<PAGE> 1
CONFIDENTIAL - FOR USE OF
THE COMMISSION ONLY
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MEDICALCONTROL, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: NA
--
(2) Aggregate number of securities to which transaction applies: NA
--
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transactions: $
---------------
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $3,200.00
---------
(2) Form, Schedule or Registration Statement No.: PREM14A
(3) Filing Party: MedicalControl, Inc.
(4) Date Filed: November 27, 2000
<PAGE> 2
MEDICALCONTROL, INC.
8625 KING GEORGE DR., SUITE 300
DALLAS, TEXAS 75235
TELEPHONE: (214) 630-6368
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MONDAY, JANUARY 22, 2001
To our Stockholders:
A Special Meeting of the Stockholders of MedicalControl, Inc. will be held
at MedicalControl's offices at 8625 King George Dr., Suite 300, Dallas, Texas
75235, at 9:30 a.m., local time, on Monday, January 22, 2001, for the following
purposes:
1. to consider and vote upon a proposal to authorize and approve the
sale of MedicalControl's preferred provider organization to Beyond
Benefits, Inc., pursuant to the Stock Purchase Agreement dated as of
October 18, 2000, between MedicalControl, MedicalControl Holdings, Inc.,
MedicalControl Network Solutions, Inc., and Beyond Benefits;
2. to consider and vote upon a proposal to authorize and approve the
sale of MedicalControl's third party administration business to
HealthASPex, Inc. pursuant to the Stock Purchase Agreement dated as of
November 14, 2000, between MedicalControl Holdings, Diversified Group
Administrators, Inc., Diversified Group Insurance Agency of PA, Inc., and
HealthASPex;
3. to consider and vote upon a proposal to amend MedicalControl's
Certificate of Incorporation to change MedicalControl's name to Avidyn,
Inc.; and
4. to transact any other business that is properly brought before the
Special Meeting.
Only stockholders of record at the close of business on December 11, 2000,
are entitled to notice of and to vote at the Special Meeting and at any
adjournment thereof.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE THE
ACCOMPANYING PROXY AND PROMPTLY RETURN IT IN THE POSTAGE-PAID REPLY ENVELOPE
PROVIDED. YOU CAN REVOKE YOUR PROXY AT ANY TIME BY DELIVERING WRITTEN NOTICE TO
THE SECRETARY OF MEDICALCONTROL BEFORE IT IS EXERCISED.
A Proxy Statement that describes the foregoing proposals and a form of
Proxy accompany this notice.
By Order of the Board of Directors
STEPHANIE L. MCVAY
Secretary
Dallas, Texas
December 20, 2000
<PAGE> 3
PROXY STATEMENT
---------------------
SPECIAL MEETING OF STOCKHOLDERS
---------------------
MEDICALCONTROL, INC.
8625 KING GEORGE DR., SUITE 300
DALLAS, TEXAS 75235
MONDAY, JANUARY 22, 2001
This Proxy Statement is furnished to the stockholders of MedicalControl,
Inc., a Delaware corporation, in connection with the solicitation of proxies by
our Board of Directors for use at the Special Meeting of Stockholders to be held
at 9:30 a.m., local time, on Monday, January 22, 2001, at MedicalControl's
executive offices, and any adjournments thereof. You will be asked to consider
and vote upon (1) the adoption of resolutions that authorize (A) the sale of
MedicalControl Network Solutions, Inc., a wholly-owned, indirect subsidiary of
MedicalControl which operates MedicalControl's preferred provider organization
business; (B) the sale of Diversified Group Administrators, Inc. and Diversified
Group Insurance Agency of PA, Inc., wholly owned, indirect subsidiaries of
MedicalControl, which operate MedicalControl's third party administration
business; and (C) the amendment of MedicalControl's Certificate of Incorporation
to change MedicalControl's name to Avidyn, Inc.; and (2) any other matters
properly brought before the Special Meeting. We are not currently aware of any
other matters that will come before the Special Meeting.
If your Proxy is properly completed, returned to MedicalControl before the
Special Meeting, and not revoked before it is voted, it will be voted at the
Special Meeting. Your Proxy may be revoked at any time before it is voted by
giving written notice to the Secretary of MedicalControl.
This Proxy Statement and form of Proxy were first mailed to stockholders of
MedicalControl on or about December 20, 2000.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Cautionary Statement Regarding Forward Looking Statements... ii
Questions and Answers about the Special Meeting............. iii
Summary..................................................... 1
Risk Factors Related to the Proposed Sales.................. 4
Special Meeting............................................. 11
Proposal I -- Sale of MedicalControl Network Solutions,
Inc....................................................... 13
Proposal II -- Sale of Diversified Group Administrators,
Inc. and Diversified Group Insurance Agency of PA, Inc.... 19
The Sale of MedicalControl's PPO and TPA Businesses......... 24
Unaudited Pro Forma Financial Information................... 26
Proposal III -- Name Change for MedicalControl, Inc......... 36
MedicalControl's Reasons for Selling the PPO and TPA
Businesses; Recommendation of the Board of Directors...... 37
Other Business.............................................. 38
Auditors.................................................... 38
Where Stockholders Can Find More Information................ 39
Additional Matters.......................................... 40
APPENDIX A: PPO Stock Purchase Agreement
APPENDIX B: TPA Stock Purchase Agreement
</TABLE>
i
<PAGE> 5
CAUTIONARY STATEMENT
REGARDING FORWARD LOOKING STATEMENTS
We have included this statement in this Proxy Statement for the Special
Meeting in order to take advantage of the "safe harbor" provisions contained in
Section 27A of the Private Securities Litigation Reform Act. From time to time
in this Proxy Statement, we make forward-looking statements based upon
management expectations to inform you and our potential stockholders regarding
various matters, including without limitation, projections regarding future
income, completion of transactions, future growth, future products and plans, as
well as predictions as to the timing and success of specific projects. The
forward looking statements are generally accompanied by words such as "believe,"
"anticipate," "estimate," "predict," "expect" or similar expressions that convey
the uncertainty of future events or outcomes.
We believe that the factors identified in this Proxy Statement under "Risk
Factors Related to the Proposed Sales" are important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement we have
made or that have been made on behalf of MedicalControl. Forward-looking
statements are subject to certain risks and uncertainties, over which we have no
control, and those risks and uncertainties could cause actual results to differ
materially from those projected. The forward-looking information could be
affected by changes in laws and regulations, interest rates, liquidity issues,
the rate of sales growth, price and product competition, new product
introduction, new technology introduction and social and economic conditions,
such as increased competition in the managed care or healthcare industry and the
amount, type and cost of financing available to MedicalControl. Unpredictable or
unknown factors not discussed in this Proxy Statement could also have material
adverse effects on forward-looking projections. You are cautioned not to place
undue reliance on these forward-looking statements that speak only as of the
date hereof. We are not obligated to republish revised forward-looking
statements to reflect events or circumstances after the date of this Proxy
Statement or to reflect the occurrence of unanticipated events. You are also
urged to carefully review and consider the various disclosures we have made in
this report, as well as our periodic reports on Schedule 14A and Forms 10-KSB,
10-QSB and 8-K filed with the Securities and Exchange Commission.
ii
<PAGE> 6
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Q. Who is soliciting my proxy?
A. The Board of Directors of MedicalControl, Inc.
Q. When and where is the Special Meeting?
A. 9:30 a.m., local time, on Monday, January 22, 2001, at our executive
offices, 8625 King George Dr., Suite 300, Dallas, Texas 75235; telephone
(214) 630-6368.
Q. What am I voting on?
A. You are voting to approve (1) the sale of MedicalControl's PPO business to
Beyond Benefits, Inc., (2) the sale of MedicalControl's TPA business to
HealthASPex, Inc., and (3) the amendment of MedicalControl's Certificate
of Incorporation to change its name to Avidyn, Inc.
Q. What are the specifics of the sale of MedicalControl's PPO business?
A. MedicalControl, through its sole subsidiary MedicalControl Holdings, Inc.,
has agreed to sell its PPO operating subsidiary, MedicalControl Network
Solutions, for a purchase price of $13,500,000 to be paid in cash at
closing. MedicalControl Network Solutions operates several managed
healthcare networks consisting of over 2,300 hospitals and in excess of
185,000 physicians, which in turn service more than 280,000 employees and
plan members of MedicalControl's PPO business. MedicalControl's PPO
business constitutes a substantial amount of the assets of MedicalControl.
Q. Who is purchasing MedicalControl's PPO business?
A. Beyond Benefits is a privately-held managed healthcare company based in
Long Beach, California that was formed during the first half of 1999.
Beyond Benefits is owned by Mr. George Bregante, Dr. Barbara Rodin, Mr.
Asim Ashary and three venture capital firms. Beyond Benefits' executive
offices are located at 301 E. Ocean Blvd., Suite 900, Long Beach,
California 92802; telephone (562) 308-7232. None of MedicalControl's
officers or directors own any capital stock of Beyond Benefits.
Q. What are the specifics of the sale of MedicalControl's TPA business?
A. MedicalControl Holdings has agreed to sell its TPA subsidiaries,
Diversified Group Administrators and Diversified Group Insurance Agency,
in exchange for $2,350,000 to be paid in cash at closing, subject to
adjustments for net worth and cash levels at closing. $150,000 will be
placed in escrow by HealthASPex as a reserve against indemnification
obligations of MedicalControl Holdings. In addition, MedicalControl
Holdings will retain the right to receive 55% of any payments from Group
Resources, Inc. received by Diversified Group Administrators, which arose
from its acquisition of the former Dallas division of Diversified Group
Administrators.
Q. Who is purchasing MedicalControl's TPA business?
A. HealthASPex is a privately held company providing web portal-based
enhancements for TPAs. HealthASPex is owned by Allied Capital and Fairfax
Partners, with minority stakes held by its president, Peter Barnett, and
eServices Group, Inc. HealthASPex's corporate offices are located at 2812
Trinity Square Drive, Suite 108, Carrollton, Texas 75006; telephone (972)
417-5171. None of MedicalControl's officers or directors own any capital
stock of HealthASPex.
Q. Why should MedicalControl sell its PPO business and its TPA business?
A. The Board of Directors of MedicalControl has thoroughly considered the
advantages and disadvantages of selling its PPO business and its TPA
business at this time, as compared to remaining as a provider of a managed
healthcare network and third party administration services. The Board of
Directors believes that it is in the best interests of the stockholders
and MedicalControl to convert the assets of MedicalControl that are
invested in MedicalControl Network Solutions, Diversified Group
Administrators and Diversified Group Insurance Agency into cash and
redeploy the proceeds of the sale in
iii
<PAGE> 7
connection with its future business plans, as described in greater detail
in this Proxy Statement. In particular, MedicalControl's future business
plan includes the repayment of MedicalControl's existing bank debt, the
further development of its indirect subsidiary ppoONE.com, inc., the
possible acquisition of another Internet-related business or other
business or businesses and other corporate purposes. In order to stay
competitive and have any substantial growth in the PPO business
MedicalControl would have to invest substantial resources in expanding its
PPO network nationally. Such an expansion may not be successful or provide
an acceptable return on investment, even with sufficient capital
expenditures. In order to stay competitive in the TPA business
MedicalControl would have to invest substantial resources in new
technology and processes. The TPA business is typically a fairly low
margin business, and considering the recent increased cost of reinsurance,
which is an important element of its clients remaining self-insured, the
return on such an investment is not likely to be high enough to justify
the substantial additional expenses required to stay competitive. Rather
than pursue the required additional investments in the PPO or TPA
businesses, we intend to focus our resources on a business that we believe
will provide our investors with a higher return over time. Finally, our
Board believes that by eliminating our PPO and TPA businesses, we will no
longer be viewed as a competitor to our support services clients, which
should positively impact our sales.
Q. How do I know if MedicalControl is receiving fair value for its PPO
business and its TPA business?
A. Stockholders should consider a variety of factors in determining the fair
value of MedicalControl's PPO and TPA subsidiaries, including (1)
MedicalControl's overall goals and future business plans, (2) the changing
and highly competitive nature of the managed healthcare industry in which
MedicalControl's PPO and TPA subsidiaries compete and management's
expectations regarding probable trends in the industry, as a result of
which management believes that MedicalControl will not be able to compete
effectively in that industry, and (3) the lack of additional offers to
purchase the TPA business or the PPO business of MedicalControl. Although
an independent investment banking firm valuation has not been obtained,
the Board believes that the consideration to be received from Beyond
Benefits and HealthASPex in connection with each of the proposed TPA and
PPO sales is fair.
Q. What happens if one of the sales is not approved or otherwise fails to
close?
A. MedicalControl's agreements to sell the TPA and PPO businesses are
separate, even though we are seeking approval for them at the same time.
If either sale is approved, MedicalControl intends to complete it,
regardless of whether or not the other sale receives stockholder approval.
If the stockholders approve both sales, but one of the transactions is
subsequently terminated, we will still close the other sale.
Q. Will any of the money received from the transactions be distributed to
MedicalControl's stockholders?
A. There is no current intent to distribute any of the sale proceeds to the
stockholders of MedicalControl. MedicalControl intends to use a portion of
the net proceeds generated from the sale of the TPA and PPO businesses to
repay any amount of outstanding indebtedness owed on MedicalControl's
$750,000 line of credit with Bank of Texas, N.A. MedicalControl intends to
use a portion of the net proceeds as working capital to further develop
ppoONE.com, MedicalControl's Internet-related healthcare administration
services business.
Q. How will MedicalControl be affected by the proposed sales?
A. MedicalControl will no longer be a full service managed healthcare
services provider following the sale of our PPO and TPA businesses.
Instead, we will focus our capital and other resources on expanding our
role as a support services provider for PPOs, TPAs and other managed
healthcare companies. Our services will be provided principally by our
Internet based third party services provider, ppoONE.com, and to a lesser
degree by ValueCheck, our utilization review and case management company.
ppoONE.com, using its proprietary application software, database
structures and reports, is an Application Service Provider ("ASP") that
delivers enterprise software solutions for PPOs and other healthcare
provider network organizations.
iv
<PAGE> 8
Q. Will I still be a stockholder of MedicalControl?
A. Yes, but the name of the corporation will be changed to Avidyn, Inc.
Q. Why is MedicalControl changing its name?
A. As part of the sale of MedicalControl Network Solutions to Beyond
Benefits, MedicalControl agreed to change its name and the name of any of
its subsidiaries having "MedicalControl" as part of its name. In addition,
we have agreed to stop using the "MedicalControl" name for any of our
products or services after the sale is closed.
Q. Will stockholders have appraisal rights?
A. No. Stockholders of MedicalControl will not have appraisal rights as a
result of these transactions.
Q. What should stockholders do now?
A. Stockholders should mail their signed and dated proxy card in the enclosed
envelope, as soon as possible, so that their shares will be represented at
MedicalControl stockholders' meeting.
Q. Can stockholders change their vote after they have mailed a signed proxy
card?
A. Yes. Stockholders can change their vote in one of three ways at any time
before their proxies are voted:
(1) stockholders can revoke their proxies by written notice;
(2) stockholders can complete new, later-dated proxy cards; or
(3) stockholders can attend the Special Meeting and vote in person.
Q. How are shares held in a broker's name voted?
A. Brokers will vote shares nominally held in their name (or in what is
commonly called "street name") only if the beneficial stockholder provides
the broker with written instructions on how to vote. Absent such
instructions, these shares will not be voted. Stockholders are urged to
instruct their brokers in writing to vote shares held in street name for
the proposed transaction.
Q. Whom should stockholders call with questions?
A. Stockholders who have questions about the transaction should call Bob E.
Buddendorf, MedicalControl's Chief Financial Officer, at (214) 630-6368
ext. 450.
v
<PAGE> 9
SUMMARY
This summary highlights selected information from this Proxy Statement and
may not contain all of the information that is important to you. For a more
complete description of the sales, you should read this entire document and the
other documents we refer to in this document, including the materials attached
as annexes. We have included page references in this summary to direct you to
more complete descriptions of the topics we have summarized.
THE COMPANY (page 24)
MedicalControl is a holding company comprised of related operating
companies serving the managed care industry and providing health benefit plan
administration services. Each of the major operating subsidiaries is owned
directly by MedicalControl Holdings, which is the sole direct subsidiary of
MedicalControl.
MedicalControl's four major indirect operating subsidiaries are:
- ppoONE.com, which provides Internet e-health solutions for PPOs,
- MedicalControl Network Solutions, which provides managed care services
primarily through its preferred provider networks,
- ValueCheck, which provides utilization review and case management, and
- Diversified Group Administrators, which provides TPA services.
THE PROPOSED SALES TRANSACTIONS
THE PPO SALE (page 13)
- MedicalControl and certain of its subsidiaries entered into an agreement
to sell its PPO business to Beyond Benefits on October 18, 2000. A copy
of the stock purchase agreement is attached as Appendix A.
- Beyond Benefits will purchase all of the outstanding capital stock of
MedicalControl Network Solutions for a purchase price equal to
$13,500,000 in cash. The purchase price may be adjusted as a result of
certain closing balance sheet adjustments.
- The closing of the sale is subject to approval of MedicalControl's
stockholders and certain other closing conditions set forth in the stock
purchase agreement.
- Beyond Benefits has required MedicalControl to change its name if the
sale is approved and ultimately closed. Within 120 days after the closing
of the sale of our PPO, we will change our name to Avidyn, Inc.
THE TPA SALE (page 19)
- MedicalControl Holdings and certain of its subsidiaries entered into an
agreement to sell MedicalControl's TPA business to HealthASPex on
November 14, 2000. A copy of the stock purchase agreement is attached as
Appendix B.
- HealthASPex will acquire all of the outstanding capital stock of
Diversified Group Administrators and Diversified Group Insurance Agency
for a purchase price equal to $2,350,000 in cash at closing, with an
additional $150,000 to be placed in escrow to secure MedicalControl
Holdings' indemnification obligations. The purchase price may be reduced
or increased as a result of certain closing balance sheet adjustments.
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<PAGE> 10
- MedicalControl Holdings will also retain the right to be paid 55% of any
amounts received over the next two years by MedicalControl Network
Solutions from the entity that acquired the former Dallas division of our
TPA business.
- The closing of the sale is subject to approval of MedicalControl's
stockholders and certain other closing conditions set forth in the stock
purchase agreement.
OUR REASONS FOR PURSUING THE SALES (page 37)
Reasons favoring the sale of the TPA and PPO businesses include:
- the TPA and PPO businesses have a more moderate rate of return than that
expected from the e-business solutions that will be the focus of
MedicalControl's business after the sales,
- MedicalControl will no longer be a direct competitor to its TPA and PPO
clients for ancillary managed healthcare services,
- MedicalControl's Board of Directors believe that it is receiving fair
value for the TPA and PPO subsidiaries, and
- to remain competitive in the TPA and PPO businesses would require a
significant investment of capital and other resources.
Issues that may be negative regarding the sales include:
- the TPA and PPO represent substantially all of the operating revenues and
profits of MedicalControl on a historic basis,
- there are significant transaction costs being incurred in connection with
the sales, and
- MedicalControl's application service provider operations have not been
profitable.
REQUIRED VOTE (page 11)
- Stockholders who own a majority of our outstanding common stock will have
to vote in favor of each sale in order for it to be approved.
- The affirmative vote of a majority of shares is also required to approve
the change of MedicalControl's name to Avidyn, Inc.
- Ward Hunt, the Chairman and President of MedicalControl, controls The
Answer Partnership, Ltd., which owns approximately 57% of our common
stock. As a result, The Answer Partnership, Ltd. can approve any of the
stockholder proposals set forth in this Proxy Statement.
CONDITIONS TO THE SALES (pages 17 and 22)
- Approval of the transactions by our stockholders.
- Approval of certain landlords of the operating subsidiaries.
- There must be no material adverse change in the operations of the TPA or
the PPO subsidiaries -- otherwise, the applicable purchase agreement may
be terminated.
- Our sale of the PPO must be completed on or before April 16, 2001.
- Our sale of the TPA must be completed on or before the 30th day following
approval of this Proxy Statement by the SEC.
TERMINATION OF AGREEMENTS (pages 18 and 23)
- Each of the stock purchase agreements may be terminated if MedicalControl
does not obtain the consent of its stockholders to the particular
transaction to which the purchase agreement applies.
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- If either agreement is terminated because stockholder approval is not
obtained, then MedicalControl will have to pay a termination fee to the
buyer.
PAYMENT OF EXPENSES (pages 17 and 22)
- Each party to the stock purchase agreements is responsible for the
payment of its own expenses.
- If the agreements are terminated, the non-terminating party is entitled
to recover its expenses in certain circumstances.
THE SPECIAL MEETING
GENERAL (page 11)
- The Special Meeting will be held at 9:30 a.m., on Monday, January 22,
2001, in our main corporate offices.
- The purpose of the Special Meeting is to vote upon proposals to sell our
TPA and PPO businesses and to change our corporate name to Avidyn, Inc.
RECORD DATE; QUORUM; VOTING (page 11)
- Only holders of record on December 11, 2000, will be entitled to vote at
the Special Meeting.
- Holders of at least a majority of the outstanding shares of common stock
must attend the Special Meeting for there to be a quorum.
- Holders of common stock are entitled to one vote per share.
PROXIES (page 12)
- Properly executed proxies will be voted in accordance with the
instructions indicated in the proxies.
- A stockholder may revoke his proxy at any time before the Special Meeting
by complying with any of the procedures described in this proxy
statement.
- A stockholder's presence at the Special Meeting will not revoke its proxy
except with respect to a proposal on which he votes in person.
BOARD OF DIRECTORS' RECOMMENDATION (pages 13, 19 and 37)
- MedicalControl's Board of Directors has determined that the proposed
sales are in the best interests of the stockholders and MedicalControl.
- The Board unanimously recommends that you vote "For" each of the
proposals described in this Proxy Statement.
TAX CONSEQUENCES (page 25)
- Each of the sales is a taxable transaction.
RISK FACTORS
The proposed sales are subject to a number of risks, which you should
consider when you determine whether or not to approve either of the
transactions. The Risk Factors begin on page 4 of this Proxy Statement.
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<PAGE> 12
RISK FACTORS RELATED TO THE PROPOSED SALES
We caution you that we have used forward-looking statements in this report
that involve risks and uncertainties. These forward-looking statements can be
identified by the use of predictive, future tense or forward-looking
terminology, such as "believes," "anticipates," "expects," "estimates," "may,"
"will" or similar terms. Forward-looking statements also include projections of
financial performance, statements regarding management's plans, statements
regarding new products and objectives and statements concerning any assumptions
relating to the foregoing. MedicalControl's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth in the following risk
factors and elsewhere in this Proxy Statement. See "Cautionary Statement
Regarding Forward Looking Statements."
AFTER THE SALE OF THE PPO AND TPA BUSINESSES, MEDICALCONTROL WILL HAVE A MORE
NARROWED FOCUS OF BUSINESS AND SUBSTANTIALLY LESS REVENUES.
Subsequent to the sale of our PPO and TPA subsidiaries, approximately 85%
of MedicalControl's assets, or approximately $16 million, will be held in cash,
cash equivalents and short-term investments, based upon our September 30, 2000
pro forma balance sheet. The PPO and TPA businesses generated approximately 88%
of MedicalControl's revenues for the nine months ended September 30, 2000.
ppoONE.com and ValueCheck generated the remaining 12% of MedicalControl's
revenues for the nine months ended September 30, 2000. After the sale of the PPO
and TPA businesses, MedicalControl will be substantially smaller. Historically,
the ppoONE.com and ValueCheck businesses have not accounted for a large portion
of our business or revenues, and our performance will be significantly affected
by any negative operating results at those remaining subsidiaries. In addition
to our loss of direct revenues from the PPO business, ValueCheck may lose
additional revenues from its former PPO clients because Beyond Benefits may
directly solicit such business and many companies prefer to receive their PPO
and utilization review and case management services from one vendor.
MEDICALCONTROL MAY NOT BE ABLE TO ACHIEVE OR MAINTAIN PROFITABILITY IN THE
FUTURE
ppoONE.com has never been profitable and ValueCheck was profitable for the
first time during the three months ended September 30, 2000. MedicalControl's
pro forma loss before interest, taxes, depreciation and amortization for the
nine months ended September 30, 2000 was $1,590,627, assuming the sale of the
PPO and TPA businesses had occurred January 1, 1999. We cannot assure you that
the revenues of ppoONE.com and ValueCheck will ever result in revenues equal to
those historically recorded by MedicalControl or that ppoONE.com will ever be
profitable. Consequently, MedicalControl's revenue base after selling our PPO
and TPA subsidiaries will be significantly smaller than in the past and we will
be required to absorb corporate overhead and other fixed costs effectively in
order to succeed in our efforts to profitably expand ppoONE.com and ValueCheck.
While ppoONE.com has made significant investments in establishing its ASP
technology, there can be no assurance as to its future prospects.
THERE IS CURRENTLY NO PLAN TO DISTRIBUTE ANY OF THE PROCEEDS OF THE SALE OF THE
PPO OR TPA TO THE STOCKHOLDERS OF MEDICALCONTROL
We intend to repay our outstanding indebtedness under our existing credit
facility, pay various transaction related costs and supplement our working
capital for ppoONE.com with the proceeds from the sales, and also use those
proceeds to fund future potential acquisitions. In connection with the sales of
the PPO and TPA businesses, we do not currently intend to distribute any of the
proceeds to our stockholders. We cannot assure you that we will ever distribute
any of the proceeds of the sales of the PPO or TPA businesses to our
stockholders. Prior to any distribution to our stockholders, the Board of
Directors will consider the facts and circumstances existing at that time to
determine whether a distribution is in our best interest and in the best
interest of our stockholders, and the timing and amount of any such
distribution.
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<PAGE> 13
THE PURCHASE AGREEMENTS WILL EXPOSE MEDICALCONTROL TO CONTINGENT LIABILITIES
Under each of the purchase agreements, MedicalControl or MedicalControl
Holdings has agreed to indemnify the buyer for breach of our representations and
warranties contained in the applicable purchase agreement. Significant
indemnification claims by the buyer of either the PPO or TPA businesses could
materially and adversely affect our financial condition and results of
operations.
NO OPINION CONCERNING FAIRNESS OF TRANSACTIONS
MedicalControl's Board of Directors has not sought independent valuations
of the assets and businesses of the TPA and PPO or an independent opinion as to
the fairness of the sale of the TPA and PPO businesses. They have relied on
their own business judgment in making the determination to approve the
transactions and recommend them for approval by MedicalControl's stockholders.
DEPENDENCE ON KEY CLIENTS; LOSS OF REVENUES
We have contracts with several key clients that account for a substantial
portion of our total revenues. On a pro forma basis, our largest clients based
on revenues accounted for a significant portion of our net revenues for 1999 and
the nine months ended September 30, 2000:
<TABLE>
<CAPTION>
PERCENT OF NET REVENUE FROM
OUR THREE LARGEST CLIENTS
---------------------------
<S> <C>
Nine Months Ended September 30, 2000.......... 21.5%, 20%, and 17.2%
1999.......................................... 68.2%, 12%, and 11%
</TABLE>
On a proforma basis, our largest client in both periods was MedicalControl
Network Solutions. As a condition of the PPO Sale, Beyond Benefits entered into
a five-year agreement with ppoONE.com for Beyond Benefits' claims repricing
needs that will include MedicalControl Network Solutions' claims. Beyond
Benefits in certain circumstances, such as failure to perform, has a right to
terminate the agreement. The loss of any principal customer could have a
material adverse effect on our operating results.
COMPETITION
ppoONE.com. The market for network software solutions is competitive and
subject to rapid change. Competitors, many of which have substantially greater
financial resources than ppoONE.com, vary in size and in the scope of the
products and services they offer. ppoONE.com encounters competition from a
number of sources including other application software providers, PPO and TPA
software vendors and management information systems departments of customers and
potential customers. ppoONE.com expects to experience additional competition
from other established and emerging companies. Increased competition, whether
from other products or new technologies, could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could materially adversely affect our business, financial condition and results
of operations.
ppoONE.com expects that it will face increased pricing pressures from its
current competitors and new market entrants. Current major competitors include,
but are not limited to, NetworX, WebMD and Nichols TXEN. Price competition could
adversely affect ppoONE.com's ability to obtain new long-term contracts and
renewals of existing long-term contracts on terms favorable to ppoONE.com. Any
reduction in the price of ppoONE.com's products could materially adversely
affect MedicalControl's business, financial condition and results of operations.
Some of ppoONE.com's current competitors and many of ppoONE.com's potential
competitors have significantly greater financial, technical, marketing and other
resources than ppoONE.com and broader integrated product lines. As a result,
they may have competitive advantages over ppoONE.com including:
(1) the ability to respond more quickly than ppoONE.com to new or
emerging technologies and changes in customer requirements; and
(2) the ability to devote greater resources to the development,
promotion and sale of their products.
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New competitors or alliances among competitors may emerge and rapidly gain
significant market share. ppoONE.com's customers, most of which have
significantly greater financial and marketing resources than ppoONE.com, may
compete with ppoONE.com in the future or otherwise discontinue their
relationships with or support of ppoONE.com. ppoONE.com may not be able to
compete successfully against current and future competitors, and competitive
pressures faced by ppoONE.com may materially adversely affect its business,
financial condition and results of operations.
Utilization Review and Case Management. There are nearly 100 million lives
enrolled in indemnity and PPO plans in the United States today and 95% of those
covered lives are required to comply with utilization review procedures as
defined in their benefit plan. This mature market is dominated by a handful of
national firms that together control about 40% of the market. The remaining
market is fragmented among a variety of smaller competitors. Most of the larger
national firms have built products for the high-end Fortune 500 company market,
and product design tends to feature a great deal of customization, product
enhancements, ad hoc reporting capabilities, and corresponding premium pricing.
Smaller vendors fall into several categories including software vendors disease
and demand management specialty boutiques that have entered the utilization
review business, and turnkey consultants. ValueCheck's target markets are TPAs,
Taft-Hartley plans, associations and select self-insured employers who value
customer service and early identification of high dollar claims at a lower
price. We cannot assure you that ValueCheck's new approach to this market will
be successful and will be able to be sustained.
THE SALES CYCLE FOR ppoONE.COM PRODUCTS IS LENGTHY AND UNPREDICTABLE
Due in part to the business-critical nature of ppoONE.com's applications,
potential customers perceive high risk in connection with adoption of
ppoONE.com's products. As a result, customers have been cautious in making
decisions to acquire ppoONE.com's products. In addition, because the purchase of
ppoONE.com's products typically involves a significant commitment of capital, a
conversion of the customer's data and a complete redesign of key business
processes, delays in completing sales can arise while customers complete their
internal procedures to approve large capital expenditures and test and accept
new technologies that affect key operations. For these and other reasons, the
sales cycle associated with the purchase of ppoONE.com's products is typically
lengthy, unpredictable and subject to a number of significant risks over which
ppoONE.com has little or no control, including customers' budgetary constraints
and internal acceptance reviews. The sales cycle associated with the licensing
of ppoONE.com's products typically ranges from 60 days to 18 months. As a result
of the length of the sales cycle and the typical size of customers' orders,
ppoONE.com's ability to forecast the timing and amount of specific sales is
limited. A large portion of potential clients require or desire a January 1
active date. This requirement puts extra burden on ppoONE.com's staff to do most
of the implementations during the fourth quarter of each year. A lost or delayed
sale could have a material adverse effect on our business, financial condition
and results of operations.
ppoONE.COM'S NEW PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE
The market for network software solutions is still emerging. The rate at
which businesses have adopted ppoONE.com's type products has varied
significantly and ppoONE.com expects to continue to experience such variations
with respect to its products in the future. ppoONE.com has announced its
national clearinghouse concept. ppoONE.com must obtain a sufficient number of
clients before executing a clearinghouse concept, which may never occur. To
date, none of ppoONE.com's products has achieved any significant degree of
market acceptance, and such products may never be widely accepted. Although
businesses in ppoONE.com's target markets have recognized the advantages of
using network software solutions to automate their processes, many have
developed systems internally rather than licensing them from outside vendors.
The markets for ppoONE.com's products may not continue to develop, and
ppoONE.com's products may not be accepted. If the markets for ppoONE.com's
current or proposed products fail to develop, or develop more slowly than
anticipated, ppoONE.com's sales would be negatively impacted, which would have a
material adverse effect on our business, financial condition and results of
operations.
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ppoONE.COM MUST KEEP PACE WITH RAPIDLY CHANGING TECHNOLOGIES
In the markets served by ppoONE.com, technology changes rapidly and
computer hardware, network operating systems, programming tools, programming
languages, operating systems and database technology are constantly being
improved. ppoONE.com's success will depend upon its ability to continue to
develop and maintain competitive technologies, enhance its current products and
develop, in a timely and cost-effective manner, new products that meet changing
market conditions. In particular, ppoONE.com must respond to evolving customer
needs, new competitive product offerings, emerging industry standards and
changing technology. For example, the rapid growth of the Internet environment
creates new opportunities, risks and uncertainties for businesses, such as
ppoONE.com, which develop software solutions that now must be designed to
operate in Internet environments. ppoONE.com may not be able to develop and
market, on a timely basis, or at all, product enhancements or new products that
respond to changing technologies. ppoONE.com has previously experienced
significant delays in the development and introduction of new products and
product enhancements, primarily due to capital resource constraints as well as
difficulties with model development, which has in the past required multiple
iterations and difficulties with adapting to particular operating environments.
The length of these delays has varied depending upon the size and scope of the
project and the nature of the problems encountered. Any significant delay in the
completion of new products, or the failure of such products, if and when
installed, to achieve any significant degree of market acceptance, would have a
material adverse effect on MedicalControl's business, financial condition and
results of operations. Any failure by ppoONE.com to anticipate or to respond
adequately to changing technologies, or any significant delays in product
development or introduction, could cause customers to delay or decide against
purchases of ppoONE.com's products and would have a material adverse effect on
MedicalControl's business, financial condition and results of operations.
ppoONE.COM DERIVES SUBSTANTIAL REVENUES FROM ONE PRIMARY PRODUCT
ppoONE.com currently has one primary product that accounts for most of
ppoONE.com's total current revenues. ppoONE.com expects that its current
products will continue to account for a substantial portion of ppoONE.com's
total revenues for the foreseeable future. The quality and timely introduction
of future product enhancements and competition will affect continued market
acceptance of its current products. Demand for, or use of, its current product
could decline as a result of competition, risks to self insured industry,
technological change, saturation of market demand, industry consolidation or
other factors. Decline in demand for its current products would result in
decreased revenues, which could have a material adverse effect on
MedicalControl's business, financial condition and results of operations.
ppoONE.COM MUST PROTECT ITS INTELLECTUAL PROPERTY
ppoONE.com relies on a combination of copyright, trademark and trade secret
laws and confidentiality procedures to protect its proprietary rights.
ppoONE.com also seeks to protect its software, documentation and other written
materials under trade secret and copyright laws, which afford only limited
protection. Despite ppoONE.com's measures to protect confidentiality of
intellectual property, it may be possible for a third party to copy or otherwise
to obtain and use ppoONE.com's products or technology without authorization, or
to develop similar technology independently. Patents may not be issued with
respect to ppoONE.com's future patent applications and ppoONE.com's future
patents may not be upheld as valid or prevent the development of competitive
products. In addition, to ensure that customers will not be adversely affected
by an interruption in ppoONE.com's business, ppoONE.com places source code of
its products into escrow, which may increase the likelihood of misappropriation
or other misuse of ppoONE.com's intellectual property.
Our business, financial condition and results of operations would be
materially and adversely affected by infringement of our intellectual property
rights. As the number of software products increases and the functionality of
these products further overlaps, ppoONE.com believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend and could
materially and adversely affect MedicalControl's business, financial condition
and results of operations.
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ppoONE.COM'S PRODUCTS ARE COMPLEX AND ARE VULNERABLE TO PRODUCT DEFECTS AND
PRODUCT LIABILITY CLAIMS
Software products as complex as those offered by ppoONE.com often contain
undetected errors or failures when first introduced or as new versions are
released. As ppoONE.com develops new products that operate in new environments,
such as the Internet, the possibility for program errors and failures may
increase due to factors such as the use of new technologies or the need for more
rapid product development that is characteristic of the Internet market. Despite
pre-release testing by ppoONE.com and by current and potential customers, there
still may be errors in new products, even after post-testing distribution. The
occurrence of errors could result in delay in, or failure to achieve, market
acceptance of ppoONE.com's products, which could have a material adverse effect
on our business, financial condition and results of operations. Although
ppoONE.com's license agreements with its customers typically contain provisions
designed to limit ppoONE.com's exposure to potential product liability claims,
it is possible that such limitation of liability provisions may not be effective
as a result of existing or future laws or judicial decisions. Because
ppoONE.com's products are used in business-critical applications, any errors or
failures in such products may give rise to substantial product liability claims,
which could have a material adverse effect on our business, financial condition
and results of operations.
BREACHES OF OUR NETWORK SECURITY COULD RESULT IN LIABILITY AND DAMAGE TO OUR
BUSINESS REPUTATION
The performance of our ppoONE.com services involves the storage of
confidential customer and patient information at our data centers and the
transmission of this data over private and public networks, including the
Internet. Security breaches could result in legal liability and damage to our
business reputation. Despite the implementation of security measures, our
infrastructure may be vulnerable to physical break-ins, computer viruses or
similar disruptive problems. In the event of such a security breach, proprietary
and confidential information could be misappropriated or our operations could be
interrupted. Such a security breach or interruption of our operations could
damage our reputation and cause us to lose customers. In addition, any costs or
imposition of liability that is not covered by insurance or is in excess of
insurance coverage could have a material adverse effect on our business,
financial condition and results of operations.
GOVERNMENT REGULATION
Patient's Records. The confidentiality of patient records and the
circumstances under which such information may be used or released are subject
to substantial regulation by state and federal laws and regulations. Regulations
governing electronic health data transmissions are evolving rapidly and are
often unclear and difficult to apply.
The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")
was enacted on August 21, 1996. HIPAA required the Secretary of Health and Human
Services (the "Secretary") to adopt national standards for certain types of
electronic healthcare information transactions and the data elements used in
such transactions, and to adopt standards to ensure the integrity and
confidentiality of such information. Final standards are expected in 2001. If
these regulations are adopted, they may require modifications to
MedicalControl's computer software and record-keeping practices. These changes
may require MedicalControl to make substantial capital investments. The proposed
regulations, if adopted in their current or a revised form, could have an
adverse effect on our business, financial condition and results of operations.
Any violation of HIPAA, or any regulations promulgated pursuant to HIPAA, may
result in civil or criminal monetary penalties and imprisonment, depending on
the degree of the offense.
The confidentiality of patient records is subject to substantial regulation
by state governments. These state laws and regulations govern both the
disclosure and the use of confidential patient medical record information.
Although compliance with these laws and regulations is at present principally
the responsibility of healthcare providers, regulations governing patient
confidentiality rights are evolving rapidly. Additional legislation governing
the dissemination of medical record information has been proposed at both the
state and federal level. This legislation may require holders of medical
information to implement security measures and
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impose restrictions on the ability of third-party processors, like us, to
transmit certain patient data without specific patient consent. Any change in
legislation could restrict healthcare providers from using our services.
Other legislation governing the dissemination of medical record information
is frequently proposed and debated at both the federal and state levels. Such
legislation, if enacted, could require patient consent before even coded or
anonymous patient information may be shared with third parties and could also
require that holders or users of such information implement specified security
measures. Any material restriction on the ability of healthcare providers to
obtain or disseminate patient information could substantially harm our business,
financial condition and results of operations.
MEDICALCONTROL MUST RECRUIT AND RETAIN QUALIFIED PERSONNEL
MedicalControl's future success depends to a significant degree upon the
continued service of members of our senior management and other key research,
development, sales and marketing personnel. Accordingly, the loss of any of our
senior management or key research, development, sales or marketing personnel
could have a material adverse effect on our business, financial condition and
results of operations. Only a small number of employees have employment
agreements with us, and these agreements may not result in the retention of
these employees for any significant period of time. We have had trouble in
recruiting a sufficient number of qualified sales and technical employees. In
addition, competitors may attempt to recruit our key employees. We may not be
successful in attracting, assimilating and retaining such personnel. The failure
to attract, assimilate and retain key personnel could have a material adverse
effect on our business, financial condition and results of operations.
MANAGEMENT INFORMATION SYSTEMS; PROPRIETARY TECHNOLOGY
Our management information systems are critical to our operations because
the information generated allows us to negotiate price discounts for provider
services, monitor network utilization and perform other client services. In
addition, these systems are critical to the timely, efficient processing and/or
review of provider claims. We rely on a combination of trade secrets and
copyright protections to establish and protect our proprietary rights to these
information systems. We cannot assure you, however, that the legal protections
and the precautions taken by us will be adequate to prevent misappropriation of
our technology. In addition, these protections and precautions will not prevent
development by independent third parties of competitive technology or products,
and some companies have already developed products which, to some extent,
perform functions similar to those performed by our information systems.
CONTROL OF MEDICALCONTROL
Currently, The Answer Partnership, Ltd. owns 2,696,157 shares, or 57.2%, of
our Common Stock. As a result, The Answer Partnership, Ltd. in essence elects
our entire Board of Directors and has the ability to approve any of the
stockholder proposals set forth in this Proxy Statement. J. Ward Hunt, President
of MedicalControl, controls The Answer Partnership, Ltd. due to his position as
its managing partner. Mr. Hunt has indicated that he intends to cause the shares
held by the partnership to be voted "For" each of the proposals set forth in
this Proxy Statement.
CONFLICTS OF INTEREST
We are a party to a loan arrangement with Mr. Hunt, our Chairman of the
Board, principal stockholder, President and Chief Executive Officer. From time
to time during the term and course of such arrangement, our officers and
directors may be faced with potential conflicts of interest between us and Mr.
Hunt. Our officers and directors are limited only by their fiduciary duty under
Delaware law to conduct themselves in a manner that is fair to our stockholders,
the requirements under Delaware law of disclosure to the Board of Directors of
transactions that involve interested director(s) and approval by a majority of
the disinterested directors, and disclosure of interested transactions to
stockholders (for transactions that require stockholder approval) and approval
by a majority of the disinterested stockholders (for transactions that require
stockholder approval). Our management undertakes to abide by Delaware law and
its fiduciary duty of
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fairness to stockholders if faced with conflicts in this ongoing relationship
with Mr. Hunt. We have established no other guidelines or procedures for
resolving potential conflicts. Failure by management to resolve conflicts of
interest in our favor may have a materially adverse effect on us.
POSSIBLE ANTI-TAKEOVER EFFECTS OF CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW
PROVISIONS
Our Certificate of Incorporation and Bylaws contain provisions that may
discourage acquisition bids for MedicalControl. We have substantial authorized
but unissued capital stock available for issuance. Our Certificate of
Incorporation contains provisions which authorize the Board of Directors,
without the consent of stockholders, to issue additional shares of Common Stock
and issue shares of Preferred Stock in series, including establishment of the
rights, powers and preferences, including voting rights, of holders of the
Preferred Stock, and grant authority to the Board to amend our Bylaws.
Additionally, our Bylaws empower the Board to increase or decrease the number of
directors, subject to certain limitations, and specify that directors will
generally hold office until the next annual meeting of stockholders. These
provisions may have the effect, either alone or in combination with each other,
of (1) limiting the price that certain investors might be willing to pay in the
future for the Common Stock, (2) delaying, deferring or otherwise discouraging
an acquisition or change in control of MedicalControl deemed undesirable by the
Board of Directors or (3) adversely affecting the voting power of stockholders
who own Common Stock.
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SPECIAL MEETING
RECORD DATE
The record date for the Special Meeting is December 11, 2000. Only holders
of record of MedicalControl's Common Stock, $.01 par value per share at the
close of business on such Record Date are entitled to notice of, and to vote at,
the Special Meeting.
VOTING STOCK
The only class of stock entitled to be voted at the Special Meeting is
Common Stock. Holders of record of Common Stock are entitled to one vote per
share on the matters to be considered at the Special Meeting. At the close of
business on the Record Date, 4,711,492 shares of Common Stock were issued and
outstanding and entitled to vote at the Special Meeting.
QUORUM
In order for any business to be conducted at the Special Meeting, the
holders of more than 50% of the shares of Common Stock entitled to vote must be
represented at the Special Meeting, either in person or by properly executed
proxy. If a quorum is not present at the scheduled time of the Special Meeting,
the stockholders who are present may adjourn the Special Meeting until a quorum
is present. The time and place of the adjourned meeting will be announced at the
time the adjournment is taken, and no other notice will be given. An adjournment
will have no effect on the business that may be conducted at the Special
Meeting.
VOTING BY STREET NAME HOLDERS
If a stockholder owns shares in "street name" by a broker, the broker, as
the record holder of the shares, is required to vote those shares in accordance
with your instructions. If you do not give instructions to the broker, the
broker will nevertheless be entitled to vote the shares with respect to
"discretionary" items but will not be permitted to vote the shares with respect
to "non-discretionary" items (in which case, the shares will be treated as
broker "non-votes").
REQUIRED VOTE
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock represented at the Special Meeting is required to approve the
proposal to adopt resolutions authorizing:
(1) MedicalControl's execution, delivery and performance of the Stock
Purchase Agreement dated as of October 18, 2000 (the "PPO Stock Purchase
Agreement"), between MedicalControl, MedicalControl Holdings,
MedicalControl Network Solutions, and Beyond Benefits, pursuant to which
MedicalControl Holdings proposes to sell a substantial portion of its
assets, consisting of all the outstanding stock of its operating subsidiary
MedicalControl Network Solutions;
(2) MedicalControl Holding's execution, delivery and performance of
the Stock Purchase Agreement dated as of November 14, 2000 (the "TPA Stock
Purchase Agreement"), between MedicalControl Holdings, Diversified Group
Administrators and Diversified Group Insurance Agency, and HealthASPex,
pursuant to which MedicalControl Holdings proposes to sell a substantial
portion of its assets, consisting of all the outstanding stock of its TPA
operating subsidiaries; and
(3) The amendment of MedicalControl's Certificate of Incorporation to
change MedicalControl's name to Avidyn, Inc.
Any shares voted as abstentions and broker "non-votes" on any matter are
counted as present and entitled to vote for the purposes of determining a
quorum, but are not deemed to have been voted in favor of such matter. The
effect of broker "non-votes" on a particular matter depends on whether the
matter is one as to which the broker or nominee has discretionary voting
authority. If a broker submits a proxy that indicates the broker does not have
discretionary authority to vote certain shares on a particular matter, those
shares will be
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counted as present for purposes of determining a quorum, but will not be
considered present and entitled to vote for the purpose of calculating the vote
with respect to such matter. Accordingly, abstentions and broker "non-votes" are
counted as a vote against the proposals to approve the PPO Stock Purchase
Agreement and the TPA Stock Purchase Agreement and the amendment of
MedicalControl's Certificate of Incorporation.
DEFAULT VOTING
Where stockholders have appropriately specified how their proxies are to be
voted, they will be voted accordingly. If a stockholder properly executes and
returns the accompanying proxy, but does not indicate any voting instructions,
such stockholder's shares will be voted as follows:
(i) FOR the adoption of the resolution to approve the PPO Stock
Purchase Agreement;
(ii) FOR the adoption of the resolution to approve the TPA Stock
Purchase Agreement;
(iii) FOR the adoption of the resolution to approve the amendment of
MedicalControl's Certificate of Incorporation to change MedicalControl's
name to Avidyn, Inc.; and
(iv) at the discretion of the proxy holders on any other matter that
may properly come before the meeting or any adjournment thereof.
If any other matter or business is brought before the Special Meeting, the
proxy holders may vote the proxies in their discretion. The Board of Directors
does not currently know of any such other matter or business.
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PROPOSAL I
SALE OF MEDICALCONTROL NETWORK SOLUTIONS, INC.
At the Special Meeting, holders of Common Stock will consider and vote upon
a proposal to approve the Stock Purchase Agreement between MedicalControl,
MedicalControl Holdings, MedicalControl Network Solutions and Beyond Benefits,
pursuant to which MedicalControl proposes to cause MedicalControl Holdings to
sell (the "PPO Sale") all of the capital stock of MedicalControl Network
Solutions, the PPO subsidiary of MedicalControl Holdings. A copy of the PPO
Stock Purchase Agreement (without exhibits and schedules), is attached as
Appendix A to this Proxy Statement. Subject to certain indemnity obligations and
closing balance sheet adjustments, under the terms of the PPO Stock Purchase
Agreement, MedicalControl expects to receive $13,500,000 in cash at closing as
consideration for the PPO Sale. See "The PPO Stock Purchase Agreement".
The proposed transaction, together with the TPA sale, constitutes the sale
of substantially all of MedicalControl's assets for purposes of Delaware law.
Pursuant to the applicable provisions of the Delaware General Corporation Law,
MedicalControl is required to obtain the affirmative vote of a majority of the
outstanding shares of Common Stock prior to the sale of all or substantially all
of its property or assets. The PPO Sale will result in the disposition of a
substantial amount of MedicalControl's assets.
The resolution regarding the PPO Sale that will be considered by the
stockholders at the Special Meeting is:
"RESOLVED, that MedicalControl, Inc., a Delaware corporation, is
hereby authorized, empowered and directed to perform or cause
MedicalControl Holdings, Inc. to perform the transactions contemplated
by that Stock Purchase Agreement dated as of October 18, 2000, between
MedicalControl, Inc., MedicalControl Holdings, Inc., MedicalControl
Network Solutions, Inc. and Beyond Benefits, Inc., pursuant to which
MedicalControl Holdings, Inc. proposes to sell all of the capital
stock of MedicalControl Network Solutions, Inc."
