EXHIBIT 2
CONFIDENTIAL
SUBJECT TO CONFIDENTIALITY AGREEMENT
[PROVIDER HEALTHNET SERVICES INC. LOGO] [MEDGRUP LOGO]
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OPTION AND VOTING AGREEMENT
BY AND AMONG
PROVIDER HEALTHNET SERVICES INC.
AND
THE SHAREHOLDERS OF MEDGRUP CORPORATION
LISTED ON ANNEX 1
DATED AS OF
MARCH 26, 2002
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TABLE OF CONTENTS
Page
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1. Support of Merger; Agreement to Vote Shares.............................................................2
(a) Support of Proposed Merger.....................................................................2
(b) Agreement to Vote Shares.......................................................................2
(c) Additional Purchases...........................................................................2
(d) Regulatory Filings.............................................................................3
(e) Compliance as to Form..........................................................................3
(f) Disclaimer.....................................................................................3
2. Irrevocable Proxy.......................................................................................3
(a) Grant of Proxy.................................................................................3
(b) Other Proxies Revoked..........................................................................4
3. Grant of Option.........................................................................................4
(a) Exercise of Option.............................................................................4
(b) Exercise Notice................................................................................4
(c) Obligation to Exercise Option Binding Upon Satisfaction of Conditions to Proposed
Merger.........................................................................................4
(d) Adjustments Upon Changes in Capitalization or Merger...........................................5
(e) Exercise Price.................................................................................5
(f) Adjustment to Exercise Price...................................................................6
4. Closing.................................................................................................7
5. Conditions to Shareholders' Obligations.................................................................7
6. Conditions to PHNS' Obligations.........................................................................8
7. PHNS Board Observer Rights..............................................................................9
8. Dissenters' Rights......................................................................................9
9. Representations and Warranties of the Shareholders......................................................9
(a) Valid Title....................................................................................9
(b) Non-Contravention.............................................................................10
(c) Binding Effect................................................................................10
(d) Total Shares..................................................................................10
(e) Finder's Fees.................................................................................10
(f) Approvals and Consents........................................................................11
(g) No Contracts or Other Liabilities.............................................................11
(h) Representations and Warranties in Merger Agreement............................................11
10. Additional Representations of Shareholders.............................................................11
(a) Investment Intent.............................................................................11
(b) Accredited Investor...........................................................................13
11. Representations and Warranties of PHNS.................................................................14
(a) Organization..................................................................................14
(b) Corporate Power and Authority.................................................................14
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TABLE OF CONTENTS
(continued)
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(c) Approvals and Consents........................................................................14
(d) Acquisition for PHNS' Account.................................................................15
(e) Capitalization................................................................................15
(f) Valuation Methodology.........................................................................15
(g) Agreements....................................................................................15
(h) Financial Statements..........................................................................15
(i) Absence of Changes............................................................................16
(j) Litigation....................................................................................16
(k) Non-Contravention.............................................................................16
(l) Investment Intent.............................................................................17
(m) Accredited Investor...........................................................................17
12. Covenants of the Parties...............................................................................17
(a) No Proxies for or Encumbrances on Shareholder Shares..........................................17
(b) No Shopping...................................................................................17
(c) Press Releases................................................................................18
(d) Satisfaction of Conditions....................................................................18
(e) Access to Information; Confidentiality........................................................19
13. Miscellaneous..........................................................................................19
(a) Expenses......................................................................................19
(b) Further Assurances............................................................................19
(c) Additional Agreements.........................................................................19
(d) Specific Performance..........................................................................20
(e) Notices.......................................................................................20
(f) Survival of Representations and Warranties....................................................21
(g) Indemnification; Set-Off......................................................................21
(h) Amendments....................................................................................23
(i) Termination...................................................................................24
(j) Successors and Assigns........................................................................25
(k) Governing Law.................................................................................25
(l) Counterparts; Effectiveness...................................................................25
(m) Certain Events................................................................................25
(n) Severability..................................................................................25
(o) Jurisdiction..................................................................................25
(p) Representation by Counsel.....................................................................25
(q) Consideration.................................................................................26
(r) Acknowledgment................................................................................26
(s) Headings......................................................................................26
(t) Several, Not Joint, Obligations...............................................................26
(u) Prior Negotiations............................................................................26
(v) No Third-Party Beneficiaries..................................................................26
(w) Interpretation................................................................................26
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Annex 1 - Shareholders, Number of Shares (including Options
to Purchase Shares) of Common Stock and Purchase
Price
Annex 2 - Issuance and Vesting of PHNS Shares
Annex 3 - Earn-Out Payments
Schedule 6(c) - MGC Capitalization
Schedule 9(f) - MGC Consents
Schedule 9(g) - Agreements with Affiliates
Schedule 11(e) - PHNS Capitalization
Schedule 11(g) - Amendments to PHNS Amended and Restated Certificate
of Incorporation, By-Laws and Amended and Restated
Stockholders' Agreement
Exhibit A - Merger Agreement
Exhibit B - Form of Shareholders Joinder Agreement
Exhibit C - Form of Employee Joinder Agreement
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TABLE OF DEFINED TERMS
Term Location Term Location
---- -------- ---- --------
Acquisition Proposal 12(b)(iii) MGC Board Recitals
Adjustment Request Annex 2 New Shares 1(c)
Agreement Preamble ▇▇▇ ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ 3(f) Option Recitals
Applicable Percentage Annex 2 Other Revenue Annex 2
Balance Sheet 11(h) PHNS Preamble
Balance Sheet Date 11(h) PHNS Board Recitals
Base Coding Revenue Annex 2 PHNS Indemnified Parties 13(g)(i)
Base Revenue for Earn-Out Annex 3 PHNS Stockholders' Agreement 6(g)
Budgeted Coding Revenues Annex 3 PHNS Shares 3(e)
Cause Annex 2 Pre-Existing PHNS Clients Annex 2
Change of Control Annex 2 Proposed Acquisition Recitals
Claim 13(g)(iii) Proposed Merger Recitals
Closing 3(b) Proposed Terms Recitals
Coding Business Annex 2 Purchase Price 3
Coding Business EBITDA Annex 3 Qualifying Other Revenue Annex 3
Coding Business Revenues Annex 3 Reference Month 3(f)
Coding Revenues Annex 2 Representatives 12(e)
Coding Revenue EBITDA Annex 2 Requisite Shareholder Vote 3(a)
Common Stock Preamble Schedule 13E-3 1(d)
Confidentiality Agreement 12(e) SEC 1(d)
Disability Annex 2 Securities Act 1(e)
Earn-Out Income Statement Annex 3 Shareholder Indemnified Parties 13(g)(ii)
Earn-Out Payment Annex 3 Shareholder Shares Recitals
Earn-Out Period Annex 3 Shareholder Preamble
Earn-Out Year Annex 3 Shareholders Preamble
EBITDA Annex 2 Shares Preamble
Exchange Act Recitals Subject Year Annex 2
Excluded Revenue Annex 2 Vesting Condition Annex 2
Exercise Notice 3(b) Vesting Income Statement Annex 2
Fair Market Value 3(e) WDC Preamble
GAAP Annex 2 Without Cause Annex 2
Indemnified Party 13(g)(iii)
Indemnifying Party 13(g)(iii)
Initial Public Offering Annex 2
Issued Shares Annex 2
Liens 9(a)
Mandatory Exercise Notice 3(c)
Merger Agreement Recitals
Merger Sub Recitals
MMC Preamble
MGC Preamble
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OPTION AND VOTING AGREEMENT
OPTION AND VOTING AGREEMENT, dated as of March 26, 2002 (this
"Agreement"), among
Provider HealthNet Services Inc., a
Delaware corporation
("PHNS"), and the holders of the shares or securities convertible into or
exercisable for shares (the "Shares") of Common Stock, par value $.001 per share
("Common Stock"), of MedGrup Corporation, a Colorado corporation ("MGC"),
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("WDC") and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("MMC" and, together with WDC,
each a "Shareholder" and, collectively, the "Shareholders").
