery Baskin
/s/ Bryan Hosto
----------------------------------
Bryan Hosto
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SIGNATURE PAGE OF AGREEMENT AND PLAN OF MERGER
/s/ Rick Morrison
---------------------------------
Rick Morrison
/s/ Walter J. Morrison
---------------------------------
Walter J. Morrison
/s/ Paul Stanfield
---------------------------------
Paul Stanfield
MOMO LIMITED PARTNERSHIP
By: /s/ Bryan Hosto
-----------------------------
Name: Brian Hosto
Title: Agent
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SIGNATURE PAGE OF AGREEMENT AND PLAN OF MERGER
<PAGE>
EXHIBITS
Exhibit 2.02(b) Certificate of Merger
Exhibit 2.07 Form of Escrow Agreement
Exhibit 9.02(d) Legal Opinion of Dover & Dixon
Exhibit 9.02(j) Form of Non-Disclosure and Non-Solicitation Agreement
Exhibit 9.02(m) Form of Shareholder Representation Letter
Exhibit 9.02(n) FIRPTA Affidavit
Exhibit 9.02(p) Form of Lock-up Agreement
Exhibit 9.03(c) Legal Opinion of Fulbright & Jaworski L.L.P.
SCHEDULES
Schedule I Shareholders
Schedule 2.07(d) Allocation of Escrowed Shares
Schedule 2.10 Contingent Payments
Schedule 3.0 Target Disclosure Schedule
Schedule 5.0 Acquirer Disclosure Schedule
Schedule 6.07 Management Shareholders
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
Page
AGREEMENT AND PLAN OF MERGER..............................................................1
-
RECITALS .................................................................................1
-
ARTICLE I. DEFINITIONS...........................................................1
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Section 1.01. "Acquisition".................................................2
-
Section 1.02. "Acquirer Common Stock".......................................2
-
Section 1.03. "Acquirer Disclosure Schedule"................................2
-
Section 1.04. "Acquirer Indemnified Party"..................................2
-
Section 1.05. "Affiliates"..................................................2
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Section 1.06. "Arkansas Law"................................................2
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Section 1.07. "Articles of Merger"..........................................2
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Section 1.08. "Audited Financial Statements" ...............................2
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Section 1.09. "Business Day" ...............................................2
-
Section 1.10. "Closing".....................................................2
-
Section 1.11. "Closing Date"................................................2
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Section 1.12. "Code"........................................................2
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Section 1.13. "Commission"..................................................2
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Section 1.14. "Constituent Corporations"....................................2
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Section 1.15. "Contingent Payment...........................................2
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Section 1.16. "Contracts"...................................................3
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Section 1.17. "Dissenting Shares"...........................................3
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Section 1.18. "Effective Date"..............................................3
-
Section 1.19. "Effective Time"..............................................3
-
Section 1.20. "Employee Plan"...............................................3
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Section 1.21. "Environmental Laws"..........................................3
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Section 1.22. "Environmental Liabilities"...................................3
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Section 1.23. "Environmental Material Adverse Effect".......................3
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Section 1.24. "ERISA".......................................................3
-
Section 1.25. "ERISA Affiliate".............................................3
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Section 1.26. "Escrowed Consideration"......................................4
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Section 1.27. "Exchange Act"................................................4
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Section 1.28. "Financial Statements"........................................4
-
Section 1.29. "Generally accepted accounting principles" ...................4
-
Section 1.30. "Governmental Entity".........................................4
-
Section 1.31. "Hazardous Substance".........................................4
-
Section 1.32. "Indemnified Party"...........................................4
-
Section 1.33. "Indemnifying Party"..........................................4
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Section 1.34. "Indemnified Target Parties"..................................4
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Section 1.35. "Indemnity Claim".............................................4
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Section 1.36. "Intellectual Property".......................................4
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Section 1.37. "Interim Financial Statements"................................4
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Section 1.38. "IRS".........................................................4
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Section 1.39. "Knowledge"...................................................4
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Section 1.40. "License".....................................................5
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Section 1.41. "Liens".......................................................5
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Section 1.42. "Management Shareholders".....................................5
-
Section 1.43. "Material Adverse Change".....................................5
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Section 1.44. "Material Adverse Effect".....................................5
-
Section 1.45. "Merger"......................................................5
-
Section 1.46. "Merger Consideration"........................................5
-
Section 1.47. "Nasdaq National Market"......................................5
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Section 1.48. "New York Law"................................................5
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Section 1.49. "Old Certificates"............................................5
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Section 1.50. "Person"......................................................5
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Section 1.51. "Prospectus"..................................................5
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Section 1.52. "Public Filings"..............................................5
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Section 1.53. "Registration Statement"......................................5
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Section 1.54. "Regulatory Authority"........................................6
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Section 1.55. "Related Costs"...............................................6
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Section 1.56. "Release".....................................................6