THE BOARD OF DIRECTORS HAS APPROVED THE PPO SALE (SUBJECT TO STOCKHOLDER
APPROVAL) AND RECOMMENDS A VOTE "FOR" APPROVAL OF PROPOSAL I.
BACKGROUND OF PPO SALE.
The PPO sector of the managed healthcare industry in which MedicalControl
operates is changing and highly competitive. MedicalControl competes for
customers with numerous national, regional and local PPO network providers. Many
of these competitors have greater financial, technical and marketing resources
than MedicalControl.
In response to competitive pressures, the PPO industry has been actively
consolidating during the last several years. MedicalControl's customers are
increasingly seeking to limit the number of PPO networks that they access by
aligning themselves with networks that have a strong national presence. As a
result, regional PPO networks such as MedicalControl Network Solutions are faced
with either acquiring other regional networks, selling their network or risking
the loss of business to PPO companies which have a more national scope.
In the summer of 1999, MedicalControl's senior management was approached by
another preferred provider organization, Beyond Benefits, regarding the
potential purchase of MedicalControl Network Solutions and ValueCheck. Beyond
Benefits is a regional PPO serving primarily the geographic markets of the West
and Southwest that intends to develop a national market presence. Beyond
Benefits (established in 1999), is a privately held corporation owned by two of
its officers, a former officer and three venture capital firms. After months of
evaluation and due diligence, senior management concluded that the sale of
MedicalControl Network Solutions and ValueCheck would provide significant
operating capital for MedicalControl and allow MedicalControl to expand
ppoONE.com.
In November 1999, MedicalControl's President, J. Ward Hunt, contacted
Barbara Rodin, Beyond Benefit's president. Dr. Rodin expressed interest in
MedicalControl Network Solutions and they discussed
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pricing methodologies. Mr. Hunt explained that MedicalControl Network
Solutions's repricing business must remain with ppoONE.com as a condition of the
transaction. Dr. Rodin agreed and expressed an interest in sending other
business to ppoONE.com.
In February 2000, senior management for MedicalControl and Beyond Benefits
discussed financial and strategic benefits of the acquisition of MedicalControl
Network Solutions and ValueCheck by Beyond Benefits. MedicalControl and Beyond
Benefits held several discussions regarding the business environment and future
trends and opportunities of MedicalControl Network Solutions and ValueCheck and
their potential synergies with Beyond Benefits.
On March 8, 2000, senior management for MedicalControl and Beyond Benefits
gathered in Long Beach, California. During this conference, both parties
discussed market share and the management structure of MedicalControl Network
Solutions and ValueCheck. Beyond Benefits discussed informally with senior
management the fact that despite industry standards Beyond Benefits is
accustomed to paying 0.9-1.0x revenue. At the end of the meeting, Beyond
Benefits expressed interest in moving forward and stated it would request
additional information from MedicalControl before making a formal offer.
On March 14, 2000, Beyond Benefits sent a letter requesting additional
information from MedicalControl. MedicalControl responded to such letter with
the requested information on March 22, 2000.
On April 6, 2000, senior management for MedicalControl and Beyond Benefits
held a conference call to answer any additional questions and begin discussions
on the details of Beyond Benefit's acquisition proposal. Additionally, the
conference call included detailed discussions of fiscal 2000 interim financial
statements for the PPO and ValueCheck and evaluation of the PPO's cost per
claim.
On April 10, 2000, senior management for MedicalControl and Beyond Benefits
held a conference call in order to discuss the PPO's savings categorized by
hospitals and physicians. Furthermore, Beyond Benefits requested updated figures
regarding claims volume.
On April 13, 2000, senior management for MedicalControl and Beyond Benefits
discussed fiscal 2000 interim financial statements. Beyond Benefits stated that
an acquisition proposal would be presented to MedicalControl soon. Shortly after
the foregoing April conferences, MedicalControl provided Beyond Benefits with
updated profit and loss statements for the first two (2) months of fiscal 2000
and related savings figures.
On April 18, 2000, Beyond Benefits presented their initial letter of intent
offering MedicalControl a cash purchase price of Nine Million and No/100 Dollars
($9,000,000). Shortly thereafter, MedicalControl expressed its disappointment
with Beyond Benefits' purchase price offer. Beyond Benefits stated that they
based the offered purchase price on fiscal 1999 figures and figures for the
first two (2) months of fiscal 2000. For the period of consideration, Beyond
Benefits calculated the earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the PPO and ValueCheck to be approximately Two
Million and No/100 Dollars ($2,000,000) and made their offer for four and
one-half (4.5) times EBITDA. MedicalControl emphasized that fiscal 2000
financial projections are significantly higher than fiscal 1999. MedicalControl
and Beyond Benefits agreed to contact each other in the near future.
On April 21, 2000, MedicalControl contacted Beyond Benefits and noted that
Beyond Benefits was purchasing another PPO for the purchase price of
approximately five and one-half (5.5) times EBITDA. MedicalControl proposed that
Beyond Benefits annualize the first two (2) months of fiscal 2000 in order to
calculate a proposed purchase price. Additionally, MedicalControl stated its
intent to have ValueCheck removed from the initial acquisition proposal and
evaluated separately. Beyond Benefits offered an "earn-out" regarding
MedicalControl's counter-proposal. The parties agreed to contact one another on
the following Monday, April 24, 2000.
On April 24, 2000, Beyond Benefits requested additional information from
MedicalControl. Beyond Benefits said they would contact MedicalControl in a
week.
On May 3, 2000, Beyond Benefits presented their revised letter of intent
offering MedicalControl a cash purchase price of Eleven Million and No/100
Dollars ($11,000,000) plus a One Million and No/100 Dollars ($1,000,000)
earn-out.
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On May 8, 2000, senior management and two outside directors of
MedicalControl scheduled a May 17, 2000, meeting at the headquarters of Beyond
Benefits in Long Beach, California, to determine if an acceptable purchase price
could be agreed by both parties. MedicalControl informed Beyond Benefits that
the earn-out provision of the revised letter of intent was undesirable.
On May 17, 2000, senior management and two outside directors of
MedicalControl met with senior management of Beyond Benefits and proposed a
purchase price of Thirteen Million One Hundred Thousand and No/100 Dollars
($13,100,000) for MedicalControl Network Solutions and a separate purchase price
of Five Hundred Fifty Thousand and No/100 Dollars ($550,000) for ValueCheck. The
parties agreed upon a purchase price of Twelve Million Five Hundred Thousand and
No/100 Dollars ($12,500,000) for MedicalControl Network Solutions and
ValueCheck. Furthermore, MedicalControl agreed to continue providing ancillary
PPO network services under the current pricing arrangement with Beyond Benefits.
MedicalControl and Beyond Benefits agreed to move towards a definitive agreement
and bypass any future revised letters of intent.
During June and July management of MedicalControl and Beyond Benefits
attempted to come to a definitive agreement for the proposed sales.
At the August 9, 2000 meeting of the Board, Mr. John Weymer, president of
ValueCheck reported the addition of a large client that would make ValueCheck
profitable. There were discussions that the price may not accurately reflect the
current companies value given new sales and prospects. The Board also considered
a number of business terms of the proposed transaction that remained unresolved.
The Board unanimously agreed to cease contract discussions with Beyond Benefits.
On August 9, 2000, MedicalControl sent Beyond Benefits a letter terminating
discussions. Barbara Rodin, president of Beyond Benefits, for the next few days,
called Mr. Hunt and other members of management in an attempt to re-open
negotiations and explore a contract with ppoONE.com.
Certain key members of management expressed concern about MedicalControl
Network Solutions and ppoONE.com being owned by the same entity and the negative
impact of our PPO being a direct competitor to our present and future ppoONE.com
clients. On August 28, 2000, Mr. Hunt and the two outside board members met to
discuss re-opening negotiations with Beyond Benefits.
On August 29, 2000, Mr. Hunt telephoned Ms. Rodin and re-opened
negotiations. Over the next few days the parties agreed upon a purchase price of
Thirteen Million Five Hundred Thousand and No/100 Dollars ($13,500,000) and to
remove ValueCheck from the transaction. Beyond Benefits also agreed to assume
the 20,000 square foot office lease in Dallas, Texas. Over the next few days,
management of ppoONE.com and Beyond Benefits discussed pricing for the
ppoONE.com contract.
On September 5, 2000, MedicalControl forwarded a revised Stock Purchase
Agreement to Beyond Benefits. Over the next two weeks the parties negotiated
indemnification provisions and other material terms of the transaction.
On September 18, 2000, the Board of Directors held a telephonic board
meeting to review the draft of the Stock Purchase Agreement. The Board expressed
concern about several provisions, including the many termination provisions that
allowed Beyond Benefits to terminate the Stock Purchase Agreement after
execution but before closing. The Stock Purchase Agreement was revised to
reflect the Board's concerns and comments. During the next few weeks the parties
negotiated the Stock Purchase Agreement and the Data Center Agreement with
ppoONE.com.
On October 4, 2000, the Board of Directors held a telephonic board meeting
and approved the final draft of the Stock Purchase Agreement. During the next
two weeks the parties negotiated the disclosure schedules to the Stock Purchase
Agreement and the Data Center Agreement with ppoONE.com.
On October 18, 2000, Beyond Benefits' executed the Stock Purchase
Agreement. On October 19, 2000, MedicalControl executed the Stock Purchase
Agreement to be effective as of October 18, 2000. During the next week, Beyond
Benefits completed its due diligence with MedicalControl's clients. Beyond
Benefits right to terminate the Stock Purchase Agreement based on client due
diligence terminated on October 26, 2000.
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THE PPO STOCK PURCHASE AGREEMENT.
The following is a brief summary of certain provisions of the PPO Stock
Purchase Agreement. This description is qualified in its entirety by reference
to the complete text of the PPO Stock Purchase Agreement, a copy of which is
attached to this Proxy Statement as Appendix A and is incorporated herein by
reference. The terms not otherwise defined in this summary or elsewhere in this
Proxy Statement have the meanings set forth in the PPO Stock Purchase Agreement.
All stockholders are urged to carefully read the PPO Stock Purchase Agreement in
its entirety.
Purchase Price. Pursuant to the terms of the PPO Stock Purchase Agreement,
in consideration of the transfer to Beyond Benefits of MedicalControl Network
Solutions, Beyond Benefits has agreed to pay to MedicalControl $13,500,000 in
cash at closing. The Purchase Price is subject to an adjustment based on working
capital as of the Closing Date.
The Closing. The Closing of the PPO Sale will take place on or about
February 1, 2001 or such other date as may be mutually agreed by MedicalControl
and Beyond Benefits, provided that the PPO Sale is approved by the stockholders
of MedicalControl at the Special Meeting.
The MedicalControl Network Solutions Shares. MedicalControl Holdings
established MedicalControl Network Solutions as a subsidiary on January 1, 1998,
and thereafter MedicalControl transferred its managed care operations to
MedicalControl Network Solutions. Beyond Benefits will purchase the outstanding
stock of MedicalControl Network Solutions, thereby causing ownership of
MedicalControl Network Solutions to be transferred from MedicalControl Holdings
to Beyond Benefits. Except as otherwise specifically provided in the PPO Stock
Purchase Agreement, all of MedicalControl Network Solutions' rights, assets and
liabilities, known and unknown, will remain with MedicalControl Network
Solutions, and MedicalControl will retain no assets or liabilities of or any
interest in MedicalControl Network Solutions.
Representations and Warranties. The PPO Stock Purchase Agreement contains
various representations and warranties relating to MedicalControl Network
Solutions including, among others, representations and warranties related to
MedicalControl Network Solutions' corporate organization and similar corporate
matters; authorization and enforceability of the sale documents; MedicalControl
Network Solutions's capital structure and the ownership of all outstanding
shares of MedicalControl Network Solutions's capital stock; corporate power and
authority; no violation caused by this transaction of MedicalControl Network
Solutions' certificate of incorporation or bylaws and non-violation of laws and
binding agreements; consents and approvals; compliance with material contracts
laws, licenses and permits pertaining to MedicalControl Network Solutions; the
accuracy of certain financial statements provided to Beyond Benefits; no
undisclosed liabilities; absence of certain changes since March 31, 2000;
absence of legal proceedings; taxes and tax returns; contracts; intellectual
property; licenses and permits; environmental matters; properties; labor
matters; non-ownership or control of subsidiaries; performance of services;
related party transactions; healthcare matters; absence of powers of attorney;
solvency; corporate name; employee plans; insurance; major customers; absence of
brokers; and the accuracy of information relating to MedicalControl Network
Solutions and MedicalControl contained in information delivered to Beyond
Benefits. The PPO Stock Purchase Agreement contains various representations and
warranties of Beyond Benefits including, among others, representations and
warranties related to corporate organization and similar corporate matters;
authorization and enforceability; noncontravention by the transactions
contemplated in the PPO Sale of Beyond Benefits, Beyond Benefits' certificate of
incorporation or bylaws, and non-violation of laws and binding agreements;
acquisition for investment; absence of brokers; and consents and approvals.
Indemnification. MedicalControl has agreed to indemnify, defend and hold
harmless Beyond Benefits and its officers, directors, agents and affiliates from
and against any and all losses, damages, liabilities, costs and expenses
(collectively, "Losses") arising out of or due to, directly or indirectly, (1)
any inaccuracy in or breach of any of the representations, warranties,
covenants, agreements or undertakings of MedicalControl, MedicalControl Network
Solutions contained in the PPO Stock Purchase Agreement or the attached
disclosure schedule or (2) any indebtedness of MedicalControl Network Solutions
relating to the loan from BankOne. Notwithstanding the foregoing, the parties
have agreed that MedicalControl shall not indemnify Beyond Benefits for any
Losses (other than Losses occurring as a result of a breach of warranty relating
to
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(1) capitalization of MedicalControl Network Solutions, (2) MedicalControl's
ownership of MedicalControl Network Solutions's stock, (3) taxes or (4) brokers
or finders fees) unless and until Beyond Benefits and its affiliates shall have
suffered Losses aggregating in excess of $300,000, whereupon Beyond Benefits and
its affiliates shall be entitled to indemnification for the full amount of such
Losses in excess of the first $300,000; provided, however, that no party shall
be entitled to recover from the other more than $8,500,000, except in the case
of fraud or intentional misconduct. Furthermore, no party is intended to recover
for Losses if the party seeking indemnification had knowledge of the facts and
circumstances from which the Losses arise prior to the Closing. MedicalControl's
obligation to indemnify for Losses resulting from breaches of certain
representations or warranties in the PPO Stock Purchase Agreement will remain in
full force and effect for a period of eighteen (18) months from the Closing
Date; provided however, that representations and warranties regarding the
corporate status of MedicalControl Network Solutions, the capitalization of
MedicalControl Network Solutions and MedicalControl's ownership of
MedicalControl Network Solutions' stock will remain in full force and effect.
MedicalControl's obligation to indemnify for Losses resulting from breaches of
certain other representations or warranties survive for the applicable statute
of limitations period. All representations and warranties will survive beyond
the applicable period with respect to any inaccuracy therein or breach thereof
if notice shall have been given within the applicable time period. Beyond
Benefits has agreed to indemnify MedicalControl for inaccuracy of any
representation or the breach of any warranty, covenant, undertaking or other
agreement of Beyond Benefits contained in the PPO Stock Purchase Agreement,
subject to the same limitations upon MedicalControl's obligation to indemnify
Beyond Benefits described above.
Expenses and Transfer Taxes. Each party has agreed to bear its own fees
and expenses in connection with the PPO Sale, and MedicalControl will bear the
cost of MedicalControl Network Solutions' fees and expenses related to the PPO
Sale. We are responsible for the payment of any transfer taxes related to the
PPO Sale.
Conditions of the PPO Sale. The obligations of MedicalControl to effect
the PPO Sale are subject to the following conditions: (1) the stockholders of
MedicalControl shall have approved the PPO Sale at the Special Meeting, (2) the
representations and warranties of Beyond Benefits contained in the PPO Stock
Purchase Agreement shall be true and correct on and as of the Closing Date,
(3) Beyond Benefits shall have performed in all material respects all of the
obligations required to be performed by it prior to Closing Date, (4) all
required authorizations, approvals or consents shall have been obtained, (5) no
suit, action or other proceeding by any arbitrator or government authority shall
have been instituted which questions the validity or legality of the PPO Sale,
(6) MedicalControl shall have received an officers certificate from Beyond
Benefits regarding the accuracy of Beyond Benefits' representations and the
performance of required Beyond Benefits obligations, (7) MedicalControl shall
have received from counsel to Beyond Benefits an opinion with respect to matters
typical in such transactions, (8) MedicalControl Network Solutions shall have
entered into an amendment to the Dallas lease, which shall be in full force and
effect, and (9) Beyond Benefits and ppoONE.com shall have entered into the Data
Center Agreement.
The obligations of Beyond Benefits to effect the PPO Sale are subject to
the following conditions: (1) the representations and warranties of
MedicalControl contained in the PPO Stock Purchase Agreement shall be true and
correct on and as of the Closing Date, (2) MedicalControl shall have performed
in all material respects all agreements to be performed by it prior to Closing,
(3) Beyond Benefits shall have received an officers certificate from
MedicalControl regarding the accuracy of MedicalControl's representations and
the performance of required MedicalControl obligations, (4) Beyond Benefits
shall have received resignations from all of MedicalControl Network Solutions's
directors and officers requested by Beyond Benefits effective as of the Closing
Date, (5) there shall have been no material adverse effect with respect to
MedicalControl Network Solutions's business, condition (financial or otherwise),
assets, liabilities, operations or financial performance since March 31, 2000,
(6) Beyond Benefits shall have received from counsel to MedicalControl an
opinion with respect to matters typical in such transactions, (7) all lien
filings relating to the BankOne debt shall be released, (8) MedicalControl
Network Solutions shall have entered into an amendment to the Dallas lease,
which shall be in full force and effect and MedicalControl shall have obtained
any consents required to transfer the lease to MedicalControl Network Solutions,
(9) no suit, action or other proceeding by any arbitrator or governmental
authority shall have been instituted which questions the validity or legality of
the PPO Sale, (10) Beyond Benefits and ppoONE.com shall have entered into the
Data Center Agreement,
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<PAGE> 26
(11) no action or proceeding shall have been commenced or threatened which
attempts to challenge or seek damages relating to the PPO Sale or which
otherwise is reasonably likely to interfere with the sale or have a material
adverse effect on the PPO business, and (12) MedicalControl shall have paid in
full all long term indebtedness and retained liabilities of MedicalControl
Network Solutions as of the Closing Date.
Beyond Benefits has advised MedicalControl that it has secured the required
debt financing.
Covenants. Pursuant to the PPO Stock Purchase Agreement, MedicalControl
has agreed to conduct the business of MedicalControl Network Solutions prior to
the Closing, in the ordinary course, consistent with past practice. In addition,
MedicalControl and Beyond Benefits have agreed (1) to use all reasonable efforts
to take, or cause to be taken, all actions necessary in order to consummate and
make effective the PPO Sale, (2) that for a period of one year after the date of
the PPO Stock Purchase Agreement, no public release or announcement concerning
the PPO Sale will be issued by either party without the prior written consent of
the other party, except as such release or announcement may be required by
applicable law or any government authority, (3) to cooperate and provide
information necessary to the preparation of tax returns and the handling of tax
matters, and (4) that MedicalControl shall cease using any and all trade names,
trademarks, logos and trade dress belonging to MedicalControl or its affiliates
in its literature, inventory, products, labels, packaging, supplies or other
materials relating to "MedicalControl" as soon as available supplies thereof are
exhausted and in any event within 120-days after the Closing Date.
No Competition. Pursuant to the PPO Stock Purchase Agreement,
MedicalControl has agreed for three years following the Closing not to own,
operate or manage, either directly or through a subsidiary any business in which
MedicalControl Network Solutions is engaged as of the Closing Date; provided,
however, that MedicalControl's ownership and operation of its remaining
operating subsidiaries, ppoONE.com, ValueCheck and Diversified Group
Administrators was excluded from the scope of the non-competition provision.
No Solicitation. Pursuant to the PPO Stock Purchase Agreement,
MedicalControl has agreed for two years following the Closing not to (1) induce
or attempt to induce any employee to leave the employ of Beyond Benefits or any
other entity controlled by, controlling or under common control with Beyond
Benefits, (2) in any way interfere with the relationship between Beyond Benefits
and any of its employees, (3) employ or otherwise engage as an employee,
independent contractor or otherwise, any employee of Beyond Benefits, or (4)
induce or attempt to induce any customer, supplier, licensee or business
relation of Beyond Benefits to cease doing business with it, or in any way
interfere with the relationship between any customer, supplier, licensee, or
other relation of Beyond Benefits.
Termination. The PPO Stock Purchase Agreement may be terminated and the
transactions contemplated thereby abandoned at any time prior to the Closing
Date (1) by written consent of MedicalControl and Beyond Benefits, (2) by Beyond
Benefits or MedicalControl, if the conditions to Closing are not fulfilled on or
before April 16, 2001, (3) by either party if there has been an uncured material
breach (after expiration of applicable cure periods) of a representation or
warranty by the other party or there has been any failure by such other party to
perform in all material respects the obligations to be performed by it, (4) by
MedicalControl or Beyond Benefits if the stockholders do not approve the PPO
Sale, (5) by Beyond Benefits or MedicalControl if the Board of Directors
determines that an alternative proposal exists for the sale by MedicalControl of
MedicalControl Network Solutions, which the Board has a fiduciary duty to pursue
instead of the PPO Sale, (6) by either MedicalControl or Beyond Benefits if any
governmental authority shall have issued an order, decree or ruling or taken any
other action restraining, enjoining, or otherwise prohibiting the consummation
of the contemplated transactions and such order, decree, ruling or other action
has become final or non-appealable or (7) by Beyond Benefits if there are
changes to the disclosure schedule that would constitute a material adverse
effect on MedicalControl Network Solutions.
Consequences of Termination. If the PPO Stock Purchase Agreement is
terminated by MedicalControl or Beyond Benefits because of MedicalControl's
inability to obtain the required stockholder consent or because of
MedicalControl accepting an alternative proposal for MedicalControl Network
Solutions, MedicalControl and MedicalControl Network Solutions, jointly and
severally, will pay Beyond Benefits a cancellation fee of $300,000 in cash, plus
the payment of up to $50,000 of the costs incurred by Beyond Benefits in
connection with the transaction.
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PROPOSAL II
SALE OF DIVERSIFIED GROUP ADMINISTRATORS, INC. AND DIVERSIFIED GROUP INSURANCE
AGENCY OF PA, INC.
At the Special Meeting, stockholders of MedicalControl will also consider
and vote upon a proposal to approve the Stock Purchase Agreement between
MedicalControl Holdings, Diversified Group Administrators and Diversified Group
Insurance Agency and HealthASPex, pursuant to which MedicalControl proposes to
cause MedicalControl Holdings to sell (the "TPA Sale") all of the capital stock
of Diversified Group Administrators and Diversified Group Insurance Agency, the
TPA subsidiaries of MedicalControl Holdings. A copy of the TPA Stock Purchase
Agreement, as amended (without exhibits and schedules), is attached as Appendix
B to this Proxy Statement. Subject to certain indemnity obligations and closing
balance sheet adjustments, under the terms of the TPA Stock Purchase Agreement,
MedicalControl expects to receive $2,350,000 in cash at closing as consideration
for the TPA Sale. See "The TPA Stock Purchase Agreement."
The proposed transaction, together with the PPO Sale, constitutes the sale
of substantially all of MedicalControl's assets for purposes of Delaware law.
Pursuant to the applicable provisions of the Delaware General Corporation Law,
MedicalControl is required to obtain the affirmative vote of a majority of the
outstanding shares of Common Stock prior to the sale of all or substantially all
of its property or assets. The TPA Sale will result in the disposition of a
substantial amount of MedicalControl's assets.
The resolution regarding the TPA Sale that will be considered by the
stockholders at the Special Meeting is:
"RESOLVED, that MedicalControl, Inc., a Delaware corporation, is
hereby authorized, empowered and directed to perform or cause Holdings
to perform the transactions contemplated by that Stock Purchase
Agreement dated as of November 14, 2000, between MedicalControl
Holdings, Inc., Diversified Group Administrators, Inc., Diversified
Group Insurance Agency of PA, Inc., and HealthASPex, Inc., pursuant to
which MedicalControl Holdings, Inc. proposes to sell all of the
capital stock of Diversified Group Administrators, Inc. and
Diversified Group Insurance Agency of PA, Inc."
THE BOARD OF DIRECTORS HAS APPROVED THE TPA SALE (SUBJECT TO STOCKHOLDER
APPROVAL) AND RECOMMENDS A VOTE "FOR" APPROVAL OF PROPOSAL II.
BACKGROUND OF TPA SALE.
The TPA sector of the managed healthcare industry in which MedicalControl
operates is highly competitive and margins have been decreasing. The
re-insurance market has tightened and many companies can no longer find
affordable re-insurance forcing such clients to opt for fully insured plans.
Many of Diversified Group Administrators' competitors have greater financial,
technical and marketing resources than MedicalControl.
During the spring of 2000, the Board of Directors offered to entertain an
offer to sell Diversified Group Administrators to Dan Riston, president of
Diversified Group Administrators. The Board agreed that Mr. Riston would give it
a higher valuation because he would not deem recent non-recurring expenses as
recurring expenses. Mr. Riston stated that his offer to purchase Diversified
Group Administrators would be a small down payment and a payout based on
earnings. The Board believed that an all cash deal was in the best interest of
stockholders.
At the August 9, 2000, meeting of the Board of Directors, the Board agreed
to hire a broker to explore the possibility of selling Diversified Group
Administrators and Diversified Group Insurance Agency. The Board spoke with Mr.
Charles Jackson of Jackson Advisors, Inc. and discussed, among other things, the
value of the TPA, his fees and his prospects.
On August 9, 2000, Jackson Advisors Inc., forwarded to MedicalControl a
letter agreement providing that Jackson Advisors would be the exclusive broker.
The parties agreed that it would only be exclusive for
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certain prospects. After negotiating the exclusive prospect list, MedicalControl
executed the letter agreement on August 18, 2000.
On August 18, 2000, Peter Barnett, president of HealthASPex and prospect of
Jackson Advisors met with J. Ward Hunt, MedicalControl's President, Bob
Buddendorf, MedicalControl's Chief Financial Officer, and Stephanie McVay,
MedicalControl's General Counsel, at MedicalControl's offices and expressed an
interest in buying the TPA subsidiaries. Mr. Barnett executed a confidentiality
agreement in favor of MedicalControl. Mr. Buddendorf provided certain financial
information to Mr. Barnett and forwarded other information to Mr. Barnett a few
days later.
On September 1, 2000, Jackson Advisors forwarded two draft letters of
intent to MedicalControl from HealthASPex. The first letter of intent was an all
cash offer for Two Million Three Hundred Sixty Thousand and No/100 Dollars
($2,360,000). The second letter was an offer for Three Million Seven Hundred
Fifty Thousand and No/100 Dollars ($3,750,000), with One Million One Hundred
Twenty Five Thousand and No/100 Dollars ($1,125,000) paid at closing and
payments of One Hundred Sixty three Thousand Five Hundred Ninety Four and No/100
Dollars ($163,594) on each of the 20 quarters following closing. Given the
length of the payout and the fact that HealthASPex would not grant any security
interest in any of its assets or the assets to be purchased, management
concluded that the all cash transaction was in the best interest of the
stockholders. For the next ten days MedicalControl and HealthASPex negotiated
the terms of the letter of intent.
On September 13, 2000, HealthASPex forwarded to MedicalControl a letter of
intent offering to purchase Diversified Group Administrators for Two Million
Five Hundred Thousand and No/100 Dollars ($2,500,000) in cash. MedicalControl
executed the letter of intent on September 14, 2000.
On September 22, 2000, MedicalControl received the first draft of the Stock
Purchase Agreement.
On October 4, 2000, the Board of Directors met, discussed the status of the
sale and approved the terms of the transaction substantially in the form
provided to the Board of Directors.
On October 13, 2000, the Board of Directors met, discussed the transaction,
reviewed the revised Stock Purchase Agreement and approved the sale of the TPA
business and the provisions of the Stock Purchase Agreement substantially in the
form reviewed by the Board of Directors.
On November 8, 2000, the Board of Directors held a regular meeting and the
management of MedicalControl updated the Board on the status of the
negotiations.
On November 14, 2000, MedicalControl, Diversified Group Administrators and
Diversified Group Insurance Agency and HealthASPex executed the Stock Purchase
Agreement.
THE TPA STOCK PURCHASE AGREEMENT.
The following is a brief summary of certain provisions of the TPA Stock
Purchase Agreement. This description is qualified in its entirety by reference
to the complete text of the TPA Stock Purchase Agreement, a copy of which is
attached to this Proxy Statement as Appendix B and is incorporated herein by
reference. The terms not otherwise defined in this summary or elsewhere in this
Proxy Statement have the meaning set forth in the TPA Stock Purchase Agreement.
All stockholders are urged to carefully read the TPA Stock Purchase Agreement in
its entirety.
Purchase Price. Pursuant to the terms of the TPA Stock Purchase Agreement,
in consideration of the transfer to HealthASPex of MedicalControl's TPA
subsidiaries, HealthASPex has agreed to pay to MedicalControl $2,350,000 in cash
at closing. An additional $150,000 of the purchase price will be placed in an
escrow account, as described below. The $2,500,000 aggregate purchase price is
subject to adjustment after closing for any change in the consolidated net worth
of the TPA subsidiaries, based upon a closing balance sheet to be prepared and
agreed upon by MedicalControl Holdings and HealthASPex and their outside
accountants. Any dispute regarding the closing balance sheet may be resolved by
an independent accounting firm.
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Escrow. The parties will place $150,000 of the purchase price in escrow
upon the closing of the sale of the TPA business. Any amount remaining in escrow
and not subject to any existing claims on the 18 month anniversary of the
closing date will be distributed to MedicalControl Holdings. The escrow fund
will be available as partial security for MedicalControl Holdings'
indemnification obligations under the TPA Stock Purchase Agreement.
The Closing. The Closing of the TPA Sale will take place on or about
January 22, 2001, or such other date as may be mutually agreed by MedicalControl
and HealthASPex, provided that the TPA Sale is approved by the stockholders of
MedicalControl at the Special Meeting.
The TPA Subsidiaries. MedicalControl acquired the Diversified Group
subsidiaries in 1993 from two individual shareholders of those companies.
MedicalControl transferred the subsidiaries to MedicalControl Holdings as of
January 1, 1998. HealthASPex will purchase the outstanding stock of Diversified
Group Administrators and Diversified Group Insurance Agency, thereby causing
ownership of the TPA subsidiaries to be transferred from MedicalControl Holdings
to HealthASPex. Except as otherwise specifically provided in the TPA Stock
Purchase Agreement, all of the TPA subsidiaries' rights, assets and liabilities,
known and unknown, will remain with the TPA subsidiaries, and the Company will
retain no assets or liabilities of the TPA Subsidiaries.
Representations and Warranties. The TPA Stock Purchase Agreement contains
various representations and warranties of MedicalControl Holdings relating to
its TPA subsidiaries including, among others, representations and warranties
related to the subsidiaries' corporate organization and similar corporate
matters; authorization and enforceability of the sale documents; the
subsidiaries' capital structure and MedicalControl Holdings' ownership of all
outstanding shares of the subsidiaries' capital stock; non-contravention of
transactions contemplated by the TPA Sale, the subsidiaries' articles of
incorporation or bylaws, and non-violation of laws and binding agreements;
consents and approvals; compliance with laws, licenses and permits pertaining to
the subsidiaries; the accuracy of certain financial statements provided to
HealthASPex; absence of certain changes since July 31, 2000; absence of legal
proceedings; taxes and tax returns; contracts; patents, trademarks and trade
names; licenses and permits; environmental matters; properties; labor matters;
non-ownership or control of subsidiaries; performance of services; related party
transactions; knowledge of listed individuals; healthcare matters; absence of
powers of attorney; solvency; employee plans; insurance; major customers;
absence of brokers; and the accuracy of information relating to the subsidiaries
and MedicalControl Holdings contained in information delivered to HealthASPex.
The TPA Stock Purchase Agreement contains various representations and warranties
of HealthASPex including, among others, representations and warranties related
to corporate organization and similar corporate matters; authorization and
enforceability; noncontravention of transactions contemplated by the TPA Sale,
HealthASPex' certificate of incorporation or bylaws, and non-violation of laws
and binding agreements; acquisition for investment; absence of brokers; and
consents and approvals required to approve the transaction.
Indemnification. MedicalControl Holdings has agreed to indemnify, defend
and hold harmless HealthASPex and its officers, directors, agents and affiliates
from and against any and all Losses arising out of or due to, directly or
indirectly,
(1) any inaccuracy in or breach of any of the representations,
warranties, covenants, agreements or undertakings of MedicalControl
Holdings in the TPA Stock Purchase Agreement or the attached disclosure
schedule,
(2) any litigation matters or other claims related to Diversified
Group Administrator's former Dallas, Texas operations, and
(3) any indebtedness of MedicalControl relating to a former loan from
BankOne.
Notwithstanding the foregoing, the parties have agreed that MedicalControl
Holdings shall not indemnify HealthASPex for any Losses (other than Losses
occurring as a result of a breach of warranty relating to (1) capitalization of
the TPA subsidiaries, (2) MedicalControl's ownership of stock, (3) taxes or (4)
brokers or finders fees) unless and until HealthASPex and its affiliates shall
have suffered Losses aggregating in excess
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of approximately $300,000; provided, however, that no party shall be entitled to
recover from the other more than $1,250,000 (or $2,500,000 for environmental,
tax or litigation matters), except in the case of fraud. MedicalControl
Holdings' obligation to indemnify for Losses resulting from breaches of certain
representations or warranties in the TPA Stock Purchase Agreement will remain in
full force and effect for a period of eighteen months from the Closing Date;
provided however, that representations and warranties regarding the corporate
status of the TPA subsidiaries, the capitalization of the TPA subsidiaries and
MedicalControl Holdings' ownership of the TPA subsidiaries' stock will remain in
full force and effect for a period of five (5) years from the Closing Date.
MedicalControl Holdings' obligation to indemnify for Losses resulting from
breaches of certain other representations or warranties survive for the
applicable statute of limitations period. All representations and warranties
will survive beyond the applicable period with respect to any inaccuracy therein
or breach thereof if notice shall have been given within the applicable time
period. HealthASPex has agreed to indemnify MedicalControl Holdings for
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of HealthASPex contained in the TPA Stock
Purchase Agreement, subject to the same limitations upon MedicalControl
Holdings' obligation to indemnify HealthASPex described above.
Expenses and Transfer Taxes. Each party has agreed to bear its own fees
and expenses in connection with the TPA Sale, and MedicalControl will bear the
cost of the TPA subsidiaries's fees and expenses related to the TPA Sale.
Conditions of the TPA Sale. The obligations of MedicalControl Holdings to
effect the TPA Sale are subject to the following conditions: (1) the
stockholders of MedicalControl shall have approved the TPA Sale at the Special
Meeting, (2) the representations and warranties of HealthASPex contained in the
TPA Stock Purchase Agreement shall be true and correct on and as of the Closing
Date and HealthASPex shall have performed in all material respects all
agreements to be performed by it prior to the Closing Date, (3) all of
HealthASPex's required authorizations, approvals or consents shall have been
obtained, (4) no suit, action or other proceeding by any government authority
shall have been instituted which would prevent consummation of the sale or cause
it to be rescinded following Closing, and (5) MedicalControl Holdings shall have
received an officers certificate from HealthASPex regarding the accuracy of
HealthASPex's representations and the performance of its required obligations.
The obligations of HealthASPex to effect the TPA Sale are subject to the
following conditions: (1) the representations and warranties of MedicalControl
Holdings contained in the TPA Stock Purchase Agreement shall be true and correct
in all material respects on and as of the Closing Date and MedicalControl
Holdings shall have performed in all material respects all agreements to be
performed by it prior to the Closing Date, (2) HealthASPex shall have received
an officers certificate from MedicalControl Holdings regarding the accuracy of
MedicalControl Holdings' representations and the performance of its required
obligations, (3) HealthASPex shall have received resignations from all of the
TPA subsidiaries' directors and officers requested by HealthASPex effective as
of the Closing Date, (4) there shall have been no material adverse effect with
respect to the TPA subsidiaries' business, condition (financial or otherwise),
assets, liabilities, operations or financial performance, (5) HealthASPex shall
have received from counsel to MedicalControl an opinion with respect to matters
typical in such transactions, (6) the TPA's obligation relating to any of
MedicalControl's bank indebtedness shall have been released and there shall be
no tax liens on any assets of the TPA subsidiaries, (7) no suit, action or other
proceeding by any governmental authority shall have been instituted which would
prevent consummation of the sale or cause it to be rescinded following closing
or adversely affecting HealthASPex's right to own, operate and control the TPA
business, and (8) no court shall have directed that the TPA Sale not be
consummated or otherwise impose any additional conditions on the consummation
thereof.
Covenants Pending Closing. Pursuant to the TPA Stock Purchase Agreement,
MedicalControl Holdings has agreed to conduct the business of the TPA
subsidiaries prior to the Closing, in the ordinary course, consistent with past
practice and to use commercially reasonable efforts to maintain the business
organization, customer and supplier relationships and employees of the business.
MedicalControl Holdings also agreed to take all necessary action to obtain
stockholder approval of the TPA Sale, to maintain the confidentiality of any
confidential information of the TPA business that is transferred to HealthASPex
at all times after the closing,
22
<PAGE> 31
and to obtain any required consent of landlords of the TPA subsidiaries. In
addition, MedicalControl Holdings and HealthASPex have agreed to use all
reasonable efforts to obtain consent of our stockholders to the TPA Sale, and to
cooperate and provide information necessary to the preparation of tax returns
and the handling of tax matters and litigation matters affecting the TPA
business.
No Competition. Pursuant to the TPA Stock Purchase Agreement,
MedicalControl has agreed that for three years following the Closing it will
not:
(1) own, operate or manage, either directly or through a subsidiary
any business in which the TPA subsidiaries is engaged as of the Closing
Date,
(2) service or solicit the business of the TPA subsidiaries, or
(3) request or advise any customer of the TPA subsidiaries to
withdraw, curtail or cancel such customer's business with the TPA
subsidiaries.
The foregoing restrictions will not apply to MedicalControl's ownership and
operation of its remaining operating subsidiaries, ppoONE and ValueCheck.
No Solicitation. Pursuant to the TPA Stock Purchase Agreement,
MedicalControl has agreed for two years following the Closing not to solicit for
employment or consulting services any person employed or engaged by the
Operating Companies at any time within the two year period immediately prior to
the solicitation.
Termination. The TPA Stock Purchase Agreement may be terminated and the
transactions contemplated thereby abandoned at any time prior to the Closing
Date (1) by written consent of MedicalControl and HealthASPex, (2) by
MedicalControl or HealthASPex if the conditions to Closing of the other party
are not fulfilled on or before the thirtieth day following approval of this
Proxy Statement by the SEC, (3) by either party if there has been an uncured
material breach of a representation or warranty by the other party (subject to
applicable cure periods) or there has been any failure by such other party to
perform in all material respects the obligations to be performed by it, or (4)
by MedicalControl if the Board of Directors determines that an alternative
proposal exists for the sale by MedicalControl of the TPA subsidiaries' shares,
which the Board has a fiduciary duty to pursue instead of the TPA Sale.
Consequences of Termination. If the TPA Stock Purchase Agreement is
terminated by MedicalControl or HealthASPex because of MedicalControl's
inability to obtain the required stockholder consent or because of an
alternative proposal from a third party for the TPA subsidiaries, MedicalControl
and the TPA subsidiaries, jointly and severally, will pay HealthASPex a
cancellation fee of $100,000 in cash, plus the payment of up to $50,000 of the
costs incurred by HealthASPex in connection with the transaction.
23
<PAGE> 32
THE SALE OF MEDICALCONTROL'S PPO AND TPA BUSINESSES
GENERAL
PPO Sale. The PPO Stock Purchase Agreement provides for the sale of all of
the outstanding capital stock of MedicalControl Network Solutions. Subject to
certain indemnification obligations of MedicalControl and MedicalControl
Holdings that will survive the sale, MedicalControl expects to receive
$13,500,000 in cash at closing as consideration for the sale of the
MedicalControl Network Solutions Shares.
TPA Sale. The TPA Stock Purchase Agreement provides for the sale of all of
the outstanding capital stock of Diversified Group Administrators and
Diversified Group Insurance Agency. Subject to certain indemnification
obligations of MedicalControl that will survive the sale, MedicalControl
Holdings expects to receive $2,350,000 in cash at closing, with an additional
$150,000 to be placed in escrow in accordance with the TPA Stock Purchase
Agreement.
MEDICALCONTROL'S OPERATIONS
MedicalControl is a holding company comprised of related operating
companies serving the managed care industry and providing health benefit plan
administration services. MedicalControl's four major indirect operating
subsidiaries are ppoONE.com, providing Internet e-health solutions for PPOs,
MedicalControl Network Solutions, providing managed care services primarily
through its preferred provider networks, ValueCheck, providing utilization
review and case management, and Diversified Group Administrators, providing TPA
services. Each subsidiary is accounted for as a separate segment of
MedicalControl. Each of the major operating subsidiaries are owned directly by
MedicalControl Holdings, which is the sole direct subsidiary of MedicalControl.
Historical Business. MedicalControl is a holding company comprised of
related operating companies serving the managed care industry and providing
health benefit plan administration services. MedicalControl's four primary
subsidiary groups are ppoONE.com, providing Internet e-health solutions for
PPOs, MedicalControl Network Solutions, providing managed care services
primarily through its preferred provider networks, ValueCheck, providing
utilization review and case management, and the Diversified Group subsidiaries,
providing TPA services. Each subsidiary is accounted for as a separate segment
of MedicalControl.
ppoONE.com, using its proprietary application software, database structures
and reports, is an Internet based ASP delivering enterprise software solutions
for PPOs and other healthcare provider network organizations. ppoONE.com enables
such entities and their clients to manage provider data, contract data and
client data, reprice healthcare claims to reflect negotiated rates and to
produce data analyses. During the first quarter of 1998, ppoONE.com began
formally marketing its services.
ValueCheck, a utilization review and case management company, began doing
business January 1, 1999. Utilization review and case management represents a
complementary product for both MedicalControl Network Solutions's PPO and
Diversified Group Administrators' TPA businesses and has potential value for
many of the same target clients and market segments. Diversified Group
Administrators and MedicalControl Network Solutions began marketing ValueCheck
services in the fall of 1998 to their clients. As of September 30, 2000,
ValueCheck was providing service to over 1,000 employer clients representing
600,000 covered lives.
MedicalControl Network Solutions, acting as a PPO, contracts with
hospitals, physicians and ancillary providers providing access to comprehensive
healthcare services on behalf of its clients and their employees or members at
negotiated, discounted rates. MedicalControl Network Solutions reprices
resulting network provider claims to reflect negotiated terms as well as
provides healthcare data analyses, reporting and related healthcare cost
containment programs.
Diversified Group Administrators provides a comprehensive range of
administration services to self-funded benefit plans, insurance companies,
provider-based organizations and other benefit management organizations.
Diversified Group Administrators provides complete benefit plan review, design
and administra-
24
<PAGE> 33
tive services in the administration of comprehensive employee benefit programs
and risk management activities. Diversified Group Administrators currently
administers over 250 self-funded benefit plans with clients ranging from 50 to
4,000 employees. Current total covered lives exceed 90,000 members located in 49
states. In 1998, Diversified Group Administrators entered the Taft-Hartley and
student accident markets.
MedicalControl was incorporated in October 1989 as a Delaware corporation.
Effective January 1, 1998, MedicalControl established MedicalControl Network
Solutions and ppoONE.com as subsidiaries and transferred its managed care
operations to MedicalControl Network Solutions and its repricing and
administrative services operations to ppoONE.com. MedicalControl's executive
offices are located at 8625 King George Drive, Suite 300, Dallas, Texas 75235,
telephone (214) 630-6368.
Operations After the Closing. After the closing of the sales,
MedicalControl will focus its operations on the development of ppoOne.com. As
part of its strategy to move from direct provision of managed healthcare
services to the provision of support services for managed healthcare clients,
MedicalControl will attempt to integrate the service offerings of ValueCheck and
ppoOne.com, with ValueCheck being an "add-on" service provider for our Internet
clients. In addition, we intend to pursue acquisitions of any related companies
that will complement our existing offerings and allow us to become a full
service provider to such healthcare companies. Rather than continuing to invest
in our traditional managed healthcare business, our focus will be on ancillary
services that reflect more growth potential and return on investment. We believe
that eliminating our TPA and PPO business, which directly compete with certain
of our healthcare clients, will increase the attractiveness of our service
offerings.
USE OF PROCEEDS; PLANS FOR FUTURE OPERATIONS AFTER THE SALES
The cash proceeds to MedicalControl from the sale of the capital stock of
MedicalControl Network Solutions, are expected to be $13,500,000, less estimated
transaction expenses of approximately $650,000 (including $400,000 representing
payments under change of control provisions of employment agreements), subject
to the payment of any indemnity obligations and post closing adjustments. See
"The PPO Stock Purchase Agreement -- Purchase Price." The cash proceeds to
MedicalControl from the sale of the capital stock of Diversified Group
Administrators and Diversified Group Insurance Agency are expected to be
$2,350,000, less estimated transaction expenses of approximately $200,000,
subject to the payment of any indemnity obligations and the effect of any post
closing balance sheet adjustments. An additional $150,000 will be placed in
escrow to secure MedicalControl Holdings' indemnification obligations. See "The
TPA Stock Purchase Agreement -- Purchase Price." A portion of the estimated net
proceeds from the PPO Sale and the TPA Sale will be used by MedicalControl to
repay any outstanding indebtedness under its $750,000 line of credit with Bank
of Texas, N.A. The remaining net proceeds will initially be used to expand the
business of ppoONE.com.
Following the consummation of the PPO Sale and the TPA Sale, the
stockholders of MedicalControl will retain their equity interest in
MedicalControl. Neither the PPO Sale nor the TPA Sale will result in any changes
in the rights of MedicalControl's stockholders. MedicalControl does not
currently expect to distribute any of the net proceeds of the proposed sales to
its stockholders, but instead intends to use the proceeds in the conduct of its
business. This strategy involves material risks and uncertainties to our
stockholders. See "Risk Factors".
REGULATORY APPROVALS
Consummation of the PPO Stock Purchase Agreement and the TPA Stock Purchase
Agreement does not require any regulatory approvals other than the federal
filings required under applicable U.S. securities laws in connection with this
proxy statement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The PPO Sale and TPA Sale will not have any federal income tax consequences
to MedicalControl's stockholders because MedicalControl does not currently
intend to distribute any of the sale proceeds to its stockholders. Upon
consummation of the PPO Sale and TPA Sale, MedicalControl may recognize taxable
25
<PAGE> 34
income based upon the excess of the purchase price it ultimately receives for
the MedicalControl Network Solutions Stock, Diversified Group Administrators
stock and Diversified Group Insurance Agency stock over MedicalControl Holding's
tax basis in such stock.
ACCOUNTING TREATMENT OF SALES
Each of the transactions will be recorded as a sale of the stock of
MedicalControl Network Solutions, Diversified Group Administrators and
Diversified Group Insurance Agency which is equivalent to the sale of the net
assets of MedicalControl Network Solutions, Diversified Group Administrators and
Diversified Group Insurance Agency as adjusted.
EXPENSES AND OTHER FEES
Each party will bear its own expenses in respect of the PPO Sale, on the
one hand, and the TPA Sale, on the other, whether or not they are consummated.
ADDITIONAL INTEREST OF CERTAIN OFFICERS IN PPO AND TPA SALES
The closing of the PPO Sale and the TPA Sale will constitute a change of
control as defined under MedicalControl's 1993 Stock Compensation Plan. As a
result of the change of control, the vesting of all options under
MedicalControl's 1993 Stock Compensation Plan accelerated. Of the 591,900
options outstanding, 390,000 options accelerated as a result of the PPO Sale and
TPA Sale. The following options of officers of MedicalControl have accelerated
as a result of the execution of the PPO Stock Purchase Agreement and the TPA
Stock Purchase Agreement.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS THAT TOTAL NUMBER OF OPTIONS
WILL ACCELERATE AS A RESULT UNDER THE 1993 STOCK
NAME OF OFFICER OF THE SALES COMPENSATION PLAN
--------------- --------------------------- -----------------------
<S> <C> <C>
Bob E. Buddendorf................................... 80,000 100,000
Patrick W. Kennedy.................................. 88,000 130,000
Stephanie L. McVay.................................. 29,000 45,000
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Financial Statements give
effect to (1) the PPO Sale, (2) the TPA Sale, and (3) both sale transactions.
The Pro Forma Condensed Statements of Operations for the year ended December 31,
1999, and the nine months ended September 30, 2000 give effect to the sales as
if the transactions occurred on January 1, 1999. The Pro Forma Condensed Balance
Sheet as of September 30, 2000 gives effect to the sales as if they had occurred
on September 30, 2000. For pro forma purposes, we have assumed that the net cash
proceeds of the PPO Sale will be $12,850,000, net of transaction costs of
$650,000 (including $400,000 representing payments under change of control
provisions of employment agreements), and the net cash proceeds of the TPA Sale
will be $2,150,000, net of transaction costs of $200,000.
The pro forma adjustments are based on currently available information and
upon certain assumptions that we believe are reasonable. There can be no
assurance that the actual adjustments will not differ significantly from the pro
forma adjustments reflected in the Unaudited Pro Forma Condensed Financial
Statements.