WHEREAS, PHNS, the Shareholders and MGC have engaged in good faith
negotiations with the objective of reaching a preliminary agreement with regard
to an acquisition by PHNS of all of the Shares of MGC (the "Proposed
Acquisition") on the terms (the "Proposed Terms") set forth in this Agreement,
the Annexes attached hereto and the Agreement and Plan of Merger by and among
PHNS, MGC Acquisition Corp. ("Merger Sub"), a Colorado corporation that will be
formed by PHNS as a wholly-owned subsidiary for purposes of the Proposed
Acquisition, MGC and the Shareholders, the form of which is attached hereto as
Exhibit A (the "Merger Agreement"); and
WHEREAS, in connection with the Proposed Acquisition, PHNS has
requested that the Shareholders grant PHNS an irrevocable option (the "Option")
to purchase all of the Shares presently owned by such Shareholders as set forth
opposite the name of such Shareholder under the heading "Number of Shares
(including Options to Purchase Shares) of Common Stock" on Annex 1, together
with any New Shares (collectively, the "Shareholder Shares"), and, subject to
the terms and conditions set forth in this Agreement, PHNS is willing to
purchase the Shareholder Shares pursuant to the Option; and
WHEREAS, the Shareholders are willing to grant the Option to PHNS and,
subject to the terms and conditions set forth in this Agreement, to sell the
Shareholder Shares to PHNS pursuant to the Option; and
WHEREAS, PHNS, the Shareholders and MGC intend to effect the Proposed
Acquisition through a series of transactions wherein (i) the Shareholders grant
the Option to PHNS, (ii) PHNS and MGC enter into the Merger Agreement pursuant
to which MGC will become a wholly-owned subsidiary of PHNS (the "Proposed
Merger"), (iii) PHNS exercises the Option and (iv) PHNS, Merger Sub and MGC
complete the Proposed Merger; and
WHEREAS, this Agreement has been approved by the board of directors of
PHNS (the "PHNS Board"), and the Merger Agreement has been approved by the PHNS
Board and the board of directors of MGC (the "MGC Board"); and
WHEREAS, subject to the provisions of this Agreement and the Merger
Agreement, PHNS may, after completing its due diligence investigation, elect to
decline to proceed with the Proposed Acquisition or any other transaction with
the Shareholders or MGC; and
WHEREAS, each Shareholder is the record holder and beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), of such number of Shares as is indicated on Annex 1.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby expressly acknowledged, the parties hereto agree as
follows:
1. Support of Merger; Agreement to Vote Shares
(a) Support of Proposed Merger. Subject to Sections 12(b)(i) and
13(i) hereof, each Shareholder irrevocably agrees that such
Shareholder will do all such things and take all such steps as
PHNS may reasonably require be done or taken by such
Shareholder to support the Proposed Merger and complete the
transactions contemplated by the Merger Agreement or any
amendment, supplement or modification thereof.
(b) Agreement to Vote Shares. At any meeting of the shareholders
of MGC held or called prior to the termination of this
Agreement, however called, and at every adjournment thereof,
or in connection with any written consent of the shareholders
of MGC, each Shareholder agrees to vote the Shares held of
record by such Shareholder or otherwise beneficially owned by
such Shareholder that such Shareholder is entitled to vote:
(i) in favor of the Proposed Acquisition and the approval and
adoption of the Merger Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that
would result in a breach in any material respect of any
provision of this Agreement or the Merger Agreement or any
other action or agreement that is inconsistent with or that is
reasonably likely to impede, interfere with, delay, postpone
or attempt to discourage the transactions contemplated by this
Agreement or the Merger Agreement; and (iii) except as
otherwise agreed to in writing by PHNS, against any
Acquisition Proposal or any other action or agreement that is
inconsistent with or that is reasonably likely to impede,
interfere with, delay, postpone or attempt to discourage the
Proposed Acquisition, including but not limited to: (A) any
extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving MGC; (B) any sale or
transfer of all or a material amount of assets of MGC; (C) any
change in the management of MGC or the MGC Board; (D) any
material change in the present capitalization or dividend
policy of MGC; or (E) any other material change in MGC's
corporate structure or business. None of the Shareholders
shall permit any shareholder of MGC that is a controlled
affiliate of such Shareholder to enter into any agreement or
understanding with any person, directly or indirectly, to
vote, grant any proxy or give instructions with respect to the
voting of the Shares of such Shareholder in any manner
inconsistent with this paragraph.
(c) Additional Purchases. Each Shareholder agrees that any shares
of capital stock of MGC that such Shareholder purchases or
with respect to which such Shareholder otherwise acquires
beneficial ownership (whether by purchase, exercise of options
or warrants or otherwise) after the execution of this
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Agreement and prior to the termination of this Agreement in
accordance with Section 13 ("New Shares") shall be subject to
the terms and conditions of this Agreement to the same extent
as if they constituted Shares.
(d) Regulatory Filings. If required by the SEC, PHNS and the
Shareholders will cooperate in preparing and will file with
the Securities and Exchange Commission (the "SEC"), a Rule
13e-3 Transaction Statement on Schedule 13E-3 (the "Schedule
13E-3"). Each of PHNS and the Shareholders will, to the extent
required by SEC rules and regulations, furnish all information
concerning PHNS or the Shareholders as such party may
reasonably request in connection with such actions and the
preparation of the Schedule 13E-3. The Shareholders and PHNS
will use their respective commercially reasonable efforts to
respond promptly to all SEC comments with respect to the
Schedule 13E-3.
(e) Compliance as to Form. All documents that PHNS and the
Shareholders are responsible for filing with the SEC in
connection with the transactions contemplated herein will
comply as to form and substance in all material respects with
the applicable requirements, rules and regulations of the
Securities Act of 1933, as amended ("Securities Act") and the
Exchange Act, as amended.
(f) Disclaimer. Notwithstanding the foregoing, no party makes any
representations or warranties with respect to any information
that has been supplied by the other party or by its auditors,
attorneys, financial advisors, other consultants or advisors
specifically for use in any "blue sky" filing, any proxy
statement filed with the SEC in connection with the Proposed
Merger, the Schedule 13E-3, if required, or any other
documents to be filed with the SEC or any regulatory agency in
connection with the transactions contemplated hereby.
2. Irrevocable Proxy
(a) Grant of Proxy. Each Shareholder hereby appoints PHNS and any
designee of PHNS, each of them individually, such
Shareholder's proxy and attorney-in-fact, with full power of
substitution and resubstitution, to vote or act by written
consent with respect to all of such Shareholder Shares which
it has the right to vote (i) in accordance with Sections 1 and
2 hereof and (ii) to sign its name (as a shareholder) to any
consent, certificate or other document relating to MGC that
the law of the State of Colorado may permit or require in
connection with any matter referred to in Section 1. This
proxy is given to secure the performance of the duties of such
Shareholder under this Agreement and its existence will not be
deemed to relieve the Shareholders of their obligations under
Section 1. Each Shareholder affirms that this proxy is coupled
with an interest and is irrevocable until termination of this
Agreement pursuant to Section 13(i), whereupon such proxy and
power of attorney shall automatically terminate. Each
Shareholder will take such further action or execute such
other instruments as may be necessary to effectuate the intent
of this proxy. For Shares as to which the Shareholder is the
beneficial owner or over which he exercises control or
direction but as to which he is not the record owner, the
Shareholder will cause
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any record owner of such Shares to grant to PHNS a proxy to
the same effect as that contained herein.
(b) Other Proxies Revoked. Each Shareholder represents that such
Shareholder has effectively revoked any revocable proxies
given by such Shareholder by giving the requisite revocation
to the secretary of MGC and any proxy heretofore given in
respect of such Shareholder Shares that are not irrevocable
are hereby revoked.
3. Grant of Option. Each Shareholder hereby grants to PHNS an Option to
purchase all Shareholder Shares owned by such Shareholder presently
owned by such Shareholder as set forth opposite the name of such
Shareholder under the heading "Number of Shares (including Options to
Purchase Shares) of Common Stock" on Annex 1, together with any New
Shares (collectively, the "Shareholder Shares"), for the consideration
set forth under the heading "Purchase Price" opposite such
Shareholder's name on Annex 1 ("Purchase Price") and any additional
consideration payable to the Shareholders as Earn-Out Payments on the
terms and conditions set forth on Annex 3 attached hereto.
(a) Exercise of Option. Subject to the conditions set forth in
Section 3(c) hereof, the Option may be exercised by PHNS, in
whole but not in part, on or before the earlier to occur of
(i) the expiration of a ten (10) day period commencing upon
the first to occur of (x) delivery to PHNS of notice from MGC
that MGC has received votes cast at, or proxies for, the MGC
shareholders' meeting held to adopt the Merger Agreement which
either constitutes, or precludes constitution of, the
Requisite Shareholder Vote (as such term is defined in the
Merger Agreement) and (y) termination of the Merger Agreement
in accordance with its terms, and (ii) July 31, 2002.
(b) Exercise Notice. In the event PHNS wishes to exercise the
Option, PHNS shall send a written notice (the "Exercise
Notice") to the Shareholders specifying the place, the date
(not less than one nor more than 10 business days from the
date of the Exercise Notice), and the time for the closing of
the purchase of the Shareholder Shares. The closing of the
purchase of Shareholder Shares (the "Closing") shall take
place at the place, on the date and at the time designated by
PHNS in its Exercise Notice, provided that if, at the date of
the Closing herein provided for, the conditions set forth in
Sections 5 and 6 shall not have been satisfied (or waived by
the Shareholders or PHNS, as applicable), PHNS may postpone
the Closing until a date within five business days after such
conditions are satisfied.