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Section 1.57. "Requisite Regulatory Approvals"..............................6
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Section 1.58. "Securities Act"..............................................6
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Section 1.59. "Seller Refunds"..............................................6
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Section 1.60. "Software"....................................................6
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Section 1.61. "Surviving Corporation".......................................6
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Section 1.62. "Target Common Stock".........................................6
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Section 1.63. "Target Disclosure Schedule"..................................6
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Section 1.64. "Target Indemnified Party"....................................6
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Section 1.65. "Tax Return(s)"...............................................6
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Section 1.66. "Year 2000 Compliant".........................................6
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ARTICLE II THE MERGER............................................................7
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Section 2.01. The Merger....................................................7
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Section 2.02. Closing and Effective Time....................................7
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Section 2.03. Effects of the Merger.........................................7
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Section 2.04. Articles of Incorporation and Bylaws..........................7
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Section 2.05. Director......................................................7
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Section 2.06. Officers......................................................8
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Section 2.07. Conversion of Outstanding Target Capital Stock................8
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Section 2.08. Cancellation of Target Capital Stock..........................9
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Section 2.09. Exchange of Certificates......................................9
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Section 2.10. Contingent Payments..........................................10
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ARTICLE III. REPRESENTATIONS AND WARRANTIES OF TARGET.............................10
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Section 3.01. Organization, Etc............................................10
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Section 3.02. Subsidiaries and Other Target Interests......................11
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Section 3.03. Capitalization...............................................11
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Section 3.04. Authorization................................................11
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Section 3.05. No Violation.................................................12
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Section 3.06. Approvals....................................................12
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Section 3.07. Financial Statements and Other Information...................13
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Section 3.08. No Undisclosed Liabilities...................................14
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Section 3.09. Corporate Action.............................................14
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Section 3.10. Events Subsequent to December 31, 1999.......................14
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Section 3.11. Taxes........................................................15
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Section 3.12. Litigation...................................................18
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Section 3.13. Compliance with Laws.........................................18
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Section 3.14. Title to and Condition of Property...........................18
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Section 3.15. Environmental Matters........................................19
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Section 3.16. Contracts....................................................19
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Section 3.17. Employee Plans...............................................20
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Section 3.18. Labor Matters................................................22
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Section 3.19. Year 2000 Compliance.........................................22
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Section 3.20. Insurance Policies...........................................23
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Section 3.21. Records......................................................23
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Section 3.22. Brokerage Fees...............................................23
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Section 3.23. Suppliers and Customers......................................24
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Section 3.24. Intellectual Property........................................24
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Section 3.25. Licenses.....................................................25
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Section 3.26. No Illegal or Improper Transactions..........................25
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Section 3.27. Restrictive Documents and Territorial Restrictions...........26
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Section 3.28. Bank Accounts................................................26
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Section 3.29. No Misleading Statements.....................................26
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Section 3.30. Hart-Scott-Rodino............................................26
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ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE
SHAREHOLDERS.........................................................26
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Section 4.01. Ownership....................................................26
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Section 4.02. Authorization................................................27
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Section 4.03. No Violation.................................................27
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Section 4.04. Approvals....................................................28
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Section 4.05. Brokerage Fees...............................................28
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Section 4.06. Litigation...................................................28
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ARTICLE V. REPRESENTATIONS AND WARRANTIES OF ACQUIRER AND
ACQUIRER SUB.........................................................28
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Section 5.01. Organization, Etc............................................28