The Unaudited Pro Forma Condensed Financial Statements are not necessarily
indicative of the financial position or the future results of operations or
results that might have been achieved if the sales had been consummated as of
the indicated dates. The Unaudited Pro Forma Condensed Financial Statements
should be read in connection with our historical consolidated financial
statements and the related notes. See "Where You Can Find Additional
Information."
26
<PAGE> 35
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
SALE OF PPO ONLY
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED --------------------------
HISTORICAL PPO SALE(1) PPO PROCEEDS PRO FORMA
-------------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................ $ 1,075,417 $ $12,850,000(2) $13,382,403
12,244(3)
(555,258)(4)
Restricted cash.......................... 238,754 238,754
Accounts receivable -- trade, net of
allowance.............................. 1,834,167 (1,118,207) 715,960
Accounts receivable -- other............. 386,915 386,915
Prepaid expenses and other current
assets................................. 364,922 (106,216) 258,706
Deferred income taxes.................... 222,028 222,028
----------- ----------- ----------- -----------
Total current assets.............. 4,122,203 (1,224,423) 12,306,986 15,204,766
NOTE RECEIVABLE -- OFFICER, including
accrued interest......................... 471,149 471,149
RECEIVABLE FROM SALE OF DIVISION........... 209,758 209,758
PROPERTY AND EQUIPMENT, NET................ 1,407,824 (406,624) 1,001,200
GOODWILL, NET.............................. 5,821,422 (4,209,243) 1,612,179
DEFERRED INCOME TAXES...................... 368,961 (162,043)(6) 206,918
----------- ----------- ----------- -----------
TOTAL ASSETS...................... $12,401,317 $(5,840,290) $12,144,943 $18,705,970
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- trade................ $ 563,350 $ (329,473) $ 233,877
Accounts payable -- premium.............. 484,121 484,121
Accrued liabilities...................... 1,142,174 (232,706) 909,468
Accrued income taxes..................... $ 2,806,129(5) 2,806,129
Borrowings under bank line of credit..... 400,000 (400,000)(4)
Current portion of long-term debt........ 184,866 (155,258)(4) 29,608
----------- ----------- ----------- -----------
Total current liabilities......... 2,774,511 (562,179) 2,250,871 4,463,203
NON-CURRENT LIABILITIES
Long-term debt, net of current portion... 192,333 192,333
Deferred gain on sale of option on real
estate................................. 630,167 (450,119)(6) 180,048
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY....................... 8,804,306 4,778,004(5) 13,870,386
288,076(6)
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY............ $12,401,317 $ (562,179) $ 6,866,832 $18,705,970
=========== =========== =========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the assets and liabilities of PPO.
(2) To record proceeds from sale of PPO.
(3) To record additional proceeds from sale of PPO to reflect working capital
adjustment.
(4) To record repayment of bank debt from PPO sales proceeds.
(5) To record gain on sale and tax accrual.
(6)To record income from elimination of deferred gain (and related tax effect)
resulting from assumption of lease.
27
<PAGE> 36
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
SALE OF PPO ONLY
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED ----------------------
HISTORICAL PPO SALE(1) OTHER PRO FORMA
-------------------- ----------- ------- -----------
<S> <C> <C> <C> <C>
NET REVENUES........................... $11,860,625 $6,526,059 $ $ 5,334,566
----------- ---------- ------- -----------
OPERATING EXPENSES
Salaries and wages................... 7,374,520 2,838,112 4,536,408
Other operating expenses............. 4,025,586 1,987,393 2,038,193
Depreciation and amortization........ 447,419 219,691 227,728
----------- ---------- ------- -----------
Total operating expenses..... 11,847,525 5,045,196 6,802,329
----------- ---------- ------- -----------
INCOME (LOSS) FROM
OPERATIONS........................... 13,100 1,480,863 (1,467,763)
----------- ---------- ------- -----------
OTHER INCOME (EXPENSE)
Interest expense..................... (55,617) 41,571(2) (14,046)
Interest income...................... 71,025 71,025
Other income......................... 7,774 7,774
----------- ---------- ------- -----------
Total other income
(expense).................. 23,182 41,571 64,753
----------- ---------- ------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...... 36,282 1,480,863 41,571 (1,403,010)
Income taxes (benefit)................. 13,141 533,111 15,382 (504,588)
----------- ---------- ------- -----------
NET INCOME (LOSS)...................... $ 23,141 $ 947,752 $26,189 $ (898,422)
=========== ========== ======= ===========
Basic income (loss) per share.......... $ 0.00 $ (0.19)
=========== ===========
Diluted income (loss) per share........ $ 0.00 $ (0.19)
=========== ===========
Weighted average common shares
outstanding.......................... 4,674,310 4,674,310
=========== ===========
Weighted average common and diluted
shares outstanding................... 4,759,943 4,674,310
=========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the historical results of operations of the PPO.
(2) To eliminate interest expense on debt to be retired from proceeds of sale.
28
<PAGE> 37
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
SALE OF PPO ONLY
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED ----------------------
HISTORICAL PPO SALE(1) OTHER PRO FORMA
-------------------- ----------- -------- -----------
<S> <C> <C> <C> <C>
NET REVENUES........................... $15,340,060 $8,186,853 $ $ 7,153,207
----------- ---------- -------- -----------
OPERATING EXPENSES
Salaries and wages................... 9,756,187 3,756,444 5,999,743
Other operating expenses............. 5,721,607 2,939,465 2,782,142
Depreciation and amortization........ 653,948 347,910 306,038
----------- ---------- -------- -----------
Total operating expenses..... 16,131,742 7,043,819 9,087,923
----------- ---------- -------- -----------
INCOME (LOSS) FROM OPERATIONS.......... (791,682) 1,143,034 (1,934,716)
----------- ---------- -------- -----------
OTHER INCOME (EXPENSE)
Interest expense..................... (181,878) 159,584(2) (22,294)
Interest income...................... 87,263 87,263
Loss on sale of division............. (1,225,000) (1,225,000)
Other income......................... 3,832 3,832
----------- ---------- -------- -----------
Total other income
(expense).................. (1,315,783) 159,584 (1,156,199)
----------- ---------- -------- -----------
INCOME (LOSS) BEFORE INCOME TAXES...... (2,107,465) 1,143,034 159,584 (3,090,915)
Income taxes (benefit)................. (551,857) 299,475 59,206 (792,126)
----------- ---------- -------- -----------
NET INCOME (LOSS)...................... $(1,555,608) $ 843,559 $100,378 $(2,298,789)
=========== ========== ======== ===========
Basic and diluted loss per share....... $ (0.35) $ (0.52)
=========== ===========
Weighted average common shares
outstanding.......................... 4,389,605 4,389,605
=========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the historical results of operations of the PPO.
(2) To eliminate interest expense on debt to be retired from proceeds of sale.
29
<PAGE> 38
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
SALE OF TPA ONLY
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED --------------------------
HISTORICAL TPA SALE(1) TPA PROCEEDS PRO FORMA
-------------------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................. $ 1,075,417 $ (815,039) $2,150,000(2) $ 2,727,404
317,026(3)
Restricted cash............................ 238,754 (238,754)
Accounts receivable -- trade, net of
allowance................................ 1,834,167 (238,838) 1,595,329
Accounts receivable -- other............... 386,915 (87,731) 48,252(2) 347,436
Prepaid expenses and other current
assets................................... 364,922 (105,542) 259,380
Deferred income taxes...................... 222,028 222,028
----------- ----------- ---------- -----------
Total current assets................ 4,122,203 (1,485,904) 2,515,278 5,151,577
NOTE RECEIVABLE -- OFFICER, including accrued
interest................................... 471,149 471,149
RECEIVABLE FROM SALE OF DIVISION............. 209,758 (209,758) 265,367(2) 265,367
PROPERTY AND EQUIPMENT, NET.................. 1,407,824 (665,132) 78,130(4) 820,822
GOODWILL, NET................................ 5,821,422 (1,612,179) 4,209,243
DEFERRED INCOME TAXES........................ 368,961 368,961
----------- ----------- ---------- -----------
TOTAL ASSETS........................ $12,401,317 $(3,972,973) $2,858,775 $11,287,119
=========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- trade.................. $ 563,350 $ (140,123) $ 423,227
Accounts payable -- premium................ 484,121 (484,121)
Accrued liabilities........................ 1,142,174 (466,424) 675,750
Accrued income taxes....................... $ 73,412(5) 73,412
Borrowings under bank line of credit....... 400,000 400,000
Current portion of long-term debt.......... 184,866 (29,608) 155,258
----------- ----------- ---------- -----------
Total current liabilities........... 2,774,511 (1,120,276) 73,412 1,727,647
NON-CURRENT LIABILITIES
Long-term debt, net of current portion..... 192,333 (192,333)
Deferred gain on sale of option on real
estate................................... 630,167 630,167
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY......................... 8,804,306 124,999(5) 8,929,305
----------- ----------- ---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................ $12,401,317 $(1,312,609) $ 198,411 $11,287,119
=========== =========== ========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the assets and liabilities of TPA.
(2) To record proceeds from sale of TPA.
(3) To record additional proceeds from sale of TPA to reflect net worth
adjustment.
(4) To record transfer of certain TPA fixed assets to the Company.
(5) To record gain on sale and tax accrual.
30
<PAGE> 39
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
SALE OF TPA ONLY
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED ----------------------
HISTORICAL TPA SALE(1) OTHER PRO FORMA
-------------------- ------------ ------- ----------
<S> <C> <C> <C> <C>
NET REVENUES........................... $11,860,625 $3,890,366 $ $7,970,259
----------- ---------- ------- ----------
OPERATING EXPENSES
Salaries and wages................... 7,374,520 2,228,710 5,145,810
Other operating expenses............. 4,025,586 1,280,437 2,745,149
Depreciation and amortization........ 447,419 186,774 260,645
----------- ---------- ------- ----------
Total operating expenses..... 11,847,525 3,695,921 8,151,604
----------- ---------- ------- ----------
INCOME (LOSS) FROM OPERATIONS.......... 13,100 194,445 (181,345)
----------- ---------- ------- ----------
OTHER INCOME (EXPENSE)
Interest expense..................... (55,617) (14,046) 41,571(2)
Interest income...................... 71,025 48,172 22,853
Other income......................... 7,774 7,774
----------- ---------- ------- ----------
Total other income
(expense).................. 23,182 34,126 41,571 30,627
----------- ---------- ------- ----------
INCOME (LOSS) BEFORE INCOME TAXES...... 36,282 228,571 41,571 (150,718)
Income taxes (benefit)................. 13,141 82,286 15,382 (53,763)
----------- ---------- ------- ----------
NET INCOME (LOSS)...................... $ 23,141 $ 146,285 $26,189 $ (96,955)
=========== ========== ======= ==========
Basic income (loss) per share.......... $ 0.00 $ (0.02)
=========== ==========
Diluted income (loss) per share........ $ 0.00 $ (0.02)
=========== ==========
Weighted average common shares
outstanding.......................... 4,674,310 4,674,310
=========== ==========
Weighted average common and diluted
shares outstanding................... 4,759,943 4,674,310
=========== ==========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the historical results of operations of TPA.
(2) To eliminate interest expense on debt to be retired from proceeds of sales.
31
<PAGE> 40
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
SALE OF TPA ONLY
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED -----------------------
HISTORICAL TPA SALE(1) OTHER PRO FORMA
-------------------- ------------ -------- ----------
<S> <C> <C> <C> <C>
NET REVENUES.......................... $15,340,060 $6,268,295 $ $9,071,765
----------- ---------- -------- ----------
OPERATING EXPENSES
Salaries and wages.................. 9,756,187 3,786,854 5,969,333
Other operating expenses............ 5,721,607 2,190,444 3,531,163
Depreciation and amortization....... 653,948 261,979 391,969
----------- ---------- -------- ----------
Total operating expenses.... 16,131,742 6,239,277 9,892,465
----------- ---------- -------- ----------
INCOME (LOSS) FROM OPERATIONS......... (791,682) 29,018 (820,700)
----------- ---------- -------- ----------
OTHER INCOME (EXPENSE)
Interest expense.................... (181,878) (22,294) 159,584(2)
Interest income..................... 87,263 59,277 27,986
Loss on sale of division............ (1,225,000) (1,225,000)
Other income........................ 3,832 3,832
----------- ---------- -------- ----------
Total other income
(expense)................. (1,315,783) (1,188,017) 159,584 31,818
----------- ---------- -------- ----------
INCOME (LOSS) BEFORE INCOME TAXES..... (2,107,465) (1,158,999) 159,584 (788,882)
Income taxes (benefit)................ (551,857) (303,658) 59,206 (188,993)
----------- ---------- -------- ----------
NET INCOME (LOSS)..................... $(1,555,608) $ (855,341) $100,378 $ (599,889)
=========== ========== ======== ==========
Basic and diluted loss per share...... $ (0.35) $ (0.14)
=========== ==========
Weighted average common shares
outstanding......................... 4,389,605 4,389,605
=========== ==========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the historical results of operations of TPA.
(2) To eliminate interest expense on debt to be retired from proceeds of sales.
32
<PAGE> 41
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
SEPTEMBER 30, 2000
SALE OF PPO AND TPA
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
MEDICALCONTROL, INC. -------------------------------------------------------
CONSOLIDATED PPO TPA PPO TPA PRO
HISTORICAL SALE(1) SALE(2) PROCEEDS PROCEEDS FORMA
-------------------- ----------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....... $ 1,075,417 $ $ (815,039) $12,850,000(3) $2,150,000(6) $15,034,390
12,244(4) 317,026(7)
(555,258)(5)
Restricted cash................. 238,754 (238,754)
Accounts receivable -- trade,
net of allowance.............. 1,834,167 (1,118,207) (238,838) 477,122
Accounts receivable -- other.... 386,915 (87,731) 48,252(6) 347,436
Prepaid expenses and other
current assets................ 364,922 (106,216) (105,542) 153,164
Deferred income taxes........... 222,028 222,028
----------- ----------- ----------- ----------- ---------- -----------
Total current assets...... 4,122,203 (1,224,423) (1,485,904) 12,306,986 2,515,278 16,234,140
NOTE RECEIVABLE -- OFFICER,
including accrued interest...... 471,149 471,149
RECEIVABLE FROM SALE OF
DIVISION........................ 209,758 (209,758) 265,367(6) 265,367
PROPERTY AND EQUIPMENT, NET....... 1,407,824 (406,624) (665,132) 78,130(8) 414,198
GOODWILL, NET..................... 5,821,422 (4,209,243) (1,612,179)
DEFERRED INCOME TAXES............. 368,961 (162,043)(10) 206,918
----------- ----------- ----------- ----------- ---------- -----------
TOTAL ASSETS.............. $12,401,317 $(5,840,290) $(3,972,973) $12,144,943 $2,858,775 $17,591,772
=========== =========== =========== =========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable -- trade....... $ 563,350 $ (329,473) $ (140,123) $ 93,754
Accounts payable -- premium..... 484,121 (484,121)
Accrued liabilities............. 1,142,174 (232,706) (466,424) 443,044
Accrued income taxes............ $ 2,806,129(9) $ 73,412(9) 2,879,541
Borrowings under bank line of
credit........................ 400,000 (400,000)(5)
Current portion of long-term
debt.......................... 184,866 (29,608) (155,258)(5)
----------- ----------- ----------- ----------- ---------- -----------
Total current
liabilities............. 2,774,511 (562,179) (1,120,276) 2,250,871 73,412 3,416,339
NON-CURRENT LIABILITIES
Long-term debt, net of current
portion....................... 192,333 (192,333)
Deferred gain on sale of option
on real estate................ 630,167 (450,119)(10) 180,048
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY.............. 8,804,306 4,778,004(9) 124,999(9) 13,995,385
288,076(10)
----------- ----------- ----------- ----------- ---------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.... $12,401,317 $ (562,179) $(1,312,609) $ 6,866,832 $ 198,411 $17,591,772
=========== =========== =========== =========== ========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the assets and liabilities of the PPO.
(2) To eliminate the assets and liabilities of the TPA.
(3) To record proceeds from sale of PPO.
(4) To record additional proceeds from sale of PPO to reflect working capital
adjustment.
(5) To record repayment of bank debt from PPO sales proceeds.
(6) To record proceeds from sale of TPA.
(7) To record additional proceeds from sale of TPA to reflect net worth
adjustment.
(8) To record transfer of certain TPA fixed assets to the Company.
(9) To record gain on sales and tax accrual.
(10)To record income from elimination of deferred gain (and related tax effect)
resulting from assumption of lease.
33
<PAGE> 42
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000
SALE OF PPO AND TPA
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED -----------------------------------
HISTORICAL PPO SALE(1) TPA SALE(1) OTHER PRO FORMA
-------------------- ----------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES................... $11,860,625 $6,526,059 $3,890,366 $ $ 1,444,200
----------- ---------- ---------- ------- -----------
OPERATING EXPENSES
Salaries and wages........... 7,374,520 2,838,112 2,228,710 2,307,698
Other operating expenses..... 4,025,586 1,987,393 1,280,437 757,756
Depreciation and
amortization.............. 447,419 219,691 186,774 40,954
----------- ---------- ---------- ------- -----------
Total operating
expenses........... 11,847,525 5,045,196 3,695,921 3,106,408
----------- ---------- ---------- ------- -----------
INCOME (LOSS) FROM
OPERATIONS................... 13,100 1,480,863 194,445 (1,662,208)
----------- ---------- ---------- ------- -----------
OTHER INCOME (EXPENSE)
Interest expense............. (55,617) (14,046) 41,571(2)
Interest income.............. 71,025 48,172 22,853
Other income................. 7,774 7,774
----------- ---------- ---------- ------- -----------
Total other income... 23,182 34,126 41,571 30,627
----------- ---------- ---------- ------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES........................ 36,282 1,480,863 228,571 41,571 (1,631,581)
Income taxes (benefit)......... 13,141 533,111 82,286 15,382 (586,874)
----------- ---------- ---------- ------- -----------
NET INCOME (LOSS).............. $ 23,141 $ 947,752 $ 146,285 $26,190 $(1,044,707)
=========== ========== ========== ======= ===========
Basic income (loss) per
share........................ $ 0.00 $ (0.22)
=========== ===========
Diluted income (loss) per
share........................ $ 0.00 $ (0.22)
=========== ===========
Weighted average common shares
outstanding.................. 4,674,310 4,674,310
=========== ===========
Weighted average common and
diluted shares outstanding... 4,759,943 4,674,310
=========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the historical results of operations of PPO and TPA.
(2) To eliminate interest expense on debt to be retired from proceeds of sales.
34
<PAGE> 43
MEDICALCONTROL, INC.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
SALE OF PPO AND TPA
<TABLE>
<CAPTION>
MEDICALCONTROL, INC. PRO FORMA ADJUSTMENTS
CONSOLIDATED ------------------------------------
HISTORICAL PPO SALE(1) TPA SALE(1) OTHER PRO FORMA
-------------------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES.................... $15,340,060 $8,186,853 $6,268,295 $ $ 884,912
----------- ---------- ---------- -------- -----------
OPERATING EXPENSES
Salaries and wages............ 9,756,187 3,756,444 3,786,854 2,212,889
Other operating expenses...... 5,721,607 2,939,465 2,190,444 591,698
Depreciation and
amortization............... 653,948 347,910 261,979 44,059
----------- ---------- ---------- -------- -----------
Total operating
expenses............ 16,131,742 7,043,819 6,239,277 2,848,646
----------- ---------- ---------- -------- -----------
INCOME (LOSS) FROM OPERATIONS... (791,682) 1,143,034 29,018 (1,963,734)
----------- ---------- ---------- -------- -----------
OTHER INCOME (EXPENSE)
Interest expense.............. (181,878) (22,294) 159,584(2)
Interest income............... 87,263 59,277 27,986
Loss on sale of division...... (1,225,000) (1,225,000)
Other income.................. 3,832 3,832
----------- ---------- ---------- -------- -----------
Total other income
(expense)........... (1,315,783) (1,188,017) 159,584 31,818
----------- ---------- ---------- -------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES......................... (2,107,465) 1,143,034 (1,158,999) 159,584 (1,931,916)
Income taxes (benefit).......... (551,857) 299,475 (303,658) 59,206 (496,834)
----------- ---------- ---------- -------- -----------
NET INCOME (LOSS)............... $(1,555,608) $ 843,559 $ (855,341) $100,378 $(1,435,082)
=========== ========== ========== ======== ===========
Basic and diluted loss per
share......................... $ (0.35) $ (0.33)
=========== ===========
Weighted average common shares
outstanding................... 4,389,605 4,389,605
=========== ===========
</TABLE>
PRO FORMA ADJUSTMENTS:
(1) To eliminate the historical results of operations of PPO and TPA.
(2) To eliminate interest expense on debt to be retired from proceeds of sales.
35
<PAGE> 44
PROPOSAL III
NAME CHANGE FOR MEDICALCONTROL, INC.
At the Special Meeting, holders of Common Stock will consider and vote upon
a proposal to approve and adopt a resolution to authorize and approve the
amendment of MedicalControl's Certificate of Incorporation to change
MedicalControl's name to Avidyn, Inc.
The resolution that will be considered by the stockholders at the Special
Meeting is:
"RESOLVED, that the Board of Directors of MedicalControl, Inc., a
Delaware corporation, is hereby authorized to amend MedicalControl,
Inc's Certificate of Incorporation and change MedicalControl, Inc.'s
name to Avidyn, Inc."
The proposed name change is required in connection with the sale of our PPO
business, and is subject to the PPO Sale being approved and closed. The proposed
name change will not affect MedicalControl's operations or business, or the
rights of its stockholders. Immediately upon effectiveness of the amendment,
MedicalControl stock certificates will be deemed to be certificates of Avidyn,
Inc. MedicalControl will issue new Avidyn stock certificates only upon request
and for transfers and new issuances.
THE BOARD OF DIRECTORS HAS APPROVED THE NAME CHANGE OF MEDICALCONTROL (SUBJECT
TO STOCKHOLDER APPROVAL) AND RECOMMENDS A VOTE "FOR" PROPOSAL III.
36
<PAGE> 45
MEDICALCONTROL'S REASONS FOR SELLING THE PPO AND TPA BUSINESSES;
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF MEDICALCONTROL BELIEVES THAT ITS PLAN TO
CONSUMMATE THE PPO SALE AND THE TPA SALE IS IN THE BEST INTERESTS OF
MEDICALCONTROL AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS HAS
APPROVED THE PLAN TO EFFECT THE PPO SALE AND THE TPA SALE AND RECOMMENDS THAT
MEDICALCONTROL'S STOCKHOLDERS VOTE FOR THE APPROVAL OF THE RESOLUTION
AUTHORIZING THE PPO SALE AND THE TPA SALE.
The decision of the Board of Directors to approve MedicalControl's sale of
its PPO and TPA businesses followed months of exploring and analyzing the
advantages and disadvantages of selling our historically profitable operations
and redeploying MedicalControl's assets to operations that have recently become
profitable. See "Background of Sales." In making its recommendation to the
stockholders of MedicalControl, the Board considered a number of factors,
including those noted immediately below which were determined by the Board to
favor a decision to consummate the PPO Sale and those set forth in the
subsequent paragraph which disfavored a decision to consummate the PPO Sale:
(i) Based on recent sales of comparable PPO networks, it was
determined that MedicalControl is receiving fair value for the stock of
MedicalControl Network Solutions at this time. This determination was also
made in view of MedicalControl's inability to compete effectively in the
changing and highly competitive managed healthcare industry. Most PPOs that
are national or are attempting to become national have existing Texas
networks and therefore value MedicalControl Network Solutions based on its
client base and little or no value on its network other than its dominant
Houston network. Beyond Benefits is the only PPO seeking to be national, to
the knowledge of management, that does not have a directly contracted Texas
network. Therefore, MedicalControl Network Solutions has a higher value for
Beyond Benefits because it values both the client base and the Texas PPO
network. See "-- Background of the Sales -PPO Sales." Specifically, the
Board believed that MedicalControl's inability to compete effectively would
likely lead to a reduction in the value of MedicalControl Network
Solutions's stock and that the sale of the MedicalControl Network Solutions
stock was fair to stockholders because it also offered a reasonable manner
in which to attempt to prevent a continuing reduction and deterioration in
the stock's value.
(ii) The Board believes that the purchase price for our TPA business
is fair. The Board also believes that in order to stay competitive in the
TPA business, MedicalControl would have to invest substantial resources in
new technology and processes. The TPA business is typically a fairly low
margin business, and considering the recent increased cost of reinsurance,
which is an important element of its clients remaining self-insured, the
return on such an investment is not likely to be high enough to justify the
substantial additional expenses required to stay competitive. Rather than
pursue additional investment in the TPA business, the Board believes that
it will be able to reinvest the proceeds in the ppoOne.com and ValueCheck
businesses, which support other TPAs and PPOs, and have the potential to
provide our investors with a higher return over time.
(iii) In addition to providing the necessary funds for the repayment
of the Bank of Texas indebtedness, the sales will also generate
approximately $12.5 million of cash, after payment of expenses, which will
be available to implement MedicalControl's future business plan and expand
our technology based services.
The Board of Directors also considered the following potentially negative
factors in its deliberations concerning the sales:
(i) The fact that MedicalControl Network Solutions has, in recent
periods, contributed a majority of MedicalControl's cash flow and currently
contributes a majority of MedicalControl's cash flow. The TPA business has
also been a significant source of revenue for MedicalControl, and
collectively the PPO and TPA accounted for 94% of our revenues during
fiscal 1999.
37
<PAGE> 46
(ii) The significant costs involved in connection with consummating
the sale of our PPO and TPA businesses (especially in light of the need to
obtain a stockholder vote).
(iii) The substantial management time and effort required to
effectuate both sales and the related disruption to MedicalControl's
operations.
(iv) The risks associated with concentrating MedicalControl's assets
into an Internet-related business or businesses or other business or
businesses that, at the time MedicalControl's investment is initially made,
may have minimal revenues and that may require significant expenditures for
operations, site development and advertising and promotion.
The Board did not believe that the negative factors were sufficient, either
individually or collectively, to outweigh the potential advantages of the sales.
The Board believes that the potential benefits of each proposed sale exceeds its
potential negative costs, and intends to pursue either of them that is approved
and otherwise able to be closed. The foregoing discussion of the information and
factors considered by the Board is not intended to be exhaustive, but includes
all material factors considered by the Board. The Board did not attempt to
quantify or otherwise assign relative weights to the specific factors it
considered nor did it determine that any factor was of particular importance. A
determination of various weightings would, in the view of the Board of
directors, be impractical. In addition, individual members of the Board may have
given different weight to different factors. Rather, the Board viewed its
position and recommendations as being based on the totality of the information
presented to, and considered by, the Board.
OTHER BUSINESS
Management of MedicalControl is not aware of any other matters that are to
be presented at the Special Meeting and has not been advised that other persons
will present any such matters. However, if other matters properly come before
the Special Meeting, the individual named in the accompanying proxy card shall
vote on such matters in accordance with his best judgment.
AUDITORS
Grant Thornton LLP, independent certified public accountants, serves as
MedicalControl's independent auditors. A representative of Grant Thornton LLP
will attend the Special Meeting and will have the opportunity to make a
statement if he or she so desires. This representative will be available to
respond to appropriate stockholder questions at that time.
The financial statements of MedicalControl at December 31, 1999, and for
the fiscal year ended December 31, 1999, incorporated by reference into this
Proxy Statement have been audited by Grant Thornton LLP to the extent and for
the periods indicated in their reports with respect thereto, and are included in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements as of December 31, 1998, and for the year then
ended, incorporated by reference into this Proxy Statement, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
incorporated by reference herein.
38
<PAGE> 47
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
MedicalControl files annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
MedicalControl stockholders may read and copy any reports, statements or other
information that MedicalControl files with the Securities and Exchange
Commission at the Securities and Exchange Commission's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. MedicalControl's
stockholders should call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. These
Securities and Exchange Commission filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the Securities and Exchange Commission at "http://www.sec.gov."
Reports, proxy statements and other information concerning MedicalControl may
also be inspected at the offices of the National Association of Securities
Dealers, Inc., at 1735 K Street, N.W., Washington, D.C. 20006.
The Securities and Exchange Commission allows MedicalControl to
"incorporate by reference" information into this proxy statement, which means
that MedicalControl can disclose important information to MedicalControl
shareholders by referring MedicalControl shareholders to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered part of this proxy statement, except for
any information superseded by information contained directly in this proxy
statement or in later-filed documents incorporated by reference in this proxy
statement.
This proxy statement incorporates by reference the documents set forth
below that MedicalControl has previously filed with the Securities and Exchange
Commission. These documents contain important information about MedicalControl
and its finances. Some of these filings have been amended by later filings,
which are also listed.
- MedicalControl's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1999, filed with the Commission on March 30, 2000, and its
amended Annual Report on Form 10-KSB filed on April 14, 2000;
- MedicalControl's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2000, filed with the Commission on May 15, 2000;
- MedicalControl's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 2000, filed with the Commission on August 14, 2000; and
- MedicalControl's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 2000, filed with the Commission on November 14, 2000.
MedicalControl also incorporates by reference additional documents that may
be filed with the Securities and Exchange Commission between the date of this
proxy statement and the completion of sale or the termination of the stock
purchase agreements. These include periodic reports, such as Annual Reports on
Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements.
MedicalControl stockholders may have received some of the documents
incorporated by reference. However, MedicalControl stockholders can also obtain
any of them through MedicalControl, the Securities and Exchange Commission or
the Securities and Exchange Commission's Internet web site as described above.
Documents incorporated by reference are available from MedicalControl without
charge, excluding all exhibits, except that if MedicalControl has specifically
incorporated by reference an exhibit in this proxy statement, the exhibit will
also be available without charge. Shareholders may obtain documents incorporated
by reference in this proxy statement by requesting them in writing or by
telephone from MedicalControl at: MedicalControl, Inc., 8625 King George Drive,
Suite 300, Dallas, Texas 75235, Telephone (214) 630-6368, Attention: General
Counsel.
39
<PAGE> 48
ADDITIONAL MATTERS
In addition to the use of the mails, proxies may be solicited by personal
interview, telephone or telegraph by officers, Directors and other employees of
MedicalControl, who will not receive additional compensation for such services.
MedicalControl may also request brokerage houses, nominees, custodians and
fiduciaries to forward the soliciting material to the beneficial owners of stock
held of record and will reimburse such persons for forwarding such material at
the rates suggested by the New York Stock Exchange. MedicalControl will bear the
cost of this solicitation of proxies. Such costs are expected to be nominal.
Proxy solicitation will commence with the mailing of this Proxy Statement and
enclosed Proxy on or about December 20, 2000.
40
<PAGE> 49
APPENDIX A
<PAGE> 50
STOCK PURCHASE AGREEMENT
BY AND AMONG
MEDICALCONTROL, INC., A DELAWARE CORPORATION,
MEDICALCONTROL HOLDINGS, INC.,
A DELAWARE CORPORATION,
MEDICALCONTROL NETWORK SOLUTIONS, INC.,
A DELAWARE CORPORATION,
AND
BEYOND BENEFITS, INC.,
A DELAWARE CORPORATION
DATED AS OF OCTOBER 18, 2000
<PAGE> 51
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of October 18, 2000 (this
"Agreement"), by and among MedicalControl, Inc., a Delaware corporation
("MedicalControl"), MedicalControl Holdings, Inc., a Delaware corporation
("Seller"), MedicalControl Network Solutions, Inc., a Delaware corporation
("MNS"), and Beyond Benefits, Inc., a Delaware corporation ("Purchaser"). Any
reference to MNS in Sections 1.5, 1.6, and 1.7, and Articles II, IV, V and VII
of this Agreement shall be deemed to include Business Health Companies, Inc., a
wholly owned subsidiary of MNS ("BHC"), and BHC's wholly owned subsidiaries
Business Health Management, Inc. ("BHM") and Texas Health Partnership, Inc.
(together with BHC and BHM, the "BHC Group").
RECITALS
A. Seller is the owner (directly or indirectly) of all of the
outstanding shares of capital stock of MNS; and
B. Purchaser desires to purchase from Seller, and Seller desires to
sell to Purchaser, all of the issued and outstanding shares of capital stock of
MNS (the "Shares"), subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements as set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions set
forth in this Agreement, at the Closing (as hereinafter defined), Seller shall
sell, assign, transfer and deliver to Purchaser, and Purchaser shall purchase
from Seller, the Shares, free and clear of all options, pledges, security
interests, liens, claims, preemptive rights, imperfections of title, conditions
or restrictions of any nature, or other encumbrances, or restrictions on voting
or transfer (collectively, "Encumbrances"), other than restrictions imposed by
federal or state securities laws.
SECTION 1.2 PURCHASE PRICE. On the Closing Date (as hereinafter defined) and
subject to the terms and conditions set forth in this Agreement, in
consideration of the sale, assignment, transfer and delivery of the Shares,
Purchaser shall pay Seller Thirteen Million Five Hundred Thousand U.S. Dollars
($13,500,000) in cash (the "Purchase Price").
SECTION 1.3 CLOSING.
(a) The sale and purchase of the Shares contemplated by this Agreement
shall take place at a closing (the "Closing") to be held on the Closing Date (as
hereinafter defined), at the offices of
2
<PAGE> 52
Morrison & Foerster, LLP, Twelfth Floor, 19990 MacArthur Boulevard, Irvine,
California, 92612-2445 at 10:00 a.m., local time. All actions to be taken and
deliveries to be made at the Closing shall be deemed to occur concurrently and
shall be effective as of 12:01 a.m. on the Closing Date. For purposes of this
Agreement, the "Closing Date" shall be the first day of the first calendar month
beginning after the fortieth day following receipt by MedicalControl of notice
that the Securities and Exchange Commission ("SEC") will forego review of the
proxy statement filed by it with respect to the transactions contemplated
hereby; provided, that, if the proxy statement filed by MedicalControl is
selected for review by the SEC, then the Closing Date shall be extended, without
any further action by the parties hereto, to the first day of the first calendar
month beginning after the fortieth day following completion of such SEC review.
(b) At the Closing, Seller shall deliver or cause to be delivered to
Purchaser (i) stock certificates evidencing the Shares, duly endorsed in blank
or accompanied by stock powers duly executed in blank, and (ii) all other
previously undelivered certificates and other documents reasonably required to
be delivered by Seller to Purchaser at or prior to the Closing Date in
connection with the transactions contemplated hereby, including those documents
and certificates required to be delivered by Article IX hereof.
(c) At the Closing, Purchaser shall deliver to Seller (i) the Purchase
Price by wire transfer of immediately available funds to an account or accounts
designated by Seller in writing, and (ii) all other previously undelivered
certificates and other documents reasonably required to be delivered by
Purchaser to Seller at or prior to the Closing Date in connection with the
transactions contemplated hereby including those documents and certificates
required to be delivered by Article IX hereof.
SECTION 1.4 FURTHER ASSURANCES. From time to time after the Closing, Seller, at
the request of Purchaser, and Purchaser, at the request of Seller, shall without
further consideration execute and deliver any further instruments of transfer
and assignment and take such other action as the requesting party may reasonably
require to more effectively transfer and assign title to, and vest in, Purchaser
the Shares to be sold hereunder and all rights thereto, and to fully implement
the provisions of this Agreement.
SECTION 1.5 STOCKHOLDER DISTRIBUTIONS. MNS has not, since March 31, 2000, and
shall not, from the date hereof through the Closing, (a) declare, set aside or
pay any dividend or other distribution, whether payable in stock or other
property, in respect of its capital stock, except for those payable solely in
cash, (b) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock or other securities or shares of capital stock or
other securities of any of its subsidiaries, or (c) pay any principal or
interest on any debts owed by MNS to Seller, except for any intercompany
payments that are made in the Ordinary Course of Business (as defined in Section
2.7) or as otherwise contemplated by Section 1.6.
3
<PAGE> 53
SECTION 1.6 PRE-SALE TRANSACTIONS.
(a) Prior to or at the Closing, Seller (i) shall deliver to Purchaser
evidence of the release of the Shares and certain of the assets of MNS from any
and all liens relating to the debt obligations of Seller to BankOne, Texas N.A.
("BankOne"), under that certain Loan Agreement dated September 25, 1998, which
created a term loan and revolving credit facility in the original aggregate
principal amount of up to Two Million One Hundred Thousand U.S. Dollars
($2,100,000), as amended on each of March 31, 1999, May 15, 1999, and September
25, 1999 (the "BankOne Debt"), such that the Shares, the assets of MNS
(including the shares of capital stock of the BHC Group) and all accounts of MNS
will be free of any liens or obligations relating to the BankOne Debt, and (ii)
shall take such other actions as are necessary to ensure that the foregoing
Shares, assets and accounts will be free of any other Seller Debt (as defined in
Section 4.8) and that any Retained Liabilities (as defined in Section 4.8) due
and payable as of Closing are paid in full prior to Closing.
(b) On or prior to the Closing Date, Seller shall cause all
intercompany accounts reflected in MNS' balance sheets to be reconciled and paid
in full.
(c) The parties hereto acknowledge and agree that (i) it is their
intent to comply with the Worker Adjustment and Retraining Notification Act of
1988, as amended (the "WARN Act"), and (ii) to the extent applicable they shall
cooperate and take such actions as are required to comply with any notice or
other requirements imposed by the WARN Act.
SECTION 1.7 POST-CLOSING PURCHASE PRICE ADJUSTMENT.
(a) No later than forty-five (45) days after the Closing Date, Seller
shall prepare and deliver to Purchaser an unaudited consolidated balance sheet
of MNS as of the Closing Date (the "Closing Balance Sheet"), which shall be
prepared on the same basis as the Financial Statements (as defined in Section
2.6) and in accordance with GAAP (as defined in Section 2.6).
(b) When Seller delivers the Closing Balance Sheet, Seller shall also
deliver a certificate of its Chief Financial Officer (i) certifying that the
Closing Balance Sheet was prepared in accordance with paragraph (a) above, and
(ii) containing Seller's calculations, based on the Closing Balance Sheet, of
the Adjusted Working Capital (as hereinafter defined) as of the Closing Date.
(c) Within thirty (30) days after the Closing Balance Sheet is
delivered to Purchaser pursuant to subsection (a) above, Purchaser shall
complete its examination thereof and shall deliver to Seller either (i) a
written acknowledgment accepting the Closing Balance Sheet and the calculation
of Adjusted Working Capital included therein or (ii) a written report (the
"Objection Report") setting forth in reasonable detail any proposed objections
to the Closing Balance Sheet or such calculation; provided, that Purchaser may
only dispute the Closing Balance Sheet and Seller's calculation of the Adjusted
Working Capital to the extent they deviate from the requirements of (a) and (b)
above. A failure by Purchaser to deliver the Objection Report within the
required 30-day period shall constitute its acceptance of the calculations set
forth in the Closing Balance Sheet.
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(d) If Purchaser timely delivers an Objection Report, then during a
period of twenty (20) days following the receipt by Seller of the Objection
Report, Purchaser and Seller shall attempt to resolve any differences they may
have with respect to the matters raised in the Objection Report. In the event
Purchaser and Seller fail to agree on any of Seller's proposed adjustments
contained in the Objection Report within such 20-day period, then the parties
will request that the Dallas office of Deloitte & Touche, LLP, certified public
accountants ("Independent Auditors"), make the final determination with respect
to the correctness of the proposed adjustments in the Objection Report in light
of the terms and provisions of this Agreement. Each of the parties hereto
represents and warrants that such party has not engaged the Independent Auditors
and that the Independent Auditors are not affiliated with such party, and such
party further agrees not to engage the Independent Auditors until such time as
any post-closing price adjustment has been determined. The decision of the
Independent Auditors shall be final and binding on the parties. The costs and
expenses of the Independent Auditors and their services rendered pursuant to
this subsection shall be borne equally by Seller and Purchaser.
(e) If, after finalization of the Closing Balance Sheet (which shall be
deemed to mean either the acceptance by Purchaser of the Closing Balance Sheet
in accordance with Section 1.7(c) above or, if Purchaser delivers an Objection
Report, upon receipt by Purchaser and Seller of the written final determination
rendered pursuant to Section 1.7(d) concerning the resolution of the matters
raised in the Objection Report pursuant to Section 1.7(c) above), the Adjusted
Working Capital of MNS as set forth on the Closing Balance Sheet (after its
finalization) is less than Six Hundred Fifty Thousand U.S. Dollars
($650,000.00), then the Purchase Price shall be immediately reduced, effective
as of the Closing Date, by the amount of such deficiency in the Adjusted Working
Capital as of the Closing Date. If, on the other hand, the Adjusted Working
Capital set forth on the Closing Balance Sheet (after its finalization) is
greater than Six Hundred Fifty Thousand U.S. Dollars ($650,000.00), then the
Purchase Price shall be immediately increased, effective as of the Closing Date,
by the amount of such excess in the Adjusted Working Capital. Any adjustments to
the Purchase Price made in accordance with this Section 1.7(e) shall be payable
to Seller or Purchaser (as appropriate) in the form of cash within ten (10) days
of the finalization of the Closing Balance Sheet; provided, that any increase in
the Purchase Price shall not be due and payable until the later of the ninetieth
(90th) day following the Closing Date or finalization of the Closing Balance
Sheet.
(f) Seller and MedicalControl represent that, as of March 31, 2000, the
Adjusted Working Capital was greater than $650,000. For purposes of this
Agreement, "Adjusted Working Capital" shall mean the current assets (including
prepaid assets) and accounts receivable of MNS, less accounts payable and
accrued current liabilities of MNS, net of bad debt reserve (but excluding any
current portion of long-term debt and any reserves or accruals for federal
income taxes), computed in accordance with GAAP, as of the applicable date.
(g) Upon request, Seller shall promptly make available to Purchaser and
its accountants all work papers and other pertinent information used in
connection with the preparation of the Closing Balance Sheet.
SECTION 1.8 TRANSFER TAXES. All transfer taxes, fees and duties under applicable
law incurred in connection with the sale and transfer of the Shares under the
Agreement will be borne
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and paid by Seller and Seller shall promptly reimburse Purchaser for any such
tax, fee or duty which Purchaser is required to pay under applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the disclosure schedule of MedicalControl,
Seller and MNS delivered to Purchaser on or before the date hereof, a copy of
which is attached as Exhibit A hereto (the "Disclosure Schedule"), each of
MedicalControl, Seller and MNS, jointly and severally, represents and warrants
to Purchaser as follows:
SECTION 2.1 ORGANIZATION. Each of Seller and MNS is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. MNS is
duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business conducted
by it makes such qualification or licensing necessary. Seller has made available
to Purchaser a complete and correct copy of the certificate of incorporation and
bylaws of MNS, as currently in effect.
SECTION 2.2 CAPITALIZATION. The Disclosure Schedule sets forth the authorized,
issued and outstanding capital stock of MNS. The Shares constitute all of the
issued and outstanding capital stock of MNS. All the outstanding shares of
capital stock of MNS are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. There are no existing (a) options,
warrants, calls, subscriptions or other rights, convertible securities,
agreements or commitments of any character obligating MedicalControl, Seller or
MNS to issue, register, transfer or sell any shares of capital stock or other
equity interest in MNS or securities convertible into or exchangeable for such
shares or equity interests; (b) contractual obligations of MedicalControl,
Seller or MNS to repurchase, redeem or otherwise acquire any capital stock of
MNS; or (c) voting trusts or similar agreements to which MedicalControl, Seller
or MNS is a party with respect to the voting of the capital stock of MNS.
SECTION 2.3 OWNERSHIP OF STOCK. The Shares are owned of record and beneficially
by Seller (except for shares of the members of the BHC Group, which are owned,
directly or indirectly, by MNS), free and clear of all Encumbrances, other than
restrictions imposed by federal and state securities laws. All outstanding
shares of capital stock of BHC are owned of record and beneficially by MNS, and
all outstanding shares of capital stock of BHM and Texas Health Partnership,
Inc. are owned of record and beneficially by BHC, in each case free and clear of
all Encumbrances, other than restrictions imposed by federal and state
securities laws. Upon the consummation of the transactions contemplated hereby,
Purchaser will acquire title to the Shares free and clear of all Encumbrances,
other than restrictions imposed by federal and state securities laws.
SECTION 2.4 AUTHORIZATION; VALIDITY OF AGREEMENT. Each of MedicalControl, Seller
and MNS has the corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance by MedicalControl, Seller and MNS of this Agreement,
and the consummation by them of the
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transactions contemplated hereby, have been duly authorized by their respective
Boards of Directors and stockholders (other than MedicalControl's), and except
for the adoption of this Agreement by the requisite votes of the respective
stockholders of MedicalControl, no other corporate action on the part of
MedicalControl, Seller and MNS is necessary to authorize the execution and
delivery by MedicalControl, Seller and MNS of this Agreement and the
consummation by them of the transactions contemplated hereby. This Agreement has
been duly executed and delivered by MedicalControl, Seller and MNS and, assuming
due and valid authorization, execution and delivery hereof by Purchaser, this
Agreement constitutes a valid and binding obligation of MedicalControl, Seller
and MNS, enforceable against MedicalControl, Seller and MNS in accordance with
its terms, except that (a) such enforcement may be subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, as now or hereafter in effect, and (b)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
SECTION 2.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Neither the execution,
delivery nor performance of this Agreement by MedicalControl, Seller and MNS nor
the consummation by MedicalControl, Seller and MNS of the transactions
contemplated hereby will (a) violate any provision of the certificate of
incorporation or bylaws of MedicalControl, Seller or MNS; (b) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, lease, contract, agreement or other instrument or
obligation to which MedicalControl or Seller is a party or by which
MedicalControl or Seller or any of their respective properties or assets may be
bound; (c) result in a violation or breach of, or constitute (with or without
due notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, lease, contract, agreement
or other instrument or obligation to which MNS is a party or by which MNS or any
of its properties or assets may be bound; (d) violate any order, writ, judgment,
injunction, decree, any law, statute, rule or regulation applicable to
MedicalControl, Seller, MNS or any of their properties or assets, or (e) except
for those filings required pursuant to applicable state and federal securities
laws, require on the part of MedicalControl, Seller or MNS any filing or
registration with, notification to, or authorization, consent or approval of,
any court, legislative, executive or regulatory authority or agency
("Governmental Entity").
SECTION 2.6 FINANCIAL STATEMENTS. MedicalControl and Seller have delivered to
Purchaser (a) the unaudited balance sheets and related unaudited statements of
income of MNS at and for each of the years ending December 31, 1998 and December
31, 1999, and (b) the unaudited balance sheets and related statements of income
of MNS at and for (i) the three (3) month period
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ended March 31, 2000, and (ii) the six (6) month period ended June 30, 2000
(collectively, the "Financial Statements"). The balance sheets included in the
Financial Statements present fairly, in all material respects, the financial
position of MNS as of the respective dates thereof, and the related statements
of income included in the Financial Statements present fairly, in all material
respects, the results of operations of MNS for the respective period or as of
the respective dates set forth therein, in each case in accordance with
generally accepted accounting principles ("GAAP"), consistently applied for all
periods presented, except for the absence of footnote disclosures, statements of
changes in stockholders' equity, normal year end adjustments, and report of
independent accountants, each of which is required under GAAP. In addition, the
balance sheets for the periods ended March 31, 2000 and June 30, 2000, have been
adjusted to reflect the elimination of all intercompany accounts and balances,
which will be eliminated on or prior to the Closing Date.
SECTION 2.7 NO UNDISCLOSED LIABILITIES. Except for (a) any Liability (as defined
in Section 2.21) incurred in the Ordinary Course of Business (as hereinafter
defined) after March 31, 2000, (b) any Liability disclosed in or covered by the
Financial Statements, and (c) any Liability incurred in connection with the
transactions contemplated hereby or otherwise as contemplated by this Agreement,
none of MedicalControl, Seller or MNS have incurred any Liability that would be
required to be reflected or reserved against in a balance sheet of MNS, prepared
in accordance with GAAP as applied in preparing the unaudited balance sheets of
MNS as included in the Financial Statements. Action taken by or on behalf of MNS
shall be deemed to have been taken in the "Ordinary Course Of Business" if and
only if such action is: (i) consistent with MNS' past practices and taken in the
ordinary course of MNS' normal day-to-day operations, as such practices and
operations have been conducted since January 1, 1998 (as to MNS), and August 30,
1998 (as to the BHC Group); (ii) taken in good faith in accordance with sound
and prudent business practices; and (iii) not required to be authorized by MNS'
stockholders, MNS' board of directors or any committee of MNS' board of
directors, nor does it require any other separate or special authorization of
any nature. For purposes of this Agreement, the term Ordinary Course of Business
shall not be affected by any subsequent actions taken by MedicalControl, Seller,
MNS or the Purchaser.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES. Since March 31, 2000, MNS has not (nor
has MedicalControl or Seller on behalf of MNS): (a) suffered any change or
changes constituting, in the aggregate, a Material Adverse Effect, and to the
Knowledge (as defined in Section 11.1) of Seller, MedicalControl and MNS, no
event has occurred that is reasonably likely to have a Material Adverse Effect;
(b) suffered any loss, damage or destruction to, or any interruption in the use
of any of MNS' assets (whether or not covered by insurance) that would
constitute a Material Adverse Effect; (c) amended its certificate of
incorporation or bylaws; (d) issued any capital stock or securities, split,
combined or reclassified the Shares; (e) changed its accounting principles,
practices or methods, except as required by GAAP or applicable law; (f) made any
capital expenditure in excess of Twenty Thousand U.S. Dollars ($20,000); (g)
written off as uncollectible, forgiven or established any extraordinary reserve
with respect to, any account receivable or other indebtedness; (h) pledged or
hypothecated any of its assets or otherwise permitted any of its assets to
become subject to any Encumbrance; (i) entered into any transaction outside the
Ordinary Course of Business; (j) incurred, assumed or otherwise become subject
to any Liability, other than in the
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Ordinary Course of Business; (k) waived or released any material right; (l)
approved any material increase, direct or indirect, or other material change in
the compensation paid or payable to any officer, director, employee, independent
contractor or agent of MNS, or established or created any employment, deferred
compensation or severance agreement or employee benefit plan or amended any of
the foregoing; (m) suffered any material loss of personnel, authorized any
change in the terms and conditions of the employment of senior members of
management of MNS; (n) made any arrangements relating to any royalty, dividend
or similar payment entered into by MNS based on the sales volume of MNS (other
than sales commission arrangements), other than in the Ordinary Course of
Business; (o) entered into any agreement with respect to the endorsement of
products or services, other than in the Ordinary Course of Business; (p)
revalued any of its material assets; (q) amended or terminated any Material
Agreement (as defined in Section 2.16) or suffered the loss of any provider
agreements, the result of which has had or would have a Material Adverse Effect
on MNS; (r) permitted or recorded the transfer of any outstanding shares of its
capital stock or (s) agreed, committed or offered, and has not attempted, to
take any of the actions referred to in clauses (a) through (r).