(c) Obligation to Exercise Option Binding Upon Satisfaction of
Conditions to Proposed Merger. PHNS shall not be under any
obligation to deliver an Exercise Notice to the Shareholders
and may allow the Option to expire without purchasing any
Shareholder Shares hereunder; provided, that PHNS shall be
obligated to deliver the Exercise Notice (the "Mandatory
Exercise Notice") within ten (10) days following receipt of
the Requisite Shareholder Vote if the terms and conditions of
this Agreement and the Merger Agreement that have not already
4
been satisfied have been waived and this Agreement has not
been terminated in accordance with its terms pursuant to
Section 13(i). Following delivery of the Mandatory Exercise
Notice, PHNS shall be bound to effect the purchase as
described in such Exercise Notice and the Shareholders shall
be bound to effect the sale of the Shareholder Shares on the
terms and subject to the conditions of this Agreement.
(d) Adjustments Upon Changes in Capitalization or Merger. In the
event of any change in MGC's capital stock by reason of stock
dividends, stock splits, mergers, consolidations,
recapitalizations, combinations, conversions, exchanges of
shares, extraordinary or liquidating dividends, or other
changes in the corporate or capital structure of MGC which
would have the effect of diluting or changing PHNS' rights
hereunder, the number and kind of shares or securities subject
to the Option and the purchase price per Shareholder Share
(but not the total purchase price) shall be appropriately and
equitably adjusted so that PHNS shall receive upon exercise of
the Option the number and class of shares or other securities
or property that PHNS would have received in respect of the
Shareholder Shares purchasable upon exercise of the Option if
the Option had been exercised immediately prior to such event.
The Shareholders shall take such steps in connection with such
consolidation, merger, liquidation or other such action as may
be necessary to assure that the provisions hereof shall
thereafter apply as nearly as possible to any securities or
property thereafter deliverable upon exercise of the Option.
(e) Exercise Price. The exercise price to be paid by PHNS in
connection with the purchase of Shareholder Shares upon
exercise of the Option shall consist of, on a per Share basis,
(A) $1.2537 per Shareholder Share in cash (subject to
adjustment, if any, required by Section 3(f) below) and (B)
$0.8358 per Shareholder Share in shares of Class B Common
Stock, par value $.01 per share, of PHNS (the "PHNS Shares")
(subject to adjustment, if any, required by Section 3(f)
below). The ratio of PHNS Shares to be delivered for each
Shareholder Share purchased upon exercise of the Option shall
be determined by dividing $0.8358 by the per share Fair Market
Value of the PHNS Shares on the date of exercise of the
Option. As additional consideration for the purchase of the
Shareholder Shares, PHNS shall pay to the Shareholders the
Earn-Out Payments on the terms and conditions set forth in
Annex 3 attached hereto. For purposes of this Agreement, "Fair
Market Value" shall mean, if the PHNS Shares are then admitted
to trading on a national securities exchange, the closing sale
price, regular way, as reported by the composite reporting
system for such exchange or, if the PHNS Shares are then
listed on an inter-dealer quotation system, the average of the
closing bid and asked prices on such system or, if the PHNS
Shares are neither admitted for trading on a national
securities exchange nor listed on an inter-dealer quotation
system, the Fair Market Value of the PHNS Shares as reasonably
determined in good faith by the PHNS Board; provided, that at
any time that the PHNS Shares (or any equity securities of
PHNS issuable in lieu of PHNS Shares) are not publicly traded,
the PHNS Board shall use the valuation
5
methodology previously provided to the Shareholders in
determining Fair Market Value.
(f) Adjustment to Exercise Price. Notwithstanding the foregoing,
the exercise price for the Option shall be adjusted according
to the following formula if the Annualized MGC EBITDA is less
than $1,750,000:
CP(1)=CP(0) x ((8 x Annualized MGC EBITDA)/14,000,000), and
ER(1)=ER(0) x ((8 x Annualized MGC EBITDA)/14,000,000), where
CP(0)=$1.2537, and
ER(0)=0.1028.
If an adjustment is required pursuant to this Section 3(f),
then the cash portion of the exercise price set forth in Section
3(e)(A) above shall be deemed to equal "CP(1)" as determined pursuant
to this Section 3(f) and the stock portion of the exercise price set
forth in Section 3(e)(B) above shall be deemed to equal "ER(1)" as
determined pursuant to this Section 3(f). For purposes of this Section
3(f), "Annualized MGC EBITDA" shall mean twelve (12) times MGC's income
before interest, taxes, depreciation and amortization for the calendar
month immediately preceding the calendar month in which the Closing is
scheduled to occur (or, if the Closing is scheduled to occur before the
fifteenth (15th) day of such calendar month, the calendar month prior
to the calendar month immediately preceding the calendar month in which
the Closing is scheduled to occur), with each item of EBITDA determined
in accordance with GAAP. The month used to determine Annualized MGC
EBITDA is referred to herein as the "Reference Month." No later than
ten (10) days after the first date on which the parties hereto can
determine the results of the Reference Month, the Shareholders shall
provide PHNS with a statement setting forth, in reasonable detail,
calculation of Annualized MGC EBITDA, certified by the Chief Financial
Officer of MGC. PHNS shall have fifteen (15) days to object to the
calculation of Annualized MGC EBITDA, and if PHNS fails to so object
then such calculation of Annualized MGC EBITDA shall be deemed final
for all purposes (including under the Merger Agreement). If PHNS
objects to the calculation, PHNS shall deliver a written notice of such
objection, stating in reasonable detail the reasons for any such
objection. The Shareholders and PHNS shall attempt to resolve any
dispute through good faith negotiations to be held no later than twenty
(20) days prior to the date of the Shareholders Meeting. If the parties
are unable to reach agreement, the dispute shall be submitted to
resolution in the manner set forth in Section 2.02(d)(v) of the Merger
Agreement (except that the cost of the party resolving such dispute
shall be divided equally between PHNS and the Shareholders). For
purposes of determining the exercise price for the Option pursuant to
this Agreement, the maximum Annualized MGC EBITDA shall be $1,750,000
and the minimum Annualized MGC EBITDA shall be $1,625,000 and no
adjustment will be made to the Merger Consideration if Annualized MGC
EBITDA is greater than $1,750,000 or less than $1,625,000.
6
4. Closing. At the Closing, (i) each Shareholder shall deliver to PHNS a
certificate or certificates representing (or cause to be made by book
entry delivery to an account designated by PHNS of) the Shareholder
Shares to be purchased at the Closing, in the case of certificates,
duly endorsed or accompanied by stock powers duly executed in blank,
and (ii) PHNS shall deliver to each such Shareholder (A) the cash
consideration described in Section 3(e) and Annex 1 hereto to be
delivered at the Closing in the form of a certified or bank cashier's
check or checks payable to or upon the order of such Shareholder or in
the form of a wire transfer of same day funds to an account designated
by such Shareholder and, (B) subject to and in reliance upon the
representations and warranties of the Shareholders in Section 10, PHNS
shall issue to such Shareholders the number of PHNS Shares determined
in accordance with Section 3(e) and Annex 1 attached hereto, such
shares to be placed in escrow at the Closing pending release on the
dates and under the terms and conditions set forth in Annex 2 hereto.
Nothing in this Section 4 shall be deemed to limit PHNS' obligation to
pay the Earn-Out Payments to the extent Earn-Out Payments are required
to be paid from time to time pursuant to Annex 3 attached hereto.
5. Conditions to Shareholders' Obligations. The obligations of the
Shareholders to sell the Shareholder Shares at the Closing are subject
to the satisfaction or waiver by the Shareholders of the following
conditions:
(a) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or
administrative agency or commission, nor any statute, rule,
regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining the Proposed
Acquisition or any step thereof which remains undischarged;
(b) (i) There shall have been no material breach by PHNS in the
performance of any of the covenants herein to be performed by
it in whole or part prior to the Closing; (ii) the
representations and warranties of PHNS contained in Section 11
shall be true and correct in all material respects on the
Closing date; and (iii) PHNS shall have delivered to the
Shareholders a certificate certifying each of the foregoing,
dated as of the Closing date, signed by an authorized officer
of PHNS;
(c) PHNS shall have delivered the exercise price for the Option in
the manner specified in Sections 3 and 4;
(d) No action, suit or proceeding shall be pending against PHNS,
any Shareholder or MGC or any of their respective affiliates
by or before any governmental authority which the Shareholders
reasonably determine in good faith, after consultation with
counsel, would materially interfere with the consummation of
the transactions contemplated hereby or by the Merger
Agreement; and
(e) No change, effect, event, condition or exception shall have
occurred or be threatened to have occurred, including without
limitation any development
7
relating to a material client of PHNS, which the Shareholders
reasonably determine in good faith has had or could reasonably
be expected to have or result in, either individually or when
taken together with all such changes, effects, events,
conditions or exceptions, a material adverse effect on the
business, condition (financial or otherwise), results of
operations or prospects of PHNS and its subsidiaries, taken as
a whole.