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Section 5.02. Capitalization...............................................29
--
Section 5.03. Authorization................................................29
--
Section 5.04. No Violation.................................................29
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Section 5.05. Approvals....................................................29
--
Section 5.06. Commission Filings...........................................30
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Section 5.07. Valid Issuance...............................................30
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Section 5.08. Broker's and Finder's Fees...................................30
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Section 5.09. No Vote Required.............................................30
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Section 5.10. Ownership of Acquirer Sub; No Prior Activities...............31
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Section 5.11. Financial Statement and Other Information....................31
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ARTICLE VI. COVENANTS OF TARGET..................................................31
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Section 6.01. Conduct of Target............................................31
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Section 6.02. Access to Records and Personnel..............................33
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Section 6.03. No Other Offers..............................................33
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Section 6.04. Maintenance of Business......................................34
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Section 6.05. Compliance with Obligations..................................34
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Section 6.06. Shareholder Approval.........................................34
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Section 6.07. Noncompetition and Confidentiality...........................34
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ARTICLE VII. COVENANTS OF ACQUIRER................................................36
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Section 7.01. Commission Filings...........................................36
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Section 7.02. Maintenance of Business......................................36
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Section 7.03. Compliance with Obligations..................................36
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Section 7.04. Consents.....................................................36
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Section 7.05. Maintenance of Target Indemnification Obligations............37
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ARTICLE VIII. COVENANTS OF TARGET AND ACQUIRER.....................................37
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Section 8.01. Advice of Changes............................................37
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Section 8.02. Regulatory Approvals.........................................38
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Section 8.03. Actions Contrary to Stated Intent............................38
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Section 8.04. Certain Filings..............................................38
--
Section 8.05. Public Disclosure............................................38
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Section 8.06. Satisfaction of Conditions Precedent.........................38
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ARTICLE IX. CONDITIONS OF CLOSING................................................39
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Section 9.01. Conditions to All Parties' Obligations.......................39
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Section 9.02. Conditions to the Obligations of Acquirer and Acquirer Sub
Effect the Acquisition.......................................39
--
Section 9.03. Conditions to the Obligations of Target and the Shareholder
Effect the Merger............................................42
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ARTICLE X. TERMINATION, AMENDMENTS AND WAIVERS..................................44
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Section 10.01. Termination..................................................44
--
Section 10.02. Effect of Termination........................................45
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ARTICLE XI. INDEMNIFICATION......................................................45
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Section 11.01. Indemnification by the Shareholders..........................45
Section 11.02. Indemnification by Acquirer..................................45
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Section 11.03. Limitations..................................................46
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Section 11.04. Notice and Defense of Claims.................................46
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Section 11.05. Exclusive Remedy ............................................47
--
Section 11.06. Survival of Representations and Warranties ..................47
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Section 11.07. Reimbursement ...............................................47
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ARTICLE XII. TAX MATTERS..........................................................48
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Section 12.01. Tax Indemnities..............................................48
--
Section 12.02. Contests.....................................................49
--
Section 12.03. Preparation of Tax Returns...................................50
--
Section 12.04. Cooperation and Exchange of Information......................50
--
Section 12.05. Conveyance Taxes.............................................51
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ARTICLE XIII. GENERAL PROVISIONS...................................................51
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Section 13.01. Taking of Necessary Action...................................51
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Section 13.02. Effect of Due Diligence......................................51
--
Section 13.03. Successors and Assigns.......................................51
--
Section 13.04. Entire Agreement.............................................52
--
Section 13.05. Notices......................................................52
--
Section 13.06. Applicable Law..............................................52
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Section 13.07. No Third Party Beneficiaries.................................52
--
Section 13.08. Amendments and Waivers.......................................52
Section 13.09. Severability.................................................53
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Section 13.10. Construction.................................................53
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Section 13.11. Counterparts.................................................53
--
Section 13.12. Headings.....................................................53
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Section 13.13. Consent to Jurisdiction; Receipt of Process..................53
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</TABLE>
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