As used in this Agreement, "Material Adverse Effect" means any material adverse
change in, or material adverse effect on, the business, financial condition,
operations or prospects of a Person (as hereinafter defined), taken as a whole;
provided, however, that any adverse effect on a Person resulting from the
execution of this Agreement, the announcement of this Agreement and the
transactions contemplated hereby shall be excluded from the determination of
Material Adverse Effect. "Person" means a natural person or any partnership,
limited liability company, trust, estate, association, corporation, custodian,
nominee or any other individual or entity in its own or any representative
capacity or any other entity.
SECTION 2.9 EMPLOYEE BENEFIT PLANS; ERISA.
(a) As used in this Agreement, "Employee Plan" shall mean all "employee
benefit plans" as defined by Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), all specified fringe benefit plans
as defined in Section 6039D of the Internal Revenue Code of 1986, as amended
(the "Code"), and all other bonus, incentive compensation, deferred
compensation, profit sharing, stock option, stock appreciation right, stock
bonus, stock purchase, employee stock ownership, savings, life insurance, group
insurance, or fringe benefit plan, and any other employee compensation or
benefit plan, agreement, policy, practice, commitment, contract, or
understanding (whether qualified or nonqualified, currently effective or
terminated, written or unwritten, funded or unfunded), and any trust, escrow or
other agreement related thereto, that are maintained or contributed to by MNS,
that have been maintained or contributed to in the last six (6) years by MNS, or
with respect to which MNS has incurred or could incur any Liability. Each of the
Employee Plans that are currently made available to employees of MNS are set
forth in Section 2.9 of the Disclosure Schedule.
(b) With respect to the Employee Plans listed in Section 2.9 of the
Disclosure Schedule, MedicalControl, Seller and MNS have made available to
Purchaser true, accurate and complete copies of (i) the documents comprising
each such Employee Plan (or, with respect to each such Employee Plan which is
unwritten, a detailed written description of the material terms of such
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Employee Plan), (ii) all trust agreements, insurance contracts or any other
funding instruments related to such Employee Plans, (iii) all rulings,
determination letters, no-action letters or advisory opinions from any
government agency that pertain to any such Employee Plan and any open requests
therefor, (iv) the most recent actuarial and financial reports (audited and
unaudited) and the annual reports filed with any Governmental Entity with
respect to each such Employee Plan during the current year and each of the
preceding years of MNS' existence, (v) all collective bargaining agreements
pursuant to which contributions are being or have been made or obligations
incurred (including both pension and welfare benefits) with respect to any such
Employee Plan, (vi) all registration statements filed with respect to any such
Employee Plan, (vii) all contracts that relate to any such Employee Plan, and
(viii) all summary plan descriptions and all other written communications
regarding each such Employee Plan generally distributed to participants and
beneficiaries.
(c) Full payment has been made of all amounts which are required under
the terms of each Employee Plan to be paid as contributions or premiums on or
before their due dates.
(d) No Employee Plan is a "multiemployer plan" (within the meaning of
Section 3 (37) or 4001(a)(3) of ERISA) or a "single employer pension plan"
(within the meaning of Section 4001(a)(15) of ERISA) for which MNS could incur
liability under Section 4063 or 4064 of ERISA. No Employee Plan is subject to
Title IV of ERISA.
(e) MNS does not have any Liability, nor does it have any Knowledge of
any facts or circumstances that might give rise to any Liability, and the
transactions contemplated by this Agreement will not result in any Liability:
(i) for the termination of or withdrawal from any Employee Plan under Sections
4062, 4063 or 4064 of ERISA; (ii) for any lien imposed under Sections 302(f) of
ERISA or Section 412(n) of the Code; (iii) for any interest payments required
under Section 302(e) of ERISA or Section 412(m) of the Code; (iv) for any excise
tax imposed by Section 4971, 4972, 4980 or 4980B of the Code; (v) for any
minimum funding contributions under Section 302(c)(11) of ERISA or Section
412(c)(11) of the Code; or (vi) for withdrawal from any multi-employer plan
under Section 4201 of ERISA.
(f) To the Knowledge of MedicalControl, Seller and MNS, MNS has
complied with the continuation coverage provisions of the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to all
current employees and former employees and other "qualified beneficiaries" (as
defined in Code Section 4980B(g)(1) and ERISA Section 607(3)). All Employee
Plans that are "group health plans," as defined in Section 5000(b) of the Code,
have been operated in conformance with the Medicare as Secondary Payer
provisions of the Social Security Act, and no Person is subject to liability
under Section 5000(a) of the Code with respect to any such Employee Plan.
(g) The form of each of the Employee Plans complies with the applicable
terms of ERISA, the Code and all other applicable laws, and such Employee Plans
have been operated in compliance with such laws and the written Employee Plan
documents.
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(h) Each Employee Plan that is intended to be qualified under Section
401(a) of the Code has received a favorable determination letter from the
Internal Revenue Service ("IRS"), and MNS, MedicalControl and Seller have no
Knowledge of any circumstances that will or could result in revocation of any
such favorable determination letter. Each trust created under any Employee Plan
which is a pension plan (as defined in Section 3(2) of ERISA) has been
determined to be exempt from taxation under Section 501(a) of the Code, and
MedicalControl, MNS and Seller are not aware of any circumstance which will or
could result in a revocation of such exemption. Each Employee Plan which is an
employee welfare benefit plan (as defined in Section 3(1) of ERISA) that
utilizes a funding vehicle described in Section 501(c)(9) of the Code or is
subject to the provisions of Section 505 of the Code has been the subject of a
notification by the IRS that such funding vehicle qualifies for tax-exempt
status under Section 501(c)(9) of the Code and/or that the plan complies with
Section 505 of the Code, unless the IRS does not as a matter of policy issue
such notification with respect to the particular type of plan. With respect to
each Employee Plan, no event has occurred which will or could give rise to a
loss of any intended tax consequence or to any Tax under Section 511 of the
Code.
(i) There is no material pending or, to the Knowledge of MNS,
MedicalControl and Seller, threatened legal or administrative proceeding
relating to any Employee Plan other than routine claims for benefits, nor is
there any basis for any such proceeding. Neither MNS nor any fiduciary of an
Employee Plan has engaged in a transaction with respect to any Employee Plan
that, assuming the taxable period of such transaction expired as of the date
hereof, could subject MNS or Purchaser to a Tax or penalty imposed by either
Section 4975 of the Code or Section 502(l) of ERISA or a violation of Section
406 of ERISA. The transactions contemplated by this Agreement will not result in
the potential assessment of a Tax or penalty under Section 4975 of the Code or
Section 502(l) of ERISA nor result in a violation of Section 406 of ERISA.
(j) MedicalControl has maintained workers' compensation coverage on
behalf of MNS as required by applicable state law through purchase of insurance,
self-insurance or otherwise.
(k) Except as required by applicable laws, the consummation of the
transactions contemplated by this Agreement will not accelerate the time of
vesting, accelerate the time of payment, or increase the amount of compensation
due to any employee, officer, former employee or former officer of MNS. There
are no contracts or arrangements providing for payments that could subject any
Person to Liability for Tax under Section 4999 of the Code.
(l) Except for the continuation coverage requirements of COBRA, the
requirements of other applicable laws, or benefits, the full cost of which is
borne by the current or former employee (or his or her beneficiary) MNS has no
obligation or potential Liability for medical expenses incurred by employees
following termination of employment or retirement under any Employee Plan.
(m) None of the transactions contemplated by this Agreement will result
in an amendment, modification or termination of any of the Employee Plans. No
written or oral representations have been made by MedicalControl, Seller or MNS
to any employee or former employee of MNS promising or guaranteeing any employer
payment or funding by MNS for the continuation of medical, dental, life or
disability coverage for any period of time beyond the Closing
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(except to the extent of coverage required under COBRA). No written or oral
representations have been made by MedicalControl, Seller or MNS to any employee
or former employee of MNS concerning the employee benefits of Purchaser.
(n) No trade or business, whether or not incorporated, which would be
treated as a single employer with MNS under Section 4001 of ERISA or Section
414(b), (c), (m) or (o) of the Code (a "Member of the Controlled Group")
maintains or contributes to, or within the past six years has maintained or
contributed to (i) a multiemployer plan (within the meaning of Section 3(37) or
4001(a)(3) of ERISA, or (ii) a plan that is subject to Title IV of ERISA. No
Member of the Controlled Group has any Liability, nor have facts or
circumstances occurred that might give rise to any Liability: (i) for any lien
imposed under Section 302(f) of ERISA or Section 412(n) of the Code; (ii) for
any interest payments required under Section 302(e) of ERISA or Section 412(m)
of the Code; (iii) for any minimum funding contributions under Section
302(c)(11) of ERISA or Section 412(c)(11) of the Code; or (iv) for withdrawal
from any multi-employer plan under Section 4201 of ERISA.
SECTION 2.10 MAJOR CUSTOMERS. The Disclosure Schedule accurately identifies each
customer or other Person that (a) accounted for more than Fifty Thousand Dollars
($50,000) of the gross revenues of MNS during the year ended December 31, 1999,
(b) accounted for more than Twelve Thousand Five Hundred Dollars ($12,500.00) of
the gross revenues of MNS during the three (3) months ended March 31, 2000 and
(c) certain other customers identified by MNS. None of MedicalControl, Seller or
MNS have received any written notice indicating nor do they otherwise have
Knowledge, that any customer of MNS or other Person described in the Disclosure
Schedule is reasonably likely to cease dealing with MNS, to change the
applicable payment methodology such that MNS revenues received from such
customer are reduced, or is reasonably likely to otherwise reduce the volume of
business transacted by such customer or other Persons or entity with MNS below
the levels set forth in the Disclosure Schedule.
SECTION 2.11 LITIGATION.
(a) There is no action, suit, proceeding, or investigation pending or,
to the Knowledge of MedicalControl, Seller or MNS, threatened, involving MNS, by
or before any Governmental Entity or by any third party. There is no action,
suit, proceeding or investigation which MNS, or Seller or MedicalControl on
behalf of MNS, currently intends to initiate.
(b) MNS is not subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or, to the
Knowledge of MedicalControl, Seller or MNS, continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree, or award
of any Governmental Entity, court, or arbitrator, including, without limitation,
cease-and-desist or other orders.
SECTION 2.12 NO DEFAULT; COMPLIANCE WITH APPLICABLE LAWS.
(a) None of MedicalControl, Seller or MNS is, nor have MedicalControl,
Seller or MNS received written notice or any similar communication alleging that
MNS may be, in default or
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violation of any term, condition or provision of (i) its certificate of
incorporation or bylaws, (ii) any of the Material Agreements, which defaults and
violations individually or in the aggregate have a Material Adverse Effect on
MNS, or (iii) any statute, law, ordinance, regulation, judgment, decree, order,
arbitration award or material licenses, permits, consents, approvals and
authorizations of a Governmental Entity (collectively "Permits") applicable to
MNS including, without limitation, laws, rules and regulations relating to the
environment, managed care and insurance, occupational health and safety,
employee benefits, wages, workplace safety, equal employment opportunity, and
race, religious or sex discrimination, excluding from the foregoing clauses (ii)
and (iii) defaults or violations which become applicable as a result of the
business or activities in which Purchaser is or proposes to be engaged and in
which MNS is not currently engaged or as a result of any acts or omissions by,
or the status of any facts pertaining primarily to, Purchaser or its agents.
Each Material Agreement listed on Section 2.16 of the Disclosure Schedule is in
full force and effect and is valid and enforceable by MNS in accordance with its
terms, except where the failure to be would not, individually or in the
aggregate, have a Material Adverse Effect on MNS. To the Knowledge of
MedicalControl, Seller and MNS, no other Person is in default in the observance
or performance of any term or obligation to be performed by it under any
Material Agreement, except for any defaults with respect to an agreement between
MNS and a health care provider or one of its clients where such defaults would
not individually or in the aggregate have a Material Adverse Effect. None of
Seller, MedicalControl or MNS has received any written notice since January 1,
1998 from any federal or state regulatory authority alleging any violation
described in clause (iii) or directing Seller, MedicalControl or MNS to take any
remedial action in regard to MNS with respect to such law, ordinance or
regulation, except for any such notices where MedicalControl, MNS and Seller
have conclusively resolved and settled all of the issues raised by such notice
with the Person issuing the notice, MNS, MedicalControl and Seller have paid any
liability, fine or assessment resulting from such resolution or settlement and
no additional action is required by MedicalControl, Seller or MNS with respect
to any items arising from such notice.
(b) Each of MedicalControl, Seller and MNS has all Permits necessary to
conduct its business in the manner and in the areas in which it is presently
being conducted, and all such Permits are valid and in full force and effect.
SECTION 2.13 TAXES.
(a) Each of MedicalControl, Seller and MNS has correctly prepared and
filed all Tax Returns (as hereinafter defined) required to be filed by it, or
has obtained extensions for the filing thereof, and has paid in full all Taxes
(as hereinafter defined) that have become due as reflected on any such return or
report (including any interest and penalties with respect thereto shown to be
due), and has fully accrued on its books or has established adequate reserves
(as shown on the Closing Balance Sheet) for all Taxes payable but not yet due.
Such Tax Returns in each case were prepared in accordance with applicable law.
Neither MedicalControl nor MNS has any Liability for such Taxes for any period
prior to the Closing, except as shown on such Tax Returns or the Closing Balance
Sheet.
(b) The amounts reflected as liabilities for Taxes on the Financial
Statements are sufficient in all material respects for the payment of all
accrued and unpaid Taxes of any nature,
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whether or not assessed or disputed, as of such date. The Closing Balance Sheet
will not contain any reserves for federal income taxes of MNS.
(c) There are no Tax liens affecting MedicalControl, Seller or MNS.
(d) There are no outstanding written requests, agreements, consents or
waivers to extend the statutory period of limitations applicable to the
assessment of any material Taxes or deficiencies against MedicalControl, Seller
or MNS.
(e) No governmental claim for additional Taxes, interest, or penalties
for any fiscal year is pending or threatened. No extension or waiver of any
statute or limitations has been requested by, or granted to, MedicalControl or
any of MNS with respect to any tax year, and no extension or waiver of time
within which to file any Tax Return has been requested by or granted to them,
except with respect to Tax Returns not yet filed but otherwise due. No
unsatisfied deficiency, delinquency, or default for any Tax, assessment, or
governmental charge has been claimed, proposed, or assessed against
MedicalControl or any of MNS, nor have they received notice of any such
deficiency, delinquency, or default, for any tax period. No pending audit or
investigation by a Governmental Entity has been claimed, proposed or commenced
with respect to MedicalControl or any of MNS, and no notice of any plans to do
so have been received by the Seller or MNS.
(f) None of MNS, MedicalControl or the Seller has any reason to believe
that MNS has any contingent Liabilities for Taxes other than (i) those reflected
in the Financial Statements, (ii) those arising in the Ordinary Course of
Business since the date thereof, and (iii) those arising as a result of the
transactions contemplated by this Agreement.
(g) MNS is not a party to any agreement providing for the allocation or
sharing of Taxes, except with Seller, MedicalControl and their Affiliates (as
hereinafter defined). During the period of its existence, MNS has been a member
of the consolidated group of MedicalControl, Seller and their Affiliates for
federal Tax purposes.
(h) As used in this Agreement, "Affiliate(s)" shall have the meaning
set forth in Rule 12b-2 of the Exchange Act of 1934, as amended.
(i) As used in this Agreement, "Taxes" shall mean any and all taxes,
charges, fees, levies or other assessments, including, without limitation,
income, gross receipts, excise, real or personal property, sales, withholding,
social security, occupation, use, service, service use, value added, license,
net worth, payroll, franchise, transfer and recording taxes, fees and charges,
imposed by the IRS or any taxing authority, whether domestic or foreign
including, without limitation, any state, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession),
whether computed on separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, penalties or additional amounts
attributable to, or imposed upon, or with out respect to, any such Taxes,
charges, fees, levies or other assessments.
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(j) As used in this Agreement, "Tax Return" shall mean any report,
return, document declaration or other information or filing required to be
supplied to any taxing authority or jurisdiction (foreign or domestic) with
respect to Taxes.
SECTION 2.14 PROPERTIES. MNS does not own any real property. MNS has good, valid
and defensible or, with respect to real property, marketable title to or valid
leasehold interests in all assets used in its business (except for Intellectual
Property, as defined in Section 2.15) and to those assets reflected on the
Financial Statements (except for assets disposed of, cash used and accounts
receivable collected or written down in ordinary course since March 31, 2000),
free and clear of Encumbrances, other than liens for Taxes not yet delinquent,
liens imposed by law for obligations not past due to carriers, warehousemen,
laborers, materialmen and the like, liens in respect of pledges or deposits
under workers' compensation laws or similar legislation, purchase money security
interests given in connection with the acquisition of assets and minor liens and
encumbrances that do not materially detract from the value of the assets subject
thereto or materially impair the operations of MNS. All equipment included in
such assets which is necessary to the business of MNS is in good condition and
repair (ordinary wear and tear excepted) and all leases of real or personal
property to which MNS is a party are fully effective and afford MNS peaceful and
undisturbed possession of the property subject to the lease. The property and
assets of MNS are sufficient for the conduct of its business as presently
conducted. To the Knowledge of MedicalControl, Seller and MNS, MNS is not in
violation of any zoning, building or safety ordinance, regulation or requirement
or other law or regulation applicable to the operation of its owned or leased
properties, nor has MNS received any notice of any such violation. There are no
defaults by MNS or, to the Knowledge of MedicalControl, Seller and MNS, by any
other party under any lease of real or personal property which might curtail in
any material respect the present use by MNS of its respective properties.
SECTION 2.15 INTELLECTUAL PROPERTY. There are no pending or threatened claims of
which MedicalControl, Seller or MNS have been given written notice, by any
Person against MNS' use or ownership of any trademarks, trademark registrations,
trade names, trade secrets, service marks, service names, logos, assumed names,
copyrights and copyright registrations, patents and all applications therefor,
or other intellectual property ("Intellectual Property"). MNS has such rights,
by license, lease or other agreement, with respect to the Intellectual Property
used in MNS' business as are necessary to permit MNS to conduct its business as
currently conducted, except where the failure to have such rights, individually
or in the aggregate, would not have a Material Adverse Effect. MNS,
MedicalControl and Seller have not received any written notice of and no inquiry
by MedicalControl, Seller or MNS has revealed any actual, alleged, possible, or
potential infringement by MNS of any Intellectual Property owned or used by any
other Person.
SECTION 2.16 CONTRACTS.
(a) Seller has delivered or made available to Purchaser copies of all
written Material Agreements of MNS or that affect the assets of MNS, each of
which is listed on the Disclosure Schedule. As used in this Agreement, "Material
Agreement(s)" of a Person shall mean each agreement, arrangement, instrument,
bond, commitment, franchise, indemnity, indenture, lease, license or
understanding to which such Person is a party or to which such Person or any of
its properties is subject that (i) obligates such Person to pay an amount in
excess of Fifty Thousand
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Dollars ($50,000) in any twelve (12) month period beginning after December 31,
1999; (ii) provides for the extension of credit to an unaffiliated third party
in an amount greater than Fifty Thousand Dollars ($50,000); (iii) provides for a
guaranty by such Person of obligations of others in excess of Fifty Thousand
Dollars ($50,000); (iv) constitutes an employment agreement, consulting
agreement or personal service contract not terminable on less than sixty (60)
days' notice without penalty; (v) expressly limits, in any material respect, the
ability of such Person to engage in any business, compete with any Person or
expand the nature or geographic scope of its business; (vi) pursuant to which
such Person is entitled to receive an amount in excess of Fifty Thousand Dollars
($50,000) in any twelve month period beginning after December 31, 1999; (vii)
constitutes a lease by such Person of real property; or (viii) constitutes a
contract between MNS and any healthcare provider that is listed on the
Disclosure Schedule.
(b) Seller has provided Purchaser with a copy of MNS' current form
agreements for participating providers and contracted customers, as applicable.
SECTION 2.17 LABOR MATTERS.
(a) MNS has no existing contracts with directors, officers, employees
or shareholders that are not cancelable by it on notice of not longer than
thirty (30) days and without Liability, penalty or premium. True and accurate
copies of such contracts (as amended or supplemented) have been delivered to
Purchaser. There are no labor strikes, disputes, slow downs, work stoppages or
other labor troubles or grievances pending, or threatened, against or involving
MNS. No employees of MNS are covered by any collective bargaining agreement, and
no collective bargaining agreement or other labor union agreement or agreement
with organized labor for employees of the Operative Companies is currently being
negotiated. No unfair labor practice complaint before the National Labor
Relations Board, no charges pending before the Equal Employment Opportunity
Commission, and no lawsuit, complaint, charge or grievance of any nature before
any similar or comparable Governmental Authority in any case relating to MNS or
the conduct of their business, is pending or, to the Knowledge of
MedicalControl, Seller and MNS, threatened. MNS has not received notice of the
intent of any Governmental Entity responsible for the enforcement of labor or
employment laws to conduct any investigation of or relating to MNS or the
conduct of its business. MNS is not delinquent in payments to any of its
employees for any wages, salaries, commissions, bonuses or other direct
compensation for any services performed for it or amounts required to be
reimbursed to such employees, except in connection with the employment
agreements listed on the Disclosure Schedule. Upon termination of employment of
said employees, no severance or other payments will become due. None of MNS or
its Affiliates has any policy, practice, plan or program of paying severance
compensation in connection with the termination of employment or services,
except in connection with the employment agreements listed on the Disclosure
Schedule. There are no unresolved charges of employment discrimination or unfair
labor practices against or affecting MNS.
(b) MNS (i) is in compliance with all applicable laws respecting
employment and employment practices, terms and conditions of employment, and
wages and hours, (ii) is in compliance with all of its obligations under
applicable workers compensation laws, and (iii) is not engaged in any unfair
labor practice.
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(c) Since December 31, 1999, no key employees of MNS have been
terminated or have resigned their employment.
(d) Set forth on the Disclosure Schedule is a list of the employees of
MNS and a schedule of the hire dates, compensation and benefits currently
received by such employees.
SECTION 2.18 ENVIRONMENTAL MATTERS. MNS is not in violation of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and no material expenditures are or will be required in order to
comply with any such existing statute, law or regulation. No Hazardous Materials
(as hereinafter defined) are used or have been used, stored, or disposed of by
MNS or, to the Knowledge of MedicalControl, Seller or MNS, by any other Person
on any property leased or used by MNS. For the purposes of the preceding
sentence, "Hazardous Materials" shall mean (a) materials which are listed or
otherwise defined as "hazardous" or "toxic" under any applicable local, state,
federal and/or foreign laws and regulations that govern the existence and/or
remedy of contamination on property, the protection of the environment from
contamination, the control of hazardous wastes, or other activities involving
hazardous substances, including building materials, or (b) any petroleum
products or nuclear materials. To the Knowledge of MedicalControl, Seller and
MNS, no site operated or leased by MNS contains any asbestos or
asbestos-containing material, any polychlorinated biphenyls (PCBs) or equipment
containing PCBs, or any urea formaldehyde foam insulation.
SECTION 2.19 SUBSIDIARIES. MNS does not own or control any equity security or
other interest of any other corporation, limited partnership or other business
entity. MNS is not a participant in any joint venture, partnership or similar
agreement.
SECTION 2.20 BROKER OR FINDERS. MedicalControl and Seller represent, as to
MedicalControl, Seller and MNS, that no agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by this Agreement.
SECTION 2.21 PERFORMANCE OF SERVICES.
(a) To the Knowledge of MedicalControl, Seller and MNS, MNS will not
incur or otherwise become subject to any Liability arising directly or
indirectly from any services performed by or on behalf of, MNS on or at any time
prior to the Closing Date, except for those that may from time to time arise in
the Ordinary Course of Business. As used in this Agreement, "Liability" shall
mean any debt, obligation, duty or liability of any nature (including any
unknown, undisclosed, unmatured, unaccrued, unasserted, contingent, indirect,
conditional, implied, vicarious, derivative, joint, several or secondary
liability), regardless of whether such debt, obligation, duty or liability would
be required to be disclosed on a balance sheet prepared in accordance with GAAP
and regardless of whether such debt, obligation, duty or liability is
immediately due and payable.
(b) Since January 1, 1998, no customer or other Person has asserted or,
to the Knowledge of MedicalControl, Seller and MNS, threatened to assert, any
material claim against MNS (i) under or based
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upon any warranty provided by or on behalf of MNS, or (ii) under or based upon
any other warranty relating to any services provided by or on behalf of MNS. To
the Knowledge of MedicalControl, Seller and MNS, no event has occurred, and no
condition or circumstance exists, that might (with or without notice or lapse of
time) directly or indirectly give rise to or serve as a basis for the assertion
of any such claim, against MNS or Purchaser.
SECTION 2.22 INSURANCE.
(a) The Disclosure Schedule sets forth, with respect to each insurance
policy maintained by or at the expense of, or for the direct or indirect benefit
of, MNS: (i) the name of the insurance carrier that issued such policy and the
policy number of such policy; (ii) whether such policy is a "claims made" or an
"occurrences" policy; and (iii) the per incident and aggregate policy coverage
limit. The Disclosure Schedule also identifies (A) each pending application for
insurance that has been submitted by or on behalf of MNS, and (B) each
self-insurance or risk-sharing arrangement affecting MNS or any of its assets.
MedicalControl, Seller or MNS has delivered to Purchaser accurate and complete
copies of all of the insurance policies identified in the Disclosure Schedule
(including all renewals thereof and endorsements thereto) and all of the pending
applications identified in the Disclosure Schedule.
(b) Each of the policies identified in the Disclosure Schedule (i) is a
valid contract and is in full force and effect accordance with its respective
terms and (ii) to the Knowledge of MedicalControl, Seller and MNS, has been
issued by an insurance carrier that is solvent, financially sound and reputable.
All of the information contained in the applications submitted in connection
with said policies was (at the times said applications were submitted) accurate
and complete. All premiums and other amounts owing with respect to said policies
have been paid in full on a timely basis. The nature, scope and dollar amounts
of the insurance coverage provided by said policies are sufficient to adequately
insure MNS' business, assets, operations, key employees, services and potential
Liabilities, including professional liability, as they exist immediately prior
to the Closing Date.
(c) There is no pending claim under or based upon any of the policies
identified in the Disclosure Schedule related to MNS, and to the Knowledge of
MedicalControl, Seller and MNS, no event has occurred, and no condition or
circumstance exists, that might (with or without notice or lapse of time)
directly or indirectly give rise to or serve as a basis for any such claim.
(d) None of MedicalControl, Seller or MNS has received: (i) any notice
or other communication (in writing or otherwise) regarding the actual or
possible cancellation or invalidation of any of the policies identified in the
Disclosure Schedule or regarding any actual or possible adjustment in the amount
of the premiums payable with respect to any of said policies; or (ii) any notice
or other communication (in writing or otherwise) regarding any actual or
possible refusal of coverage under, or any actual or possible rejection of any
claim under, any of the policies identified in the Disclosure Schedule.
SECTION 2.23 BANK ACCOUNTS. The Disclosure Schedule accurately sets forth, with
respect to each account maintained by or for the benefit of MNS at any time
subsequent to September 30,
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1999 at any bank or other financial institution (except those maintained by
MedicalControl or Seller that are not being transferred to Purchaser at the
Closing):
(a) the name and location of the institution at which such account is
maintained;
(b) the name in which such account is maintained and the account number
of such account;
(c) a description of such account and the purpose for which such
account is used;
(d) the current balance in such account;
(e) the rate of interest being earned on the funds in such account; and
(f) the names of all individuals authorized to draw on or make
withdrawals from such account.
There are no safe deposit boxes or similar arrangements maintained by
or for the benefit of MNS.
SECTION 2.24 RECEIVABLES. All those accounts receivable reflected on the Closing
Balance Sheets that have not yet been collected and those accounts receivable
that have arisen since March 31, 2000 and have not yet been collected (i)
represent valid obligations of customers of MNS arising from bona fide
transactions entered into in the Ordinary Course of Business; and (ii) in the
aggregate, will be collected in full (without any counterclaim or setoff), net
of reserves; provided, that Purchaser and MNS use their commercially reasonable
efforts, and no less effort than has been applied in the Ordinary Course of
Business of MNS, to collect such accounts receivable.
SECTION 2.25 RELATED PARTY TRANSACTIONS.
(a) Since January 1, 1999, no Related Party (as hereinafter defined)
has (i) entered into, or has had any direct or indirect financial interest in,
any agreement of MNS, transaction or business dealing of any nature involving
MNS, (ii) had any direct or indirect interest of any nature in any amount and in
or otherwise relating to MNS, or (iii) been indebted to MNS.
(b) No Related Party (or any employee of, consultant to or other
Representative (as hereinafter defined) of a Related Party) provides, or has
since January 1, 1999, provided, any materials, services or support to MNS,
whether or not for compensation.
(c) No Related Party presently acquires, or has since January 1, 1999,
acquired, any materials, services or support from MNS, whether or not for
compensation.
(d) No Related Party has any claim or right against MNS. No event has
occurred, and to the Knowledge of MedicalControl, Seller or MNS, no condition or
circumstance exists, that would
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(with or without notice or lapse of time) directly or indirectly give rise to or
serve as a basis for any such claim or right in favor of any Related Party
against MNS.
(e) A "Related Party" means any stockholder of Seller or MNS, any
person who is or has been a director or officer of MNS, MedicalControl or
Seller, any member of the family of any such individual, or any entity that is
an Affiliate of any one of the foregoing.
(f) "Representatives" of a specified party shall mean officers,
directors, employees, attorneys, accountants, advisors and other representatives
of such party, including, without limitation, in the case of MedicalControl or
Seller, all direct and indirect subsidiaries of MedicalControl or Seller and all
such Persons with respect to such subsidiaries.
SECTION 2.26 HEALTHCARE MATTERS. MNS has not entered into any provider or other
agreement with the Health Care Financing Administration ("HCFA"), Medicare,
CHAMPUS, TRICARE, any Medicaid agency or any other Governmental Entity (other
than county or other government owned or operated hospitals or facilities). To
the Knowledge of MedicalControl, Seller and MNS, MNS has not entered into any
agreement, whereby it has provided any network of providers or particular
provider to any Person that (a) provides services to Medicare or Medicaid
beneficiaries through managed care plans or health maintenance organizations
contracting with HCFA or Medicare including MediChoice+ Plan or (b) provides
services to any person whose health benefits are paid by Medicare or any
Medicaid agency as a secondary payor.
SECTION 2.27 FULL DISCLOSURE.
(a) None of this Agreement nor any schedule, exhibit or certificate
delivered pursuant hereto contains or will contain any untrue statement of
material fact, nor omits or will omit to state any fact necessary to make any of
the representations, warranties or other statements or information contained
herein and therein not materially misleading. To the extent such representations
permit omission of items within the Knowledge of MedicalControl, Seller or MNS
which would otherwise be required to be discussed because they are not material
or do not or would not have a Material Adverse Effect, such omissions in the
aggregate will not and do not have a Material Adverse Effect on MNS or
Purchaser.
(b) All of the information set forth in the Disclosure Schedule, and
all other information regarding MNS and its business, condition, assets,
liabilities, operations, financial performance and net income that has been
furnished to Purchaser or any of its Representatives by or on behalf of
MedicalControl, Seller or MNS or any of MedicalControl's, Seller's or MNS'
Representatives, including copies of Material Agreements and other documents, is
accurate and complete in all material respects.
SECTION 2.28 POWER OF ATTORNEY. MedicalControl, Seller and MNS have not given a
power of attorney to any person with respect to the business, operations or
assets of MNS.
SECTION 2.29 SOLVENCY. Upon consummation of the Closing, after giving effect to
the consummation of all of the transactions contemplated hereby, including
without limitation receipt of
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the payments to be made to Seller as contemplated in this Agreement, neither
MedicalControl nor Seller will (a) be insolvent (either because its financial
condition is such that sum of its debts is greater than the fair value of its
assets or because the present fair salable value of its assets will be less than
the amount required to pay its probable liability on its debts as they become
absolute and matured), (b) have unreasonably small capital with which to engage
in its business or (c) have incurred (and reasonably believes it will not incur)
debts beyond its ability to pay as they become absolute and matured.
SECTION 2.30 CORPORATE NAME. Since January 1, 1999, MNS has not done or
conducted business under, and currently is not conducting business under, any
name or other corporate identity other than as set forth in the Disclosure
Schedule.
SECTION 2.31 YEAR 2000. To the Knowledge of MedicalControl and Seller, all
operating system, application and other computer software included in the assets
owned by MNS is currently Year 2000 Compliant. "Year 2000 Compliance" or "Year
2000 Compliant" as used in this Agreement shall mean with respect to any
computer software or other microprocessor dependent equipment: (i) the
functions, calculations, and other computing processes of the equipment or
software perform in a consistent and correct manner without interruption
regardless of the date on which the processes are actually performed, whether
before, on, or after January 1, 2000; (ii) the equipment or software accepts,
calculates, compares, sorts, extracts, sequences, and otherwise processes date
inputs and date values, and returns and displays date values, in a consistent
and correct manner regardless of the dates used whether before, on, or after
January 1, 2000; (iii) the equipment or software accepts, stores, displays and
responds to date information in a manner that resolves any ambiguities as to
century in a defined, predetermined, and appropriate manner; and (iv) leap years
will be determined by the following standard: (A) if dividing the year by 4
yields an integer, it is a leap year, except for years ending in 00, but (B) a
year ending in 00 is a leap year if dividing it by 400 yields an integer.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to MedicalControl, Seller and
MNS as follows:
SECTION 3.1 ORGANIZATION. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as is now being conducted. Purchaser is
duly qualified or licensed to do business as a foreign corporation and is in
good standing in each jurisdiction in which the property owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so duly
qualified or licensed and in good standing would not have a Material Adverse
Effect.
SECTION 3.2 AUTHORIZATION; VALIDITY OF AGREEMENT; NECESSARY ACTION. Purchaser
has the corporate power and authority to execute and deliver this Agreement and
to consummate the transactions contemplated hereby and to make all payments
required to be made by
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Purchaser to Seller under this Agreement. The execution, delivery and
performance by Purchaser of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by all necessary
corporate proceedings, and no other corporate action on the part of Purchaser is
necessary to authorize the execution and delivery by Purchaser of this Agreement
and the consummation by it of the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Purchaser and, assuming due
and valid authorization, execution and delivery hereof by MedicalControl, Seller
and MNS, this Agreement constitutes a valid and binding obligation of Purchaser,
enforceable against it in accordance with its terms, except that (a) such
enforcement may be subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (b) the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
SECTION 3.3 CONSENT AND APPROVALS; NO VIOLATIONS. Neither the execution,
delivery nor performance of this Agreement by Purchaser nor the consummation by
Purchaser of the transactions contemplated hereby will (a) violate any provision
of the certificate of incorporation or bylaws of Purchaser; (b) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, cancellation
or acceleration) under, any of the terms, conditions or provisions of any
agreement to which Purchaser is a party or by which Purchaser or any of its
properties or assets may be bound; (c) violate any order, writ, judgment,
injunction, decree, law, statute, rule or regulation applicable to Purchaser or
any of its properties or assets, or (d) except for those filings required
pursuant to applicable state and federal securities laws, require on the part of
Purchaser any filing or registration with, notification to, or authorization,
consent or approval of any Governmental Entity.
SECTION 3.4 ACQUISITION FOR INVESTMENT. The Shares will be acquired for
investment for Purchaser's own account, not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof, and Purchaser has no
present intention of selling, granting any participation in or otherwise
distributing the same. Purchaser does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Shares.
SECTION 3.5 BROKERS OR FINDERS. Purchaser represents, as to itself, its
subsidiaries and its Affiliates, that no agent, broker, investment banker,
financial advisor or other firm or Person is or will be entitled to any broker's
or finder's fee or any other commission or similar fee in connection with any of
the transactions contemplated by the Agreement, except for a payment to be made
by Purchaser to John Funk & Associates, and Purchaser shall indemnify and hold
Seller and its Affiliates harmless from any liability for payment of any fees or
expenses to the foregoing.
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ARTICLE IV
COVENANTS
SECTION 4.1 TAX MATTERS.
(a) MEDICALCONTROL AND SELLER INDEMNIFICATION. MedicalControl and
Seller shall, jointly and severally, be liable for, and shall indemnify and hold
Purchaser harmless against, any and all Taxes imposed on MNS relating or
apportioned to any taxable year or taxable period ending on or before the
Closing Date, but only to the extent of any federal income taxes accruing prior
to the Closing Date or, as to all other Taxes, to the extent that such Taxes
exceed the amount of Taxes set forth as a liability on the Closing Balance
Sheet, as finally adjusted pursuant to Section 1.7. To appropriately apportion
any income Taxes relating to any taxable year beginning before and ending after
the Closing Date, the parties shall apportion such income Taxes to the taxable
period ending on or before the Closing Date by a closing of MNS' books
consistent with its past practices for reporting items, except that (i)
exemptions, allowances or deductions that are calculated on a time basis, such
as the deduction for depreciation, shall be apportioned on a time basis and (ii)
all Taxes relating to actions occurring after the Closing shall be apportioned
to the period ending after the Closing Date. To appropriately apportion any
non-income Taxes relating to any taxable year beginning before and ending after
the Closing Date, the parties shall apportion such non-income Taxes to the
taxable period ending on or before the Closing Date as follows: (i) ad valorem
Taxes (including, without limitation real and personal property taxes) shall be
accrued on a daily basis over the period for which such Taxes are levied, or if
it cannot be determined over the period such Taxes are being levied, over the
fiscal period of the relevant taxing authority in each case irrespective of the
lien or assessment date of such Taxes, (ii) all Taxes relating to actions
occurring after the Closing shall be apportioned to the period ending after the
Closing Date and (iii) franchise and other privilege Taxes not measured by
income shall be accrued on a daily basis over the period to which the privilege
relates. Furthermore, any attribute which was created in a taxable year or
taxable period ending on or before the Closing Date, and which Seller or
MedicalControl has utilized with respect to such period, shall be solely for the
benefit of Seller and MedicalControl.
(b) PURCHASER AND MNS INDEMNIFICATION. Purchaser and MNS shall be
liable for, and shall indemnify and hold Seller and any of its Affiliates
harmless against, any and all Taxes imposed on MNS relating or apportioned to
any taxable year or taxable period ending after the Closing Date including,
without limitation, all Taxes set forth on the Closing Balance Sheet, as finally
adjusted pursuant to Section 1.7.
(c) PREPARATION OF TAX RETURNS. MedicalControl and Seller shall prepare
and file, or cause to be filed, all federal Tax Returns (including amended
federal Tax Returns) relating to MNS for any taxable year or taxable period
ending on or prior to the Closing Date; provided, however, that MNS shall file
all informational filings that relate to any tax period ending on or prior to
the Closing Date, but which do not become due until after the Closing Date.
Purchaser shall prepare and file, or cause MNS to prepare and file, all other
Tax Returns relating to MNS covering periods prior to Closing.
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(d) REFUNDS OR CREDITS. Purchaser or MNS shall promptly pay to Seller
or MedicalControl any refunds or credits (including interest thereon) relating
to Taxes for which Seller or MedicalControl is liable under Section 4.1(a)
hereof or which were set forth as a liability on the Closing Balance Sheet. For
purposes of this Section 4.1(d), the terms "refund" and "credit" shall include a
reduction in Taxes and the use of an overpayment of Taxes as an audit or other
Tax offset. Receipt of a refund shall occur upon the filing of a Tax Return or
an adjustment therein using such reduction, overpayment or offset, or upon the
receipt of cash. Upon the reasonable request of MedicalControl or Seller,
Purchaser shall prepare and file, or cause to be prepared and filed, all claims
for refunds relating to such Taxes; provided, however, that (i) Purchaser shall
not be required to file such claims for refund to the extent such claims for
refund would have a Material Adverse Effect in the future, and (ii) Purchaser
shall be reimbursed for its expenses in preparing and filing such claims.
Purchaser shall be entitled to all other refunds and credits of Taxes; provided,
however, Purchaser will not allow the amendment of any Tax Return relating to
any Taxes for a period (or portion thereof) ending on or prior to the Closing
Date or the carryback of an item to a period ending prior to Closing without
MedicalControl's or Seller's consent, which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, if there is an adjustment to any
taxable year or taxable period of MNS ending on or before the Closing Date, and
Purchaser or MNS (directly or indirectly) obtains a deferred tax benefit as a
result of such adjustment, then Purchaser shall promptly provide a notice of
such change and benefit to Seller and, when the tax benefit is realized by
Purchaser or MNS, it immediately shall pay to Seller or MedicalControl an amount
in cash equal to the dollar amount of such benefit.
(e) MUTUAL COOPERATION. As soon as practicable, but in any event within
fifteen (15) days after either Seller's or Purchaser's request, as the case may
be, Purchaser shall deliver to Seller or Seller shall deliver to Purchaser, as
the case may be, such information and other data relating to the Tax Returns and
Taxes of MNS and shall provide such other assistance as may reasonably be
requested, to cause the completion and filing of all Tax Returns or to respond
to audits by any taxing authorities with respect to any Tax Returns or taxable
periods or to otherwise enable Seller, Purchaser or MNS to satisfy their
accounting or Tax requirements. For a period of five (5) years from and after
the Closing, Purchaser and Seller shall, and shall cause their Affiliates to,
maintain and make available to the other party, on such other party's reasonable
request, copies of any and all information, books and records referred to in
this Section 4.1(e).
(f) CONSENT. Whenever any taxing authority asserts a claim, makes an
assessment or otherwise disputes the amount of Taxes (i) for which
MedicalControl or Seller is or may be liable under this Agreement, or (ii) that
relate to a taxable year or taxable period ending on or before the Closing Date,
or if such taxing authority delivers a notice of proposed audit for such a
taxable period, Purchaser shall promptly inform MedicalControl or Seller within
five (5) business days, provided it or MNS is informed thereof. MedicalControl
or Seller shall have the right to control any resulting proceedings and to
determine whether and when to settle any such claim, assessment or dispute to
the extent such proceedings or determinations affect the amount of Taxes for
which MedicalControl or Seller may be liable under the Agreement. If Purchaser
fails to provide such notice and such failure shall prejudice Seller's or
MedicalControl's ability to defend such claim, assessment or dispute, then
Seller's or MedicalControl's obligation under Section 4.1(a) shall be null and
void with regard to such claim, assessment or dispute to the extent of such
prejudice. Without
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limiting the foregoing, Purchaser shall promptly provide copies to
MedicalControl or Seller of any correspondence from any taxing authority
relating to any taxable year or taxable period ending or on or before the
Closing Date, or relating to Taxes for which Seller or MedicalControl may be
liable. Whenever any taxing authority asserts a claim, makes an assessment or
otherwise disputes the amount of Taxes for which Purchaser is liable under this
Agreement, Purchaser shall have the right to control any resulting proceedings
and to determine whether and when to settle any such claim, assessment or
dispute, except to the extent such proceedings affect the amount of Taxes for
which Seller or MedicalControl may be liable under this Agreement, in which case
Seller and MedicalControl shall have the foregoing rights to control the
proceedings (but only to such extent). Purchaser further agrees that the statute
of limitations for any taxable year or taxable period ending on or before the
Closing Date shall not be extended without the prior written consent of
MedicalControl and Seller.
(g) SURVIVAL OF OBLIGATIONS. The obligations of the parties set forth
in this Section 4.1 shall be unconditional and absolute, and shall remain in
effect until thirty (30) days after the expiration of the applicable statute of
limitations.
SECTION 4.2 PUBLICITY. The initial press releases with respect to the execution
of this Agreement shall be reasonably acceptable to Purchaser and Seller. For
one (1) year after the date of this Agreement none of Purchaser, Seller or
MedicalControl nor any of their respective Affiliates shall issue or cause the
publication of any press release with respect to the transaction contemplated
hereby or this Agreement without the prior agreement of the other party which
agreement shall not be unreasonably withheld, except as may be required by law
or by any listing agreement with a national securities exchange and except for
any disclosure consistent with any other disclosure previously approved by the
other party.
SECTION 4.3 FURTHER ASSURANCES. Each party agrees to use all reasonable efforts
to take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
SECTION 4.4 USE OF NAMES. MedicalControl and Seller shall cease using any and
all trade names, trademarks, logos and trade dress belonging to MNS in its
literature, inventory, products, labels, packaging, supplies or other materials
relating to MNS (including the name "MedicalControl") as soon as available
supplies thereof are exhausted and in any event within one hundred twenty (120)
days after the Closing Date. In addition, within the foregoing 120 day period
Seller and MedicalControl shall take such steps as may be necessary to change
the names of Seller and MedicalControl to a name that shall be sufficiently
different from "MedicalControl" so that there shall be no reasonable chance of
confusion with Purchaser's operation of the business of MNS after the Closing.
The necessary steps shall include filing both a change of name certificate in
its jurisdiction of incorporation and a change of name certificate in any
jurisdiction where the filing of such a certificate may be required. Subsequent
to the change of name, MedicalControl will instruct its transfer agent to begin
procedures to exchange its outstanding stock certificates for certificates
bearing its new name; however, the parties acknowledge that all of such
certificates may not be exchanged prior to the expiration of such 120 day
period.
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SECTION 4.5 NON-COMPETITION. None of MedicalControl, Seller nor any of their
Affiliates, shall own, operate or manage, either directly or through any
subsidiary or affiliated company, in the United States for a period of three (3)
years from and after the Closing Date any preferred provider network business in
which MNS is engaged as of the Closing Date; provided, however, that it is
understood that Seller owns ppoONE.com, inc., ValueCheck, Inc. and Diversified
Group Administrators, Inc. (together the "Other Subsidiaries") and that neither
MedicalControl's nor Seller's ownership, operation and active management (direct
or indirect) of the Other Subsidiaries or any other business or venture engaged
in the same businesses as engaged in by the Operating Subsidiaries as of the
Closing Date shall not constitute a violation of this Section 4.5. The parties
agree that certain of the Other Subsidiaries may from time to time offer back
office services to preferred provider organizations, such as credentialing and
repricing, without violating this Section 4.5.
SECTION 4.6 NON-SOLICITATION. For a period of two (2) years from and after the
Closing Date, none of Purchaser, Seller or MedicalControl will, either for
itself or any other Person, (a) induce or attempt to induce any employee to
leave the employ of the other party or any other entity controlled by,
controlling or under common control with such party, (b) in any way interfere
with the relationship between the other party or any of its Affiliates and any
of their respective employees, (c) employ, or otherwise engage as an employee,
independent contractor or otherwise, any employee of the other party or any of
its Affiliates, or (d) except for any customer of ValueCheck, Inc. and any
customer of Purchaser or MNS approached by ValueCheck, Inc., induce or attempt
to induce any customer, supplier, licensee, or business relation of the other
party or any of its Affiliates to cease doing business with the other party or
such Affiliate, or in any way interfere with the relationship between any
customer, supplier, licensee, or business relation of the other party or such
Affiliate. The provisions of this Section 4.6 shall not prohibit the Purchaser's
employment of any employee of MNS in connection with the consummation of the
transactions contemplated by this Agreement.
SECTION 4.7 PROPRIETARY INFORMATION. Unless and until the Closing occurs, each
party shall keep and retain in confidence and shall not use for any purpose
other than to evaluate the transactions contemplated under this Agreement any
and all of the confidential and proprietary information respecting the other
parties set forth or referenced in the Disclosure Schedule or otherwise provided
to the receiving party by the disclosing party in connection with or in
anticipation of the Closing, irrespective of the form in which it is delivered
or when delivered (the "Proprietary Information"). The preceding requirement
shall not apply to Proprietary Information that (a) a party was in the
possession of, or was rightfully known by, the receiving party or its
Representatives, without an obligation to maintain its confidentiality prior to
receipt from the disclosing party or its Representatives, (b) is or becomes
generally known to the public without violation of this Agreement, (c) is
obtained by the receiving party or its Representatives in good faith from a
third party having the right to disclose it without an obligation of
confidentiality, or (d) is independently developed by the receiving party or its
Representatives without the participation of individuals who have had access to
the Proprietary Information. In the event the Agreement is terminated prior to
Closing for any reason, the receiving party agrees to either return to the
disclosing party all of the Proprietary Information subject to this Section 4.7
(including all copies) in its possession or under its control or to purge, shred
or otherwise destroy all such Proprietary Information not returned, at the
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option of the disclosing party. The receiving party shall, and shall cause each
of its Representatives to, keep and maintain all Proprietary Information subject
to this Section 4.7 confidential in any case in which Closing does not occur and
not avail itself of or use any of such Proprietary Information for its own
benefit. The receiving party shall promptly certify its compliance with the
foregoing in the event of any termination of the Agreement. The foregoing
agreements are in addition to and not in place of the parties' respective
obligations under the confidentiality agreement described in Section 10.6.