(f) PHNS and the Shareholders shall have reached agreement on the
terms and provisions of any plan or arrangement to allocate
and distribute Earn-Out Payments to MGC officers and managers
as contemplated in Section 2(a)(v) of Annex 3.
6. Conditions to PHNS' Obligations. The obligation of PHNS to purchase the
Shareholder Shares at the Closing is subject to the satisfaction or
waiver by PHNS of the following conditions:
(a) There shall be no preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or
administrative agency or commission, nor any statute, rule,
regulation or order promulgated or enacted by any governmental
authority, prohibiting or otherwise restraining the Proposed
Acquisition or any step thereof which remains undischarged;
(b) (i) There shall have been no material breach by any of the
Shareholders in the performance of any of the covenants herein
to be performed by them in whole or part prior to the Closing;
(ii) the representations and warranties of each of the
Shareholders contained in Sections 9 and 10 shall be true and
correct in all material respects on the date of the Closing;
and (iii) each Shareholder shall have delivered to PHNS a
certificate certifying each of the foregoing, dated as of the
Closing date and signed by each Shareholder;
(c) There shall be no change in capitalization of MGC as set forth
on Schedule 6(c) hereto;
(d) Each Shareholder shall have delivered to PHNS certificates
representing the Shareholder Shares held by the Shareholder
and to be purchased by PHNS at the Closing, together with such
other documents and instruments, if any, as may be necessary
to permit PHNS to acquire such Shareholder Shares, free and
clear of any and all Liens;
(e) No action, suit or proceeding shall be pending against PHNS,
any Shareholder or MGC or any of their respective affiliates
by or before any governmental authority which PHNS reasonably
determines in good faith, after consultation with counsel,
would materially interfere with the consummation of the
transactions contemplated hereby or by the Merger Agreement;
(f) No change, effect, event, condition or exception shall have
occurred or be threatened to have occurred, including without
limitation any development
8
relating to a material client of MGC, which PHNS determines in
good faith has had or could reasonably be expected to have or
result in, either individually or when taken together with all
such changes, effects, events, conditions or exceptions, a
material adverse effect on the business, condition (financial
or otherwise), results of operations or prospects of MGC and
its subsidiaries, taken as a whole; and
(g) Each Shareholder shall have executed and delivered a joinder
agreement, in the form attached hereto as Exhibit B, wherein
such Shareholder agrees to be bound by the terms and
conditions of the Amended and Restated Stockholders' Agreement
dated as of July 5, 2000 by and among PHNS and the several
stockholders of PHNS named in Schedule 1 thereto ("PHNS
Stockholders' Agreement") and the Registration Rights
Agreement, dated as of July 5, 2000, by and among PHNS and the
several stockholders of PHNS party thereto (the "PHNS
Registration Rights Agreement").
(h) PHNS and the Shareholders shall have reached agreement on the
terms and provisions of any plan or arrangement to allocate
and distribute Earn-Out Payments to MGC officers and managers
as contemplated in Section 2(a)(v) of Annex 3.
7. PHNS Board Observer Rights. Following the closing of the Proposed
Acquisition, and so long as the vesting of PHNS Shares under Annex 2
and the Earn-Out Payments under Annex 3 are likely to occur, PHNS
hereby agrees to provide to WDC such reasonable access as may be
necessary to allow WDC to observe the proceedings of the meetings
(whether regular or special) of the PHNS Board and any committee
thereof. The rights provided pursuant to this Section 7 shall be
limited to observing PHNS Board and committee proceedings only, and WDC
shall not be allowed to actively participate in any aspect of any PHNS
Board proceedings being observed. Notwithstanding the foregoing, WDC
shall not be entitled to attend executive sessions of the PHNS Board or
any committee thereof. The observer rights afforded to WDC hereunder
shall expire on the earlier to occur of (x) the third anniversary of
the closing of the Proposed Acquisition and (y) an Initial Public
Offering.
8. Dissenters' Rights. None of the Shareholders shall, nor shall they
permit any shareholder of MGC that is a controlled affiliate of such
Shareholder to, give demand pursuant to Section ▇-▇▇▇-▇▇▇ et seq. of
the Colorado Business Corporation Act for appraisal of any Shares of
MGC.
9. Representations and Warranties of the Shareholders. Each Shareholder
represents and warrants to PHNS that:
(a) Valid Title. The Shareholder is the sole, true, lawful and
beneficial owner of the Shareholder Shares with no
restrictions on the Shareholder's voting rights or rights of
disposition pertaining thereto. At the Closing, the
Shareholder will convey good and valid title to the
Shareholder Shares being purchased free and clear of any and
all claims, liens, charges, encumbrances and security
interests
9
(collectively, "Liens"). None of the Shareholder Shares is
subject to any voting trust or other agreement or arrangement
with respect to the voting of such Shareholder Shares.
(b) Non-Contravention. There is no suit, action, claim,
investigation or inquiry by any governmental authority, and no
legal, administrative or arbitration proceeding pending or, to
the knowledge of the Shareholder, threatened against the
Shareholder with respect to the execution, delivery and
performance of this Agreement or any document delivered or
agreement entered into in connection herewith, or the
transactions contemplated hereby or thereby or any other
agreement entered into by the Shareholder in connection with
the ownership of the Shareholder Shares or the transactions
contemplated hereby or thereby. The execution, delivery and
performance by the Shareholder of this Agreement and the
consummation of the transactions contemplated hereby do not
and will not contravene or constitute a default under or give
rise to a right of termination, cancellation or acceleration
of any right or obligation of the Shareholder or to a
violation of any provision of applicable law or regulation or
of any agreement, judgment, injunction, order, decree, or
other instrument binding on the Shareholder or result in the
imposition of any Lien on the Shareholder Shares or on any
asset of the Shareholder.
(c) Binding Effect. Assuming the due authorization, execution, and
delivery of this Agreement by PHNS, this Agreement is the
valid and binding Agreement of the Shareholder, enforceable
against the Shareholder in accordance with its terms, except
as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights
generally and general principles of equity (regardless of
whether enforcement is sought in a proceeding at law or in
equity). If this Agreement is being executed in a
representative or fiduciary capacity, the person signing this
Agreement has full power and authority to execute and deliver
this Agreement and to perform the transactions contemplated
hereby and thereby. If this Agreement is being executed in an
individual capacity, the person signing is an individual who
has full legal right and capacity to execute and deliver this
Agreement and to perform the transactions contemplated hereby.
(d) Total Shares. The number of Shares set forth on Annex 1 are
the only Shares beneficially owned (as defined in Exchange Act
Rules 13d-3 and 13d-5) by the Shareholder and, except as set
forth on Annex 1, the beneficial owner or owners of such
Shares own no options to purchase or rights to subscribe for
or otherwise acquire any securities of MGC and has or have no
other interest in or voting rights with respect to any
securities of MGC.
(e) Finder's Fees. No investment banker, broker or finder is
entitled to a commission or fee from PHNS or MGC in respect of
this Agreement based upon any arrangement or agreement made by
or on behalf of the Shareholders.
10
(f) Approvals and Consents. Except as set forth on Schedule 9(f)
and except for such approvals as may be required pursuant to
the terms of the Merger Agreement, no material consent,
approval or action of, filing with or notice to any person,
including without limitation any governmental authority, is
necessary or required under any of the terms, conditions or
provisions of any law or order or any contract to which any
Shareholder or MGC is a party or the Shareholder Shares are
bound that has not already been obtained in connection with
the execution and delivery of this Agreement by the
Shareholders, the performance by the Shareholders of their
obligations hereunder or the consummation by the Shareholders
of the transactions contemplated hereby.
(g) No Contracts or Other Liabilities. Except as set forth in
Schedule 9(g), no Shareholder or any director, officer,
employee or "affiliate" or any "associates" or members of the
"immediate family" (as such terms are defined in the Exchange
Act) of any Shareholder is a party to any agreement with, or
has any claim or right against, MGC or any of its
subsidiaries, including without limitation any agreement with
MGC or any of its subsidiaries in respect of this Agreement or
the transactions contemplated hereby, other than rights to
payment of salary and welfare benefits in the ordinary course
of business.
(h) Representations and Warranties in Merger Agreement. The
Shareholders, jointly and severally, hereby make each
representation and warranty of MGC set forth in Section 3.01
of the Merger Agreement, qualified to the same extent as such
representations and warranties, which representations and
warranties are incorporated into this Agreement as if set
forth in full herein.
10. Additional Representations of Shareholders. Each Shareholder represents
and warrants to PHNS that:
(a) Investment Intent. The PHNS Shares to be acquired by the
Shareholder under this Agreement (which, for purposes of this
Section 10 shall be deemed to include any PHNS Shares issued
to a Shareholder or any other person pursuant to the Earn-Out
Payments set forth in Annex 3) are being acquired for such
Shareholder's own account and not for resale, distribution or
other transfer. The Shareholder understands that the PHNS
Shares have not been registered under the Securities Act or
state securities laws by reason of their issuance in
transactions exempt from the registration and prospectus
delivery requirements of the Securities Act pursuant to
Section 4(2) of the Securities Act or Regulation D adopted
under the Securities Act and applicable state securities laws
that depend upon, among other things, the bona fide nature of
the Shareholder's investment intent and the accuracy of the
Shareholder's representations as set forth in this Section 10.