SECTION 4.8 RETAINED LIABILITIES. Except for (i) the BankOne Debt and any other
long term indebtedness of any of MNS (the BankOne Debt and any other long term
indebtedness MNS, including without limitation current portions of long term
indebtedness, are referred to herein collectively as "Seller Debt"), and (ii)
the payment of (X) Taxes for which Seller and MedicalControl are liable as
provided under Section 4.1(a), including income taxes for which they are liable
under such Section, and (Y) employee benefits for which Seller and
MedicalControl are liable under Sections 5.2 and 5.3 (collectively such Taxes
and employee benefits are referred to herein as the "Retained Liabilities"),
Purchaser and Seller agree that neither Seller nor MedicalControl is retaining,
nor shall they be deemed to have assumed or be obligated to assume or be liable
for the payment or performance of any Liability relating to MNS following the
Closing. At all times after the Closing, MNS shall be solely liable for any
Liabilities of MNS other than the Retained Liabilities. Seller and
MedicalControl shall be solely liable for payment of any Retained Liabilities.
ARTICLE V
EMPLOYEES AND EMPLOYEE BENEFITS
5.1 HIRING EMPLOYEES.
(a) All employees of MNS who are employed by MNS as of September 1,
2000 are identified on the Disclosure Schedule, and provided their employment is
not terminated prior to the Closing (whether voluntarily or involuntarily), such
employees will be employed by MNS immediately following the Closing. Such
employees are referred to in this Agreement as "Assumed Employees".
(b) Purchaser agrees that, for a period of sixty (60) days after the
Closing Date, it will not cause any of the Assumed Employees hired by it to
suffer "employment loss" for purposes of the WARN Act if such employment loss
could create any Liability for Seller or its Affiliates, unless Purchaser
delivers notices under the WARN Act in such a manner and at such a time that
Seller and its Affiliates bear no Liability with respect thereto. The parties
agree that the foregoing provisions are for the benefit and protection of Seller
and MedicalControl, and no Assumed Employee is intended to be, nor shall be
deemed to be, a third party beneficiary of Purchaser's obligations under this
Article IV.
5.2 EMPLOYEE BENEFIT PLANS. Except as expressly provided otherwise in this
Article V and except for any Liabilities set forth on the Closing Balance Sheet
(as finally adjusted pursuant to Section 1.7), Seller and MedicalControl shall
have and retain exclusive liability and responsibility for providing any and all
benefits due and payable to or in respect of participants and other
beneficiaries
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under any Employee Plan currently available to employees of MNS in accordance
with the terms of such plans and applicable law. After the Closing, Purchaser
and/or MNS shall replace the Employee Plans with such employee benefit plans as
they deem appropriate for the benefit of the Assumed Employees.
5.3 WORKERS' COMPENSATION; SEVERANCE.
(a) MedicalControl and Seller retain all responsibility for any
workers' compensation claims arising out of work performed by employees of MNS
prior to the Closing for which claims have been filed prior to the Closing Date
or within six (6) months thereafter. All other workers' compensation claims
shall constitute part of the Liabilities of MNS being acquired by Purchaser
hereunder.
(b) MedicalControl and Seller shall be solely responsible for paying
the "change in control" payments that would become due to either or both Rick
Huntington or Ralph Smith under their current employment agreements with MNS, as
a result of the Closing hereunder and the acquisition of MNS by Purchaser.
MedicalControl and Seller shall not be obligated to make such payments hereunder
unless Purchaser maintains the effectiveness of the current employment agreement
of the applicable employee and employs such person following the Closing in
accordance with the terms of such agreements, and no payments will be made by
Seller or MedicalControl for any termination of such employees by Purchaser or
MNS after the Closing.
ARTICLE VI
INDEMNIFICATION
SECTION 6.1 INDEMNIFICATION BY MEDICALCONTROL AND SELLER. Subject to the limits
set forth in this Article VI, MedicalControl and Seller agree, jointly and
severally to indemnify, defend and hold Purchaser, MNS and their respective
officers, directors, agents and Affiliates, harmless from and in respect of (a)
any and all losses, damages, Liabilities, costs and expenses (including without
limitation, reasonable expenses of investigation and defense fees and
disbursements of counsel and other professionals) (collectively, "Losses"),
arising directly or indirectly out of or directly or indirectly due to any
inaccuracy of any representation or the breach of any warranty, covenant,
undertaking or other agreement of MedicalControl, Seller or MNS contained in
this Agreement or the Disclosure Schedule and (b) any Indebtedness relating to
any Seller Debt. As used in this Agreement, "Indebtedness" shall mean any debt
owed to any Person, contingent or otherwise, short term or long term, except for
payroll obligations, accounts payable and similar obligations arising in the
Ordinary Course of Business or shown on the Financial Statements.
SECTION 6.2 INDEMNIFICATION BY PURCHASER. Subject to the limits set forth in
this Article VI, Purchaser agrees to indemnify, defend and hold MedicalControl
and Seller, their respective officers, directors, agents and Affiliates,
harmless from and in respect of (a) any and all Losses that arise directly or
indirectly out of or are directly or indirectly due to any inaccuracy of any
representation or the breach of any warranty, covenant, undertaking or other
agreement of Purchaser contained in this Agreement, and (b) any and all
Liabilities of MNS disclosed on the Closing Balance
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Sheet, as finally adjusted pursuant to Section 1.7, including without limitation
any such Liabilities arising from (i) severance payments or costs relating to
the employees of MNS that arise from any termination following the Closing
(excluding any change of control provisions under the applicable employment
agreements referenced in Section 5.3), and (ii) Liabilities relating to
vacation, sick pay or other current employee benefit payments of such employees.
SECTION 6.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; LIMITATIONS ON
INDEMNITY. The several representations and warranties of the parties contained
in this Agreement or in any instrument delivered pursuant to this Agreement will
survive the Closing Date and will remain in full force and effect thereafter for
a period of eighteen (18) months from the Closing Date (unless the person
seeking indemnification had knowledge of the existence of the particular breach
of warranty or inaccuracy of representation hereunder from which the claim
arises prior to Closing); provided, however, that the representations and
warranties contained in Sections 2.2 and 2.3, and the indemnification
obligations related thereto, will remain in full force and effect indefinitely
(unless the person seeking indemnification had knowledge of the existence of the
particular breach of warranty or inaccuracy of representation hereunder from
which the claim arises prior to Closing); provided, further, that the
representations and warranties contained in Section 2.13, and the
indemnification obligations related thereto, will remain in full force and
effect for a period equal to the applicable statute of limitations (unless the
person seeking indemnification had knowledge of the existence of the particular
breach of warranty or inaccuracy of representation hereunder from which the
claim arises prior to Closing); and provided, further, that such representations
or warranties, and such related indemnification obligations, shall survive (if
at all) beyond such period with respect to any inaccuracy therein or breach
thereof, notice of which shall have been duly given within such time period in
accordance with Article VI. Anything to the contrary contained herein
notwithstanding, no party shall be entitled to recover Losses from the other
unless and until the total of all claims for Losses with respect to any
inaccuracy or breach of any such representations or warranties or breach of any
covenants, undertakings or other agreements, whether such claims are brought
under this Article VI or otherwise, exceeds Three Hundred Thousand U.S. Dollars
($300,000) in the aggregate. If the total amount of such Losses exceeds Three
Hundred Thousand U.S. Dollars ($300,000), then the party entitled to recovery
hereunder shall be entitled to recover the amount of such Losses that are in
excess of the foregoing amount; provided, further, that no party shall be
entitled to recover from the other more than Eight Million Five Hundred Thousand
U.S. Dollars ($8,500,000), except in the case of fraud or intentional
misconduct. The foregoing limitations shall not apply to (i) Purchaser's right
to recover any Losses directly or indirectly resulting from any inaccuracy of
the representations and warranties contained in Sections 2.2, 2.3, 2.13 and
2.20, or from any breach of the covenants of Seller and MedicalControl set forth
in Sections 1.6, 1.7(e), Article IV or Article V, or (ii) MedicalControl's and
Seller's rights to recover any Losses directly or indirectly resulting from any
inaccuracy of the representations and warranties contained in Section 3.5, or
from any breach of the covenants of Purchaser or MNS set forth in Section
1.7(e), Article IV or Article V. Furthermore, the parties agree that if
Purchaser has made a payment to Seller or MedicalControl under Section 1.7(e)
because of an increase in the Adjusted Working Capital, then Purchaser may
recover any Losses resulting from the inaccuracy of the representations and
warranties contained in Section 2.24, without regard to the dollar limitations
above, but only up to the amount of such payment by Purchaser.
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SECTION 6.4 NOTICE AND OPPORTUNITY TO DEFEND. If an event occurs which a party
asserts is an indemnifiable event pursuant to Section 6.1 or 6.2, the party
seeking indemnification (the "Indemnitee") shall promptly notify the other party
obligated to provide indemnification (the "Indemnifying Party"). If such event
involves (a) any claim or (b) the commencement of any action or proceeding by a
third Person, the Indemnitee will give such Indemnifying Party prompt written
notice of such claim or the commencement of such action or proceeding; provided,
however, that the Indemnitee's failure to provide prompt notice as provided
herein will relieve the Indemnifying Party of its obligations hereunder only to
the extent that such failure prejudices the Indemnifying Party hereunder. If any
such action is brought against any Indemnitee and it notifies the Indemnifying
Party of the commencement thereof, the Indemnifying Party shall be entitled to
participate therein and, to the extent that it wishes, to assume the defense
thereof, with counsel reasonably satisfactory to the Indemnitee. After notice
from the Indemnifying Party to the Indemnitee of such election to so assume the
defense thereof, the Indemnifying Party shall not be liable to the Indemnitee
for any legal expenses of other counsel or any other expenses subsequently
incurred by the Indemnitee in connection with the defense thereof, and the
Indemnitee agrees to cooperate fully with the Indemnifying Party and its counsel
in the defense against any such asserted liability. The Indemnitee shall have
the right to participate at its own expense in the defense of such asserted
liability. In no event shall an Indemnifying Party be liable for any settlement
effected by the Indemnitee without the consent of the Indemnifying Party, which
will not be unreasonably withheld. In no event shall an Indemnifying Party
effect any settlement without the consent of the Indemnitee, which will not be
unreasonably withheld.
SECTION 6.5 MITIGATION OF LOSS; ADJUSTMENTS INSURANCE AND TAX.
(a) Each Indemnitee is obligated to use reasonable efforts to mitigate
to the fullest extent practicable the amount of any Loss for which it is
entitled to seek indemnification hereunder.
(b) If any claims or potential claims are made by third parties against
an Indemnitee for which an Indemnifying Party would be liable, and it appears
likely that such claims might also be covered by the Indemnitee's insurance
policies, the Indemnitee shall make a claim under such policies, within the time
limits required thereby, and to the extent that such party obtains any recovery
from such insurance, such recovery shall be offset against any sums due from an
Indemnifying Party (or shall be repaid by the Indemnitee to the extent that an
Indemnifying Party has already paid any such amounts). The parties acknowledge,
however, that if an Indemnitee is self-insured as to any matters, either
directly or through an insurer which assesses retroactive premiums based on loss
experience, then to the extent that the Indemnitee bears the economic burden of
any claims through self-insurance or retroactive premiums or insurance ratings,
the Indemnifying Party's obligation shall only be reduced by any insurance
recovery in excess of the amount paid or to be paid by the Indemnitee in
insurance premiums.
SECTION 6.6 SUBROGATION. Upon making any payment of Losses of the Indemnitee,
the Indemnifying Party will, to the extent of such payment, be subrogated to all
rights of the Indemnitee against any third party in respect of the Loss to which
the payment relates; provided, however, that until the Indemnitee recovers full
payment of its Loss, any and all claims of the Indemnifying Party against any
such third party on account of such payment are hereby made expressly
subordinated and
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subjected in right of payment of the Indemnitee's rights against such third
party. Without limiting the generality of any other provision hereof, each such
Indemnitee and Indemnifying Party will duly execute upon request all instruments
reasonably necessary to evidence and perfect the above described subrogation and
subordination rights.
SECTION 6.7 TAX INDEMNIFICATION. None of the provisions of Article VI, with the
exception of Section 6.5, shall apply to the claims, obligations, liabilities,
covenants and representations under Section 4.1, which shall be governed solely
by the terms thereof.
SECTION 6.8 EXCLUSIVE REMEDY. Following the Closing, the indemnification
provided for in this Article VI shall be the sole and exclusive remedy of the
parties and their respective officers, directors, employees, affiliates, agents,
Representatives, successors and assigns for any breach of or inaccuracy in any
representation or warranty or any breach, nonfulfillment or default in the
performance of any of the covenants or agreements contained in this Agreement
(but not any such covenants or agreements to the extent they are by their terms
to be performed after the Closing Date). The parties shall not be entitled to a
rescission of this Agreement or to any further indemnification rights or claims
of any nature whatsoever in respect thereof (whether by contract, common law,
statute, law, regulation or otherwise, including, without limitation, under the
Racketeer Influence and Corrupt Organizations Act of 1970, as amended), all of
which the parties hereby waive; provided, however, nothing herein is intended to
waive any claims for fraud.
SECTION 6.9 INVESTIGATION. The parties agree that to the extent the
representations, warranties, covenants and obligations of the parties are
supplemented as contemplated by Section 7.4, then all parties shall be deemed to
have Knowledge of the matters so supplemented, and the rights and remedies that
may be exercised by the Indemnitees with respect to such matters shall be
limited as set forth in the first sentence of Section 6.3 above; provided, that
in such event Purchaser shall have the termination rights set forth in Section
7.4.
ARTICLE VII
PRE-CLOSING COVENANTS OF MEDICALCONTROL AND SELLER
SECTION 7.1 ACCESS AND INVESTIGATION. MedicalControl and Seller shall ensure
that, at all times from the date hereof to and until the Closing Date or the
earlier termination of this Agreement (the "Pre-Closing Period"):
(a) MedicalControl and Seller will provide Purchaser and its
Representatives with free and complete access at reasonable times and with
reasonable notice to MNS' premises and assets, and to all existing books,
records, Tax Returns, work papers and other documents and information relating
to MNS;
(b) MedicalControl, Seller and their Representatives will compile and
provide Purchaser and its Representatives with such additional financial,
operating and other data and information regarding MNS as Purchaser may
reasonably request in good faith;
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(c) MedicalControl, Seller and their Representatives will provide
Purchaser with a monthly accounting of any transactions between Seller or
MedicalControl and MNS; and
(d) Seller will afford Purchaser with access to the Assumed Employees
of MNS during normal business hours; provided that such access shall not
unreasonably interfere with the conduct of the business of MNS, and provided
further, that Seller may, at its election, cause its representatives or
employees to be present at such times.
SECTION 7.2 OPERATION OF BUSINESS. Unless Seller or MedicalControl first obtains
a written waiver from Purchaser, Seller and MedicalControl shall ensure that,
during the Pre-Closing Period:
(a) MNS will conduct its operations exclusively in the Ordinary Course
of Business and consistent with past practice and will use its commercially
reasonable efforts to preserve intact its current business organization, keep
available the services of its current officers and employees and maintain its
relations and goodwill with all suppliers, customers, landlords, creditors,
licensors, licensees, employees and other Persons having business relationships
with MNS;
(b) MedicalControl and Seller shall keep in full force all insurance
policies identified in the Disclosure Schedule;
(c) MedicalControl, Seller and MNS shall immediately notify Purchaser
of any inquiry, proposal or offer (an "Acquisition Proposal") from any Person
relating to any transaction (an "Acquisition Transaction") involving: (i) the
sale or other disposition of all or any portion of MNS' business or assets
(other than in the Ordinary Course of Business); (ii) the issuance, sale or
other disposition of (A) any capital stock of Seller or MNS, (B) any option,
call, warrant or right (whether or not immediately exercisable) to acquire any
capital stock of Seller or MNS, or (C) any security, instrument or obligation
that is or may become convertible into or exchangeable for any capital stock of
Seller or MNS; or (iii) any merger, consolidation, business combination, share
exchange, reorganization or similar transaction involving Seller or MNS;
(d) except as provided in Section 7.5, MNS will not effect or become a
party to any Acquisition Transaction;
(e) MNS will not form any subsidiary or acquire any equity interest or
other interest in any other Person;
(f) MNS will not make any capital expenditure in excess of Ten Thousand
Dollars ($10,000) or otherwise outside the Ordinary Course of Business;
(g) MNS will not enter into any contract involving annual payments by
MNS in excess of Twenty-Five Thousand Dollars ($25,000);
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(h) MNS will not incur, assume or otherwise become subject to any
Liability, except for current liabilities (of the type required to be reflected
in a balance sheet prepared in accordance with GAAP) incurred in the Ordinary
Course of Business;
(i) MNS will not establish or adopt any new Employee Plan, amend any
existing Employee Plan or pay any bonus or make any profit-sharing or similar
payment to, or increases the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its directors,
officers or employees, except for merit increases made to employees in the
Ordinary Course of Business;
(j) none of MedicalControl, Seller nor MNS will change any of its
methods of accounting or accounting practices in any respect with regard to MNS,
except as required by GAAP or applicable laws;
(k) MNS will not make any Tax Election, and Seller and MedicalControl
will make no Tax Election affecting MNS;
(l) MNS shall not commence any action, suit, litigation, arbitration,
proceeding (including any civil, criminal, administrative, investigative or
appellate proceeding and any informal proceeding), prosecution, contest,
hearing, inquiry, inquest, audit, examination or investigation, that is brought,
conducted or heard by or before, or that otherwise has involved, any Government
Entity or any arbitrator or arbitration panel;
(m) MNS will not (i) acquire, dispose of, transfer, lease, license,
mortgage, pledge or encumber any fixed or other assets, other than in the
Ordinary Course of Business; (ii) incur, assume or prepay any Indebtedness,
Liability or obligation or issue any debt securities, other than in the Ordinary
Course of Business; (iii) assume, guarantee, endorse or otherwise become liable
or responsible (whether directly, contingently or otherwise) for the obligations
of any other Person (other than a wholly-owned subsidiary), other than in the
Ordinary Course of Business; or (iv) make any loans, advances or capital
contributions to, or investments in, any other Person, other than in the
Ordinary Course of Business;
(n) none of MedicalControl, Seller or MNS will enter into or amends any
agreement pursuant to which any other party is granted distribution, marketing
or other rights of any type or scope with respect to any of the services,
products or technology of MNS;
(o) neither Seller nor will pay, discharge or satisfy, in any amount in
excess of Ten Thousand Dollars ($10,000) in any one case or Thirty Thousand
Dollars ($30,000) in the aggregate, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise) arising
other than in the Ordinary Course of Business, other than the payment, discharge
or satisfaction of Liabilities reflected or reserved against the Financial
Statements or reasonably incurred in connection with the transactions
contemplated by this Agreement; and
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(p) except as provided in Section 7.5, none of MedicalControl, Seller
or will enter into any transaction or take any other action that likely would
cause or constitute a breach of any representation, warranty or covenant made by
Seller or MNS in this Agreement.
Notwithstanding the foregoing, nothing in this Section 7.2 shall prohibit MNS
from (i) prepaying any obligation under contract, instrument or other agreement
to which it is a party or by which it or its assets are bound or (ii)
dividending or otherwise transferring cash, directly or indirectly, to Seller.
SECTION 7.3 FILINGS AND CONSENTS.
(a) MedicalControl and Seller covenant and agree that each filing or
notice required to be made or given (pursuant to any applicable legal
requirement, order or contract, or otherwise) by MedicalControl, Seller or MNS
in connection with the execution and delivery of this Agreement or in connection
with the consummation or performance of any of the transactions contemplated
hereby shall be made or given as promptly as practicable after the date of this
Agreement.
(b) MedicalControl and Seller shall use commercially reasonable efforts
to obtain or cause to be obtained each consent required to be obtained (pursuant
to any applicable legal requirement, order or contract, or otherwise) by Seller
or MNS in connection with the execution and delivery of this Agreement or in
connection with the consummation or performance of any of the transactions
contemplated hereby (including each of the consents identified as requiring
consent thereto in Sections 2.5(b) and 2.5(c) of the Disclosure Schedule) as
promptly as practicable after the date of this Agreement and each of such
consents shall remain in full force and effect through the Closing Date; the
parties hereto acknowledge and agree that obtaining the consents identified in
Sections 2.5(b) and 2.5(c) is not a condition to Closing under this Agreement,
however, any Losses incurred by Purchaser and/or MNS with respect to any of such
consents that are not obtained prior to Closing will be deemed to have been
incurred as a result of a breach of the representations under Section 2.5
(notwithstanding the listing of such required consents in Section 2.5 of the
Disclosure Schedule), and accordingly shall be subject to indemnification under
Article VI;
(c) MedicalControl and Seller shall promptly deliver to Purchaser a
copy of each filing made, each notice given and each consent obtained by
MedicalControl and Seller during the Pre-Closing Period; and
(d) during the Pre-Closing Period, MedicalControl, Seller and their
Representatives shall cooperate with Purchaser and with Purchaser's
Representatives, and prepare and make available such documents and take such
other actions as Purchaser may request in good faith, in connection with any
filing, notice or consent that Purchaser is required or elects to make, give or
obtain.
SECTION 7.4 NOTIFICATION.
(a) During the Pre-Closing Period, MedicalControl and Seller shall
promptly notify Purchaser of:
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(i) the discovery by MedicalControl, Seller or MNS of any
event, condition, fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused or constitutes a
breach of any representation or warranty made by MedicalControl, Seller
or MNS in this Agreement;
(ii) any event, condition, fact or circumstance that occurs,
arises or exists after the date of this Agreement and that would cause
or constitute a breach of any representation or warranty made by
MedicalControl, Seller or MNS in this Agreement if (a) such
representation or warranty had been made as of the time of the
occurrence, existence or discovery of such event, condition, fact or
circumstances, or (b) such event, condition, fact or circumstance had
occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of
MedicalControl, Seller or MNS herein; or
(iv) any event, condition, fact or circumstance that may make
the timely satisfaction of any of the conditions set forth in Section
9.1, Section 9.2 or Section 9.3 impossible or unlikely.
(b) MedicalControl and Seller shall have right to supplement the
Disclosure Schedule prior to Closing with respect to any transaction permitted
under Section 7.2 or any matter described in Section 7.4(a) above which occurs
during the Pre-Closing Period, and shall do so in writing by notice to
Purchaser. Such supplementation is not a waiver by Purchaser of any breach of a
representation or warranty as to the matter so supplemented until the Closing
and the Closing shall be deemed a waiver of all breaches of representations or
warranties or covenants hereunder to the extent such breach is noted by a
supplement prior to Closing. Notwithstanding the foregoing, the parties agree
that Purchaser shall have the right to terminate this Agreement by notice
delivered to Seller or MedicalControl within five (5) business days of any such
change in the Disclosure Schedule, if, but only if, the matters so supplemented
considered in the aggregate (including the effects of all such disclosures after
the date of this Agreement) would constitute a Material Adverse Effect on MNS.
If Purchaser so terminates this Agreement as a result of a change that reflects
matters of which MedicalControl, MNS or Seller had Knowledge as of the date
hereof, but were omitted from the Disclosure Schedule, then the parties hereto
will immediately thereafter execute a letter terminating this Agreement pursuant
to Section 10.1(a) hereof, and Purchaser shall be paid an amount equal to the
Cancellation Fee (as defined in Section 10.3).
SECTION 7.5 NO NEGOTIATION. During the Pre-Closing Period, none of
MedicalControl, Seller, MNS or any of their Representatives directly or
indirectly: (a) shall solicit or encourage the initiation of, or continue any
existing discussions or negotiations with respect to, any inquiry, proposal or
offer from any Person (other than Purchaser) relating to any Acquisition
Transaction; (b) shall participate in any discussions or negotiations with, or
provide any non-public information to, any Person (other than Purchaser)
relating to any Acquisition Transaction; or (c) shall consider the merits of any
unsolicited inquiry, proposal or offer from any Person (other than Purchaser)
relating to any Acquisition Transaction. Notwithstanding any of the foregoing,
MedicalControl or Seller may furnish information pursuant to a confidentiality
agreement concerning MedicalControl's business,
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properties or assets, including without limitation those of MNS, to a
corporation, partnership, person or other entity or group (a "Potential
Acquirer") with respect to any Acquisition Proposal if (x) MedicalControl's
Board of Directors is advised by its financial advisor that such Potential
Acquirer has the financial wherewithal to consummate an Acquisition Transaction
that would yield a higher value to MedicalControl's stockholders than will the
sale of the Shares to Purchaser, (y) MedicalControl's Board of Directors
determines that such Potential Acquirer is reasonably likely to submit a bona
fide offer to consummate an Acquisition Transaction on terms that would yield
such a higher value to MedicalControl's stockholders if provided with
confidential information about Seller, MedicalControl and/or MNS, and (z) after
consultation with counsel, MedicalControl's Board of Directors determines in
good faith that the failure to provide such confidential information may
constitute a breach of its fiduciary duty to stockholders of MedicalControl.
Following receipt of a bona fide offer from a Potential Acquirer proposing an
Acquisition Transaction, which offer the Board of Directors of MedicalControl
determines would likely yield a higher value to the stockholders of
MedicalControl than will the sale of the Shares to Purchaser, MedicalControl
and/or Seller may with respect to such Potential Acquirer, negotiate and take
any of the actions otherwise prohibited by this Section 7.5 if, in the opinion
of the Board of Directors of MedicalControl determined in good faith after
consultation with counsel, the failure to negotiate with such Potential Acquirer
may constitute a breach by the Board of Directors of its fiduciary duty to the
stockholders of MedicalControl. The Board of Directors shall notify Purchaser
immediately if any such written Acquisition Proposal is made and shall in such
notice indicate the financial terms and conditions of any such proposal, subject
to the terms and conditions of any confidentiality agreement. MedicalControl may
enter into a definitive agreement for an Acquisition Transaction with a
Potential Acquirer with which it is permitted to negotiate pursuant to this
Section 7.5; provided, however, that prior to MedicalControl's execution thereof
MedicalControl shall have provided Purchaser a notice indicating
MedicalControl's intent to enter into such agreement and describing all the
material financial terms of such agreement. Following the execution of such a
definitive agreement, Purchaser or MedicalControl may terminate this Agreement
in accordance with Article X hereof.
SECTION 7.6 BEST EFFORTS. During the Pre-Closing Period, MedicalControl and
Seller shall not take any action or omit to take any action, the taking or
omission of which would or could reasonably be expected to result in any of the
representations and warranties set forth in Section 2 of this Agreement becoming
untrue or in any of the conditions of Closing set forth in Sections 9.1, 9.2 or
9.3 not being satisfied, except as contemplated by Section 7.5.
SECTION 7.7 CONFIDENTIALITY; PUBLICITY.
(a) During the Pre-Closing Period: (i) MedicalControl, Seller, MNS and
their Representatives shall keep strictly confidential the existence and terms
of this Agreement prior to the issuance or dissemination of any mutually agreed
upon press release or other disclosure of the transactions contemplated
hereunder; (ii) none of MedicalControl, Seller, MNS nor any of their
Representatives shall issue or disseminate any press release or other publicity
or otherwise make any disclosure of any nature (to any of MNS' suppliers,
customers, landlords, creditors or employees or to any other Person) regarding
any of the transactions contemplated by this Agreement, except as required by
federal securities laws or other applicable laws and except as otherwise agreed
by the parties; and (iii) if MedicalControl, Seller or MNS is required by law to
make any disclosure
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regarding the transactions contemplated by this Agreement, MedicalControl or
Seller shall advise Purchaser, at least two (2) business days prior to making
such disclosure, of the nature and content of the intended disclosure.
Notwithstanding anything to the contrary herein, any required public disclosures
related to any regulatory or governmental filing or requirement may be made by
Seller, without Purchaser's consent, after providing notice thereof to Purchaser
and giving Purchaser an opportunity to comment on such disclosure.
(b) MedicalControl and Seller shall take reasonable steps to ensure
that on and at all times after the Closing Date, each of them shall keep
strictly confidential, and shall not use, or disclose to any other Person, any
non-public document or other information in MedicalControl's, Seller's, or an
Affiliate's possession that relates directly or indirectly to the business of
MNS, Purchaser or any Affiliate of Purchaser. This obligation shall survive
Closing.
SECTION 7.8 PURCHASE OF TAIL COVERAGE BY SELLER. For any "claims made" policy
listed in the Disclosure Schedule, Seller or MedicalControl will purchase
insurance coverage or an endorsement that extends the reporting period for three
(3) years from the Closing Date with respect to claims arising during the period
beginning December 1, 1996, and ending on the Closing Date.
SECTION 7.9 INTERCOMPANY TRANSACTIONS. Seller and MNS shall conduct all
intercompany transactions solely in the Ordinary Course of Business, except as
permitted by Section 1.6 of this Agreement.
SECTION 7.10 DUE DILIGENCE REVIEW. In connection with the transactions
contemplated hereunder, Seller and MedicalControl have agreed to allow Purchaser
to have a specific period to interview certain customers of MNS after signing
this Agreement, a list of which is attached as Exhibit B hereto (the "Key
Customers"), as set forth in this Section. Purchaser agrees to complete its
customer interviews with the Key Customers (the "Due Diligence Review"), no
later than October 25, 2000 at 5:00 p.m., Central Standard Time; provided, that
Seller shall have scheduled interviews with each of the Key Customers on or
before such date, and if Seller fails to do so, then the foregoing date shall be
extended until the date on which the final Key Customer to be interviewed has a
scheduled interview. In connection with and to facilitate the foregoing, the
parties further agree as follows:
(a) If Purchaser desires to contact any customers of MNS, then it shall
notify MNS of such desire, and MNS shall assist Purchaser in contacting such
customers and shall accompany Purchaser on any interviews or meetings during the
Pre-Closing Period. Purchaser shall not contact any of MNS' customers without a
representative of MNS.
(b) Purchaser shall provide written notice to MNS on or before October
25, 2000 at 5:00 p.m., Central Standard Time (or such later date as provided
above), that as a result of matters discovered in customer interviews during its
Due Diligence Review, Purchaser is foregoing its acquisition of the Shares, and
upon timely delivery of such notice this Agreement shall be terminated
immediately and without any further action by the parties. If Purchaser does not
provide a notice of
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termination hereunder on or before such date, then its rights to terminate this
Agreement under this Section 7.10 shall be waived.
ARTICLE VIII
PRE-CLOSING COVENANTS OF PURCHASER
SECTION 8.1 BEST EFFORTS. During the Pre-Closing Period, Purchaser shall not
take any action or omit to take any action, the taking or omission of which
would or could reasonably be expected to result in any of the representations
and warranties set forth in Section 3 of this Agreement becoming untrue or in
any of the conditions of Closing set forth in Sections 9.1, 9.2 or 9.3 not being
satisfied.
SECTION 8.2 CONFIDENTIALITY; PUBLICITY.
(a) During the Pre-Closing Period: (i) Purchaser and its
Representatives shall keep strictly confidential the existence and terms of this
Agreement prior to the issuance or dissemination of any mutually agreed upon
press release or other disclosure of the transactions contemplated hereunder;
(ii) neither Purchaser nor any of its Representatives shall issue or disseminate
any press release or other publicity or otherwise make any disclosure of any
nature (to any of MNS' suppliers, customers, landlords, creditors or employees
or to any other Person) regarding any of the transactions contemplated by this
Agreement, except as required by federal securities laws or other applicable
laws and except as otherwise agreed by the parties; and (iii) if Purchaser is
required by law to make any disclosure regarding the transactions contemplated
under this Agreement, Purchaser shall advise MedicalControl and Seller, at least
two (2) business days prior to making such disclosure, of the nature and content
of the intended disclosure.
(b) Purchaser shall take commercially reasonable steps to ensure that
on and at all times after the Closing Date it shall keep strictly confidential,
and Purchaser shall not use, or disclose to any other Person, any non-public
document or other information in Purchaser's possession that relates directly or
indirectly to the business of MedicalControl, Seller or any Affiliate of
MedicalControl or Seller (after giving effect to the Closing). This obligation
shall survive Closing.
ARTICLE IX
CONDITIONS
SECTION 9.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE CLOSING. The
obligations of Seller and MedicalControl, on the one hand, and Purchaser, on the
other to consummate the Closing are subject to the satisfaction (or, if
permissible, waiver by the party for whose benefit such conditions exist) of the
following conditions:
(a) no arbitrator or Governmental Entity shall have issued any order,
decree or ruling, and there shall not be any statute, rule or regulation,
restraining, enjoining or prohibiting the consummation of the transactions
contemplated by this Agreement; provided that the parties shall have used their
best efforts to cause any such order, decree, statute, rule or regulation to be
vacated or lifted;
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(b) all authorizations, approvals or consents required to permit the
consummation of the transactions contemplated hereby, including without
limitation the consent of MedicalControl's stockholders, shall have been
obtained and be in full force and effect;
(c) John R. Black, III (successor in interest to Fouad Al-Ghanim d/b/a
Regal Gardens), as Landlord (so called herein) and MNS shall have entered into
an Amendment to Lease Agreement relating to the premises located at 8625 King
George Drive, Dallas, Texas 75235, which is held by MNS pursuant to the Office
Lease Agreement, dated June 28, 1996, as amended, between MNS, as Tenant to
exclude Suite 400 from the Lease (a consent from the Landlord shall be included
within the foregoing Amendment); and
(d) Purchaser and ppoONE.com, inc., a subsidiary of Seller, shall have
entered into the Data Center Agreement in the form attached as Exhibit C hereto.
SECTION 9.2 CONDITIONS TO THE OBLIGATIONS OF PURCHASER. The obligations of
Purchaser to consummate the transactions contemplated hereby are subject to the
satisfaction (or waiver by Purchaser) of the following further conditions:
(a) the representations and warranties of Seller and MedicalControl
shall be true and accurate as of the Closing Date as if made at and as of such
time (other than those representations, and warranties that address matters only
as of a particular date or only with respect to a specific period of time which
need to be true and accurate only as of such date or with respect to such
period);
(b) MedicalControl and Seller shall have performed in all material
respects the obligations hereunder required to be performed by them at or prior
to the Closing Date;
(c) Purchaser shall have received a certificate signed by two executive
officers of Seller and MedicalControl, dated as of the Closing Date, to the
effect that, to the best of their Knowledge, the conditions set forth in Section
9.2(a) and Section 9.2(b) have been satisfied;
(d) Purchaser shall have received duly executed resignations from all
of MNS' directors and such officers as requested by Purchaser effective as of
the Closing Date;
(e) Seller or an Affiliate of Seller shall have paid in full all
outstanding Seller Debt as of the Closing Date and any due and payable Retained
Liabilities as of such date or made arrangements for a concurrent payment at the
Closing;
(f) there shall have been no Material Adverse Effect with respect to
MNS' business, condition (financial or otherwise), assets, liabilities,
operations or financial performance since March 31, 2000;
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(g) since the date of this Agreement, there shall not have been
commenced or threatened against Purchaser or against any Person affiliated with
Purchaser, any Proceeding (i) involving any challenge to, or seeking damages or
other relief in connection with, any of the transactions contemplated hereunder,
or (ii) that are reasonably likely to have the effect of preventing, delaying,
making illegal or otherwise interfering with any of the transactions
contemplated hereunder or having a material adverse effect on Purchaser;
(h) Seller or MedicalControl shall have delivered to Purchaser on or
prior to the Closing Date, copies of Uniform Commercial Code filings executed by
BankOne releasing all of the liens filed in any jurisdiction by BankOne against
any of the assets of MNS or the Shares;
(i) Seller and MNS shall have obtained the consents necessary to
ensure, on and after the Closing Date, the continuation in full force of the
lease in Dallas referenced in the Disclosure Schedule or shall have arranged
pursuant to a sublease or otherwise to ensure that MNS shall be entitled to all
of the same rights and benefits of such leases after the Closing Date as MNS is
entitled to immediately before the execution of this Agreement; and
(j) Purchaser shall have received an opinion letter from Hallett &
Perrin, P.C., in the form of Exhibit D hereto.
SECTION 9.3 CONDITIONS TO THE OBLIGATIONS OF SELLER. The obligations of Seller
and MedicalControl to consummate the transactions contemplated hereby are
subject to the satisfaction (or waiver by Seller) of the following conditions:
(a) the representations and warranties of Purchaser shall be true and
accurate as of the Closing Date as if made at and as of such time (other than
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which need to
be true and accurate only as of such date or with respect to such period);
(b) Purchaser shall have performed in all material respects all of the
obligations hereunder required to be performed by Purchaser, at or prior to the
Closing Date;
(c) Seller and MedicalControl shall have received a certificate signed
by two executive officers of Purchaser, dated as of the Closing Date, to the
effect that, to the best of their Knowledge the conditions set forth in Section
9.3(a) and Section 9.3(b) have been satisfied; and
(d) Seller shall have received an opinion of Morrison & Foerster LLP,
in the form of Exhibit E hereto.
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ARTICLE X
TERMINATION
SECTION 10.1 TERMINATION. This Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date whether
before or after stockholder approval:
(a) by mutual written consent of Seller and Purchaser;
(b) by either Seller or Purchaser if the transactions contemplated
hereby shall not have been consummated on or before the 180th day following the
date of this Agreement;
(c) by Purchaser as provided in Section 7.4(b);
(d) by Seller if there shall have been any material breach of a
representation and warranty or obligation of Purchaser hereunder and, if such
breach is curable, such default shall have not been remedied within ten (10)
days after receipt by Purchaser of notice in writing from Seller specifying such
breach and requesting that it be remedied; provided, that such ten (10) day
period shall be extended for so long as Purchaser shall be making all reasonable
attempts to cure such breach, unless the breach is not susceptible of a cure;
(e) by Purchaser if there shall have been any material breach of a
representation and warranty or obligation of Seller or MNS hereunder and, if
such breach is curable, such default shall not have been remedied within ten
(10) days after receipt by Seller of notice in writing from Purchaser specifying
such breach and requesting that it be remedied; provided, that such ten (10) day
period shall be extended for so long as Seller shall be making all reasonable
attempts to cure such breach, unless the breach is not susceptible of a cure;
(f) by either Seller or Purchaser if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the consummation of the transactions
contemplated hereby and such order, decree, ruling or any other action shall
have become final and non-appealable; provided, that the terminating party did
not commence or request the action in question; or
(g) by either Seller or Purchaser in the event that Seller or
MedicalControl enters into transaction documents providing for the consummation
of an Acquisition Proposal by a Potential Acquirer, as contemplated in Section
7.5.
SECTION 10.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided above, this Agreement shall forthwith become of no further
effect and, except for a termination resulting from a breach by a party of this
Agreement, there shall be no liability or obligation on the part of any party
(except as set forth in Section 8.2 hereof which shall survive the termination).
Moreover, in the event of termination of this Agreement pursuant to Section
10.1(c) or 10.1(d), nothing herein shall prejudice the ability of the
non-breaching party from seeking
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damages from any other party for any breach of this Agreement, including,
without limitation, attorneys' fees and the right to pursue any remedy at law or
in equity.
SECTION 10.3 CANCELLATION FEES; EXPENSE.
(a) If this Agreement is terminated by Purchaser, Seller,
MedicalControl or MNS pursuant to Section 7.5 or 10.1(g), as a result of the
execution of a definitive agreement for the sale of MNS ("Seller Cancellation"),
then Seller and MNS, jointly and severally, shall pay to Purchaser a fee in the
amount of Three Hundred Thousand U.S. Dollars ($300,000) in cash, plus all
expenses of Purchaser with respect to the transaction (including third party
fees and costs and attorneys fees) in an amount not to exceed Fifty Thousand
U.S. Dollars ($50,000) (the "Cancellation Fee"). Furthermore, if this Agreement
is terminated by Purchaser pursuant to Section 10.1(b) as a result of the
failure to obtain the consent of MedicalControl's stockholders ("Purchaser
Cancellation"), then Seller and MNS, jointly and severally, shall pay to
Purchaser the Cancellation Fee.
(b) The Cancellation Fee as provided for in Section 10.3(a) above shall
be paid by MedicalControl, Seller and MNS, jointly and severally, within ten
(10) days of a Seller Cancellation or Purchaser Cancellation, as applicable. If
MedicalControl, Seller and MNS, fail to pay any amount pursuant to this Section
10.3 when due, MedicalControl, Seller and MNS, shall pay interest thereon, from
the date due until the date paid in full, at the Prime Rate as announced from
time to time by Bank of America or any successor thereto and shall reimburse
Purchaser for all reasonable attorneys' fees and other costs and expenses
incurred by Purchaser in collecting such amount from such terminating parties.
Each party agrees that in the event of a Seller Cancellation or Purchaser
Cancellation, it would be impracticable or extremely difficult to fix the actual
damages resulting from such breach, and therefore, the applicable party shall
pay to the other party, as liquidated damages and not as a penalty, the
Cancellation Fee, which sum represents a reasonable endeavor by the parties to
estimate a fair compensation for the foreseeable losses that might result from a
Seller Cancellation or Purchaser Cancellation. The non-breaching party's sole
remedy for any losses arising from a Seller Cancellation or Purchaser
Cancellation, or any of the events leading up to either of the foregoing, shall
be the liquidated damages provided for in this Section 10.3, and any and all
other claims, actions or proceedings arising from this Agreement shall
thereafter be waived.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 KNOWLEDGE. An individual shall be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
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A corporation shall be deemed to have "Knowledge" of a particular fact or matter
only if a director or executive officer of such corporation has or had Knowledge
of such fact or matter or, with respect to Seller and MedicalControl, if the
directors, executive officers and/or the persons listed on Exhibit F hereto had
Knowledge of such fact or matter.
SECTION 11.2 GOVERNING LAW AND CONSENT TO JURISDICTION; VENUE. The laws of the
State of Delaware (irrespective of its choice of law principles) shall govern
all issues concerning the validity of this Agreement, the construction of its
terms and the interpretation and enforcement of the right and duties of the
parties. Each party irrevocably submits to the exclusive jurisdiction of the
courts of the State of Delaware and the federal courts of the United States of
America located in Delaware (and the Delaware state and federal courts having
jurisdiction over appeals therefrom) in respect of the transaction contemplated
by this Agreement, the other agreements and documents referred to herein and the
transactions contemplated by this Agreement and such other documents and
agreements. The parties further agree to, and hereby do, waive the defenses of
forum non conveniens or improper venue with respect to any action brought by the
other party in either such courts.
SECTION 11.3 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented in any and all respects only
by written agreement duly executed and delivered by all of the parties.
SECTION 11.4 NOTICES. All notices, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly given (a)when
delivered by hand or by Federal Express or a similar overnight courier; (b) five
(5) days after being deposited in any United States Post Office enclosed in a
postage prepaid, registered or certified envelope addressed; or (c)when
successfully transmitted by telecopier (with a confirming copy of such
communication to be sent as provided in clauses (a) or (b) above), to the
receiving party at the address or telecopier number set forth below (or at such
other address or telecopier number for a party as shall be specified by like
notice); provided however, that any notice of change of address or telecopier
number shall be effective only upon receipt:
(a) If to Purchaser, to:
Beyond Benefits, Inc.
301 E. Ocean Blvd., Suite 900
Long Beach, CA 92802
Telephone: (562) 308-7232
Telecopy: (562) 308-7332
Attention: Barbara Rodin, Ph.D.
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with a copy (which shall not constitute notice) to:
Morrison & Foerster LLP
Twelfth Floor
19900 MacArthur Boulevard
Irvine, CA 92612-2445
Telephone: (949) 251-7500
Telecopy: (949) 251-0900
Attention: Tamara P. Tate, Esq.
(b) If to MedicalControl or Seller, to:
MedicalControl Holdings, Inc.
8625 King George Drive, Suite 300
Dallas, Texas 75244
Telephone: (214) 630-6368
Telecopy: (214) 267-3356
Attn: J. Ward Hunt
with a copy (which shall not constitute notice) to:
Hallett & Perrin, P.C.
717 N. Harwood
Suite 1400
Dallas, Texas 75201
Telephone: (214) 953-0053
Telecopy: (214) 954-3154
Attn: Timothy R. Vaughan, Esq.
SECTION 11.5 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, all of which shall together be considered one and the same
agreement.
SECTION 11.6 ENTIRE AGREEMENT; THIRD PARTY BENEFICIARIES. This Agreement
(including the Disclosure Schedule and the other documents and instruments
referred to herein) (a) constitutes the entire agreement and supersedes any
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof, including without limitation that
certain Confidentiality Agreement, dated as of October 25, 1999, by and between
MedicalControl and Purchaser (the "Confidentiality Agreement") and (b) except as
expressly provided herein, are not intended to confer upon any Person other than
the parties herein any rights or remedies hereunder. Notwithstanding the
foregoing, nothing in this Agreement is intended to be a waiver by any Person of
its rights under the Confidentiality Agreement, and each party to the
Confidentiality Agreement shall be entitled to assert, at any time after
execution of this Agreement claims based on any alleged breach of the
Confidentiality Agreement, which breach is alleged to have occurred before the
execution of this Agreement.
44
<PAGE> 94
SECTION 11.7 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
SECTION 11.8 SERVICE OF PROCESS. Each party irrevocably consents to the service
of process outside the territorial jurisdiction of the courts referred to in
Section 11.2 hereof in any such action or proceeding by mailing copies thereof
by registered United States mail, postage prepaid, return receipt requested, to
its address as specified in or pursuant to Section 11.4 hereof. However, the
foregoing shall not limit the right of a party to effect service of process on
the other party by any other legally available method.
SECTION 11.9 SPECIFIC PERFORMANCE. Each party acknowledges and agrees that in
the event of any breach of this Agreement each non-breaching party would be
irreparably and immediately harmed and could not be made whole by monetary
damages. It is accordingly agreed that the parties will (a) waive, in any action
for specific performance, the defense of adequacy of a remedy at law and (b) be
entitled, in addition to any other remedy to which they may be entitled at law
or in equity, to compel specific performance of this Agreement in any action
instituted in accordance with Section 11.2.
SECTION 11.10 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by either party (whether by
operation of law or otherwise) without the prior written consent of the other
party. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by the parties and their respective
permitted successors and assigns.
SECTION 11.11 EXPENSES. Except as otherwise provided herein, all costs and
expenses incurred in connection with the transactions contemplated hereby, this
Agreement and the consummation of the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses, whether or not the
transactions contemplated hereby is consummated; provided that Seller and
MedicalControl shall be responsible for all costs and expenses of MNS.
SECTION 11.12 WAIVERS. Except as otherwise provided in Agreement, any failure of
either party to comply with any obligation, covenant, agreement or condition
herein may be waived by the party or parties entitled to the benefits thereof
only by a written instrument signed by the party granting such waiver, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure.
45
<PAGE> 95
SECTION 11.13 ATTORNEY FEES. In the event of a dispute with respect to the
subject matter of this Agreement, the prevailing party in any proceeding,
including arbitration commenced to resolve such disputes, shall be entitled to
an award of its reasonable attorneys fees and court or arbitration costs
incurred in resolving or settling the dispute, in addition to any and all other
damages or relief which the court or arbitrator may deem proper.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
46
<PAGE> 96
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first written above.
MEDICALCONTROL, INC.
a Delaware corporation
By: /s/ J. WARD HUNT
-------------------------------------
J. Ward Hunt
President and Chief Executive Officer
MEDICALCONTROL HOLDINGS, INC.
a Delaware corporation
By: /s/ J. WARD HUNT
-------------------------------------
J. Ward Hunt
President and Chief Executive Officer
MEDICALCONTROL NETWORK SOLUTIONS, INC.
a Delaware corporation
By: /s/ J. WARD HUNT
-------------------------------------
J. Ward Hunt
Chairman of the Board
BEYOND BENEFITS, INC.
a Delaware corporation
By: /s/ BARBARA E. RODIN
-------------------------------------
Barbara E. Rodin
President
47
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C>
EXHIBIT A DISCLOSURE SCHEDULE
EXHIBIT B KEY CUSTOMERS
EXHIBIT C DATA CENTER AGREEMENT
EXHIBIT D FORM OF OPINION - MEDICALCONTROL'S
AND SELLER'S COUNSEL
EXHIBIT E FORM OF OPINION - PURCHASER'S COUNSEL
EXHIBIT F KEY EMPLOYEES
</TABLE>
<PAGE> 98
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquisition Proposal 7.2
Acquisition Transaction 7.2
Adjusted Working Capital 1.7(f)
Affiliates 2.13(h)
Agreement Preamble
Assumed Employees 5.1(a)
BankOne 1.6(a)
BankOne Debt 1.6(a)
BHC Preamble
BHC Group Preamble
BHM Preamble
Cancellation Fee 10.3(a)
Closing 1.3(a)
Closing Balance Sheet 1.7(a)
Closing Date 1.3(a)
COBRA 2.9(f)
Code 2.9(a)
Disclosure Schedule Article II
Due Diligence Review 7.10
Employee Plan 2.9(a)
Encumbrances 1.1
ERISA 2.9(a)
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.5
Hazardous Materials 2.18
HCFA 2.26
Indemnifying Party 6.4
Indebtedness 6.1
Indemnitee 6.4
Independent Auditors 1.7(d)
Intellectual Property 2.15
IRS 2.9(h)
Key Customers 7.10
Knowledge 11.1
Liability 2.21
Losses 6.1
Material Adverse Effect 2.8
Material Agreement 2.16(a)
MedicalControl Preamble
</TABLE>
i
<PAGE> 99
<TABLE>
<S> <C>
Member of the Controlled Group 2.9(n)
MNS Preamble
Objection Report 1.7(c)
Ordinary Course of Business 2.7
Other Subsidiaries 4.5
Permits 2.12(a)
Person 2.8
Potential Acquirer 7.5
Pre-Closing Period 7.1
Proprietary Information 4.7
Purchase Price 1.2
Purchaser Preamble
Related Party 2.25(e)
Representatives 2.25(f)
Retained Liabilities 4.8
SEC 1.3(a)
Seller Preamble
Seller Cancellation 10.3(a)
Seller Debt 4.8
Shares Recitals
Tax Return 2.13(f)
Taxes 2.13(h)
WARN Act 1.6(d)
</TABLE>
ii
<PAGE> 100
APPENDIX B
<PAGE> 101
STOCK PURCHASE AGREEMENT
BY AND AMONG
HEALTHASPEX, INC.,
(THE "BUYER")
DIVERSIFIED GROUP ADMINISTRATORS, INC.