The Shareholder further understands that, except as provided
in the PHNS Registration Rights Agreement, PHNS will have no
obligation to register the PHNS Shares under the Securities
Act or any state securities laws or to take any action that
would make available any exemption from the registration
requirements of such laws. The Shareholder hereby acknowledges
that, because of the restrictions on transfer and assignment
of the Shares, the Shareholder may
11
have to bear the economic risk of the investment in the PHNS
Shares for an indefinite period of time. The Shareholder
further understands that the certificates representing the
PHNS Shares will bear the following legend and agrees to hold
such PHNS Shares subject to such legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), NOR REGISTERED UNDER THE SECURITIES LAWS OF
ANY STATE OR JURISDICTION, AND HAVE BEEN TAKEN FOR INVESTMENT
PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF,
AND, EXCEPT AS STATED IN AN AGREEMENT BETWEEN THE HOLDER OF
THIS CERTIFICATE, OR ITS PREDECESSOR IN INTEREST, AND THE
ISSUER CORPORATION, SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES OR THE
ISSUER CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE ISSUER CORPORATION), WHICH OPINION AND
COUNSEL ARE REASONABLY SATISFACTORY TO THE ISSUER CORPORATION,
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH
ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT
IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THE AMENDED AND
RESTATED STOCKHOLDERS' AGREEMENT DATED AS OF JULY 5, 2000, AS
AMENDED FROM TIME TO TIME, BY AND AMONG THE ISSUER CORPORATION
AND CERTAIN STOCKHOLDERS OF THE ISSUER. ADDITIONALLY, THE
SHARES REPRESENTED BY THE CERTIFICATE MAY BE SUBJECT TO THE
RIGHT OF THE ISSUER CORPORATION TO REPURCHASE ALL OR A PORTION
OF SUCH SHARES UPON THE OCCURRENCE OF CERTAIN EVENTS DESCRIBED
IN A JOINDER AGREEMENT, DATED ____, 2002, BETWEEN THE ISSUER
CORPORATION AND THE INITIAL HOLDER OF THESE SHARES. COPIES OF
BOTH AGREEMENTS ARE ON FILE WITH THE ISSUER CORPORATION. THE
ISSUER CORPORATION WILL FURNISH A COPY OF SUCH AGREEMENT
WITHOUT CHARGE TO ANY PARTY HAVING A VALID INTEREST THEREIN."
12
The requirement that the above securities legend be placed
upon certificates evidencing any PHNS Shares shall cease and terminate
upon the earliest of the following events: (i) when such PHNS Shares
are transferred in an underwritten public offering by PHNS pursuant to
Section 5 of the Securities Act; (ii) when such PHNS Shares are
transferred pursuant to Rule 144 under the Securities Act; or (iii)
when such PHNS Shares are transferred in any other transaction if the
seller delivers to PHNS an opinion of seller's counsel, which seller's
counsel and opinion shall be reasonably satisfactory to PHNS, to the
effect that such legend is no longer necessary in order to protect PHNS
against a violation by it of the Securities Act upon any sale or other
disposition of such PHNS Shares without registration thereunder. Upon
the occurrence of any event requiring the removal of a legend
hereunder, upon the surrender of certificates containing such legend,
PHNS shall, at its own expense, deliver to the holder of any such PHNS
Shares as to which the requirement for such legend shall have
terminated, one or more new certificates evidencing such PHNS Shares
not bearing such legend.
(b) Accredited Investor.
(i) The Shareholder is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the
Securities Act;
(ii) Without limiting the scope or effect of any of the
representations and warranties set forth in Section 9
or this Section 10, the Shareholder, by reason of its
business and financial experience, has such
knowledge, sophistication and experience in financial
and business matters and in making investment
decisions of this type that it is capable of (A)
evaluating the merits and risks of an investment in
the PHNS Shares and making an informed investment
decision, (B) protecting its own interest and (C)
bearing the economic risk of such investment for an
indefinite period of time;
(iii) The Shareholder has had an opportunity to discuss the
business, management and financial affairs of PHNS
with PHNS' management;
(iv) The PHNS Shares are being acquired by the Shareholder
for its own account for the purpose of investment and
not with a view to or for sale in connection with any
distribution thereof;
(v) The Shareholder understands that, except for
transfers to affiliates or in-kind distributions to
the respective legal or beneficial owners of the
Shareholder, if any, the PHNS Shares must be held
indefinitely unless a subsequent disposition thereof
is registered under the Securities Act or is exempt
from such registration;
(vi) The Shareholder does not have a present need for
liquidity in connection with its purchase of the PHNS
Shares; and
(vii) The purchase of the PHNS Shares is consistent with
the general investment objectives of the Shareholder,
and the Shareholder understands
13
that the purchase of the PHNS Shares involves a high
degree of risk in view of the fact that, among other
things, PHNS is an early stage enterprise, and there
is no established trading market for the PHNS Shares
and no public market for PHNS' capital stock may ever
develop in the future.
11. Representations and Warranties of PHNS. PHNS represents and warrants to
each Shareholder:
(a) Organization. PHNS is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. PHNS is duly qualified and in good standing as a
foreign corporation in each other jurisdiction in which its
ownership or lease of assets or its conduct of business
requires such qualification under applicable law, except where
the failure to be so qualified would not have a material
adverse effect on PHNS. PHNS has full corporate power and
authority to own, lease or operate its properties and assets
and to conduct its businesses as currently being conducted.
(b) Corporate Power and Authority. PHNS has all requisite
corporate power and authority to enter into this Agreement and
to perform its obligations hereunder. The execution and
delivery of this Agreement by PHNS has been duly and validly
authorized by all necessary corporate action, including the
approval of the PHNS Board, and no other corporate proceedings
on the part of PHNS are necessary to authorize this Agreement
or to consummate the transactions contemplated hereby (except
for such approvals related to the Merger as may be required
pursuant to the terms of the Merger Agreement). This Agreement
has been duly executed and assuming the proper execution and
delivery of this Agreement by the Shareholders, constitutes a
valid and binding Agreement of PHNS, enforceable against it in
accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar
laws relating to creditors' rights generally, and general
principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity). Neither the
execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in the violation
of any provision of PHNS' certificate of incorporation or
bylaws.
(c) Approvals and Consents. Except for such consents or approvals
as may be required pursuant to the terms of the Merger
Agreement, no material consent, approval or action of, filing
with or notice to any person, including without limitation any
governmental authority, that has not already been obtained or
that will have been obtained prior to the Closing is necessary
or required under any of the terms, conditions or provisions
of any law or order or any contract to which PHNS is a party
or any of its assets or properties are bound in connection
with the execution and delivery of this Agreement by PHNS, the
performance by PHNS of its obligations hereunder or the
consummation by PHNS of the transactions contemplated hereby.
14
(d) Acquisition for PHNS' Account. Any Shareholder Shares to be
acquired upon exercise of the Option will be acquired by PHNS
for its own account and not with a view to the public
distribution thereof and will not be transferred except in
compliance with the Securities Act.
(e) Capitalization. The total number of authorized capital shares
of PHNS is 49,500,000 shares, consisting of: 1,000,000 shares
of preferred stock, par value $.01 per share, of which 81,000
shares are designated as Series A Senior Redeemable Preferred
Stock, par value $.01 per share, and 60,000 shares are
designated as Series B Junior Redeemable Preferred Stock, par
value $.01 per share; 30,000,000 shares of Class A Common
Stock, par value $.01 per share; 15,000,000 PHNS Shares;
1,000,000 shares of Class B Non-Voting Common Stock, par value
$0.01 per share; and 2,500,000 shares of Class C Common Stock,
par value $.01 per share. Schedule 11(e) sets forth, as of the
date of this Agreement, and without giving effect to the
transactions contemplated hereby, (i) the only outstanding
shares of capital stock of PHNS, (ii) the only outstanding
obligations of PHNS to issue shares of its capital stock
(including, without limitation, options, warrants,
subscriptions or other contracts or rights to purchase), and
(iii) a description of certain proposed changes to the
authorization and classification of the capital stock of PHNS.
The PHNS Shares required to be issued upon exercise of the
Option or in connection with the Earn-Out Payments will, when
issued in accordance with such provisions, be duly authorized,
validly issued, fully paid and non-assessable, and no
stockholder of PHNS will have any preemptive right of
subscription or purchase in respect thereof.
(f) Valuation Methodology. The valuation methodology previously
delivered to the Shareholders and referenced in Section 3(e)
hereof is the valuation methodology used by the PHNS Board in
connection with its most recent agreement to issue capital
stock.