("DGA")
DIVERSIFIED GROUP INSURANCE
AGENCY OF PA, INC.
("DGIA")
AND
MEDICALCONTROL HOLDINGS, INC.
(THE "SELLER")
DATED AS OF NOVEMBER 14, 2000
<PAGE> 102
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I: DEFINITIONS...............................................................................1
ARTICLE II: STOCK PURCHASE...........................................................................1
2.1 Basic Transaction.....................................................................1
2.2 Purchase Price........................................................................2
2.3 Payment of Purchase Price.............................................................2
2.4 The Closing...........................................................................2
2.5 Escrow Arrangements...................................................................2
2.6 Preparation of Preliminary Closing Balance Sheet; Minimum Cash at Closing.............3
2.7 Post-Closing Adjustments..............................................................3
2.8 GRI Receivable Payments...............................................................4
2.9 Liabilities...........................................................................5
2.10 Cancellation of Stock Option, Deferred Bonus and Phantom Equity Plans.................6
ARTICLE III: REPRESENTATIONS AND WARRANTIES OF THE SELLER...........................................7
3.1 Organization of the Seller............................................................7
3.2 Authorization of Transaction..........................................................7
3.3 Noncontravention......................................................................7
3.4 Broker's Fees.........................................................................8
3.5 Operating Companies' Shares...........................................................8
ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF THE BUYER..............................................8
4.1 Organization of the Buyer.............................................................8
4.2 Authorization of Transaction..........................................................8
4.3 Noncontravention......................................................................9
4.4 Brokers' Fees.........................................................................9
4.5 Investment Representations............................................................9
ARTICLE V: REPRESENTATIONS AND WARRANTIES CONCERNING THE OPERATING COMPANIES.........................10
5.1 Organization, Qualification, and Corporate Power......................................10
5.2 Capitalization........................................................................10
5.3 Noncontravention......................................................................11
5.4 Subsidiaries..........................................................................11
5.5 Financial Statements..................................................................11
5.6 Events Subsequent to July 31, 2000....................................................11
5.7 Undisclosed Liabilities...............................................................12
5.8 Tax Matters...........................................................................13
5.9 Tangible Assets.......................................................................15
5.10 Owned Real Property...................................................................15
5.11 Intellectual Property.................................................................15
5.12 Real Property.........................................................................15
</TABLE>
<PAGE> 103
<TABLE>
<S> <C>
5.13 Contracts.............................................................................16
5.14 Notes and Accounts Receivable.........................................................18
5.15 Powers of Attorney....................................................................18
5.16 Insurance.............................................................................18
5.17 Litigation............................................................................18
5.18 Employees.............................................................................19
5.19 Pension and Benefits Plans............................................................19
5.20 ERISA Compliance in Business Affairs..................................................22
5.21 Guarantees............................................................................24
5.22 Environment, Health, and Safety.......................................................25
5.23 Legal Compliance......................................................................25
5.24 Certain Business Relationships........................................................26
5.25 Brokers' Fees.........................................................................26
5.26 Disclosure............................................................................26
ARTICLE VI: COVENANTS................................................................................27
6.1 General...............................................................................27
6.2 Conduct of Business Pending Closing...................................................27
6.3 Obtaining Stockholder Approval........................................................28
6.4 Litigation Support....................................................................28
6.5 Confidentiality.......................................................................28
6.6 Termination of Funded Indebtedness; Release of Guaranties.............................29
6.7 Landlords' Consents...................................................................29
6.8 Additional Tax Matters................................................................29
6.9 Covenant Not to Compete...............................................................30
6.10 GRI Receivable........................................................................31
6.11 Liability Payments....................................................................31
6.12 Post-Closing Adjustment and Audit Assistance..........................................31
6.13 Acquisition Proposals.................................................................31
6.14 Treatment of Operating Companies' Employees' Interests in Seller 401(k) Plan..........33
ARTICLE VII: CONDITIONS TO THE BUYER'S OBLIGATION TO CLOSE...........................................33
7.1 Representations and Warranties; No Material Adverse Change............................33
7.2 Covenants.............................................................................34
7.3 Required Consents, Approvals and Authorizations.......................................34
7.4 Claims................................................................................34
7.5 Operating Companies Shares............................................................34
7.6 Release of Liens......................................................................34
7.7 Tax Liens.............................................................................35
7.8 Seller Deliveries.....................................................................35
7.9 Minimum Net Worth.....................................................................35
ARTICLE VIII: CONDITIONS TO THE SELLER'S OBLIGATION TO CLOSE.........................................35
8.1 Representations and Warranties; No Material Adverse Change............................36
8.2 Covenants.............................................................................36
8.3 Required Consents, Approvals and Authorizations.......................................36
8.4 Claims................................................................................36
</TABLE>
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<PAGE> 104
<TABLE>
<S> <C>
8.5 Payment of Purchase Price.............................................................36
8.6 Buyer Deliveries......................................................................36
ARTICLE IX: REMEDIES FOR BREACH OF THIS AGREEMENT....................................................36
9.1 Survival..............................................................................36
9.2 Indemnification Provisions for Benefit of the Buyer...................................37
9.3 Indemnification Provisions for Benefit of the Seller..................................38
9.4 Matters Involving Third Parties.......................................................39
9.5 Indemnification Claims Procedure......................................................41
9.6 Payment of Buyer Claims...............................................................41
9.7 Payment of Seller Claims..............................................................41
9.8 Mitigation of Losses; Claims Net of Insurance Proceeds and Tax Benefits...............41
9.9 Subrogation...........................................................................42
9.10 Available Remedies....................................................................42
ARTICLE X: TERMINATION...............................................................................43
10.1 Termination of the Agreement..........................................................43
10.2 Effect of Termination.................................................................44
ARTICLE XI: MISCELLANEOUS............................................................................44
11.1 Press Releases and Announcements......................................................44
11.2 No Third-Party Beneficiaries..........................................................44
11.3 Entire Agreement......................................................................44
11.4 Succession and Assignment.............................................................44
11.5 Facsimile/Counterparts................................................................45
11.6 Headings..............................................................................45
11.7 Notices...............................................................................45
11.8 Governing Law.........................................................................46
11.9 Dispute Resolution....................................................................46
11.10 Amendments and Waivers................................................................47
11.11 Severability..........................................................................47
11.12 Expenses..............................................................................47
11.13 Construction..........................................................................47
11.14 Incorporation of Exhibits, Annexes, and Schedules.....................................48
11.15 Specific Performance..................................................................48
</TABLE>
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<PAGE> 105
EXHIBITS
Exhibit A Escrow Agreement
Exhibit B Operating Companies' Financial Statements
Exhibit C Form of Seller's Officer's Certificate
Exhibit D Form of Seller's Secretary's Certificate
Exhibit E Form of Opinion of the Seller's Legal Counsel
Exhibit F Form of Seller's Release
Exhibit G Form of Buyer's Officer's Certificate
Exhibit H Form of Buyer's Secretary's Certificate
ANNEXES
Annex A Definitions
Annex B July 31 Balance Sheet
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<PAGE> 106
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "AGREEMENT") is entered
into as of November 14, 2000, by and among HEALTHASPEX, INC., a Delaware
corporation (the "BUYER"), MEDICALCONTROL HOLDINGS, INC., a Delaware corporation
(the "SELLER"), DIVERSIFIED GROUP ADMINISTRATORS, INC., a Pennsylvania
corporation and wholly-owned subsidiary of the Seller ("DGA"), and DIVERSIFIED
GROUP INSURANCE AGENCY OF PA, INC., a Pennsylvania corporation and wholly-owned
subsidiary of the Seller ("DGIA" and, together with DGA, the "OPERATING
COMPANIES"). The Buyer, DGA, DGIA, the Operating Companies and the Seller are
referred to herein individually as a "PARTY" and collectively as the "PARTIES."
RECITALS:
A. The Seller owns all of the outstanding capital stock of the
Operating Companies.
B. This Agreement contemplates a transaction in which the
Buyer will purchase from the Seller, and the Seller will sell to the Buyer, all
of the outstanding capital stock of the Operating Companies.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the
mutual promises made herein, and the representations, warranties, and covenants
herein contained, the receipt and sufficiency of which is hereby acknowledged,
the Parties agree as follows:
ARTICLE I:
DEFINITIONS
Certain capitalized terms used in this Agreement have the
meanings specified or referred to in Annex A hereto, which annex is attached
hereto and incorporated herein and made a part hereof. Such terms shall be
equally applicable to both the singular and plural forms. Any agreement referred
to herein or in Annex A hereto shall mean such agreement as amended,
supplemented and modified from time to time to the extent permitted or required
by the applicable provisions thereof and by this Agreement.
ARTICLE II:
STOCK PURCHASE
2.1 BASIC TRANSACTION. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to purchase from the Seller, and
the Seller agrees to sell to the Buyer, all of the issued and outstanding shares
of Capital Stock of the Operating Companies (collectively, the "SHARES") for the
consideration specified below in this Article II, free and clear of all Security
Interests.
<PAGE> 107
2.2 PURCHASE PRICE. The purchase price for the Shares (the
"PURCHASE PRICE") shall be equal to $2,500,000, subject to any adjustment
required to be made pursuant to Section 2.7.
2.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be
payable by the Buyer at the Closing as follows:
(a) CASH PORTION. $2,350,000 of the Purchase Price
(adjusted as set forth in Section 2.6 below) shall be paid by the Buyer in cash
by wire transfer of funds to the account of the Seller as specified in writing
to the Buyer prior to Closing (the Purchase Price includes the payment of
$50,000 for the covenant not to compete provided in Section 6.9); and
(b) ESCROW PORTION. $150,000 of the Purchase Price
will be paid in cash by wire transfer of funds to the Escrow Agent to be held in
escrow in accordance with the Escrow Agreement described in Section 2.5.
2.4 THE CLOSING. The Closing of the transactions contemplated
by this Agreement (the "CLOSING") shall take place on 10:00 a.m., Eastern Time,
on a date mutually agreed to by the parties (which date shall be as soon as
practicable following the date on which all of the conditions to Closing set
forth in Articles VII and VIII have been satisfied), by facsimile transmission
of executed copies of this Agreement and all other documents and agreements to
be executed in connection with this Agreement by each Party to the other Party
(the date on which the Closing actually occurs, the "CLOSING DATE"), with each
of the transactions that occur at Closing being deemed to have occurred
simultaneously effective 12:01 a.m., Eastern Time, on the first day of the
calendar month in which approval has been obtained of the stockholders of
MedicalControl, Inc., a Delaware corporation and sole stockholder of the Seller
("MEDICALCONTROL") (such date, the "EFFECTIVE DATE").
2.5 ESCROW ARRANGEMENTS. Pursuant to the Escrow Agreement to
be entered into among the Buyer, the Seller and the Escrow Agent in
substantially the form attached hereto as Exhibit A (the "ESCROW AGREEMENT"),
$150,000 of the Purchase Price (together with all interest accrued thereon, the
"ESCROW SUM") shall be delivered to the Escrow Agent at Closing. The Escrow Sum
shall be held pursuant to the terms of the Escrow Agreement for payment from
such Escrow Sum of amounts, if any, owed by the Seller to the Buyer pursuant to
indemnity claims under Article IX. At the conclusion of the period ending on the
eighteen (18) month anniversary following the Closing Date (the "ESCROW
PERIOD"), such remaining portion of the Escrow Sum not claimed by or paid to the
Buyer in accordance with the terms of the Escrow Agreement and this Agreement
shall be disbursed to the Seller. The Buyer and the Seller agree that each will
execute and deliver such reasonable instruments and documents as are furnished
by any other party to enable such furnishing party to receive those portions of
the Escrow Sum to which the furnishing party is entitled under the provisions of
the Escrow Agreement and this Agreement.
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<PAGE> 108
2.6 PREPARATION OF PRELIMINARY CLOSING BALANCE SHEET; MINIMUM
CASH AT CLOSING. The Seller shall prepare, in consultation with the Buyer but at
its sole expense, a closing balance sheet of the Operating Companies as of the
Effective Date in accordance with GAAP and, to the extent consistent with GAAP,
consistent with the policies, practices and assumptions utilized in preparing
the July 31 Balance Sheet (the "PRELIMINARY CLOSING BALANCE SHEET"). The Seller
shall ensure that the cash on hand at the Operating Companies as of the Closing,
defined as: (a) the "cash and cash equivalents" of the Operating Companies,
minus (b) the sum of (i) the "accounts payable-trade" of the Operating Companies
and (ii) the "commissions payable" of the Operating Companies (in each case, the
quoted items are as shown on the Preliminary Closing Balance Sheet), is no less
than $250,000. The Preliminary Closing Balance Sheet, reflecting the minimum
cash figure discussed in the previous sentence, shall be delivered to the Buyer
within two (2) business days prior to the Closing Date.
2.7 POST-CLOSING ADJUSTMENTS.
(a) PREPARATION OF FINANCIAL STATEMENTS. Within
forty-five (45) days following the Closing Date, there shall be delivered to the
Seller a balance sheet at and as of the Effective Date (THE "INITIAL
POST-CLOSING BALANCE SHEET"), which shall be prepared at the Buyer's sole
expense by Arthur Andersen LLP ("AA"), the Buyer's independent accountants, in
accordance with GAAP and consistent with the policies, practices and assumptions
utilized in preparing the Preliminary Closing Balance Sheet. The Seller shall
have twenty (20) days to review the Initial Post-Closing Balance Sheet
(beginning on the date of receipt thereof) and, if the Seller does not provide
notice to the Buyer that it disputes any item(s) on the Initial Post-Closing
Balance Sheet within such time period, the Initial Post-Closing Balance Sheet
shall be final and binding upon the Parties. If the Seller disputes any items on
the Initial Post-Closing Balance Sheet within such time period and the Parties
cannot agree on the final adjustments to the Initial Post-Closing Balance Sheet
within ten (10) days after notice of the Seller's dispute was received by the
Buyer, then the Parties shall retain the Dallas, Texas office of Deloitte &
Touche LLP ("D&T") or, if D&T is unable to accept such appointment, jointly
select and retain another independent national accounting firm (other than AA,
Grant Thornton LLP and D&T) mutually agreeable to the parties (the "INDEPENDENT
ACCOUNTANTS") to review the disputed item(s) on the Initial Post-Closing Balance
Sheet. The final determination of such disputed item(s) by the Independent
Accountants shall be binding on the Parties and shall be reflected on a new
balance sheet (the "FINAL POST-CLOSING BALANCE SHEET"). The cost of preparing
the Final Post-Closing Balance Sheet, if one is prepared, shall be evenly
divided between the Buyer and the Seller.
(b) NET WORTH ADJUSTMENT. The Purchase Price will be
adjusted upward or downward, on a dollar-for-dollar basis, by the amount (such
amount, the "NET WORTH ADJUSTMENT"), if any, by which: (i) the Net Worth as
reflected on the Initial Post-Closing Balance Sheet or, if a Final Post-Closing
Balance Sheet has been prepared, the Final Post-Closing Balance Sheet, is
greater or less than (ii) $489,410 (the "NET WORTH Target"). For example, if the
Net Worth reflected on the Final Post-Closing Balance Sheet is equal to
$469,210, the Net Worth Adjustment shall be equal to -$20,200 [469,210 -
489,410], and the Purchase Price shall be reduced by $20,200.
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<PAGE> 109
(c) ACCOUNTS PAYABLE ADJUSTMENT. The Purchase Price
will also be adjusted upward or downward, on a dollar-for-dollar basis, by the
amount (such amount, the "ACCOUNTS PAYABLE ADJUSTMENT"), if any, equal to: (i)
the payments to be made by the Operating Companies under the "accounts
payable-premiums" accrual, minus (ii) the sum of (A) the "restricted cash" item,
and (B) all amounts received by the Operating Companies between the Effective
Date and forty-five (45) days thereafter for the "accounts receivable-trade"
accrual, net of allowance for doubtful accounts (in each case, the quoted items
are as shown on the Initial Post-Closing Balance Sheet or, if a Final
Post-Closing Balance Sheet has been prepared, the Final Post-Closing Balance
Sheet). If such amount is a positive number, the Purchase Price shall be reduced
by such amount. If such amount is a negative number, the Purchase Price shall be
increased by the absolute value of such amount. For example, if "accounts
payable-premiums," "accounts receivable-trade" accrual (net of allowance for
doubtful accounts amounts), and "restricted cash" as of the Effective Date are
determined under Section 2.7(a) to be equal to $680,000, $330,000 and $350,000,
respectively, and the Operating Companies receive $345,000 between the Effective
Date and forty-five (45) days thereafter for the "accounts receivable-trade"
accrual, net of allowance for doubtful accounts, then the Accounts Payable
Adjustment shall be equal to -$15,000 [$680,000 - ($350,000 + $345,000)], and
the Purchase Price shall be increased by $15,000. The Accounts Payable
Adjustment, together with the Net Worth Adjustment, is referred to collectively
as the "POST-CLOSING ADJUSTMENT." The Parties acknowledge and agree that the
amount set forth as the "restricted cash" item in the Preliminary Closing
Balance Sheet, the Initial Post-Closing Balance Sheet and, if one is prepared,
the Final Post-Closing Balance Sheet shall in each case be the difference
between the "accounts payable-premiums" and "accounts receivable-trade" (net of
allowance for doubtful accounts) accruals as of the Effective Date.
(d) PAYMENT OF POST-CLOSING ADJUSTMENTS. Any Net
Worth Adjustment resulting in payment being due to a Party shall be netted
against any Accounts Payable Adjustment resulting in payment being due from such
Party, and vice-versa. If the Post-Closing Adjustment, as so netted, results in
a payment being due to the Buyer, such amount shall be payable to the Buyer by
the Seller by certified check or wire transfer to the Buyer in immediately
available funds fifteen (15) days after (i) the Seller's time period in which to
dispute the Initial Post-Closing Balance Sheet has expired, or (ii) if a Final
Post-Closing Balance Sheet has been prepared, delivery to the Seller of the
Final Post-Closing Balance Sheet (the "DUE DATE"). If the Post-Closing
Adjustment, as so netted, results in a payment being due to the Seller, such
amount shall be paid by certified check or wire transfer to the Seller in
immediately available funds on or before the Due Date.
2.8 GRI RECEIVABLE PAYMENTS. The Buyer shall pay to the Seller
fifty-five percent (55%) of each payment made by Group Resources, Inc. ("GRI")
arising out of the sale of the Dallas, Texas division of DGA (the "DALLAS
DIVISION") to GRI (as reflected on the July 31 Balance Sheet as the "Receivable
from Sale of Division" (such receivable, the "GRI RECEIVABLE")), however, the
Parties agree and acknowledge that the amount actually paid by GRI pursuant to
the GRI Receivable may be more or less than the amount set forth on the July 31
Balance Sheet. The Buyer shall use commercially reasonable efforts in collecting
the GRI
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<PAGE> 110
Receivable and shall make the foregoing payments within ten (10) days after
receipt of the corresponding payments from GRI.
2.9 LIABILITIES. The Parties agree that the business of the
Operating Companies is structured in such a way as to avoid liability for health
care claims. However, the Parties acknowledge that the Operating Companies have
been, prior to the date of this Agreement, and will continue to be, after the
date of this Agreement, subject to Operating Company Claims (as defined in
Section 5.17) as a result of their operations. The Parties agree that, with
respect to these Operating Company Claims:
(a) NON-DALLAS LIABILITIES. Subject to the provisions
of Article IX, the Buyer shall be solely responsible for the payment of, and
shall indemnify and hold the Seller harmless from, all Losses relating to all
Claims made or threatened against either or both of the Operating Companies
before any court or quasi-judicial or administrative Governmental Body, or
before any arbitrator (each, an "OPERATING COMPANY CLAIM") (other than the
Dallas Liabilities discussed in Section 2.9(b) and the CBJ Plating Liability to
the extent set forth in Section 2.9(c)), whether such Operating Company Claims
were initiated before the Closing or are initiated after the Closing (such
Losses, the "NON-DALLAS LIABILITIES"), except that the Seller shall be solely
responsible for the payment of, and shall indemnify and hold the Buyer harmless
from, any Non-Dallas Liabilities if and to the extent that the Losses relating
to such Non-Dallas Liabilities exceed the sum of: (i) $75,000; (ii) the $145,000
reserve set forth in the July 31 Balance Sheet (or such lesser amount as is set
forth in the liability reserve in the Initial Post Closing Balance Sheet or, if
a Final Post-Closing Balance Sheet has been prepared, the Final Post-Closing
Balance Sheet); and (iii) forty-five percent (45%) of the amount due to be paid
by GRI pursuant to the GRI Receivable (such amount, the "ESTIMATED GRI
RECEIVABLE AMOUNT") (the sum of the items referred to in clauses (i) through
(iii), the "SELLER INDEMNITY DEDUCTIBLE"). On or immediately after the second
anniversary of the Closing Date, the Buyer shall determine the actual aggregate
amount received by it from the GRI Receivable as of the second anniversary of
the Closing Date (such amount, minus the aggregate amount paid to the Seller
pursuant to Section 2.8, the "ACTUAL GRI RECEIVABLE AMOUNT"). If the Actual GRI
Receivable Amount is less than the Estimated GRI Receivable Amount, then the
calculation made pursuant to the first sentence of this Section 2.9(a) shall be
recalculated using the Actual GRI Receivable Amount (instead of the Estimated
GRI Receivable Amount), and the Seller shall immediately pay to the Buyer any
amounts actually paid by the Buyer to the Seller or on the Seller's behalf
pursuant to the initial calculation that are not owed to the Seller pursuant to
the subsequent calculation (as a result of a lower Seller Indemnity Deductible).
If the Actual GRI Receivable Amount is more than the Estimated GRI Receivable
Amount, then the calculation made pursuant to the first sentence of this Section
2.9(a) shall be recalculated using the Actual GRI Receivable Amount (instead of
the Estimated GRI Receivable Amount), and the Buyer shall immediately pay to the
Seller any amounts actually paid by the Seller to the Buyer or on the Buyer's
behalf pursuant to the initial calculation that are not owed to the Buyer
pursuant to the subsequent calculation (as a result of a higher Seller Indemnity
Deductible).
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(b) DALLAS ASSETS AND LIABILITIES.
(i) ASSETS. The Operating Companies will
transfer to the Seller, prior to the Closing, all remaining assets of the Dallas
Division (as defined in Section 2.8), including, without limitation, any Claims
against third parties arising out of or resulting from operation of the Dallas
Division (such assets, the "DALLAS ASSETS"). The Parties acknowledge that the
Dallas Division drafted Third Party Plans for clients of other divisions of the
Operating Companies, and they agree that any Claims against third parties
arising from such plans shall not be deemed Dallas Assets, except with respect
to any third party Claims arising out of Third Party Plans which were
adjudicated by the Dallas Division. Upon the consummation of such transfer, the
above-described assets of the Dallas Division so transferred shall be assets of
the Seller and not assets of the Operating Companies.
(ii) LIABILITIES. The Seller shall be solely
responsible for the payment of, and shall indemnify and hold the Buyer harmless
from, all Losses relating to all Claims brought against the Operating Companies,
the Seller and/or the Buyer and/or any of their respective Affiliates arising
out of or resulting from operation of the Dallas Division, whether such Claims
were initiated before the Closing or are initiated after the Closing (such
Losses, the "DALLAS LIABILITIES"). The Parties acknowledge that the Dallas
Division drafted Third Party Plans for clients of other divisions of the
Operating Companies, and they agree that Claims arising from such plans shall
not be deemed Dallas Liabilities, except with respect to any third party Claims
adjudicated by the Dallas Division under such Third Party Plans. The Parties
agree that the Seller's potential liability pursuant to this Section 2.9(b) is
not subject to any limitation on liability set forth in Article IX or any other
provision of this Agreement and that such liabilities shall not be included in
determining whether or not the liabilities accrued by the Seller pursuant to
this Agreement have reached or exceeded the Seller General Indemnity Cap and/or
the Seller Absolute Indemnity Cap.
(c) CBJ PLATING LIABILITY. The Seller shall be solely
responsible for the payment of, and shall indemnify and hold the Buyer harmless
from, all Losses in excess of the sum of $25,000 incurred by the Operating
Companies, the Buyer and/or any of their respective Affiliates after the Closing
Date arising out of or resulting from the CBJ Plating and Machine, Inc.
litigation (as described in the Litigation Certificate (as defined in Section
5.17)) (such Losses, the "CBJ PLATING LIABILITY"). The Parties agree any Claims
arising from the CBJ Plating Liability shall be handled according to the
procedures for third party claims set forth in Section 9.4, and agree further
that the Seller Indemnity Deductible, the Seller General Indemnity Cap and the
Seller Absolute Indemnity Cap shall each be inapplicable to, and shall not in
any way limit, the potential liability of the Seller pursuant to this Section
2.9(d).
2.10 CANCELLATION OF STOCK OPTION, DEFERRED BONUS AND PHANTOM
EQUITY PLANS. The Seller shall have provided for the cancellation, on or prior
to the first day of the first calendar month following the Closing Date (the
"NEW PLAN EFFECTIVE DATE"), of any stock option, deferred bonus, and phantom
equity plans that are operated by the Operating Companies or are solely for
their benefit, if any, and all outstanding options, deferred bonuses, interests
or rights thereunder,
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at no cost to the Operating Companies or the Buyer. The Parties agree that the
Seller shall bear all of the expenses incurred in maintaining such plans during
the time period starting on the Closing Date and ending on the New Plan
Effective Date. The Operating Companies shall obtain such replacement plans as
are deemed appropriate and approved by the Buyer to take effect on the New Plan
Effective Date. The Parties acknowledge that the Operating Companies' employees
are currently entitled to participate, subject to the applicable rules thereof,
in certain benefits plans operated by the Seller and/or MedicalControl, which
plans shall survive the Closing. The Parties also acknowledge that the benefits
of the Operating Companies' employees under these plans will terminate on or
before the New Plan Effective Date or such later date as is required by the
terms of such plans.
ARTICLE III:
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller represents and warrants to the Buyer that, subject
to the specific qualifications and limitations set forth below, the statements
contained in this Article III are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date, except as set
forth in the Disclosure Schedules delivered by the Seller to the Buyer on the
date of this Agreement and updated on or prior to the Closing Date (the
"DISCLOSURE SCHEDULES"). The Disclosure Schedules consist of individually
lettered and numbered schedules that correspond to the numbered and lettered
sections contained in this Article III and in Article V. The disclosure of a
particular item in the Disclosure Schedules as an exception to one
representation and warranty made either in this Article III or in Article V will
not constitute disclosure of that item for purposes of any other representation
and warranty unless it would be reasonably apparent, in the mind of a reasonable
buyer, from the disclosure made in response to one representation and warranty,
that the particular disclosure item applies to the other representation and
warranty, regardless of whether the same item should or could have been
disclosed for the purposes of the other representation and warranty.
3.1 ORGANIZATION OF THE SELLER. The Seller is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware.
3.2 AUTHORIZATION OF TRANSACTION. Except as set forth on
Schedule 3.2, the Seller has full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and this
Agreement has been duly executed and delivered by the Seller. This Agreement
constitutes the valid and legally binding obligation of the Seller, enforceable
in accordance with its terms and conditions, except as may be limited by the
Equitable Exceptions. The Seller is not required to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
Governmental Body or, except as set forth on Schedule 3.2, its stockholders in
order to consummate the transactions contemplated by this Agreement.
3.3 NONCONTRAVENTION. Except as would not result in a Material
Adverse Change to the Seller, neither the execution and the delivery of this
Agreement by the Seller, nor the consummation of the transactions contemplated
hereby by the Seller, will: (a) violate any Requirements of Laws or Court Order
to which the Seller is subject; (b) contravene any provision of the Certificate
of Incorporation or Bylaws of the Seller; or (c) conflict with, result in a
breach of, constitute a
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default under, result in the acceleration of, create in any part the right to
accelerate, terminate, modify, or cancel, or require any notice under any
contract, lease, sublease, license, sublicense, franchise, permit, indenture,
agreement or mortgage for borrowed money, instrument of indebtedness, Security
Interest, or other arrangement to which the Seller is a party, by which it is
bound, or to which any of its assets are subject.
3.4 BROKER'S FEES. Except as set forth on Schedule 3.4, the
Seller has no Liability or obligation to pay any fees or commissions to any
broker, finder, or agent with respect to the transactions contemplated by this
Agreement for which the Buyer could become liable or obligated.
3.5 OPERATING COMPANIES' SHARES. The Seller holds of record
and owns beneficially all of the Shares, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), claims, unpaid Taxes, options, warrants, rights, contracts,
calls, commitments, equities, demands and, except as set forth on Schedule 3.5,
Security Interests. The Seller is not a party to any option, warrant, right,
contract, call, put, or other agreement or commitment providing for the
disposition or acquisition of any Capital Stock of the Operating Companies
(other than this Agreement). The Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of any
Capital Stock of the Operating Companies.
ARTICLE IV:
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller that the
statements contained in this Article IV are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date.
4.1 ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware.
4.2 AUTHORIZATION OF TRANSACTION. The Buyer has full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by the Buyer. This Agreement constitutes the
valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions except for the Equitable Exceptions. The Buyer
need not give any notice to, make any filing with, or obtain any authorization,
consent, or approval of, any Governmental Body to consummate the transactions
contemplated by this Agreement.
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4.3 NONCONTRAVENTION. Except as would not result in a Material
Adverse Change to the Buyer, neither the execution and the delivery of this
Agreement by the Buyer, nor the consummation of the transactions contemplated
hereby by the Buyer, will: (a) violate any Requirements of Laws or Court Order
to which the Buyer is subject or any provision of its articles of incorporation
or bylaws; (b) contravene any provision of the articles of incorporation or
bylaws of either or both of the Operating Companies; (c) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed money,
instrument of indebtedness, Security Interest, or other arrangement to which the
Buyer is a party or by which it is bound or to which any of its assets is
subject.
4.4 BROKERS' FEES. The Buyer has no Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Seller could become
liable or obligated.
4.5 INVESTMENT REPRESENTATIONS.
(a) INVESTMENT PURPOSE. The Buyer was not formed for
the purpose of acquiring the Shares. The Buyer is purchasing the Shares for
investment purposes and not with a present view to, or for sale in connection
with, a distribution thereof, within the meaning of the Securities Act. The
Buyer acknowledges that the Shares have not been registered under the Securities
Act or qualified under applicable state securities laws and understands the
restrictions on resale of such Shares imposed by the Securities Act and such
applicable state securities laws. The Buyer also acknowledges that the Seller
has no obligation to register the Shares, that there is presently no public
market for the Shares, and that there may never be a public market for the
Shares, and that, even if such a market develops, the Buyer may never be able to
sell or dispose of such Shares and, accordingly, the Buyer must bear the
economic risk of this investment potentially indefinitely.
(b) INFORMATION. The Buyer has been furnished all
documents relating to the business, finances and operations of the Operating
Companies which the Buyer requested from the Seller and has been able to
evaluate the risks and merits associated with an investment in the Shares to its
satisfaction. The Buyer has been afforded the opportunity to ask questions of
the Seller's representatives concerning the Operating Companies in making the
decision to purchase the Shares, and such questions have been answered to its
satisfaction. The foregoing, however, does not limit or modify in any way the
representations and warranties of the Seller in Article V or the right of the
Buyer to rely on such representations and warranties.
(c) BUYER'S QUALIFICATIONS. The Buyer is either: (i)
an accredited investor (as defined in Rule 501 under Regulation D promulgated
under the Securities Act); or (ii) a sophisticated Buyer (as described in Rule
506(b)(2)(ii) promulgated under the Securities Act), and Buyer is not an
"Investment Company" or a company "controlled" by an Investment Company (within
the meaning of the Investment Company Act of 1940, as amended). The Buyer is
capable of evaluating the merits and risks of an investment in the Shares.
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ARTICLE V:
REPRESENTATIONS AND WARRANTIES
CONCERNING THE OPERATING COMPANIES
The Seller represents and warrants to the Buyer that, subject
to the specific qualifications and limitations set forth herein, the statements
contained in this Article V are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date, except as set
forth in the Disclosure Schedules.
5.1 ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. Each of
the Operating Companies is a corporation duly organized, validly existing, and
in good standing under the laws of the Commonwealth of Pennsylvania. Except as
set forth on Schedule 5.1, each of the Operating Companies is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction in
which the nature of its businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to be so qualified would
not result in a Material Adverse Change to such Operating Company. Each of the
Operating Companies has full corporate power and authority to carry on the
businesses in which it is engaged and to own and use the properties owned and
used by it. Schedule 5.1 lists the directors and officers of DGA and DGIA, and
all jurisdictions in which each of them is qualified to do business. The Seller
has delivered to the Buyer correct and complete copies of the articles of
incorporation and bylaws of each of the Operating Companies (as amended to
date). The minute books containing the records of meetings and/or resolutions of
the stockholders, the board of directors, and any committees of the board of
directors, the stock certificate books, and the stock record books of DGA and
DGIA (including in each instance all ratifications contained therein) are
correct and complete in all material respects. Neither of the Operating
Companies is in default under or in violation of any provision of its articles
of incorporation or bylaws.
5.2 CAPITALIZATION. The entire authorized Capital Stock of DGA
consists of five thousand (5,000) shares of common stock, no par value. As of
the Closing Date, there are two thousand one hundred seventy-six (2,176) shares
of DGA's common stock issued and outstanding. The entire authorized Capital
Stock of DGIA consists of five thousand (5,000) shares of common stock, no par
value. As of the Closing Date, there are one thousand two hundred twenty (1,220)
shares of DGIA's common stock issued and outstanding. All of the issued and
outstanding Shares have been duly authorized, are validly issued, fully paid,
and nonassessable, and are held of record by the Seller. There are no
outstanding or authorized options, warrants, rights, contracts, calls, puts,
rights to subscribe, conversion rights, or other agreements or commitments to
which either Operating Company is a party or which are binding upon any
Operating Company providing for the issuance, disposition, or acquisition of any
of its capital stock (other than this Agreement). There are no outstanding or
authorized stock appreciation, phantom stock, or similar rights with respect to
either of the Operating Companies. There are no voting trusts, proxies, or any
other agreements or understandings with respect to the voting of the Capital
Stock of the Operating Companies.
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5.3 NONCONTRAVENTION. Except as would not result in a Material
Adverse Change to the Operating Companies, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will: (a) violate any Requirements of Laws or Court Order
to which either of the Operating Companies is subject or any provision of the
articles of incorporation or bylaws of either such Operating Company; or (b)
except as set forth on Schedule 5.3(b), conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel, or require any notice
under any contract, lease, sublease, license, sublicense, franchise, permit,
indenture, agreement or mortgage for borrowed money, instrument of indebtedness,
Security Interest, or other arrangement to which either of the Operating
Companies is a party or by which it is bound or to which any of its assets is
subject (or result in the imposition of any Security Interest upon any of its
assets). Neither Operating Company needs to give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any Governmental Body
in order for the Parties to consummate the transactions contemplated by this
Agreement.
5.4 SUBSIDIARIES. Neither DGA nor DGIA has any Subsidiaries
and neither DGA nor DGIA controls, directly or indirectly, or has any direct or
indirect equity participation in, any corporation, partnership, limited
liability company, organization or other business association.
5.5 FINANCIAL STATEMENTS. Attached hereto as Exhibit B are the
following financial statements: (a) unaudited balance sheets and statements of
income, shareholders' equity, and cash flows for the Operating Companies as of
and for the fiscal years ended December 31, 1998 and December 31, 1999 prepared
using the results of the audited financial statement for such period of
MedicalControl; and (b) unaudited balance sheet and statements of income,
shareholders' equity, and cash flows for the Operating Companies as of and for
the seven (7) month period ended July 31, 2000 (collectively, the "FINANCIAL
STATEMENTS"). Except as set forth on Schedule 5.5, the Financial Statements have
been prepared in accordance with GAAP, applied on a consistent basis, on an
accrual basis throughout the periods covered thereby, fairly present the
financial condition of the Operating Companies as of such dates, and are
consistent with the books and records of the Operating Companies (which books
and records are correct and complete in all Material respects).
5.6 EVENTS SUBSEQUENT TO JULY 31, 2000. Since July 31, 2000,
except as set forth on the Disclosure Schedules, there has not been any Material
Adverse Change to the Operating Companies. Without limiting the generality of
the foregoing, since that date, neither of the Operating Companies has: (a)
except as set forth on Schedule 5.6(a), sold, leased, transferred, or assigned
any of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business; (b) except as set forth on Schedule 5.6(b),
entered into, accelerated, terminated, modified, or canceled any Material
Contract; (c) imposed any Security Interest upon any of its assets (whether
tangible or intangible); (d) except as set forth on Schedule 5.6(d), made any
capital expenditure (or series of related capital expenditures) either: (i)
involving more than $20,000 individually or $40,000 in the aggregate; or (ii)
outside the Ordinary Course of Business; (e) made any capital investment in, any
loan to, or any acquisition of the securities or assets of any other person (or
series of related capital investments, loans, and acquisitions) involving more
than $20,000 individually or $40,000 in the aggregate; (f) created, incurred,
assumed, or guaranteed any indebtedness (including capitalized lease
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obligations) either: (i) involving more than $20,000 individually or $40,000 in
the aggregate; or (ii) outside the Ordinary Course of Business; (g) except as
set forth on Schedule 5.6(g), delayed or postponed (beyond its normal practice)
the payment of any accounts payable or other Liabilities; (h) except as set
forth on Schedule 5.6(h), canceled, compromised, waived, or released any right
or claim (or series of related rights and claims) either: (i) involving more
than $20,000; or (ii) outside the Ordinary Course of Business; (i) except as set
forth on Schedule 5.6(i), granted any license or sublicense of any rights under
or with respect to any Intellectual Property; (j) made or authorized any change
to its articles of incorporation or bylaws; (k) issued, sold, or otherwise
disposed of any of its Capital Stock, or granted any options, warrants, or other
rights to purchase or obtain (including upon conversion or exercise) any of its
Capital Stock; (l) except as set forth on Schedule 5.6(l), declared, set aside,
or paid any dividend or distribution with respect to its Capital Stock nor
redeemed, purchased, or otherwise acquired any of its Capital Stock; (m) except
as set forth on Schedule 5.6(m), made any consulting or other payment to the
Seller, except in the Ordinary Course of Business; (n) experienced any damage,
destruction or other Loss involving more than $20,000 (whether or not covered by
insurance) to its property; (o) made any loan to or from, or entered into any
other transaction with, any of its directors, officers, and/or employees either
outside the Ordinary Course of Business or involving more than $20,000; (p)
entered into any employment contract or collective bargaining agreement, written
or oral, or modified the terms of any existing such contract or agreement with
any of its full-time employees; (q) except as set forth on Schedule 5.6(q),
granted any increase outside the Ordinary Course of Business in the base
compensation of, or made any other change in the employment terms for, any of
its directors, officers, and employees outside the Ordinary Course of Business;
(r) except as set forth on Schedule 5.6(r), adopted any bonus, profit-sharing,
incentive compensation, pension, retirement, medical, hospitalization, life, or
other insurance, severance, or other plan, contract or commitment relating to
any of the foregoing for any of its directors, officers, and employees, or
modified or terminated any such plan, contract or commitment in existence as of
July 31, 2000; (s) made any other change in employment terms for any of its
directors, officers, and full-time employees; or (t) committed to do any of the
foregoing.
5.7 UNDISCLOSED LIABILITIES. Neither of the Operating
Companies has any Liability and, to the Seller's and the Operating Companies'
Knowledge, there is no Basis for any present or future Claim against DGA giving
rise to any Liability (including, without limitation, Liability under the FSLA
and liability under ERISA, but excluding any Liability under ERISA arising out
of the Operating Companies' operation of the Business) which is individually in
excess of $20,000, except for: (a) Liabilities that are either set forth on the
face of the July 31 Balance Sheet or disclosed in any notes thereto; (b)
Liabilities which have arisen after the July 31 Balance Sheet in the Ordinary
Course of Business (none of which relates to any breach of contract, breach of
warranty, tort, infringement, or violation of any applicable Requirements of
Laws or arose out of any Claims); (c) Liabilities relating to employees of the
Operating Companies, including employee payroll and all other employee benefit
payments, incurred in the Ordinary Course of Business; (d) performance
obligations arising under the Material Contracts or any other contracts, plans,
leases, liens or other agreements entered into in the Ordinary Course of
Business; and (e) the Dallas Liabilities and the Non-Dallas Liabilities set
forth on the schedule of potential liabilities provided by the Seller to the
Buyer.
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5.8 TAX MATTERS. With respect to each tax period ending on or
after December 31, 1995:
(a) Each of the Operating Companies has filed all Tax
Returns that it was required to file. All such Tax Returns were correct and
complete in all Material respects. All Taxes owed by the Operating Companies
(whether or not shown on any Tax Return) have been paid when due. Neither DGA
nor DGIA currently is the beneficiary of any extension of time within which to
file any Tax Return. No claim has ever been made by an authority in a
jurisdiction where DGA or DGIA does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction. There are no Security Interests on any
of the assets of DGA or DGIA that arose in connection with any failure (or
alleged failure) to pay any Tax.
(b) Each of the Operating Companies has withheld and
paid all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, creditor, independent contractor, or
other third party and each of the Operating Companies has properly reflected the
status of all employees and independent contractors in connection therewith as
required by applicable Tax law and the FLSA.
(c) Neither of the Operating Companies, nor the
Seller or any of their respective directors or officers (or employees
responsible for Tax matters) has received, or expects to receive, any notice
that any authority intends to assess any additional Taxes for any period for
which Tax Returns have been filed. There is no dispute or claim concerning any
Tax Liability of either or both of the Operating Companies that either: (i) has
been claimed or raised by any authority in writing; or (ii) as to which the
Operating Companies or the Seller otherwise has any Knowledge. Schedule 5.8(c)
lists all federal, state, local, and foreign income Tax Returns filed with
respect to the Operating Companies for taxable periods ended on or after
December 31, 1995, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The Seller
and/or the Operating Companies have delivered to the Buyer correct and complete
copies of all federal income Tax Returns filed, examination reports received,
and statements of deficiencies assessed against or agreed to, by or concerning
the Operating Companies since December 31, 1995.
(d) Neither of the Operating Companies has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(e) Neither of the Operating Companies has filed a
consent under Code Section 341(f) concerning collapsible corporations. Neither
of the Operating Companies has made any payments, is obligated to make any
payments, or is a party to any agreement that under certain circumstances could
obligate it to make any payments that will not be deductible to it under Code
Section 280G. Neither of the Operating Companies has been a United States real
property holding corporation (within the meaning of Code Section 897(c)(2))
during the applicable period specified in Code Section 897(c)(1)(A)(ii). Both of
the Operating Companies have disclosed on their federal income Tax Returns all
positions taken therein that could give rise to a substantial understatement of
federal income Tax (within the meaning of Code Section 6662). Except as
disclosed on Schedule 5.8, neither of the Operating Companies is a party to any
Tax
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allocation or sharing agreement. Neither of the Operating Companies has ever
been (and neither has any Liability for unpaid Taxes because it once was) a
member of an Affiliated Group filing a consolidated federal income Tax Return
(other than a group the common parent of which is MedicalControl). Neither of
the Operating Companies has ever incurred any Liability for the Taxes of any
Person under Treas. Reg. Section 1.1502-6 (or any similar applicable provision
of state, local, or foreign Requirements of Laws), as a transferee or successor,
by contract, or otherwise, during any part of any consolidated return year
within any part of which consolidated return year any corporation other than DGA
and DGIA also were members of the Affiliated Group. Neither of the Operating
Companies has ever made an election under Section 1362 of the Code and/or any
corresponding state or local Tax provisions to be an S corporation (within the
meaning of Section 1361 of the Code) during any taxable year (or portion
thereof).
(f) The unpaid Taxes of the Operating Companies
(other than income Taxes) do not exceed the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the July 31 Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date (as set forth on the Preliminary Closing Balance Sheet) in
accordance with the past custom and practice of the Operating Companies in
filing their Tax Returns.
(g) Each Affiliated Group has filed all Income Tax
Returns that it was required to file for each taxable period during which either
of the Operating Companies was a member of the group. All such Tax Returns were
correct and complete in all respects. All Income Taxes owed by any Affiliated
Group (whether or not shown on any Tax Return) have been paid when due for each
taxable period during which either of Operating Companies was a member of the
group.
(h) Neither the Seller nor any of the directors or
officers (or employees responsible for Tax matters) of the Seller and its
Subsidiaries has received, or expects to receive, any notice that any authority
intends to assess any additional Income Taxes against any Affiliated Group for
any taxable period during which either of the Operating Companies was a member
of the group. There is no dispute or claim concerning any Income Tax Liability
of any Affiliated Group for any taxable period during which either of the
Operating Companies was a member of the group either: (i) claimed or raised by
any authority in a written notice delivered to either DGA, DGIA or the Seller;
or (ii) as to which the Seller and/or its Subsidiaries (including, without
limitation, the Operating Companies) has Knowledge based upon personal contact
with any agent of such authority. No Affiliated Group has waived any Income
Taxes or agreed to any extension of time with respect to an Income Tax
assessment or deficiency for any taxable period during which either of the
Operating Companies was a member of the group.
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5.9 TANGIBLE ASSETS. Each of the Operating Companies owns or
leases all tangible assets necessary for the conduct of its businesses as
presently conducted and as presently proposed by the Operating Companies to be
conducted (without taking into account any changes to be made by the Buyer on or
after the Closing).
5.10 OWNED REAL PROPERTY. Except as disclosed on Schedule
5.10, neither of the Operating Companies owns, nor do either of them have any
interest in, any real property or improvements thereon (other than the leases
disclosed in Schedule 5.12, and the leasehold improvements relating to the same)
nor does DGA have any options, agreements or contracts under which it has the
right or obligation to acquire any interest in any real property or improvements
(other than as disclosed in Schedule 5.12).
5.11 INTELLECTUAL PROPERTY. Schedule 5.11 lists and briefly
describes of all patents, trademarks, tradenames, copyrights, licenses, computer
software or data (other than general commercial software) or applications
therefor owned by or registered in the name of the Operating Companies or in
which the Operating Companies have any rights, licenses, or immunities
(collectively, the "INTELLECTUAL PROPERTY"). The Operating Companies have
furnished the Buyer with copies of all license agreements to which one or both
of the Operating Companies is a party, either as licensor or licensee, with
respect to any Intellectual Property necessary for the conduct of their
Business, except for general software licenses not specific to the Business
(i.e., "shrinkwrap" software licenses). Except as described on Schedule 5.11,
the Operating Companies have good title to or the right to use such Intellectual
Property and all inventions, processes, designs, formulae, trade secrets and
know-how necessary for the conduct of their Business, as presently conducted,
without the payment of any royalty or similar payment, and neither of the
Operating Companies is infringing on any patent right, tradename, copyright or
trademark right or other Intellectual Property right of others, and neither of
the Operating Companies nor the Seller is aware of any infringement by others of
any such rights owned by the Operating Companies.
5.12 REAL PROPERTY. Schedule 5.12 lists and briefly describes
all real property either owned by or leased or subleased to the Operating
Companies. Except as set forth on Schedule 5.12, all such real properties are
owned by the Operating Companies free and clear of any Security Interests.
Except for any oral lease agreements described on Schedule 5.12, the Seller has
delivered to the Buyer correct and complete copies of the leases and subleases
listed in Schedule 5.12. With respect to each lease and sublease listed on
Schedule 5.12:
(a) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect, subject to the Equitable Exceptions;
(b) except as set forth on Schedule 5.12(b), the
lease or sublease will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms immediately after the consummation of
the transactions contemplated by this Agreement;
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(c) except as set forth on Schedule 5.12(c), neither
of the Operating Companies is, and to the Knowledge of the Operating Companies,
no other party to the lease or sublease is in breach or default, and no event
has occurred which, with notice or lapse of time, would constitute a breach or
default or permit termination, modification, or acceleration thereunder;
(d) neither of the Operating Companies is, and to the
Knowledge of the Operating Companies, no other party to the lease or sublease
has repudiated any provision thereof;
(e) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(f) neither of the Operating Companies has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest in
the leasehold or subleasehold;
(g) to the Knowledge of the Operating Companies, all
facilities leased or subleased thereunder have received all approvals of
Governmental Bodies (including licenses and permits) required in connection with
the operation thereof and have been operated and maintained in accordance with
applicable Requirements of Laws;
5.13 CONTRACTS. Schedule 5.13 lists the following contracts,
agreements and other written arrangements to which either or both of the
Operating Companies is a party (each, a "MATERIAL CONTRACT" and, collectively,
the "MATERIAL CONTRACTS"):
(a) the top twenty (20) administrative services
agreements pursuant to which either or both of the Operating Companies provide
services in connection with Third Party Plans, as measured by the net revenues
to the Operating Companies arising out of such administrative services
agreements (collectively, the "MATERIAL ADMINISTRATIVE SERVICES AGREEMENTS").