(g) Agreements. On or before the date hereof, PHNS has delivered
to the Shareholders true, correct and complete copies of (i)
its Amended and Restated Certificate of Incorporation, (ii)
the PHNS Stockholders' Agreement and (iii) the PHNS
Registration Rights Agreement. The PHNS Stockholders'
Agreement and the PHNS Registration Rights Agreement are in
full force and effect and, except as disclosed on Schedule
11(g), have not been amended or modified, and are not proposed
to be amended or modified in any material respect from the
agreement previously delivered to the Shareholders.
(h) Financial Statements. PHNS has made available to the
Shareholders (i) the audited consolidated statements of
income, changes in stockholders' equity and cash flows for its
fiscal years ended September 30, 2000 and September 30, 2001
and its audited balance sheet as of September 30, 2001, and
(ii) the unaudited consolidated statements of income and cash
flows for the three months ended December 31, 2001 and the
unaudited balance sheet (the "Balance Sheet") as of December
31, 2001 (the "Balance Sheet Date"). All such financial
statements (i) are in accordance with PHNS' books and records,
(ii) have been
15
prepared in accordance with GAAP consistently applied (except
that the unaudited financial statements do not contain all of
the footnotes required under GAAP and the statement of cash
flow for the three months ended December 31, 2001 is not
presented in accordance with GAAP) and (iii) fairly present
the financial position of PHNS as of the Balance Sheet Date,
and the results of operations and cash flows for the fiscal
periods therein presented. All liabilities or obligations of
any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on, or
reserved against in, a consolidated balance sheet of PHNS or
in the notes thereto (prepared in accordance with GAAP) are
reflected or reserved for on the Balance Sheet, except for (i)
liabilities or obligations arising in the ordinary course of
business since December 31, 2001, (ii) liabilities or
obligations related to the acquisition by PHNS of the
healthcare information management business of The Detroit
Medical Center and (iii) liabilities or obligations which
would not, individually or in the aggregate, have a material
adverse effect on the business, condition (financial or
otherwise), results of operations or prospects of PHNS and its
subsidiaries, taken as a whole.
(i) Absence of Changes. Since the Balance Sheet Date, (x) there
has not occurred any event or condition, individually or in
the aggregate, that would have a material adverse effect on
the business, condition (financial or otherwise), results of
operations or prospects of PHNS and its subsidiaries, taken as
a whole, (y) PHNS had not declared, set aside or paid any
dividend on any shares of its capital stock, and (z) PHNS has
not made any changes in its accounting practices other than as
permitted by GAAP.
(j) Litigation. There is no suit, action, claim, investigation or
inquiry by any governmental authority, and no legal,
administrative or arbitration proceeding pending or, to the
knowledge of PHNS, threatened against PHNS with respect to the
execution, delivery and performance of this Agreement or any
document delivered or agreement entered into in connection
herewith, or the transactions contemplated hereby or thereby
or any other agreement entered into by PHNS in connection with
the transactions contemplated hereby or thereby.
(k) Non-Contravention. There is no suit, action, claim,
investigation or inquiry by any governmental authority, and no
legal, administrative or arbitration proceeding pending or, to
the knowledge of PHNS, threatened against PHNS with respect to
the execution, delivery and performance of this Agreement or
any document delivered or agreement entered into in connection
herewith, or the transactions contemplated hereby or thereby.
The execution, delivery and performance by PHNS of this
Agreement and the consummation of the transactions
contemplated hereby do not and will not contravene or
constitute a default under or give rise to a right of
termination, cancellation or acceleration of any right or
obligation of PHNS or to a violation of any provision of
applicable law or regulation or of any agreement, judgment,
injunction, order, decree, or other instrument binding on PHNS
or result in the imposition of any Lien on any asset of PHNS.
16
(l) Investment Intent. The Shareholder Shares to be acquired by
PHNS under this Agreement are being acquired for PHNS' own
account and not for resale, distribution or other transfer.
PHNS understands that the purchase and sale of Shareholder
Shares contemplated by this Agreement has not been registered
under the Securities Act or state securities laws by reason of
the so-called "4(1-1/2)" exemption from the registration and
prospectus delivery requirements of the Securities Act and
applicable state securities laws that depends upon, among
other things, the bona fide nature of PHNS' investment intent
and the accuracy of PHNS' representations as set forth in this
Section 11(l). PHNS further understands that MGC will have no
obligation to register the Shareholder Shares under the
Securities Act or any state securities laws or to take any
action that would make available any exemption from the
registration requirements of such laws. PHNS hereby
acknowledges that, because of the restrictions on transfer and
assignment of the Shareholder Shares, PHNS may have to bear
the economic risk of the investment in the Shareholder Shares
for an indefinite period of time. PHNS further understands
that the certificates representing the Shareholder Shares will
bear a legend restricting transfer and agrees to hold such
Shareholder Shares subject to such legend:
(m) Accredited Investor. PHNS is an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the
Securities Act.
12. Covenants of the Parties.
(a) No Proxies for or Encumbrances on Shareholder Shares. Each
Shareholder hereby covenants and agrees that, except pursuant
to the terms of this Agreement or after the termination of
this Agreement, the Shareholder shall not, without the prior
written consent of PHNS, directly or indirectly, (i) grant any
proxies or enter into any voting trust or other agreement or
arrangement with respect to the voting of any Shareholder
Shares or (ii) sell, assign, transfer, encumber or otherwise
dispose of, or enter into any contract, option or other
arrangement or understanding with respect to, the direct or
indirect acquisition or sale, assignment, transfer,
encumbrance or other disposition of, any Shares, or any
beneficial interest in any Shares. The Shareholder shall not,
directly or indirectly, seek or solicit any such acquisition
or sale, assignment, transfer, encumbrance or other
disposition or any such contract, option or other arrangement
or understanding with respect to the Shareholder Shares and
agrees to notify PHNS promptly and to provide all details
requested by PHNS if the Shareholder shall be approached or
solicited, directly or indirectly, by any person with respect
to any of the foregoing.
(b) No Shopping.
(i) The Shareholders shall not directly or indirectly (x)
solicit, initiate or encourage (or authorize any
person to solicit, initiate or encourage), including
without limitation by way of furnishing information,
or take any other action to facilitate, any inquiries
or the making of any proposal
17
which constitutes, or may reasonably be expected to
lead to, any Acquisition Proposal, or (y) participate
in any discussions or negotiations regarding any
Acquisition Proposal; provided, that if a Shareholder
who is a director of MGC determines in good faith,
after consultation with, and based on the written
advice of legal counsel, that he or she is required
to do so in order to comply with his fiduciary duties
to MGC's shareholders under applicable law, he or she
may, in response to an unsolicited Acquisition
Proposal, and subject to compliance with Section
12(b)(ii), (A) furnish information with respect to
MGC to any person making such unsolicited Acquisition
Proposal pursuant to an executed confidentiality
agreement with such person, and (B) participate in
discussions or negotiations regarding such
Acquisition Proposal.
(ii) In addition to the obligations of the Shareholders
set forth in paragraph (b)(i) of this Section 12,
each Shareholder will promptly advise PHNS orally and
in writing of any request for information he or she
receives of a nature which would assist a potential
bidder in preparing an Acquisition Proposal or of any
Acquisition Proposal, the nature of the information
supplied, the material terms and conditions of such
request or Acquisition Proposal and the identity of
the person making such request or Acquisition
Proposal. Such Shareholder will keep PHNS fully
informed on a prompt and current basis of the status
and details (including amendments or proposed
amendments) of any such request or Acquisition
Proposal of which such Shareholder may be aware.
(iii) For purposes of this Agreement, "Acquisition
Proposal" means any proposal or offer from any person
relating to any merger, consolidation, business
combination, sale of all or a significant amount of
assets outside of the ordinary course of business,
sale of shares of capital stock outside of the
ordinary course of business, tender or exchange offer
or similar transaction involving MGC or any direct or
indirect subsidiary of MGC.
(c) Press Releases. The parties will endeavor to consult with each
other in good faith, to the extent reasonably practicable,
with respect to any press release or similar public
announcement with respect to this Agreement or the
transactions contemplated hereby; provided, that nothing
herein will prohibit any party from issuing or causing
publication of any such press release or public announcement
to the extent that such party determines such action to be
required by law or the rules of Nasdaq or any national stock
exchange applicable to it or its affiliates.
(d) Satisfaction of Conditions. Without limiting the generality or
effect of any provision of Section 4, but subject to Section
3, prior to the Closing, each of the parties hereto will use
his or her commercially reasonable efforts with due diligence
and in good faith to satisfy promptly all conditions required
hereby to be satisfied by such party in order to expedite the
consummation of the transactions contemplated hereby.
18
(e) Access to Information; Confidentiality.
(i) From the date of this Agreement until the Closing,
PHNS will (x) provide the Shareholders (and their
accountants, consultants, legal counsel, agents and
other representatives (collectively,
"Representatives")) access at reasonable times upon
reasonable prior notice to PHNS' officers, employees,
agents, properties, offices and other facilities and
to its books and records and (y) furnish promptly
such information concerning its business, properties,
contracts, assets, liabilities and personnel as the
Shareholders or their Representatives may reasonably
request.
(ii) The Shareholders agree, and agree to cause their
Representatives to, treat and hold as confidential
all information relating to PHNS in accordance with
the terms and conditions of the Confidentiality
Agreement, dated as of July 26, 2001, between PHNS
and MGC (the "Confidentiality Agreement").
(iii) No investigation pursuant to this Section 12(e) will
affect any representation or warranty in this
Agreement of any party hereto or any condition to the
obligations of the parties hereto.
13. Miscellaneous.
(a) Expenses. All costs and expenses incurred in connection with
this Agreement shall be borne by the party incurring such cost
or expense.
(b) Further Assurances. In the event PHNS exercises the Option,
PHNS and the Shareholders will each execute and deliver or
cause to be executed and delivered all further documents and
instruments and use its commercially reasonable efforts to
secure such consents and take all such further action as may
be reasonably necessary in order to consummate the
transactions contemplated hereby or to enable PHNS to exercise
and enjoy all benefits and rights of the Shareholders with
respect to the Shareholder Shares.
(c) Additional Agreements. Subject to the terms and conditions of
this Agreement, each of the parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken,
all action, and to do, or cause to be done, and to assist and
cooperate with PHNS in doing, all things necessary, proper or
advisable to consummate and make effective, in the most
expeditious manner practicable, the Proposed Acquisition and
the other transactions contemplated by this Agreement,
including without limitation (i) the obtaining of all
necessary actions or nonactions, waivers, consents and
approvals from all governmental entities and the making of all
necessary registrations and filings (including without
limitation any necessary filings with the SEC relating to the
acquisition of MGC or relating to the acquisition of equity
securities of PHNS and all other necessary filings with
governmental entities, if any) and the taking of all
reasonable steps as may be necessary to obtain an approval or
waiver from, or to
19
avoid an action or proceeding by, any governmental entity;
(ii) the obtaining of all necessary consents, approvals or
waivers from third parties; (iii) the defending of any
lawsuits or other legal proceedings, whether judicial or
administrative, challenging the Proposed Acquisition or this
Agreement or the consummation of any of the transactions
contemplated by this Agreement, including seeking to have any
stay or temporary restraining order entered by any court or
other governmental entity vacated or reversed; (iv) the
execution and delivery of any additional instruments necessary
to consummate the transactions contemplated by, and to fully
carry out the purposes of, this Agreement; (v) taking all
reasonable action necessary so that no state takeover statute
or similar statute or regulation is or becomes applicable to
the Proposed Acquisition, this Agreement or any of the other
transactions contemplated by this Agreement; and (vi) if any
state takeover statute or similar statute or regulation
becomes applicable to the Proposed Acquisition, this Agreement
or any other transaction contemplated by this Agreement,
taking all action necessary so that the Proposed Acquisition
and the other transactions contemplated by this Agreement may
be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the
effect of such statute or regulation on the Proposed
Acquisition and this Agreement and the other transactions
contemplated by this Agreement.
(d) Specific Performance. The parties hereto agree that PHNS would
be irreparably damaged if for any reason the Shareholders
failed to sell the Shareholder Shares upon exercise of the
Option or to perform any of their other obligations under this
Agreement, and that PHNS would not have an adequate remedy at
law for money damages in such event. Accordingly, PHNS shall
be entitled to specific performance and injunctive and other
equitable relief to enforce the performance of this Agreement
by the Shareholders. This provision is without prejudice to
any other rights that PHNS may have against the Shareholders
for any failure to perform their obligations under this
Agreement.
(e) Notices. All notices, requests, claims, demands and other
communications hereunder will be in writing and will be deemed
to be delivered (a) when delivered in person, (b) when
received if sent by facsimile or e-mail if a copy is sent by
United States mail (certified mail, return receipt requested)
or by nationally recognized overnight courier service, (c) one
Business Day after having been dispatched by a nationally
recognized overnight courier service (provided that such
notice was delivered prior to 5:00 p.m., local time, on a
Business Day; otherwise, such notice will be deemed delivered
on the next Business Day), or (d) on the fifth Business Day
after deposit in the United States mail, if mailed by
registered or certified mail (postage prepaid, return receipt
requested), in each case to the respective parties at the
following addresses (or at such other address for a party as
will be specified in a notice given in accordance with this
Section 13(e)), in each case with a copy (which shall not
constitute notice) to the persons indicated:
20
(i) if to PHNS, to:
Provider HealthNet Services Inc.
▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
E-mail: ▇▇▇@▇▇▇▇.▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chief Administrative Officer
With copies to:
▇▇▇▇▇, Day, ▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
E-mail: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇.▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
(ii) if to any Shareholder, to such Shareholder at the
address shown for such holder on the applicable
signature page hereto.
(f) Survival of Representations and Warranties. All
representations and warranties contained in this Agreement
shall survive delivery of and payment for the Shareholder
Shares until the later of (i) the date of delivery of PHNS
financial statements for the period ending December 31, 2002,
or (ii) nine (9) months following the closing of the Proposed
Acquisition, except for the representations and warranties of
the Shareholders contained in Sections 9(a) and 9(d), which
shall survive indefinitely, and the representations and
warranties contained in Section 10 and Sections 11(l) and
11(m), which shall survive to the extent required by
applicable law to ensure that the issuance of PHNS Shares to
the Shareholders, and the sale of the Shareholder Shares to
PHNS, are exempt from registration under the Securities Act.
(g) Indemnification; Set-Off.
(i) From and after the date of this Agreement, the
Shareholders will, jointly and severally, indemnify
and hold harmless PHNS and each director, officer,
employee, agent, representative or counsel of PHNS
(collectively, the "PHNS Indemnified Parties")
against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the
date hereof), arising out of or in connection with
the material breach of any representation, warranty,
covenant or agreement of the Shareholders contained
herein, provided, that the foregoing indemnity will
not apply to any act or failure to act which a court
of competent
21
jurisdiction determines in an order or decision not
subject to appeal constituted gross negligence or
willful misconduct on the part of such PHNS
Indemnified Party; and, provided, further, that the
PHNS Indemnified Parties shall only be entitled to
indemnification hereunder with respect to claims
which aggregate $50,000 or more (in which event such
PHNS Indemnified Parties shall be entitled to claim
the full amount of such liability and not simply the
excess); and, provided, further, that in no event
will the PHNS Indemnified Parties be entitled to
indemnification hereunder for claims in excess of
$1,000,000, individually or in the aggregate.
(ii) From and after the date of this Agreement, PHNS will
indemnify and hold harmless the Shareholders and
their respective agents, representatives or counsel
(collectively, the "Shareholder Indemnified Parties")
against all costs and expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and settlement amounts paid in
connection with any claim, action, suit, proceeding
or investigation (whether arising before or after the
date hereof), arising out of or in connection with
the material breach of any representation, warranty,
covenant or agreement of PHNS contained herein,
provided, that the foregoing indemnity will not apply
to any act or failure to act which a court of
competent jurisdiction determines in an order or
decision not subject to appeal constituted gross
negligence or willful misconduct on the part of such
Shareholder Indemnified Party; and, provided,
further, that the Shareholder Indemnified Parties
shall only be entitled to indemnification hereunder
with respect to claims which aggregate $50,000 or
more (in which event such Shareholder Indemnified
Parties shall be entitled to claim the full amount of
such liability and not simply the excess); and,
provided, further, that in no event will the
Shareholder Indemnified Parties be entitled to
indemnification hereunder for claims in excess of
$1,000,000, individually or in the aggregate.