(b) any written arrangement (or group of related
written arrangements) for the lease of personal property from or to third
parties providing for lease payments in excess of $30,000 per annum (other than
the Material Administrative Services Agreements and any other administrative
services agreements to which either or both of the Operating Companies is a
party);
(c) any written arrangement (or group of related
written arrangements) for the purchase or sale of equipment, supplies, products,
or other property or for the furnishing or receipt of services during the year
2000 or beyond which involves more than the sum of $30,000 (including, without
limitation, any Customer Contract or Customer Agreement meeting such criteria,
but excluding the Material Administrative Services Agreements and any other
administrative services agreements to which either or both of the Operating
Companies is a party);
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(d) any written arrangement concerning an investment
in a limited liability company, partnership or joint venture;
(e) any written arrangement (or group of related
written arrangements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness (including
capitalized lease obligations) involving more than $30,000 or under which it has
imposed (or may impose) a Security Interest on any of its assets (whether
tangible or intangible) (other than the Material Administrative Services
Agreements and any other administrative services agreements to which either or
both of the Operating Companies is a party);
(f) any written arrangement requiring confidentiality
or noncompetition (other than confidentiality agreements entered into in
connection with the sale of the Operating Companies to the Buyer);
(g) any agreement relating to a loan to or from an
officer, director, employee or Affiliate of DGA, other than advances on such
person's salary made in the Ordinary Course of Business, or any agreement with
the Seller or an Affiliate of the Seller relating to the purchase, sale or
furnishing of equipment, supplies, products or services;
(h) any written arrangement with any of the
directors, officers, and/or employees of either or both of the Operating
Companies in the nature of a collective bargaining agreement, employment
agreement, or severance agreement; and
(i) any other written arrangement (or group of
related written arrangements) either: (i) involving more than $30,000 (other
than the Material Administrative Services Agreements and any other
administrative services agreements to which either or both of the Operating
Companies is a party); or (ii) not entered into in the Ordinary Course of
Business.
The Seller and/or the Operating Companies have delivered or
made available to the Buyer a correct and complete copy of each written Material
Contract listed in Schedule 5.13. With respect to: (a) each Material Contract
(including, without limitation, each Material Administrative Services
Agreement); and (b) each administrative services agreement pursuant to which
either or both of the Operating Companies provide services in connection with
Third Party Plans that is not a Material Administrative Services Agreement: (i)
except as set forth on Schedule 5.13, such contract or agreement is legal,
valid, binding, enforceable, and in full force and effect, subject to the
Equitable Exceptions; (ii) such contract or agreement will continue to be legal,
valid, binding, enforceable and in full force and effect on identical terms
after giving effect to the transactions contemplated by this Agreement; (iii)
neither of the Operating Companies is, nor, to the Knowledge of the Operating
Companies, is any other party thereto in Material breach or default, and no
event has occurred which with notice or lapse of time would constitute a
Material breach or default or permit termination, modification, or acceleration,
under such contract or agreement; and (iv) neither of the Operating Companies
is, nor, to the Knowledge of the Operating Companies, has any other party
thereto, repudiated any provision of such contract or agreement. Neither of the
Operating Companies is a party to any verbal contract, agreement, or other
arrangement which, if reduced to written form, would be required to be listed in
Schedule 5.13 under the terms of this Section 5.13. Except as disclosed on
Schedule 5.13, no customer of
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either of the Operating Companies which accounts for, or is reasonably expected
to account for, more than $20,000 of the annualized revenues of such Operating
Company (based on the Financial Statements for the period ended July 31, 2000)
has indicated to such Operating Company within the past year that it will stop,
or decrease the rate of, buying services from it.
5.14 NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts
receivable of the Operating Companies are reflected properly on their books and
records, are valid receivables subject to no setoffs or counterclaims, are
presently current and collectible, and will be collected in accordance with
their terms at their recorded amounts, subject only to the reserve for bad debts
set forth on the face of the July 31 Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Operating Companies.
5.15 POWERS OF ATTORNEY. There are no outstanding powers of
attorney executed on behalf of either of the Operating Companies.
5.16 INSURANCE. Each of the Operating Companies has been
covered during the past three (3) years by insurance in scope and amount
customary and reasonable for the businesses in which it has engaged during the
aforementioned period. A list and brief description of all such insurance
policies are set forth on Schedule 5.16. With respect to each such insurance
policy: (a) the policy is legal, valid, binding, and enforceable and in full
force and effect; (b) except as set forth on Schedule 5.16, the policy will
continue to be legal, valid, binding, and enforceable and in full force and
effect on identical terms following the Closing Date; (c) neither of the
Operating Companies is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a breach or default or
permit termination, modification, or acceleration, under the policy; and (d) to
the Knowledge of the Operating Companies, no party to the policy has repudiated
any provision thereof. Schedule 5.16 describes any self-insurance arrangements
affecting either or both of the Operating Companies.
5.17 LITIGATION. Except as set forth on an officer's
certificate delivered by the Seller to the Buyer as of the date hereof and
updated as of the Closing Date (the "LITIGATION CERTIFICATE"), neither of the
Operating Companies: (a) is subject to any unsatisfied Court Order; or (b) is a
party or, to the Knowledge of either of the Operating Companies, is threatened
to be made a party to any Operating Company Claim. No unsatisfied Court Order to
which either or both of the Operating Companies is subject (whether or not
listed on the Litigation Certificate), either individually or collectively with
one or more other such unsatisfied Court Orders, will or could reasonably be
expected to result in a Material Adverse Change to either or both of the
Operating Companies. No Operating Company Claim (whether or not listed on the
Litigation Certificate), either individually or collectively with one or more
other Operating Company Claims, will or could reasonably be expected to result
in a Material Adverse Change to either or both of the Operating Companies.
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5.18 EMPLOYEES. The Seller has supplied to the Buyer a list of
the names and annual rates of compensation of the directors and executive
officers of the Operating Companies, and of the employees of the Operating
Companies whose annual rates of compensation during the calendar year ended
December 31, 1999 (including base salary, bonus and incentive pay) exceeded (or
by December 31, 2000 are expected to exceed) $50,000, and setting forth the
material terms of the employment agreements, if any, pertaining to such
directors, executive officers and employees. Since December 1, 1999, neither of
the Operating Companies has experienced an unusual level of employee departures,
as compared to the previous years in which the Operating Companies have been in
existence. Except as specifically set forth on Schedule 5.18, neither of the
Operating Companies have Knowledge that any person on the list provided by the
Seller to the Buyer pursuant to the first sentence of this Section 5.18 will not
continue to be employed by the Operating Companies after the consummation of the
transactions contemplated by this Agreement. Except as set forth on Schedule
5.18, neither of the Operating Companies is a party to or bound by any
collective bargaining agreement, nor has either of the Operating Companies
experienced any strikes, grievances, claims of unfair labor practices, or other
collective bargaining disputes. To the Knowledge of the Operating Companies,
neither of the Operating Companies has committed any unfair labor practice.
Neither of the Operating Companies has any Knowledge of any organizational
effort presently being made or threatened by or on behalf of any labor union
with respect to employees of either or both of the Operating Companies.
5.19 PENSION AND BENEFIT PLANS.
(a) DISCLOSURE SCHEDULES. Schedule 5.19(a) lists all
Plans and Other Arrangements under which the Operating Companies have any
current obligations.
(b) COPIES OF DOCUMENTS. The Seller has supplied or
made available to the Buyer true and complete copies of each of the following
documents for Plans and Other Arrangements listed on Schedule 5.19(a): (i) the
documents setting forth the terms of each Plan; (ii) all related trust
agreements or annuity agreements (and any other funding document) for each Plan;
(iii) for the five most recent plan years, all annual reports (Form 5500 series)
on each Plan that have been filed with any governmental agency; (iv) the current
summary plan description and subsequent summaries of material modifications for
each Title I Plan; (v) all DOL opinions on any Plan and all correspondence
relating to the request for and receipt of each opinion; (vi) all correspondence
with the PBGC on any Plan; (vii) all IRS rulings, opinions or technical advice
relating to any Plan and all correspondence relating to the request for and
receipt of each ruling, opinion or technical advice; and (viii) all agreements
with service providers or fiduciaries for providing services on behalf of any
Plan. For each Other Arrangement, the Seller has supplied or made available to
the Buyer true and complete copies of each policy, agreement or other document
setting forth or explaining the terms of the Other Arrangement, all related
trust agreements or other funding documents (including, without limitation,
insurance contracts, certificates of deposit, money market accounts, etc.), all
employee communications, all correspondence or other submissions with any
governmental agency, and all agreements with service providers or fiduciaries
for providing services on behalf of any Other Arrangement.
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(c) DEFINED BENEFIT PLANS, MULTIEMPLOYER PLANS AND
ESOPS. Neither the Operating Companies, nor the Seller, nor any ERISA Affiliate
sponsors, maintains, or is obligated to make any contribution to, a Defined
Benefit Plan, a Multiemployer Plan, or an ESOP.
(d) CONTRIBUTIONS AND OTHER OBLIGATIONS. The
Operating Companies have made all contributions and other payments required by
and due under the terms of each Plan and Other Arrangement (other than claims
currently being processed) and have taken no action (including, without
limitation, actions required by Law) relating to any Plan or Other Arrangement
that will increase the obligation of the Buyer and/or the Operating Companies
under any Plan or Other Arrangement.
(e) ERISA; PROHIBITED TRANSACTIONS. Schedule 5.19(e)
describes all transactions in which the Operating Companies or any of the Plans
has engaged in violation of Sections 406(a) or 406(b) of ERISA for which no
exemption exists under Section 408 of ERISA and all "prohibited transactions"
(as such term is defined in Sections 4975(c)(1) of the Code), for which no
exemption exists under Section 4975(c)(2) or 4975(d) of the Code. The Seller has
supplied or made available to the Buyer true and complete copies of each request
for a prohibited transaction exemption and each exemption obtained in response
to such request. All such requests were true and complete when made and continue
to be true and complete.
(f) QUALIFIED PLANS. Schedule 5.19(f) sets forth a
list of all Qualified Plans. Except as set forth in Schedule 5.19(f), all
Qualified Plans and any related trust agreements or annuity agreements (or any
other funding document) comply and have complied with ERISA, the Code
(including, without limitation, the requirements for Tax qualification described
in Section 401 thereof), and all other Laws. The trusts established under such
Plans are exempt from federal income taxes under Section 501(a) of the Code. The
Operating Companies have received determination letters issued by the IRS with
respect to each Qualified Plan, and the Seller has supplied or made available to
the Buyer true and complete copies of all such determination letters and all
correspondence relating to the applications therefor. All statements made by or
on behalf of the Operating Companies to the IRS in connection with applications
for determinations with respect to each Qualified Plan were true and complete
when made and continue to be true and complete. Nothing has occurred since the
date of the most recent applicable determination letter that would adversely
affect the tax-qualified status of any Qualified Plan.
(g) COMPLIANCE WITH LAW. The Operating Companies have
complied with all applicable provisions of the Code, ERISA, the National Labor
Relations Act, Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act, the FLSA, the Securities Act, the Securities Exchange Act of
1934, as amended, and all other Laws pertaining to the Plans, Other Arrangements
and other employee or employment related benefits, and all premiums and
assessments relating to all Plans or Other Arrangements. Neither of the
Operating Companies has any liability for any delinquent contributions within
the meaning of Section 515 of ERISA (including, without limitation, related
attorneys' fees, costs, liquidated damages and interest) or for arrearages of
wages. Neither of the Operating Companies has any pending unfair labor practice
charges, contract grievances under any collective bargaining agreement, other
administrative charges, claims, grievances or lawsuits before any court,
governmental agency,
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regulatory body, or arbiter arising under any Law governing the Plan, and there
exist no facts that could give rise to any such claims.
(h) NON-DEDUCTIBLE PAYMENTS. No Plan or Other
Arrangement, individually or collectively, provides for any payment by DGA or
the Person(s) for which such Plan(s) and/or Other Arrangement(s) are or were in
the past maintained, to any employee or independent contractor that is not
deductible under Section 162(a)(1) or 404 of the Code or that is an "excess
parachute payment" pursuant to Section 280G of the Code.
(i) ERISA AFFILIATE LIABILITY. Except as set forth in
Schedule 5.19(i), no ERISA Affiliate is subject to any liability arising under
ERISA, the Code, or any other applicable law, including, without limitation, any
liability to or under any employee benefit plan or under any indemnity agreement
to which the Operating Companies or an ERISA Affiliate thereof is a party.
(j) FOREIGN PLAN. No Plan is a "qualified foreign
plan" (as such term is defined in Section 404A(e) of the Code), and no Plan is
subject to the Laws of any jurisdiction other than the United States of America
or one of its political subdivisions.
(k) TAX FORM 5330. The Operating Companies have
timely filed and the Seller has supplied or made available to the Buyer true and
complete copies of each Form 5330 (Return of Excise Taxes Related to Employee
Benefit Plans) that the Operating Companies have filed on any Plan. Neither of
the Operating Companies has any liability for Taxes required to be reported on
Form 5330.
(l) WELFARE PLANS. Schedule 5.19(l) lists all funded
Welfare Plans that the Operating Companies currently maintain or have in the
past maintained. The funding under each Welfare Plan does not exceed and has not
exceeded the limitations under Sections 419A(b) and 419A(c) of the Code. Neither
of the Operating Companies is subject to taxation on the income of such Welfare
Plan's welfare benefit fund (as such term is defined in Section 419(e) of the
Code) under Section 419A(g) of the Code and no Welfare Plan is a Voluntary
Employees' Beneficiary Association ("VEBA"), within the meaning of Section
501(c)(9) of the Code.
(m) POST-RETIREMENT PLANS. Schedule 5.19(m): (i)
identifies all post-retirement medical, life insurance or other benefits
promised, that the Operating Companies currently maintain or have in the past
maintained; (ii) identifies the method of funding (including, without
limitation, any individual accounting) for all such benefits; (iii) discloses
the funded status of the Plans providing or promising such benefits; and (iv)
sets forth the method of accounting for such benefits to any key employees (as
defined in Section 416(i) of the Code) of the Person for which such Plan(s) were
prepared and/or are maintained by the Operating Companies.
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(n) HEALTH CARE CONTINUATION COVERAGE REQUIREMENTS.
All Welfare Plans and the related trusts that are subject to Section 4980B(f) of
the Code and Sections 601 through 607 of ERISA to the best of the Operating
Companies' knowledge comply with and have been administered in compliance with
the health care continuation-coverage requirements for tax-favored status under
Section 4980B(f) of the Code (formerly Section 162(k) of the Code), Sections 601
through 607 of ERISA, and all proposed or final Treasury regulations under
Section 162 of the Code explaining those requirements, and all other applicable
laws regarding continuation and/or conversion coverage.
(o) FILED RETURNS AND REPORTS. The Operating
Companies have for all years beginning after 1993: (i) except as set forth on
Schedule 5.19(o), filed or caused to be filed all returns and reports on the
Plan(s) and/or Other Arrangement(s) that they are required to file; and (ii)
paid or made adequate provision for all fees, interest, penalties, assessments
or deficiencies that have become due pursuant to those returns or reports or
pursuant to any assessment or adjustment that has been made relating to those
returns or reports. For all years beginning after 1993, all other fees,
interest, penalties and assessments that are payable by or for the Operating
Companies have been timely reported, fully paid and discharged. There are no
unpaid fees, penalties, interest or assessments due from the Operating Companies
or from any other person that are or could become a lien on any asset of the
Operating Companies and/or the Person(s) for which the Plan(s) and/or Other
Arrangement(s) have been prepared and/or are maintained, as applicable, or could
otherwise adversely affect the businesses or assets of the Operating Companies
or could otherwise adversely affect the business or assets of the Operating
Companies. The Operating Companies have collected or withheld all amounts that
are required to be collected or withheld to discharge their obligations, and all
of those amounts have been paid to the appropriate governmental agencies or set
aside in appropriate accounts for future payment when due.
5.20 ERISA COMPLIANCE IN BUSINESS AFFAIRS.
(a) NAMED FIDUCIARY. Schedule 5.20(a) sets forth each
Third Party Plan to which an Operating Company is named by the Third Party Plan
or has been appointed as a fiduciary, as provided for in Section 402 of ERISA.
Except as set forth in Schedule 5.20(a), neither of the Operating Companies is a
fiduciary to a Third Party Plan, as provided for in Section 402 of ERISA.
(b) NAMED ADMINISTRATOR. Schedule 5.20(b) sets forth
each Third Party Plan to which an Operating Company is named by the Third Party
Plan or has been appointed as a plan administrator, as provided for in Section
16(A) of ERISA. Except as set forth in Schedule 5.20(b), no Operating Company is
a plan administrator to a Third Party Plan as provided for in Section 16(A) of
ERISA.
(c) FIDUCIARY LIABILITY. No Operating Company has
breached any fiduciary obligation (whether or not waived) under a Third Party
Plan, as set forth in Section 404 of ERISA. The Operating Companies have acted
to defray the reasonable costs and expenses of administrating the Third Party
Plans. The Operating Companies have acted with the care, skill
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and prudence that, under the prevailing circumstances, a prudent person acting
in a like capacity and familiar with such matters would employ. The Operating
Companies have acted in accordance with the documents and instruments governing
the Third Party Plans insofar as such documents and instruments are consistent
with ERISA.
(d) PROHIBITED TRANSACTIONS. Schedule 5.20(d) sets
forth: (i) any transaction in which any Operating Company has engaged or
participated in violations of Section 406(a) or 406(b) of ERISA in connection
with a Third Party Plan for which no exemption exists under Section 408 of
ERISA; and (ii) any "prohibited transaction" (as such term is defined in Section
4975(c)(1) of the Code) in which any Operating Company has engaged, either as a
fiduciary or a party in interest, for which no exemption exists under Sections
4975(c)(2) or 4975(d) of the Code. Except as set forth on Schedule 5.20(d), none
of the Operating Companies have engaged in any prohibited transaction under
ERISA, either as a fiduciary or as a party in interest.
(e) DISCLOSURES. In the Operating Companies' capacity
as a third party administrator, each Operating Company has made all disclosures
to the Third Party Plans as well as the participants and beneficiaries or
fiduciaries of such plans, which are required by ERISA or any other applicable
Federal law (including, without limitation, all disclosures relating to
commissions received, rebates received, or other compensation received from
pharmacy benefits managers, brokers, utilization review managers, or other
service providers to its Plans or to Third Party Plans).
(f) THIRD PARTY PLAN ASSETS. Schedule 5.20(f) sets
forth each Third Party Plan for which the Operating Companies handle Third Party
Plan assets. For those Third Party Plans set forth, the Operating Companies are
bonded to handle the Third Party Plan assets as set forth under Section 412 of
ERISA. The Seller has supplied or made available to the Buyer copies of all
bonds applicable under Schedule 5.20(f).
(g) SUMMARY PLAN DESCRIPTIONS. Schedule 5.20(g) sets
forth certain Third Party Plans for which an Operating Company has drafted or
disseminated the Summary Plan Descriptions required by Section 101 and Section
102 of ERISA. For all Third Party Plans set forth in Schedule 5.20(g), the
Operating Companies have complied with both the drafting requirements
established under Section 101 and Section 102 of ERISA and the dissemination
requirements established under Section 104(b) of ERISA.
(h) TAX FORM 5500. Each Internal Revenue Service Form
5500 prepared (either partly or entirely) by the Operating Companies for a Third
Party Plan during the last six (6) years was true and correct to the best of the
Operating Companies' knowledge at the time prepared by the Operating Companies.
All information provided to Third Party Plan administrators or prepared by the
Operating Companies was accurate at such time.
(i) COBRA ADMINISTRATION. Schedule 5.20(i) sets forth
each Third Party Plan for which the Operating Companies provide any or all
services required under Sections 601 through 609 of ERISA, Section 4980B of the
Code, and all proposed or final regulations
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under Section 162 of the Code for health care continuation coverage ("COBRA
ADMINISTRATION"). For all Third Party Plans for which the Operating Companies
provide COBRA Administration, to the best of its knowledge, each Operating
Company has fully complied with Sections 601 through 609 of ERISA, Section 4980B
of the Code, all proposed or final regulations under Section 162 of the Code
explaining those requirements, and all other applicable laws regarding
continuation and/or conversion coverage (including, without limitation,
providing, upon the occurrence of a qualifying event under Section 603 of ERISA,
all qualified beneficiaries of Third Party Plans with the notices required under
Section 606 of ERISA). The Operating Companies have not been assessed an excise
tax under Section 4980B of the Code in the past six (6) years for a failure to
comply with the laws and regulations governing COBRA administration.
(j) HIPAA NOTIFICATION. Schedule 5.20(j) sets forth
each Third Party Plan for which the Operating Companies provide any or all
Services required under Section 701 through 707 of ERISA and Section 4980D of
the Code ("HIPAA ADMINISTRATION"). For all Third Party Plans for which the
Operating Companies provide HIPAA Administration, to the best of its knowledge,
each Operating Company has fully complied with Section 701 through 707 of ERISA
and Section 4980D of the Code. All Third Party Plans for which the Operating
Companies provide HIPAA administration have issued notices to participants and
beneficiaries in compliance with Section 701 of ERISA.
(k) CAFETERIA PLANS. Schedule 5.20(k) sets forth each
Third Party Plan administered by the Operating Companies which qualifies as a
Cafeteria Plan pursuant to Section 125 of the Code.
(l) LIABILITY. Neither of the Operating Companies is
presently, and has not been for the previous six years, subject to any ongoing
audits, investigations, or other administrative proceedings of the IRS, the DOL,
or any other Governmental Body.
(m) LITIGATION. The Litigation Certificate (as
defined in Section 5.17) sets forth each instance in which either of the
Operating Companies: (i) is subject to any unsatisfied Court Order which has
been brought by a Third Party Plan or a participant, beneficiary, or fiduciary
thereof; or (ii) is a party or, to the Knowledge of the Operating Companies, is
threatened to be made a party to any Claims brought by a Governmental Body or by
a Third Party Plan or a participant, beneficiary, or fiduciary thereof.
5.21 GUARANTIES. Except as set forth on Schedule 5.21, neither
of the Operating Companies is a guarantor or otherwise liable for any Liability
or obligation (including indebtedness) of any other Person.
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5.22 ENVIRONMENT, HEALTH, AND SAFETY.
(a) The Operating Companies and their respective
predecessors and Affiliates have complied with all applicable Requirements of
Laws concerning the environment, public health and safety, and employee health
and safety (including, without limitation, all Environmental Laws) and, to the
Knowledge of the Operating Companies, no Claim or notice of Claim has been filed
or commenced against any of them alleging any failure to comply with any such
Requirements of Laws. The Parties agree and acknowledge that the representations
and warranties contained in this Section 5.22(a) do not apply to the Operating
Companies' compliance with applicable Requirements of Laws with respect to Third
Party Plans, which is addressed in Section 5.20.
(b) To the Knowledge of the Operating Companies,
neither of the Operating Companies has any Liability (and there is no Basis
related to the past or present operations, properties, or facilities of either
or both of the Operating Companies or their respective predecessors and
Affiliates for any present or future Claim against either of the Operating
Companies giving rise to any Liability) under any Environmental Laws.
(c) Neither of the Operating Companies has any
Material Liability (and there is no Basis for any present or future Claim
against either or both of the Operating Companies giving rise to any Liability)
under OSHA, as amended, or any other applicable Requirements of Laws of any
Governmental Body concerning employee health and safety.
(d) To the Knowledge of the Operating Companies, no
pollutant, contaminant, or chemical, industrial, hazardous, or toxic material or
waste ever has been buried, stored, spilled, leaked, discharged, emitted, or
released on any real property that either of the Operating Companies currently
owns or ever has owned or that either of the Operating Companies currently
leases or ever has leased.
5.23 LEGAL COMPLIANCE. Except as would not, individually or in
the aggregate, cause a Material Adverse Change to either or both of Operating
Companies:
(a) Each of the Operating Companies has complied with
all applicable Requirements of Laws. No Claim or notice of Claim has been filed
or commenced against either or both of the Operating Companies which is
currently pending and alleges any failure to comply with any such Requirements
of Laws.
(b) Each of the Operating Companies has complied with
all applicable Requirements of Laws relating to the employment of labor
(including, without limitation, the engagement of independent contractors under
the FLSA), employee civil rights, hiring or engaging non-United States citizens,
and equal employment opportunities.
(c) Neither of the Operating Companies has violated
in any respect or received a notice or charge asserting any violation of the
Sherman Act, the Clayton Act, the Robinson-Patman Act, or the Federal Trade Act,
each as amended.
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(d) Neither of the Operating Companies has: (i) made
or agreed to make any contribution, payment, or gift of funds or property to any
governmental official, employee, or agent where either the contribution,
payment, or gift or the purpose thereof was illegal under any Requirements of
Laws of any applicable jurisdiction; (ii) established or maintained any
unrecorded fund or asset for any purpose, or made any false entries on any books
or records for any reason; or (iii) on an annual basis, made or agreed to make
any contribution, or reimbursed any political gift or contribution made by any
other person, to any candidate for federal, state, local, or foreign public
office in excess of $5,000.
(e) Each of the Operating Companies has filed in a
timely manner all reports, documents, and other materials that it was required
to file (and the information contained therein was correct and complete in all
respects) under all applicable Requirements of Laws.
(f) Each of the Operating Companies has possession of
all records and documents that it was required to retain under all applicable
Requirements of Laws.
(g) The Parties agree and acknowledge that the
representations and warranties contained in this Section 5.23 do not apply to
the Operating Companies' compliance with applicable Requirements of Laws with
respect to Third Party Plans, which is addressed in Section 5.20.
5.24 CERTAIN BUSINESS RELATIONSHIPS. Except as set forth on
Schedule 5.24, other than pursuant to employment agreements entered into in the
ordinary course of business, neither of the Operating Companies has entered into
any business arrangement or relationship with any executive officer, director or
other employee of the Seller and/or any of its Affiliates (including, without
limitation, either of the Operating Companies). Except as set forth on Schedule
5.24, no executive officer, director or other employee of the Seller and/or any
of its Affiliates (including, without limitation, either of the Operating
Companies) personally owns, directly or indirectly, any Material property or
right, tangible or intangible, which is used in the business of either or both
of the Operating Companies. Other than obligations for compensation arising in
the Ordinary Course of Business, there are no debts or other obligations owed to
either or both of the Operating Companies by any officer or director of the
Seller, DGA and/or DGIA.
5.25 BROKERS' FEES. Neither of the Operating Companies has any
Liability or obligation to pay any fees or commissions to any broker, finder, or
similar representative with respect to the transactions contemplated by this
Agreement.
5.26 DISCLOSURE. The representations and warranties contained
in this Article V as amended, modified and/or supplemented by the Disclosure
Schedules do not contain any untrue statement of a fact or omit to state any
Material fact necessary in order to make the statements and information
contained in this Article V not misleading.
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ARTICLE VI:
COVENANTS
The Parties covenant and agree as follows:
6.1 GENERAL. If at any time after the date of this Agreement
(including at any time after the Closing) any further action is necessary or
desirable to carry out the purposes of this Agreement (other than as set forth
in or specifically contemplated by this Agreement), each of the Parties will
take such further action (including the execution and delivery of such further
instruments and documents) as any other Party reasonably may request, all at the
sole cost and expense of the requesting Party (unless the requesting Party is
entitled to indemnification therefor under Article IX). The Seller acknowledges
and agrees that from and after the Closing, the Buyer will be entitled to
possession of all documents, books, records, agreements, and financial data of
any sort relating solely to the Operating Companies; provided, however, that the
Seller may retain any copies of the foregoing or have reasonable access to the
foregoing as shall be necessary to comply with applicable tax laws, rules and
regulations and other applicable Requirements of Laws.
6.2 CONDUCT OF BUSINESS PENDING CLOSING. From the date of this
Agreement until and including the Closing Date or earlier termination of this
Agreement pursuant to Article X:
(a) Except as otherwise contemplated by this
Agreement (or as expressly consented to in advance by the Buyer), the Operating
Companies and the Seller shall conduct the Business only in the Ordinary Course
of Business and shall not: (i) engage or enter into in any Material transaction
outside the Ordinary Course of Business; or (ii) perform any action that would
cause a breach of the representations and warranties contained in Article V. The
Parties acknowledge that the Seller is currently in the process of selling its
MedicalControl Network Solutions, Inc. subsidiary and agree that the actions
taken by the Seller in connection with the sale of such subsidiary shall not be
deemed to be in violation of this Section 6.2(a) solely by reason thereof.
(b) The Operating Companies shall use commercially
reasonable efforts to, and the Seller shall use commercially reasonable efforts
to cause the Operating Companies to, cause the Business to preserve
substantially intact its current business organization and present relationships
with its customers, vendors, suppliers and employees and to maintain all of its
insurance currently in effect.
(c) The Operating Companies and the Seller shall give
written notice to the Buyer within ten (10) days after receipt of any notice of
Material default subsequent to the date of this Agreement under any of the
Customer Contracts or Customer Agreements or any Material Adverse Change
occurring prior to the Closing Date to the operation of the Operating Companies
or the Business.
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(d) The Seller shall update and/or revise the
Disclosure Schedules to reflect any changes to the disclosures contained therein
or otherwise necessary to ensure that the representations and warranties made in
this Agreement (as modified by the disclosures made in such updated and/or
revised Disclosure Schedules) are correct and complete as of the Closing Date
and shall supply such updated and/or revised Disclosure Schedules to the Buyer
no later than five (5) business days prior to the Closing.
6.3 OBTAINING STOCKHOLDER APPROVAL. The Seller, the Operating
Companies and each of their respective officers and other responsible persons
shall, promptly after the date of this Agreement, take all actions to obtain
from MedicalControl's stockholders any necessary approval of the transactions
contemplated by this Agreement, in accordance with the Delaware General
Corporate Law, as amended, and the applicable provisions of MedicalControl's
Certificate of Incorporation and bylaws (including, without limitation, promptly
submitting proxy materials to the SEC and, upon obtaining approval from the SEC
of such proxy materials, promptly submitting such proxy materials to
MedicalControl's stockholders). The Seller agrees to provide to the Buyer and
its counsel copies of the notices and all attachments thereto to be distributed
in obtaining any such stockholder approval.
6.4 LITIGATION SUPPORT. If and for so long as any Party is
actively contesting or defending against any Operating Company Claim in
connection with: (a) any transaction contemplated under this Agreement; or (b)
any fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction involving
either of the Operating Companies, each other Party will reasonably cooperate
with its counsel in the contest or defense, make available its personnel, and
provide such testimony and access to its books and records as shall be necessary
in connection with the contest or defense, all at the sole cost and expense of
the contesting or defending Party (unless the contesting or defending Party is
entitled to indemnification therefor under Article IX).
6.5 CONFIDENTIALITY. Each Party will treat and hold as such
all of the Confidential Information of the other Party and refrain from using
any such Confidential Information except in connection with this Agreement. The
Seller will, promptly after the Closing, deliver to the Buyer or destroy, at the
request and option of the Buyer, all tangible embodiments (and all copies) of
Confidential Information of the Operating Companies which are in its possession
(other than such records as the Seller is allowed to retain pursuant to Section
6.1). The Parties acknowledge that the Confidential Information concerning the
operations of either or both of the Operating Companies on or prior to the
Closing Date shall be part of the Confidential Information of the Seller. If the
Closing does not occur, the Buyer will return to the Seller or destroy, at the
request and option of the Seller, all tangible embodiments of such Confidential
Information of the Seller and the Operating Companies upon the written request
of the Seller. If either Party is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information of the other Party, the disclosing Party will notify
the other Party promptly of the request or requirement so that such other Party
may seek an appropriate protective order or waive compliance with the provisions
of this Section 6.5.
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If, in the absence of a protective order or the receipt of a waiver hereunder, a
Party is, on the advice of counsel, compelled to disclose any Confidential
Information of the other Party to any tribunal or else stand liable for
contempt, the disclosing Party may disclose such Confidential Information to the
tribunal; provided, however, that such disclosing Party shall use its reasonable
best efforts to obtain, at the reasonable request of, and at the cost to, the
non-disclosing Party, an order or other assurance that confidential treatment
will be accorded to such portion of such Confidential Information required to be
disclosed as the non-disclosing Party shall designate.
6.6 TERMINATION OF FUNDED INDEBTEDNESS; RELEASE OF GUARANTIES.
Except as set forth on Schedule 6.6, the Operating Companies and/or the Seller
shall retire all of the outstanding Funded Indebtedness of the Operating
Companies and shall obtain the unconditional release of all guarantees by the
Operating Companies of the obligations of any third parties (including, without
limitation, the Seller and MedicalControl).
6.7 LANDLORDS' CONSENTS. The Seller shall, without expense to
either of the Operating Companies or the Buyer, on or before the Closing Date,
use commercially reasonable efforts to obtain from each landlord of the
Operating Companies (to the extent required under the pertinent premises lease)
written consent to the acquisition contemplated by this Agreement.
6.8 ADDITIONAL TAX MATTERS.
(a) For purposes of determining Seller Income Taxes
and Buyer Income Taxes, Income Taxes and Income Tax items for Tax periods that
begin on or prior to the Effective Date and end after the Effective Date shall
be allocated and apportioned to the parties on the basis of an interim closing
of the books as of the end of the Effective Date. Any Income Tax adjustments
occurring during such period shall be allocated to the Pre-Effective Date Period
and the Post-Effective Date Period based on a simulated Tax Return for each
period. Where a change in method of accounting for Income Taxes is required due
to a legislative change which becomes effective for such Tax period, the
adjustment applicable to such Tax period shall be apportioned to the parties on
the basis of the ratio of the number of days in the period to the number of days
in the Tax period. To the extent permitted by applicable law, the Seller and the
Buyer shall take all reasonable actions to end (or have the effect of ending) on
the Effective Date any Tax periods of the Operating Companies that would
otherwise end after such date.
(b) The Seller shall file or cause to be filed all
Tax Returns for the Operating Companies for all periods ending on or prior to
the Effective Date (the "SELLER SEPARATE RETURNS") and including without
limitation all Tax Returns that are (or are a part of) a consolidated or
combined Tax Return for the Operating Companies that includes entities other
than the Operating Companies (even if the Tax period with respect to such other
entities does not end on or prior to the Effective Date) (the "SELLER
CONSOLIDATED RETURNS").
(c) The Seller shall prepare the Seller Consolidated
Returns (to the extent they relate to the Operating Companies or their
respective assets or operations) and the Seller Separate Returns in a manner
that: (i) is consistent with prior practice (including, without
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limitation, as to Tax and accounting methods, conventions and elections); and
(ii) apportions items equitably from period to period. The Seller shall cause
the Seller Consolidated Returns to include and reflect the activities,
transactions and operations of the Operating Companies on or prior to the
Effective Date.
(d) The Buyer shall file or cause to be filed all Tax
Returns of the Operating Companies required to be filed after the Effective Date
(other than Seller Separate Returns and Seller Consolidated Returns).
(e) The Seller shall provide the Buyer with copies of
Seller Separate Returns and the Seller's Consolidated Returns for the tax year
in which the Effective Date occurs (to the extent they relate to the Operating
Companies) not later than ten (10) business days after such returns are filed
with appropriate Governmental Body, as well as copies of all related work
papers. Any dispute with respect thereto shall be resolved by AA and Grant
Thornton, LLP, working together, as soon as is practicable. Upon such
resolution, an amended Tax Return shall be filed in accordance therewith to the
extent it differs materially from the Tax Return originally filed.
(f) The Seller will retain any net operating loss
carryovers of the Operating Companies under Treasury Regulation Section
1.1502-20(g), without the payment of any consideration to the Buyer or the
Operating Companies. Any tax sharing agreement between Seller and the Operating
Companies shall be terminated as of the Closing Date and will have no further
effect for any taxable year (whether the current year, a future year, or a past
year).
6.9 COVENANT NOT TO COMPETE. During the time period starting
on the Closing Date and ending on the third anniversary of the Closing Date (the
"GENERAL NONCOMPETITION PERIOD"), the Seller will not, either directly or
through any Subsidiary or Affiliate: (a) own, operate or manage any business in
which either or both of the Operating Companies is engaged as of the Closing
Date; (b) service or solicit any of the Non-Software TPA Business (as defined
below) of the Operating Companies; (c) request or advise any customer of the
Operating Companies to withdraw, curtail or cancel such customer's business with
the Operating Companies; or (d) solicit for employment or consulting services
any person employed or engaged by the Operating Companies at any time within the
two (2) year period immediately preceding such solicitation. For purposes of
this Section 6.9, the term "NON-SOFTWARE TPA BUSINESS" means all the functions
listed in the definition of the Business set forth in Annex A to this Agreement,
but does not include: (a) the selling, leasing, licensing or other transfer of
the use of computer software that assists in third-party administrator functions
to Persons engaged in the Business; and (b) the provision of utilization review,
case management, claims repricing outsourcing, and/or healthcare data management
services. Notwithstanding anything to the contrary in this Section 6.9, no owner
of less than two percent (2%) of the outstanding stock of any publicly traded
corporation shall be deemed to engage solely by reason thereof in any of its
businesses. For purposes of this Agreement, the Parties have agreed to allocate
$50,000 of the Purchase Price to the covenant not to compete contained in this
Section 6.9. The Parties acknowledge that the Seller owns all of the outstanding
capital stock of ppoONE.com, inc., ValueCheck, Inc. and MedicalControl Network
Solutions, Inc. (collectively, the "OTHER
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SUBSIDIARIES") and agree that the Seller's ownership, operation and active
management (direct or indirect) of the Other Subsidiaries during the
Noncompetition Period, in a manner consistent in all material respects with the
operation and active management of such Other Subsidiaries on the date of this
Agreement, shall not constitute a violation of this Section 6.9 solely by reason
thereof.
6.10 GRI RECEIVABLE. As set forth in Section 2.8, the Buyer
shall pay to the Seller fifty-five percent (55%) of each payment made by GRI
arising out of the sale of the DGA Dallas to GRI pursuant to the GRI Agreement.
The Buyer shall make such payments as provided in Section 2.8.
6.11 LIABILITY PAYMENTS. The Buyer and the Seller shall each
make such payments and take all other actions required of such Party following
the Closing, as provided in Section 2.9.
6.12 POST-CLOSING ADJUSTMENT AND AUDIT ASSISTANCE. Following
the Closing and in connection with the Post-Closing Adjustment, the Seller shall
provide all documents and otherwise render all necessary assistance in
connection with the preparation of the Initial Post-Closing Balance Sheet and,
if one is prepared, the Final Post-Closing Balance Sheet. Upon the request of
the Buyer in connection with a public offering of the securities of the Buyer
and/or an Affiliate of the Buyer, the Seller shall, at the sole expense of the
Buyer: (a) provide copies of the work papers of MedicalControl's outside
auditors used to prepare the consolidated balance sheets, income statements and
statements of operations and cash flows of MedicalControl and its subsidiaries
with respect to the fiscal years ended December 31, 1998 and December 31, 1999;
and (b) provide reasonable cooperation to the Buyer in the audit process
conducted by AA or another reputable independent accounting firm (which the
Parties agree shall not include the delivery of officer's certificates of
MedicalControl). In connection with the obligations of the Parties under this
Agreement concerning the GRI Receivable and treatment of the Non-Dallas
Liabilities pursuant to Section 2.9(a), the Seller is hereby granted the right,
for as long as payments are due and outstanding to the Seller pursuant to the
GRI Receivable and/or such Non-Dallas Liabilities, to audit the Buyer's books
and records relating to DGA. Any such audit may be conducted only after
providing reasonable notice to the Buyer and shall be at the sole expense of the
Seller.
6.13 ACQUISITION PROPOSALS.
(a) GENERAL PROHIBITIONS. Subject only to the
occurrence of the events set forth in Section 6.13(c), from the date of this
Agreement and until the Closing Date or earlier termination of this Agreement
pursuant to Article X, neither DGA, DGIA, the Seller, MedicalControl, nor any of
their respective directors, officers, employees, financial and legal advisors,
agents or other representatives (collectively, the "SELLER REPRESENTATIVES")
shall: (i) solicit, initiate, knowingly encourage (including by way of
furnishing information), or take any other action intended or reasonably likely
to lead to, the making of any proposal that constitutes an Acquisition Proposal
(as defined herein) with any Person other than the Buyer and its representatives
(each, a "THIRD PARTY"); (ii) engage in or continue discussions or negotiations
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with any Third Party relating to an Acquisition Proposal by or involving such
Third Party; (iii) enter into any agreement to consummate any Acquisition
Proposal or agree to approve any Acquisition Proposal with any Third Party; or
(iv) approve the taking of any action prohibited by clauses (i) through (iii).
(b) LIMITED RELEASE FROM PROHIBITIONS. If and only to
the extent that the Board of Directors of MedicalControl (the "BOARD") receives
a bona fide Acquisition Proposal through no violation of the prohibitions set
forth in Section 6.13(a) that constitutes a Superior Proposal (as defined
herein) such that the Board, after consultation with outside legal counsel,
determines that the failure to consider such Acquisition Proposal would
constitute a breach of its fiduciary duties to MedicalControl's stockholders,
then the Seller, the Operating Companies and MedicalControl shall be released
from the prohibitions set forth in Section 6.13(a) to the extent necessary to
respond to such Acquisition Proposal in the manner set forth in Section 6.13(c).
No later than three (3) business days after the Board makes any such
determination, the Seller shall provide a written notice to the Buyer setting
forth the date of the Board determination and the identity of the Person making
such Acquisition Proposal (the "PROPOSED ACQUIROR") and describing, in
reasonable detail, the occurrence of the events leading to such determination
and the material terms of such Acquisition Proposal. Such limited release from
the prohibitions contained in Section 6.13(a) shall be only with respect to the
Proposed Acquiror and its representatives and such prohibitions shall remain in
all respects binding upon the Seller, the Operating Companies and MedicalControl
with respect to all other Persons.
(c) ACTIONS UPON RELEASE FROM PROHIBITIONS. Upon the
Seller Representatives' release from the prohibitions set forth in Section
6.13(a) as a result of the occurrence of the events set forth in Section
6.13(b), the Seller may supply such non-public information about the business,
properties or assets of the Operating Companies as is required to enable the
Proposed Acquiror to evaluate the Operating Companies and to otherwise negotiate
with the Proposed Acquiror (after the Proposed Acquiror executes and delivers an
appropriate confidentiality agreement). At least five (5) days prior to entering
into a definitive agreement with the Proposed Acquiror to consummate the
transactions described in the Acquisition Proposal, the Seller shall provide a
written notice to the Buyer describing, in reasonable detail, the material terms
of such definitive agreement. Upon the earlier of: (i) the Seller having
provided the written notice to the Buyer described in the previous sentence; or
(ii) forty-five (45) days having elapsed since the date of the Board
determination concerning such Acquisition Proposal, with the Seller not having
terminated negotiations with the Proposed Acquiror and consummated the
transactions contemplated by this Agreement, the Buyer may terminate this
Agreement in accordance with Section 10.1(f). To the extent not already
terminated by the Buyer pursuant to the previous sentence, the Seller may
terminate this Agreement, in accordance with Section 10.1(f), contemporaneously
with entering into a definitive agreement with the Proposed Acquiror to
consummate the transactions described in the Acquisition Proposal. Upon the
termination of this Agreement pursuant to this Section 6.13(c) (regardless of
which Party terminates), the Seller shall pay to the Buyer the termination fee
and expense reimbursement in accordance with Section 10.2(b).
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(d) DEFINED TERMS USED IN THIS SECTION 6.13. The term
"ACQUISITION PROPOSAL" means any proposal or offer contemplating any transaction
or series of related transactions (other than the transactions contemplated by
this Agreement) involving: (i) any merger or other business combination
involving the Operating Companies and/or the Business; (ii) any sale, exchange,
transfer or other disposition of a material equity interest in the Operating
Companies or a material portion of the assets of the Operating Companies; or
(iii) any dissolution or liquidation of the Operating Companies. The term
"SUPERIOR PROPOSAL" means an Acquisition Proposal made by a Third Party on terms
that a majority of the members of the Board who are not Affiliates with such
Third Party determine in their good faith judgment (after considering the advice
of an independent financial advisor and outside legal counsel) are more
favorable to the stockholders of MedicalControl than the transactions
contemplated by this Agreement and which, in the good faith judgment of a
majority of such members of the Board, is reasonably capable of being completed.
6.14 TREATMENT OF OPERATING COMPANIES' EMPLOYEES' INTERESTS IN
SELLER 401(k) PLAN. The Seller shall, as soon as administratively practicable
after the Closing Date and in accordance with Section 6.1, render such
assistance and provide such additional information to the Buyer as may be
reasonably requested by the Buyer in connection with transferring the assets of
the Operating Companies' employees who participate in the MedicalControl 401(k)
Profit Sharing Plan to a 401(k) plan administered by the Buyer for its
employees, at the sole expense of the Buyer. Without limiting the foregoing, the
Seller shall assist the Buyer in making any and all appropriate filings required
by the IRS, or required under the Code, ERISA or any applicable securities laws
and the regulations thereunder, and shall take all such action as may be
necessary and appropriate to cause such transfer to take place as soon as
administratively convenient after the Closing Date or when otherwise required by
law.
ARTICLE VII:
CONDITIONS TO THE BUYER'S
OBLIGATION TO CLOSE
The obligation of the Buyer to consummate the transactions to
be performed by it in connection with the Closing is subject to satisfaction or
waiver of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES; NO MATERIAL ADVERSE
CHANGE. The representations and warranties set forth in Articles III and V shall
be true and correct in all Material respects at and as of the Closing Date. The
Buyer shall have determined from its due diligence review of the Operating
Companies and review of the initial and updated and/or amended Disclosure
Schedules supplied by the Operating Companies and the Seller that no Material
Adverse Change shall have occurred to either or both of the Operating Companies.
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7.2 COVENANTS. The Seller and the Operating Companies shall
have performed and complied with all of its covenants hereunder in all Material
respects through the Closing.
7.3 REQUIRED CONSENTS, APPROVALS AND AUTHORIZATIONS. The
Operating Companies shall have (and the Seller will have caused the Operating
Companies to):
(a) given any notices to, obtained any necessary
consents, authorizations and approvals from, and made any required filings with,
any third parties (including, without limitation, any Governmental Body) and
taken any additional necessary actions in connection therewith, necessary to
consummate this Agreement and the transactions contemplated hereby;
(b) obtained all necessary corporate and shareholder
authorizations of the Operating Companies, the Seller and MedicalControl;
(c) entered into binding contracts with each of
ValueCheck, Inc. and MedicalControl Network Solutions, Inc., each dated as of
January 1, 2001, copies of which were provided by the Seller to the Buyer prior
to the date hereof, for the periods specified therein following the Closing
Date; and
(d) determined the liability, if any, of the
Operating Companies to the Commonwealth of Pennsylvania and the States of
Tennessee and Texas arising out of certain retained earnings on the books of the
Operating Companies and paid in full or accrued any such liability to the
Commonwealth of Pennsylvania and the States of Tennessee and Texas.
7.4 CLAIMS. No Claim shall be pending or threatened before any
court or quasi-judicial or administrative Governmental Body of any federal,
state, local, or foreign jurisdiction wherein an unfavorable Court Order would:
(a) prevent consummation of any of the transactions contemplated by this
Agreement; (b) cause any of the transactions contemplated by this Agreement to
be rescinded following consummation; or (c) adversely affect the right of the
Buyer to own, operate, or control the Shares or the Operating Companies (and no
such Court Order pertaining to such matters shall be in effect);
7.5 OPERATING COMPANIES SHARES. The acquisition by the Buyer
of the Shares shall represent one hundred percent (100%) of the issued and
outstanding capital stock of DGA and DGIA and all of such Shares shall be free
and clear of any Security Interests or other liens, claims or encumbrances of
any nature whatsoever.
7.6 RELEASE OF LIENS. All Security Interests on the Shares or
the assets of the Operating Companies that are securing the debts of the Seller
and/or MedicalControl shall have been fully released as set forth in Section 6.6
and all Uniform Commercial Code financing statements covering such debts shall
either have been terminated or release letters from the appropriate financing
entities shall have been obtained and executed UCC-3 termination statements
shall have been prepared for filing with respect thereto.
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7.7 TAX LIENS. No unsatisfied liens for the failure to pay
Taxes of any nature whatsoever shall exist against the Operating Companies, or
against or in any way affecting any of the Shares.
7.8 SELLER DELIVERIES. The Seller shall have delivered to the
Buyer the following documents:
(a) OFFICER'S CERTIFICATE. A certificate of an
officer of the Seller dated as of the Closing Date in substantially the form
attached hereto as Exhibit C;
(b) SECRETARY'S CERTIFICATE. A certificate of the
Secretary of the Seller dated as of the Closing Date in substantially the form
attached hereto as Exhibit D;
(c) OPINION OF COUNSEL. An opinion of counsel to the
Operating Companies in substantially the form attached hereto as Exhibit E,
addressed to the Buyer and dated as of the Closing Date;
(d) SELLER'S RELEASE. A general release of
liabilities, excluding obligations pursuant to this Agreement and the other
agreements contemplated herein, in substantially the form attached hereto as
Exhibit F, executed by the Seller;
(e) ESCROW AGREEMENT. The Escrow Agreement, executed
by the Seller and the Operating Companies;
(f) DIRECTORS' RESIGNATIONS. The resignations,
effective as of the Closing, of each director of the Operating Companies,
effective at or prior to the Closing; and
7.9 MINIMUM NET WORTH. The Net Worth of the Operating
Companies set forth on the Preliminary Closing Balance Sheet provided by the
Seller to the Buyer at Closing pursuant to Section 2.6(a) shall be no less than
ninety percent (90%) of the Net Worth Target.
The Buyer may waive any condition specified in this Article
VII if it executes a writing so stating at or prior to the Closing.
ARTICLE VIII:
CONDITIONS TO THE SELLER'S
OBLIGATION TO CLOSE
The obligations of the Seller to consummate the transactions
to be performed by it in connection with the Closing is subject to satisfaction
or waiver of the following conditions:
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8.1 REPRESENTATIONS AND WARRANTIES; NO MATERIAL ADVERSE
CHANGE. The representations and warranties set forth in Article IV above shall
be true and correct in all Material respects at and as of the Closing Date. The
Seller shall have determined from its due diligence review of the Buyer that no
Material Adverse Change shall have occurred to the Buyer.
8.2 COVENANTS. The Buyer shall have performed and complied
with all of its covenants hereunder in all Material respects through the
Closing.
8.3 REQUIRED CONSENTS, APPROVALS AND AUTHORIZATIONS. The Buyer
shall have received all required authorizations, consents, and approvals of
Governmental Bodies set forth herein and in the Disclosure Schedules.
8.4 CLAIMS. No Claim shall be pending or threatened before any
court or quasi-judicial or administrative Body of any federal, state, local, or
foreign jurisdiction wherein an unfavorable Court Order would: (a) prevent
consummation of any of the transactions contemplated by this Agreement; or (b)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation (and no such Court Order pertaining to such events shall
be in effect).
8.5 PAYMENT OF PURCHASE PRICE. The Buyer shall have paid to
the Seller the portion of the Purchase Price to be delivered at Closing, as
adjusted pursuant to this Agreement.
8.6 BUYER DELIVERIES. The Buyer shall have delivered to the
Seller the following documents:
(a) OFFICER'S CERTIFICATE. A certificate of an
officer of the Buyer dated as of the Closing Date in substantially the form
attached hereto as Exhibit G;
(b) SECRETARY'S CERTIFICATE. A certificate of the
Secretary of the Buyer dated as of the Closing Date in substantially the form
attached hereto as Exhibit H; and
(c) ESCROW AGREEMENT. The Escrow Agreement, executed
by the Buyer.
The Seller may waive any condition specified in this Article
VIII if it executes a writing so stating at or prior to the Closing.
ARTICLE IX:
REMEDIES FOR BREACH OF THIS AGREEMENT
9.1 SURVIVAL. All of the representations and warranties of the
Seller contained in Article III and Article V (other than the representations
and warranties concerning the Shares contained in Section 3.3 and the
representations and warranties concerning the Operating
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Companies contained in Sections 5.8, 5.19 and 5.20) shall survive the Closing
hereunder and continue in full force and effect for a period of eighteen (18)
months thereafter. The representations and warranties concerning the Shares
contained in Section 3.3, the representations and warranties concerning the
Operating Companies contained in Sections 5.8, 5.19 and 5.20, and the covenants
contained in Article VI shall survive the Closing and continue in full force and
effect for the longer of eighteen (18) months or the applicable statute of
limitations, except as otherwise provided elsewhere in this Agreement. All of
the representations and warranties of the Buyer contained in Article IV shall
survive the Closing hereunder and continue in full force and effect for a period
of eighteen (18) months thereafter.
9.2 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(a) GENERALLY. If the Seller breaches any of its
representations and warranties contained in Article III and/or Article V or any
covenants contained elsewhere in this Agreement that survive the Closing and the
Buyer makes a claim for indemnification against the Seller in accordance with
the procedure set forth in Section 9.5 within the applicable survival period,
then the Seller agrees to indemnify the Buyer (subject to the limitations set
forth in this Article IX) from and against the entirety of any Losses that the
Buyer may suffer through and after the date of the claim for indemnification
(including any Losses that the Buyer may suffer after the end of the applicable
survival period for Claims made during the applicable survival period) resulting
from the breach of such representation and warranty and/or such covenant.
(b) TAX INDEMNIFICATION. In addition to any
indemnification provided pursuant to Section 9.2(a), and without in any way
limiting the foregoing, the Seller agrees to indemnify the Buyer for the
duration of the applicable statute of limitations from and against the entirety
of any:
(i) Losses resulting or arising from a
determination by a Governmental Body that either or both of the Operating
Companies owes additional Taxes (other than prorations of real estate Taxes)
relating to a taxable period or portion thereof ending on or before the Closing
Date; and
(ii) Losses that the Buyer may suffer from
the failure of the Seller and/or the Operating Companies to comply, at any time
on or prior to the Closing Date, with the Code (including, without limitation,
the requirements described in sections 401(a) and 401(k) thereof), ERISA, and
all other Laws, in each case with respect to the Plans and Other Arrangements
which the Operating Companies: (A) have any obligations under; or (B) are or
ever have been parties to (but excluding Third Party Plans).
(c) INDEMNITY DEDUCTIBLE. The Parties agree that,
except for such liability of the Seller with respect to Losses resulting from or
attributable to intentional fraud by the Seller (for which the potential
liability under this Article IX is not subject to the Seller Indemnity
Deductible), the Seller shall not have any obligation to indemnify the Buyer
pursuant to this Article IX for breaches by the Seller of the representations
and warranties (other than those set forth in Section 9.2(b)) and covenants
contained in this Agreement until the Buyer has
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suffered aggregate Losses by reason of all such breaches in excess of the Seller
Indemnity Deductible (as defined in Section 2.9(a)) (at which point the Seller
will be obligated to indemnify the Buyer from and against all such aggregate
Losses above the Seller Indemnity Deductible).
(d) INDEMNITY CAP. The Parties agree that, except for
such liability of the Seller with respect to Losses resulting from or
attributable to intentional fraud by the Seller (for which the potential
liability under this Article IX is subject to neither the Seller General
Indemnity Cap nor the Seller Absolute Indemnity Cap), the Seller shall not have
any obligation to indemnify the Buyer pursuant to this Article IX for:
(i) aggregate Losses by the Buyer arising
out of breaches by the Seller of any of its representations and warranties
contained in this Agreement (other than those set forth in Sections 5.17, 5.20
and/or 5.22) and any of its covenants contained in this Agreement, in excess of
the sum of $1,250,000 (the "SELLER GENERAL INDEMNITY CAP") (after which point
the Seller will have no obligation to indemnify the Buyer from and against any
further such Losses); and
(ii) aggregate Losses by the Buyer arising
out of breaches by the Seller of the representations and warranties set forth in
Sections 5.17, 5.20 and/or 5.22, if the amount of such Losses, together with the
amount of all Losses for which the Seller is liable under Section 9.2(d)(i), is
in excess of the sum of $2,500,000 (the "SELLER ABSOLUTE INDEMNITY CAP") (after
which point the Seller will have no obligation to indemnify the Buyer from and
against any further such Losses).
9.3 INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLER.
(a) GENERALLY. If the Buyer breaches any of its
representations and warranties contained in Article IV or any covenants that
survive the Closing and the Seller makes a claim for indemnification against the
Buyer in accordance with the procedure set forth in Section 9.5 within the
applicable survival period, then the Buyer agrees to indemnify the Seller
(subject to the limitations set forth in this Article IX) from and against the
entirety of any Losses that the Seller may suffer through and after the date of
the claim for indemnification (including any Losses that the Seller may suffer
after the end of the applicable survival period for Claims made during the
applicable survival period) resulting from the breach of such representation and
warranty or of such covenant contained elsewhere in this Agreement.
(b) INDEMNITY DEDUCTIBLE AND INDEMNITY CAP. The
Parties agree that, except for such liability of the Buyer with respect to
Losses resulting from or attributable to intentional fraud by the Buyer (for
which the potential liability under this Article IX is subject to neither the
Buyer Indemnity Deductible nor the Buyer Indemnity Cap), the Buyer shall not
have any obligation to indemnify the Seller pursuant to this Article IX:
(i) until the Seller has suffered aggregate
Losses by reason of all such breaches in excess of a $75,000 deductible (the
"BUYER INDEMNITY DEDUCTIBLE") (at
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which point the Buyer will be obligated to indemnify the Seller from and against
all such aggregate Losses above the $75,000 deductible); or
(ii) in excess of the sum of $1,250,000 (the
"BUYER INDEMNITY CAP") (after which point the Buyer will have no obligation to
indemnify the Seller from and against any further such Losses).
9.4 MATTERS INVOLVING THIRD PARTIES.
(a) GENERALLY. If any third party shall notify any
Party (the "INDEMNIFIED Party") with respect to any matter which may give rise
to a claim for indemnification against any other Party (the "INDEMNIFYING
PARTY") under this Article IX or such Indemnified Party otherwise becomes aware
of such a matter, then the Indemnified Party shall notify in writing the
Indemnifying Party thereof promptly and in any event within fifteen (15) days of
receiving notice or otherwise becoming aware of such matter. No delay on the
part of the Indemnified Party in notifying the Indemnifying Party shall relieve
the Indemnifying Party from any liability or obligation hereunder unless (and
then solely to the extent) the Indemnifying Party thereby is damaged and
prejudiced from adequately defending such claim.
(b) ASSUMPTION OF DEFENSE BY INDEMNIFYING PARTY. With
respect to any third party claim, if the Indemnifying Party notifies the
Indemnified Party within thirty (30) days after the Indemnified Party has given
notice of the matter that the Indemnifying Party is assuming the defense
thereof:
(i) the Indemnifying Party will defend the
Indemnified Party with respect to the matter with counsel of its choice
(including, without limitation, counsel provided by the Indemnifying Party's
insurance carrier);
(ii) the Indemnified Party may retain
separate co-counsel at its sole cost and expense;
(iii) the Indemnified Party will not consent
to the entry of any judgment or enter into any settlement with respect to the
matter without the prior written consent of the Indemnifying Party (not to be
unreasonably withheld or delayed); and
(iv) the Indemnifying Party will not consent
to the entry of any judgment with respect to the matter, or enter into any
settlement which does not include a provision whereby the plaintiff or claimant
in the matter releases the Indemnified Party from all Liability with respect
thereto, without the prior written consent of the Indemnified Party (not to be
unreasonably withheld or delayed).
If, any time after commencement of any action in
which the Indemnifying Party assumes the defense of a claim brought against the
Indemnified Party pursuant to this Section 9.4(b), the Indemnifying Party
receives a bona fide offer from the other party or parties to the matter for a
commercially reasonable monetary settlement of such matter: (i) Indemnifying
Party shall promptly seek the approval of such monetary settlement offer from
the
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Indemnified Party; and (ii) unless such monetary settlement offer would unduly
burden or restrict the Indemnified Party or otherwise prejudice the Indemnified
Party, such monetary settlement offer shall be approved by the Indemnified
Party. If the Indemnified Party refuses to accept such monetary settlement offer
and instead determines that the dispute should be continued, the Indemnified
Party shall so notify the Indemnifying Party in writing within five (5) days
after receiving notice of the monetary settlement offer and the Indemnifying
Party shall be liable for indemnity hereunder with respect to such matter only
to the extent of the lesser of: (i) the amount of the settlement offer; or (ii)
the amount for which such matter is ultimately resolved. If the Indemnified
Party approves such monetary settlement offer and such monetary settlement offer
has not been withdrawn, the Indemnifying Party shall promptly take all necessary
actions to finalize the acceptance of such monetary settlement offer with the
other party or parties to the matter. If the Indemnifying Party does not take
such actions to finalize acceptance of such monetary settlement offer as so
required, the Indemnifying Party will be liable for the full amount of any
Losses in excess of the monetary settlement offer amount (even if such Losses
are greater than any applicable Seller General Indemnity Cap, Seller Absolute
Indemnity Cap or Buyer Indemnity Cap that would otherwise limit the liability of
the Indemnifying Party) and will remain liable for all Losses up to such
monetary settlement offer amount in accordance with this Article IX.
(c) DEFENSE OF MATTER BY INDEMNIFIED PARTY. With
respect to any third party claim, if the Indemnifying Party does not notify in
writing the Indemnified Party within thirty (30) days after the Indemnified
Party has given written notice of the matter that the Indemnifying Party is
expected to assume the defense thereof and as a result the Indemnified Party is
damaged and the adequate defense of such matter has been prejudiced, the
Indemnified Party may defend against the matter in any manner it reasonably may
deem appropriate and the Indemnifying Party will be liable for the reasonable
expenses incurred in connection with the resolution of such matter in accordance
with this Article IX, provided that the Indemnified Party may not enter into a
monetary settlement with respect to the matter without the prior written consent
of the Indemnifying Party, which consent shall not be unreasonably withheld or
delayed. If the Indemnifying Party withholds consent to any bona fide settlement
offer from the other party or parties to the matter that is being defended by
the Indemnified Party, then the Indemnified Party shall continue the dispute and
the Indemnifying Party will be liable for the full amount of any liability
resulting from the matter that was the subject of the settlement offer (even if
such liability is greater than any Seller General Indemnity Cap, Seller Absolute
Indemnity Cap or Buyer Indemnity Cap that would otherwise limit the liability of
the Indemnifying Party).
(d) SUPPLY OF INFORMATION. The Party controlling the
defense of any third party claim shall deliver, or cause to be delivered, to the
other Party copies of all correspondence, pleadings, motions, briefs, appeals or
other written statements relating to or submitted in connection with the defense
of the third party claim, and timely notices of, and the right to participate
in, at its own expense (as an observer) any hearing or other court proceeding
relating to the third party claim.
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9.5 INDEMNIFICATION CLAIMS PROCEDURE. If any claim for
indemnification is made by any Indemnified Party pursuant to Section 9.2 or
Section 9.3, then such Indemnified Party shall send written notice to the
Indemnifying Party and its legal counsel by certified mail, return receipt
requested or by personal service at the respective addresses of the Indemnifying
Party and its legal counsel set forth in Section 11.7, setting forth in
reasonable detail a description of the facts upon which the claim is based and a
reasonable estimate of the amount of the claim (each, an "INDEMNITY CLAIM," with
the notice thereof referred to as the "CLAIM NOTICE"). The Indemnifying Party
shall have fifteen (15) days from receipt of the Claim Notice to respond to such
Indemnity Claim. Such response shall be in writing and shall set forth in
reasonable detail: (a) the Indemnifying Party's objection to the Indemnity Claim
and the basis for such objection; or (b) the efforts undertaken or to be
undertaken by the Indemnifying Party to cure the Indemnity Claim. If the
Indemnifying Party fails to respond to the Claim Notice in the manner set forth
above within such fifteen (15) day period, then the Indemnifying Party shall be
deemed to have conceded the Indemnity Claim in full. If the Indemnifying Party
and the Indemnified Party are unable to resolve the Indemnity Claim within
fifteen (15) days from the date of receipt of the response to the Claim Notice,
the Indemnity Claim shall be submitted to binding arbitration in accordance with
Section 11.9.
9.6 PAYMENT OF BUYER CLAIMS. Subject to the Seller Indemnity
Deductible and Seller Indemnity Cap, if any Indemnity Claim is made by the Buyer
pursuant to Section 9.2, the aggregate amount of such Indemnity Claim that is
determined to be due to the Buyer pursuant to resolution of a matter under
Section 9.4 or the procedures set forth in Section 9.5 shall be satisfied first
by release from the Escrow Sum to the Buyer and second by wire transfer by the
Seller of immediately available funds to the account of the Buyer. The Seller
agrees to take all such actions and to execute all such documentation as is
reasonably required by the Escrow Agent to effect the release of such monies
from the Escrow Sum.
9.7 PAYMENT OF SELLER CLAIMS. Subject to the Buyer Indemnity
Deductible and Buyer Indemnity Cap, if any Indemnity Claim is made by the Seller
pursuant to Section 9.3, the aggregate amount of such Indemnity Claim that is
determined to be due to the Seller pursuant to resolution of a matter under
Section 9.4 or the procedures set forth in Section 9.5 shall be paid by wire
transfer by the Buyer of immediately available funds of such amount to the
account of the Seller.
9.8 MITIGATION OF LOSSES; CLAIMS NET OF INSURANCE PROCEEDS AND
TAX BENEFITS.
(a) Each Indemnified Party is obligated to use
reasonable efforts to mitigate to the fullest extent practicable the amount of
any Loss for which an Indemnity Claim may be made by any Indemnified Party
pursuant to this Article IX.
(b) If any Claim(s) or potential Claim(s) are made by
one or more third parties against an Indemnified Party pursuant to this Article
IX for which an Indemnifying Party would be liable, and it appears reasonably
likely that such Claim(s) or potential Claim(s) might be covered by one or more
of the insurance policies maintained by the Indemnified Party, the
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Indemnified shall (to the extent that it is able to do so) make a good faith
claim under such insurance polic(ies). To the extent that the Indemnified Party
obtains any recovery from such insurance claim, the net proceeds (after
deducting the reasonable costs incurred by the Indemnified Party in making such
insurance claim) of such recovery shall be offset against any sums due from an
Indemnifying Party (or shall be repaid by the Indemnified Party to the extent
the Indemnifying Party has already paid such amounts).
(c) All Losses for which an Indemnity Claim is made
by any Indemnified Party pursuant to this Article IX shall be net of any net tax
benefit resulting from the event that resulted in such Indemnity Claim.
9.9 SUBROGATION. Upon making any payment for Losses of the
Indemnified Party, the Indemnifying Party will, to the extent of such payment,
be subrogated to all rights of the Indemnified Party against any third party
with respect to the Loss to which the payment relates; provided, however, that
until the Indemnified Party recovers full payment of its Loss, any and all
claims against such third party on account of such payment are hereby made
expressly subordinated and subjected in right of payment of the Indemnified
Party's rights against such third party. In addition to any other obligation
pursuant to this Agreement, the Indemnified Party and the Indemnifying Party
will each duly execute upon request all instruments reasonably necessary to
evidence and perfect the subrogation and subordination rights granted pursuant
to this Section 9.9.
9.10 AVAILABLE REMEDIES. Following the Closing, except for
Claims arising out of intentional fraud by a Party (for which the other Party
may seek any remedy available to it in law or in equity):
(a) the indemnification provided pursuant to this
Article IX shall be the sole and exclusive remedy of the Parties and their
respective officers, directors, employees Affiliates, agents, representatives,
successors and assigns for: (i) any breach of or inaccuracy in any
representation and warranty; or (ii) any breach, nonfulfillment or default in
the performance of any of the covenants or other agreements contained in this
Agreement to be performed on or prior to the Closing;
(b) each Party hereby waives any right to any
indemnity beyond that set forth and granted pursuant to this Article IX (whether
by contract, common law, statute, regulation or otherwise); and
(c) the Parties expressly agree that, notwithstanding
anything to contrary in this Section 9.10, each Party shall have the right to
seek and obtain the equitable remedies of specific performance and injunctive
relief upon the breach or threatened breach of any covenant or other agreement
contained in this Agreement at any point in time after the Closing Date.
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ARTICLE X:
TERMINATION
10.1 TERMINATION OF THE AGREEMENT. At any point prior to
Closing, the Parties may terminate this Agreement as provided below.
(a) MUTUAL CONSENT. The Buyer, the Seller and the
Operating Companies may terminate this Agreement by mutual written consent at
any time prior to the Closing.
(b) SELLER AND/OR OPERATING COMPANY BREACH. The Buyer
may terminate this Agreement by giving written notice to the Seller and the
Operating Companies at any time prior to the Closing if the Seller and/or the
Operating Companies is in breach of any Material representation, warranty, or
covenant contained in this Agreement in any Material respect and such breach has
not been cured within ten (10) business days after written notice thereof.
(c) BUYER BREACH. The Seller and the Operating
Companies may terminate this Agreement by giving written notice to the Buyer at
any time prior to the Closing if the Buyer is in breach of any Material
representation, warranty, or covenant contained in this Agreement in any
Material respect and such breach has not been cured within ten (10) business
days after written notice thereof.
(d) NONSATISFACTION OF CONDITIONS TO CLOSE BY THE
SELLER AND/OR THE OPERATING COMPANIES. The Buyer may terminate this Agreement by
giving written notice to the Seller at any time prior to the Closing if the
Closing shall not have occurred within thirty (30) days after the SEC has
approved proxy materials for submission to MedicalControl's stockholders
concerning the transactions contemplated by this Agreement, as set forth in
Section 6.3, by reason of the nonsatisfaction of any condition to close
contained in Article VII (unless the failure results primarily from the Buyer
breaching any representation and warranty or covenant contained in this
Agreement).
(e) NONSATISFACTION OF CONDITIONS TO CLOSE BY THE
BUYER. The Seller may terminate this Agreement by giving written notice to the
Buyer at any time prior to the Closing if the Closing shall not have occurred
within thirty (30) days after the SEC has approved proxy materials for
submission to MedicalControl's stockholders concerning the transactions
contemplated by this Agreement, as set forth in Section 6.3, by reason of the
nonsatisfaction of any condition to close contained in Article VIII (unless the
failure results primarily from the Seller and/or the Operating Companies
breaching any representation and warranty or covenant contained in this
Agreement).
(f) TERMINATION IN CONNECTION WITH ACQUISITION
PROPOSAL. The Buyer or the Seller may terminate this Agreement upon satisfaction
of the conditions set forth in Section 6.13(c).
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10.2 EFFECT OF TERMINATION.
(a) If either the Buyer or the Seller terminates this
Agreement pursuant to Section 10.1(a) through (e), all obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party, except that any such termination of this Agreement shall not
relieve any Party from its covenants concerning confidentiality contained in
Section 6.5.
(b) If this Agreement is terminated by the Buyer or
the Seller pursuant to Section 10.1(f), then the Seller shall promptly pay to
the Buyer by wire transfer of immediately available funds a fee equal to the sum
of: (i) one hundred thousand dollars ($100,000); and (ii) up to fifty thousand
($50,000) of documented fees, costs and expenses reasonably incurred by the
Buyer in connection with the transactions contemplated by this Agreement
(including, without limitation, all fees paid or payable to the Buyer's legal
counsel and accounting and financial advisors).
(c) Nothing contained in this Article X shall alter,
affect, modify or restrict either Party's rights to seek indemnification under
Article IX for a breach by another Party of any of the representations and
warranties and/or covenants contained in this Agreement.
ARTICLE XI:
MISCELLANEOUS
11.1 PRESS RELEASES AND ANNOUNCEMENTS. Except as may be
required by applicable securities laws or stock exchange requirements, no Party
shall issue any press release or announcement relating to the subject matter of
this Agreement prior to, at or about the Closing without the prior written
approval of both the Buyer and the Seller, which written approval will not be
unreasonably withheld or delayed; provided, however, that any Party may make any
public disclosure it believes in good faith is required by applicable
Requirements of Laws (in which case the disclosing Party will advise the other
Parties prior to making the disclosure).
11.2 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.
11.3 ENTIRE AGREEMENT. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, that may have related in any way to the subject
matter hereof.
11.4 SUCCESSION AND ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the Parties named herein and their
respective successors and permitted assigns. No Party may assign either this
Agreement or any of his, her or its rights, interests, or obligations hereunder
without the prior written approval of the Buyer and the Seller; provided,
however, that the Buyer may assign any or all of its rights and interests
hereunder to a
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wholly-owned Subsidiary (in any or all of which cases the Buyer nonetheless
shall remain liable and responsible for the performance of all of its
obligations hereunder).
11.5 FACSIMILE/COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument. This Agreement may
be executed and delivered by facsimile or similar instantaneous electronic
transmission device pursuant to which the signature of or on behalf of such
party can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any Party hereto, all
parties hereto agree to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
11.6 HEADINGS. The section headings contained in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.7 NOTICES. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and then
two business days after) it is sent by registered or certified mail, return
receipt requested, postage prepaid, and addressed to the intended recipient as
set forth below:
If to the Buyer:
HealthASPex, Inc.
2812 Trinity Square Drive, Suite 108
Carrollton, Texas 75006
Attn: Peter R. Barnett
Tel: (972) 417-5171
Fax: (972) 418-7445
with copies (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
555 Thirteenth Street, N.W.
Washington, D.C. 20004
Attn: Christopher J. Hagan
Tel: (202) 637-5771
Fax: (202) 637-5910
and:
Fairfax Partners
8000 Towers Crescent Drive, Suite 940
Vienna, Virginia 22182
Attn: Stephen W. Ritterbush
Andrew D. Klingenstein
Tel: (703) 847-9486
Fax: (703) 847-0911
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If to Operating Companies or the Seller:
MedicalControl Holdings, Inc.
8625 King George, Suite 300
Dallas, Texas 75235
Attn: J. Ward Hunt
Tel: (214) 267-3449
Fax: (214) 905-9024
with a copy (which shall not constitute notice) to:
Hallett & Perrin, P.C.
717 N. Harwood, Suite 1400
Dallas, Texas 75201
Attn: Lance M. Hardenburg
Tel: (214) 922-4156
Fax: (214) 922-3154
Any Party may give any notice, request, demand, claim, or
other communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex, ordinary mail,
or electronic mail), but no such notice, request, demand, claim, or other
communication shall be deemed to have been duly given unless and until it
actually is received by the individual for whom it is intended. Any Party may
change the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other parties notice
in the manner herein set forth.
11.8 GOVERNING LAW. ALL ISSUES CONCERNING THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS,
WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF TEXAS OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF TEXAS.
11.9 DISPUTE RESOLUTION. THE PARTIES AGREE TO SUBMIT TO
ARBITRATION, IN ACCORDANCE WITH THESE PROVISIONS, ANY DISPUTED CLAIM OR
CONTROVERSY ARISING FROM OR RELATED TO THE ALLEGED BREACH OF THIS AGREEMENT OR
ANY DISPUTED INDEMNIFICATION CLAIM MADE PURSUANT TO ARTICLE IX. THE PARTIES
FURTHER AGREE THAT THE ARBITRATION PROCESS AGREED UPON HEREIN SHALL BE THE
EXCLUSIVE MEANS FOR RESOLVING ALL DISPUTES MADE SUBJECT TO ARBITRATION HEREIN,
BUT THAT NO ARBITRATOR SHALL HAVE AUTHORITY TO EXPAND THE SCOPE OF THESE
ARBITRATION PROVISIONS. ANY ARBITRATION HEREUNDER SHALL BE CONDUCTED UNDER THE
COMMERCIAL LAW PROCEDURES OF THE AMERICAN ARBITRATION ASSOCIATION (THE "AAA").
EITHER PARTY MAY INVOKE ARBITRATION PROCEDURES HEREIN BY WRITTEN NOTICE FOR
ARBITRATION CONTAINING A STATEMENT OF THE MATTER TO BE ARBITRATED. THE PARTIES
SHALL THEN HAVE FOURTEEN (14) DAYS IN WHICH THEY MAY IDENTIFY A MUTUALLY
AGREEABLE, NEUTRAL ARBITRATOR. AFTER THE FOURTEEN (14) DAY PERIOD HAS EXPIRED,
THE PARTIES SHALL PREPARE AND SUBMIT TO THE AAA A JOINT SUBMISSION, WITH EACH
PARTY TO CONTRIBUTE HALF OF THE APPROPRIATE ADMINISTRATIVE FEE. IF THE PARTIES
CANNOT AGREE UPON A NEUTRAL
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ARBITRATOR WITHIN FOURTEEN (14) DAYS AFTER WRITTEN NOTICE FOR ARBITRATION IS
RECEIVED, THEIR JOINT SUBMISSION TO THE AAA SHALL REQUEST A PANEL OF THREE
ARBITRATORS WHO ARE PRACTICING ATTORNEYS WITH PROFESSIONAL EXPERIENCE IN THE
FIELD OF CORPORATE LAW, AND THE PARTIES SHALL ATTEMPT TO SELECT AN ARBITRATOR
FROM THE PANEL ACCORDING TO AAA PROCEDURES. UNLESS OTHERWISE AGREED BY THE
PARTIES, THE ARBITRATION HEARING SHALL TAKE PLACE IN DALLAS, TEXAS, AT A PLACE
DESIGNATED BY THE AAA. ALL ARBITRATION PROCEDURES HEREUNDER SHALL BE
CONFIDENTIAL. EACH PARTY SHALL BE RESPONSIBLE FOR ITS COSTS INCURRED IN ANY
ARBITRATION, AND THE ARBITRATOR SHALL NOT HAVE AUTHORITY TO INCLUDE ALL OR ANY
PORTION OF SAID COSTS IN AN AWARD, REGARDLESS OF WHICH PARTY PREVAILS. THE
ARBITRATOR MAY INCLUDE EQUITABLE RELIEF.
11.10 AMENDMENTS AND WAIVERS. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. 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.
11.11 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. If the final judgment of a
court of competent jurisdiction declares that any term or provision hereof is
invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
11.12 EXPENSES. Except as set forth in Section 10.2(b), the
Buyer, the Seller and the Operating Companies will each bear their own costs and
expenses (including, without limitation, any legal fees and expenses and any
investment banking fees) incurred in connection with this Agreement and the
transactions contemplated hereby. The Seller acknowledges and agrees that the
Operating Companies have not borne and will not bear any of the Seller's costs
and expenses in connection with this Agreement or any of the transactions
contemplated hereby.
11.13 CONSTRUCTION. The language used in this Agreement will
be deemed to be the language chosen by the Parties to express their mutual
intent, and no rule of strict construction shall be applied against any Party.
The Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant relating to the same subject matter as any
other representation, warranty or covenant (regardless of the relative levels of
specificity) which
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<PAGE> 153
the Party has not breached, it shall not detract from or mitigate the fact that
the Party is in breach of the first representation, warranty, or covenant.
11.14 INCORPORATION OF EXHIBITS, ANNEXES, AND DISCLOSURE
SCHEDULES. The Exhibits, Annexes and Disclosure Schedules identified in this
Agreement are incorporated herein by reference and made a part hereof.
11.15 SPECIFIC PERFORMANCE. Each of the Parties acknowledges
and agrees that the other Parties would be damaged irreparably in the event any
of the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter, in addition to any other remedy to
which they may be entitled, at law or in equity.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first written above.
THE BUYER:
HEALTHASPEX, INC.
By: /s/ PETER R. BARNETT
---------------------------------------
Name: Peter R. Barnett
Title: President and Chief Executive Officer
THE SELLER:
MEDICALCONTROL HOLDINGS, INC.
By: /s/ J. WARD HUNT
---------------------------------------
Name: J. Ward Hunt
Title: President and Chief Executive Officer
OPERATING COMPANIES:
DIVERSIFIED GROUP ADMINISTRATORS, INC.
By: /s/ J. WARD HUNT
---------------------------------------
Name: J. Ward Hunt
Title: Chairman
DIVERSIFIED GROUP INSURANCE AGENCY OF PA, INC.
By: /s/ J. WARD HUNT
---------------------------------------
Name: J. Ward Hunt
Title: Chairman
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<PAGE> 155
ANNEX A: DEFINITIONS
All references to "Sections" and "Articles" of the "Agreement"
in this Annex A, unless the context requires otherwise, shall be references to
sections and articles of the Stock Purchase Agreement dated as of November __,
2000, by and among HealthASPex, Inc., MedicalControl Holdings, Inc., Diversified
Group Administrators, Inc. and Diversified Group Insurance Agency of PA, Inc.,
to which this Annex A is attached and incorporated therein.
* * * * *
"AFFILIATE" means: (a) with respect to an individual, any
member of the individual's family; (b) with respect to a Person that is not an
individual, any officer, director, stockholder, partner or investor of or in
such Person or of or in any Affiliate of such Person; and (c) with respect to
any Person (whether or not an individual), any other Person which directly or
indirectly controls, is controlled by or is under common control with such first
Person.
"AFFILIATED GROUP" means any affiliated group within the
meaning of Code Section 1504 (or any similar group defined under a similar
provision of state, local or foreign law).
"BANK ONE INDEBTEDNESS" means the indebtedness of the Seller
to Bank One of Texas, N.A., pursuant to the Loan Agreement dated September 25,
1998, as amended.
"BASIS" means any past or present fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction that forms the basis for any
specified consequence.
"BUSINESS" means, with respect to DGA, the business of
operating a third-party administrator in the United States of America, which
includes performing the following services on behalf of clients: (a) advising
and assisting in the development of health benefit plans; and (b) performing
claims processing, management and administration services, but does not include
repricing, and, with respect to DGIA, the business of providing insurance
services in connection with the operation of the Business of DGA. Such services
may be provided to self-funded clients (i.e., those who assume the risk of
funding the plan), as well as fully-insured plans (e.g., indemnity carriers).
"BUYER'S INCOME TAXES" means all Income Taxes imposed on,
assessed against, collected with respect to, or measured by the net or gross
income, profits or receipts related to Buyer, its Subsidiaries (including,
without limitation, the Operating Companies) or their respective assets or
operations, that arise in, or are attributable to, any and all periods
(including the portion of any such period) beginning after the Closing Date
"CAPITAL STOCK" means the authorized shares of common stock
and preferred stock of a Person, together with all options, warrants or rights
to acquire such shares, or convertible securities or other instruments
convertible into such shares, or any other form of equity interest issued by
such Person.
<PAGE> 156
"CLAIMS" means all actions, claims, demands, charges,
complaints, suits, proceedings, hearings, or causes of action against a Person.
"CODE" means the Internal Revenue Code of 1986, as amended,
and all Laws promulgated pursuant thereto or in connection therewith.
"COMMON CONTROL ENTITY" means any trade or business under
common control (as such term is defined in Section 414(c) or 414(v) of the Code)
with DGA and DGIA, both of whom are under common control with each other.
"CONFIDENTIAL INFORMATION" means all confidential information
(for purposes of this Agreement, confidential information shall refer to all
information which is the subject of reasonable efforts by such Person to
maintain its non-public character or to otherwise prevent such information from
becoming widely known) and trade secrets of a Person (including, without
limitation, any of the same comprising the identity, lists or descriptions of
any customers, referral sources or organizations; financial statements, cost
reports or other financial information; contract proposals, or bidding
information; business plans and training and operations methods and manuals;
personnel records; fee structure; and management systems, policies or
procedures, including related forms and manuals). Confidential Information shall
not include any information which has been publicly disclosed (other than by any
Person, directly or indirectly, in violation of this Agreement) without
restrictions on further disclosure by the recipient of such information.
"CONTROL" means possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
ownership of voting securities, by agreement or otherwise).
"CONTROLLED GROUP OF CORPORATIONS" has the meaning set forth
in Code Section 1563.
"COURT ORDER" means any judgment, order, award or decree of
any Governmental Body or arbitration tribunal.
"CUSTOMER CONTRACT OR CUSTOMER AGREEMENT" means any agreement
whereby either or both of the Operating Companies provides services in the
Business to a third party.
"DEFERRED INTERCOMPANY TRANSACTION" has the meaning set forth
in Treas. Reg. Section 1.1502-13.
"DEFINED BENEFIT PLAN" means a Plan that is or was a "defined
benefit plan" as such term is defined in Section 3(35) of ERISA.
"DOL" means the Department of Labor or its successors.
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<PAGE> 157
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Resource Conservation and
Recovery Act of 1976, the Federal Water Pollution Control Act of 1972, the Clean
Air Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Refuse Act of 1899, and the Emergency Planning and
Community Right-to-Know Act of 1986 (each as amended), or any other Requirements
of Laws of any Governmental Body concerning the release or threatened release of
hazardous substances, public health and safety, pollution or protection of the
environment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and all laws and regulations promulgated pursuant thereto or
in connection therewith.
"ESCROW AGENT" means First Union National Bank, as escrow
agent under the Escrow Agreement.
"ESOP" means an Employee Stock Ownership Plan within the
meaning of Section 4975(e)(7) of the Code.
"EQUITABLE EXCEPTIONS" shall mean limitations on the
enforceability of obligations resulting from (a) bankruptcy, insolvency,
reorganization, moratorium or other Requirements of Laws, Court Orders or
equitable principles now or hereafter in effect relating to or affecting the
enforcement of creditors' rights or debtors' obligations generally, and to
general equity principles; and (b) as to the remedy of specific performance and
injunctive and other forms of equitable relief, the imposition of equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought.
"ERISA AFFILIATE" means any entity, whether or not
incorporated, that is treated as a single employer with the Operating Companies
under Section 414 of the Code.
"EXTREMELY HAZARDOUS SUBSTANCE" has the meaning set forth in
Section 302 of the Emergency Planning and Community Right-to-Know Act of 1986,
as amended.
"FIDUCIARY" has the meaning specified in ERISA Section 3(21).
"FLSA" means the Fair Labor Standards Act of 1938, as amended,
and all Laws promulgated pursuant thereto or in connection therewith.
"FUNDED INDEBTEDNESS" means all: (a) indebtedness of the
Operating Companies for borrowed money or other interest-bearing indebtedness;
(b) capital lease obligations of the Operating Companies; (c) obligations of the
Operating Companies to pay the deferred purchase or acquisition price for goods
or services, other than trade accounts payable in the Ordinary Course of
Business; (d) indebtedness of others guaranteed by the Operating Companies or
secured by a Security Interest on the property of the Operating Companies
(including, without limitation, any guarantee made by DGA in connection with or
pursuant to the Bank One Indebtedness); (e) letters of credit or similar
obligations; and (f) indebtedness of the Operating Companies under extended
credit terms of more than ninety (90) days from vendors provided to the
Operating Companies.
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<PAGE> 158
"GAAP" means United States generally accepted accounting
principles, applied on a consist basis, as such principles may be in effect from
time to time.
"GOVERNMENTAL BODY" means any foreign, federal, state, local
or other governmental authority or regulatory body having jurisdiction over the
Operating Companies and/or the Seller.
"INCOME TAXES" or "INCOME TAX" shall mean any and all
liability for any taxes imposed on the income of a corporation (including,
without limitation, any liability under the Code, and all federal, state, local,
and foreign income, profits, gross receipts and unitary taxes or similar taxes
or other assessments imposed with respect thereto and any interest, penalties or
additions in respect of such tax).
"INDIVIDUAL ACCOUNT PLAN" means a Plan that is or was an
"individual account plan" as such term is defined in Section 3(34) of ERISA.
"INTELLECTUAL PROPERTY" means all: (a) trademarks, service
marks, trade dress, logos, trade names, and corporate names and registrations
and applications for registration thereof; (b) copyrights and registrations and
applications for registration thereof; (c) computer software, data, and
documentation; (d) to the extent legally protectable, trade secrets and
confidential business information (including formulas, compositions, inventions
(whether patentable or unpatentable and whether or not reduced to practice),
know-how, manufacturing and production processes and techniques, research and
development information, drawings, specifications, designs, plans, proposals,
technical data, copyrightable works, financial, marketing, and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information); (e) to the extent legally protectable, other
proprietary rights; and (f) copies and tangible embodiments thereof (in whatever
form or medium).
"IRS" means the United States Internal Revenue Service or any
successor thereto.
"JULY 31 BALANCE SHEET" means the unaudited balance sheet of
the Seller dated July 31, 2000 attached hereto as Annex B.
"KNOWLEDGE" (whether or not capitalized) means, with respect
to the Operating Companies and/or the Seller, the actual knowledge of the
directors, officers and key employees of the Operating Companies and/or the
Seller obtained through reasonable inquiry within the Operating Companies and
the Seller to employees with responsibility for the subject matter in question.
For purposes of this definition, the key employees of the Operating Companies
and/or the Seller shall be J. Ward Hunt, Robert Buddendorf, Daniel Riston,
Stephanie McVay, Michele Piendl, Terri Brinkman and Kim Pryor.
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<PAGE> 159
"LIABILITY" means any liability for payment, debt, payment
obligation, or any other amount or sum due (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated, and whether due or
to become due) including any liability for Taxes but excluding performance or
contractual obligations (other than payment obligations) thereunder.
"LOSS" means any and all Liabilities, assessments, losses,
costs, fines, penalties, fees and expenses paid or incurred, or reasonably
likely to be paid or incurred (including, without limitation, penalties or
interest on any amount payable to a third party as a result of the foregoing),
and any reasonable legal or other expenses reasonably expected to be incurred in
connection with defending any Claims that, if adversely determined, could
reasonably be expected to result in Losses, and all amounts paid in settlement
of any Claims.
"MATERIAL" means: (a) with respect to an amount, more than
twenty thousand dollars ($20,000); (b) with respect to a contract, one calling
for annual payments of more than twenty thousand dollars ($20,000); or (c) with
respect to a matter or a Party's action or omission, a matter or a Party's
action or omission that: (i) causes any representation or warranty contained in
this Agreement to be inaccurate, incorrect or false, with such inaccuracy,
incorrectness or falsehood resulting, or reasonably expected to result, in
Losses exceeding twenty thousand dollars ($20,000) individually or forty
thousand dollars ($40,000) in the aggregate, or (ii) constitutes a criminal
violation of law.
"MATERIAL ADVERSE CHANGE" means an adverse change to the
business, operations, results of operations assets, Liabilities or financial
condition of a Person, if: (a) the diminution in value or Loss to the Person
that has resulted (or can reasonably be expected to result) therefrom with
respect to such change, when taken together with all other related diminutions
in value or Losses that may reasonably be expected to occur with respect to the
Person as a result of any similar changes, would exceed $20,000 individually or
$40,000 in the aggregate; (b) such change causes or results from the Person's
breach, default or other violation of a Material Contract which results in the
termination, cancellation or other material negative change thereto; or (c) such
change has resulted (or can reasonably be expected to result) from a criminal
violation of law by such Person.
"MULTIEMPLOYER PLAN" means a "multiemployer plan," as such
term is defined in Section 3(37) of ERISA.
"NET WORTH" means, as of a certain date, the net worth of DGA,
which is equal to: (a) the total assets of DGA, less goodwill and other
intangible assets as of such date, minus (b) the sum of total current
liabilities, long-term debt (net of current portion), and any intercompany
payable balance remaining as of such date, as calculated in accordance with GAAP
consistently applied. For purposes of calculating the Net Worth, both: (a) any
receivables aged over one hundred eighty (180) days, less any applicable
reserves; and (b) any amounts received by the Seller pursuant to the GRI
Receivable on or prior to the Effective Date, shall be deducted.
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<PAGE> 160
"OPERATING COMPANY TAX RETURNS" means all Tax Returns filed or
required to be filed by or with respect to the Operating Companies, or their
respective assets or operations (including any consolidated, combined or unitary
Tax Returns to the extent they relate thereto).
"ORDINARY COURSE OF BUSINESS" means the ordinary course of
business of the Seller, DGA and DGIA, consistent with their respective past
customs and practices (including with respect to quantity and frequency).
"OSHA" means the Occupational Safety and Health Act, 29 U.S.C.
Section Section 651 et seq., any amendment thereto, and any regulations
promulgated thereunder.
"OTHER ARRANGEMENT" means a benefit program or practice
providing for bonuses, incentive compensation, vacation pay, severance pay,
insurance, restricted stock, stock options, employee discounts, company cars,
tuition reimbursement or any other perquisite or benefit (including, without
limitation, any fringe benefit under Section 132 of the Code) to employees,
officers or independent contractors that is not a Plan.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLAN" means an "employee pension benefit plan," as
such term is defined in Section 3(2) of ERISA
"PERSON" means any individual, corporation, partnership, joint
venture, association, joint-stock company, limited liability company, trust,
unincorporated organization or other legal entity, or any Governmental Body.
"PLAN" means any plan, program or arrangement, whether or not
written, that is or was an "employee benefit plan," as such term is defined in
Section 3(3) of ERISA and: (a) which was or is established or maintained by the
Operating Companies or an ERISA Affiliate; (b) to which either or both of the
Operating Companies or an ERISA Affiliate contributed or were obligated to
contribute or to fund or provide benefits; or (c) which provides or promises
benefits to any person who performs or who has performed services for either or
both of the Operating Companies or an ERISA Affiliate and because of those
services is or has been (i) a participant therein or (ii) entitled to benefits
thereunder.
"POST-CLOSING PERIOD" means all taxable periods beginning
after the Closing Date and the portion after the Closing Date of any taxable
period that begins on or before the Closing Date and ends after the Closing
Date.
"PRE-CLOSING PERIOD" means all taxable periods ending on or
prior to the Closing Date and the portion to and including the Closing Date of
any taxable period that begins on or before the Closing Date and ends after the
Closing Date.
"QUALIFIED PLAN" means a Pension Plan that satisfies, or is
intended by the Seller to satisfy, the requirements for tax qualification
described in Section 401 of the Code.
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"REQUIREMENTS OF LAWS" means any foreign, federal, state and
local laws, statutes, regulations, rules, codes or ordinances enacted, adopted,
issued or promulgated by any Governmental Body (including, without limitation,
those pertaining to electrical, building, zoning, environmental and occupational
safety and health requirements).
"SEC" means the United States Securities and Exchange
Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITY INTEREST" means any mortgage, pledge, security
interest, encumbrance, charge, or other lien, other than: (a) mechanic's,
materialmen's and similar liens; (b) liens for Taxes not yet due and payable (or
for Taxes that the taxpayer is contesting in good faith through appropriate
proceedings); (c) liens arising under workers' compensation, unemployment
insurance, social security, retirement, and similar legislation; (d) liens
arising in connection with sales of foreign receivables; (e) liens on goods in
transit incurred pursuant to documentary letters of credit; (f) purchase money
liens and liens securing rental payments under capital lease arrangements; and
(g) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"SELLER INCOME TAXES" shall mean all Income Taxes imposed on,
assessed against, collected with respect to, or measured by the net or gross
income, profits or receipts related to Seller, its Subsidiaries (including,
without limitation, each of the Operating Companies) or their respective assets
or operations, that arise in, or are attributable to, any and all periods
(including the portion of any such periods) ending on or prior to the Closing
Date.
"SUBSIDIARY" means any corporation with respect to which
another specified corporation has the power to vote or direct the voting of
sufficient securities to elect a majority of the directors.
"TAX" means any federal, state, local, or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental, customs duties, capital
stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty or addition
thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"THIRD PARTY PLAN" means any plan, program or arrangement,
whether or not written, that is or was an "employee benefit plan," as such term
is defined in Section 3(3) of ERISA and which was or is established or
maintained by a client of the DGA.
"WELFARE PLAN" means an "employee welfare benefit plan," as
such term is defined in Section 3(1) of ERISA.
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<PAGE> 162
FORM OF PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF THE STOCKHOLDERS OF MEDICALCONTROL, INC.
TO BE HELD _______________ ___, 2001
The undersigned hereby acknowledges receipt of the Notice of the
Special Meeting of Stockholders of MedicalControl, Inc. to be held on
_______________ ___, 2001, at 9:30 a.m., local time, at MedicalControl's
executive offices, 8625 King George Drive, Suite 300, Dallas, Texas 75235 and
the Proxy Statement in connection therewith, and appoints John Ward Hunt and Bob
E. Buddendorf, and each of them, as the lawful agents and proxies of the
undersigned (with all powers the undersigned would possess if personally
present, including full power of substitution), and hereby authorizes them to
represent and to vote, as designated below, all the shares of Common Stock of
MedicalControl, Inc. held of record by the undersigned as of the close of
business on _______________ ___, 2000, at the Special Meeting of Stockholders or
any adjournment or postponement thereof.
1. PROPOSAL TO APPROVE AND ADOPT THE RESOLUTIONS TO AUTHORIZE (A) THE STOCK
PURCHASE AGREEMENT DATED AS OF OCTOBER 18, 2000, BETWEEN MEDICALCONTROL, INC.,
MEDICALCONTROL HOLDINGS, INC., MEDICALCONTROL NETWORK SOLUTIONS, INC. AND BEYOND
BENEFITS, INC., AND (B) THE STOCK PURCHASE AGREEMENT DATED AS OF NOVEMBER 14,
2000, BETWEEN MEDICALCONTROL HOLDINGS, INC., DIVERSIFIED GROUP ADMINISTRATORS,
INC., DIVERSIFIED GROUP INSURANCE AGENCY OF PA, INC., AND HEALTHASPEX, INC.,
PURSUANT TO WHICH MEDICALCONTROL HOLDINGS, INC., A WHOLLY OWNED SUBSIDIARY OF
MEDICALCONTROL, PROPOSES TO SELL A SUBSTANTIAL PORTION OF ITS ASSETS, CONSISTING
OF ALL THE OUTSTANDING STOCK OF MEDICALCONTROL NETWORK SOLUTIONS, INC. AND
DIVERSIFIED GROUP ADMINISTRATORS, INC., DIVERSIFIED GROUP INSURANCE AGENCY OF
PA, INC., RESPECTIVELY.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. PROPOSAL TO APPROVE AND ADOPT THE RESOLUTIONS TO AUTHORIZE MEDICALCONTROL,
INC. TO FILE A CERTIFICATE OF AMENDMENT TO ITS CERTIFICATE OF INCORPORATION IN
THE STATE OF DELAWARE TO CHANGE ITS NAME TO NOVADYN, INC.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. IN HIS DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON ANY MATTERS WHICH MAY
PROPERLY COME BEFORE THE SPECIAL MEETING, OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
It is understood that when properly executed, this Proxy will be voted
in the manner directed herein by the undersigned stockholder. WHERE NO CHOICE IS
SPECIFIED BY THE STOCKHOLDER, THE PROXY WILL BE VOTED "FOR" THE NAMED PROPOSALS.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MEDICALCONTROL.
<PAGE> 163
The undersigned hereby revokes all previous proxies related to the
shares covered hereby and confirms all that said Proxy and his substitutes may
do by virtue hereof.
Please sign exactly as name(s)
appear below. When shares are held
by joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
a corporation, please sign in full
corporate name by President or
other authorized officer. If a
partnership, please sign in
partnership name by authorized
person.
Dated: , 2001
-----------------
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
[ ] PLEASE CHECK THIS BOX IF YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING.
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