(iii) Without limiting any of the foregoing indemnity
obligations of Sections 13(g)(i) and 13(g)(ii), in
the event of any claim, action, suit, proceeding or
investigation (a "Claim") is brought against a PHNS
Indemnified Party or a Shareholder Indemnified Party
(the "Indemnified Party") (whether arising before or
after the date hereof), (A) the party against whom
indemnification is sought pursuant to the foregoing
Sections 13(g)(i) or (ii), as the case may be, (the
"Indemnifying Party"), shall assume and direct all
aspects of the defense of such Claim, including the
settlement thereof, (B) the Indemnifying Party shall
retain and direct, and shall pay the reasonable fees
and expenses of counsel reasonably satisfactory to
the Indemnified Party, promptly after statements
therefor are received, and (C) the Indemnified Party
will cooperate in the defense of any such Claim. The
Indemnified Party shall have a right to participate
in (but not control) the defense of any such Claim
with its own counsel at its own expense. The
Indemnifying Party shall not be liable for any
22
settlement effected without its prior written
consent, which shall not be unreasonably withheld or
delayed. The Indemnifying Party will not settle any
such matter unless (x) the Indemnified Party gives
prior written consent, which shall not be
unreasonably withheld or delayed, or (y) the terms of
the settlement provide that the Indemnified Party
will have no responsibility for the discharge of any
settlement amount and impose no other obligations or
duties on the Indemnified Party and the settlement
discharges all rights against the Indemnified Party
with respect to such matter. Any Indemnified Party
wishing to claim indemnification under this Section
13(g), upon learning of any Claim, shall notify the
Indemnifying Party; provided, that failure to provide
notice of a Claim shall not relieve a party of its
indemnity obligations under this Section 13(g) unless
such failure prejudices such party. No Indemnifying
Party will be obligated pursuant to this Section
13(g) to pay the fees and expenses of more than one
counsel (plus appropriate local counsel) for all
Indemnified Parties in any single action except to
the extent, as determined by counsel to the
Indemnified Parties, that there may be one or more
legal defenses available to one Indemnified Party
that are different from or in addition to those
available to the other Indemnified Parties that
would, in the judgment of such counsel, prohibit such
counsel from representing all Indemnified Parties
under the rules of professional ethics, in which case
such additional counsel (including local counsel) as
may be required to avoid any such conflict or likely
conflict may be retained by the Indemnified Parties
at the expense of the Indemnifying Parties.
(iv) The Shareholders hereby agree that PHNS shall be
entitled to a right of set-off (without duplication)
against any PHNS Shares subject to the vesting
provisions of Annex 2 and any Earn-Out Payments
otherwise required to be distributed pursuant to the
provisions of Annex 3 in the event that the
Shareholders are required to indemnify PHNS pursuant
to the provisions of this Section 13(g). Any amounts
owing pursuant to the right of set-off shall be
applied, first to PHNS Shares payable as Earn-Out
Payments (to the extent earned), second to cash
payable as Earn-Out Payments (to the extent earned)
and third to PHNS Shares subject to the vesting
provisions of Annex 2. PHNS shall give notice to the
Shareholders of any exercise of its rights of set-off
hereunder. Any PHNS Shares subject to the set-off
rights granted hereunder shall be applied using the
Fair Market Value of the PHNS Shares on the date of
original issuance of such PHNS Shares (in the case of
PHNS Shares subject to Vesting Conditions) or the
date such PHNS Shares would have otherwise been
issued (in the case of PHNS Shares that would have
been issued as Earn-Out Payments).
(h) Amendments. This Agreement may not be amended or modified and
compliance herewith may not be waived (either generally or in
a particular instance and either retroactively or
prospectively) except by a writing signed by PHNS and each of
the Shareholders.
23
(i) Termination. This Agreement may be terminated:
(i) by the mutual consent in writing of the parties
hereto;
(ii) by either PHNS or the Shareholders by notice in
writing to the other party if the Proposed
Acquisition is not completed by July 31, 2002,
provided, however, that the right to terminate this
Agreement pursuant to this Section 13(i) will not be
available to any party whose breach of any provision
of this Agreement results in the failure of either of
such events to occur by such time;
(iii) by the Shareholders on or prior to the thirtieth
(30th) day after the execution and delivery of this
Agreement by all parties hereto by notice in writing
to PHNS if the Shareholders are not satisfied in
their sole discretion with the results and findings
of the due diligence investigation of PHNS to be
conducted by the Shareholders;
(iv) by PHNS, on or prior to the thirtieth (30th) day
after the execution and delivery of this Agreement by
all parties hereto by notice in writing to the
Shareholders, if PHNS is not satisfied in its sole
discretion with the results and findings of the due
diligence investigation of MGC to be conducted by
PHNS;
(v) by PHNS, by notice in writing to the Shareholders, if
(A) the Shareholders breach any provision of this
Agreement or (B) any representation or warranty made
by the Shareholders in connection with this Agreement
is false or misleading in any material respect when
made and such breach is not cured within thirty (30)
days after receipt of written notice thereof that
specifies in reasonable detail the basis for alleging
such breach;
(vi) by the Shareholders, by notice in writing to PHNS, if
(A) PHNS breaches any provision of this Agreement or
(B) any representation or warranty made by PHNS in
connection with this Agreement is false or misleading
in any material respect when made and such breach is
not cured within thirty (30) days after receipt of
written notice thereof that specifies in reasonable
detail the basis for alleging such breach; or
(vii) by either PHNS or the Shareholders if there shall
have been entered a final, nonappealable order or
injunction of any governmental authority restraining
or prohibiting the consummation of the transactions
contemplated hereby or any material part thereof.
In the event this Agreement is terminated pursuant to
this Section 13(i), each party hereto will pay all of its own
fees and expenses and this Agreement shall become void and
have no further effect, except that such termination shall not
affect the rights and obligations of the parties with respect
to any Exercise Notice delivered prior to such time.
24
(j) Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, provided that no
party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the written
consent of the other parties hereto, except that PHNS may
assign its rights and obligations to any affiliate of PHNS;
and, provided, further, that in the event of any such
assignment to any affiliate, PHNS shall retain all its
obligations hereunder and shall cause its affiliate to carry
out any obligations of such affiliate hereunder.
(k) Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of
Delaware without
regard to the conflict of law rules of such State.
(l) Counterparts; Effectiveness. This Agreement may be signed in
any number of counterparts, each of which shall be an
original, with the same effect as if the signatures thereto
and hereto were upon the same instrument. This Agreement shall
become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
(m) Certain Events. Each Shareholder agrees that this Agreement
and the obligations hereunder shall attach to the Shareholder
Shares beneficially owned by such Shareholder and shall be
binding upon any person to which legal or beneficial ownership
of such Shares shall pass, whether by operation of law or
otherwise.
(n) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction
to be invalid, void or unenforceable, 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.
(o) Jurisdiction. Any action or proceeding seeking to enforce any
provision of, or based on any right arising out of, this
Agreement may be brought against any of the parties in the
courts of the State of
Delaware, or, if it has or can acquire
jurisdiction, in the United States District Court for the
District of
Delaware, and each of the parties hereby consents
to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives
any obligation to venue laid therein. Process in any such
action or proceeding may be served on any party anywhere in
the world, whether within or without the State of
Delaware.
(p) Representation by Counsel. Each of the parties hereto
acknowledge that they have been represented by counsel in
connection with this Agreement and the transactions
contemplated by this Agreement. Accordingly, any rule of law
or any legal decision that would provide any party hereto with
a defense to the
25
enforcement of the terms of this Agreement against such party
based upon lack of legal counsel shall have no application and
is expressly waived.
(q) Consideration. It is hereby acknowledged by the parties hereto
that, other than the agreements, covenants, representations
and warranties, as more particularly set forth herein, no
consideration shall be due or paid to the Shareholders for
their agreement to vote the shares in favor of the Proposed
Acquisition in accordance with the terms and conditions of
this Agreement.
(r) Acknowledgment. This Agreement is not and shall not be deemed
to be a solicitation for consents to the Proposed Merger or
the Proposed Acquisition.
(s) Headings. The headings of the paragraphs and subparagraphs of
this Agreement are inserted for convenience only and shall not
affect the interpretation hereof.
(t) Several, Not Joint, Obligations. The agreements,
representations and obligations of the Shareholders under this
Agreement (including the Annexes, Schedules and Exhibits
attached hereto) are, in all respects, several and not joint.
(u) Prior Negotiations. This Agreement (including Annexes,
Schedules and Exhibits attached hereto) supersedes all prior
negotiations and agreements or understandings with respect to
the subject matter hereof except for the Confidentiality
Agreement, which shall continue in full force and effect in
accordance with its terms.
(v) No Third-Party Beneficiaries. Unless expressly stated herein,
this Agreement shall be solely for the benefit of the parties
hereto, and no other person or entity shall be a third party
beneficiary hereof.
(w) Interpretation. Unless the context otherwise requires, (i) all
references to Sections, Schedules, Exhibits or Annexes are to
Sections, Schedules, Exhibits or Annexes of or to this
Agreement, (ii) each term defined in this Agreement or any
Annex hereto has the meaning assigned to it, (iii) each
accounting term not otherwise defined in this Agreement has
the meaning assigned to it in accordance with GAAP, (iv) "or"
is disjunctive but not necessarily exclusive, (v) words in the
singular include the plural and vice versa, (vi) all
references to "$" or dollar amounts will be to lawful currency
of the United States of America, (viii) references to the
masculine, feminine or neuter gender shall be deemed to
include the others and (ix) references to "including" shall be
interpreted to mean "including but not limited to".
[SIGNATURE PAGE FOLLOWS]
26
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed as of the day and year first above written.
Address for purposes of Section 13(e)
PROVIDER HEALTHNET SERVICES INC.
(including e-mail):
By:
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chief Administrative Officer
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ --------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
E-mail: ▇▇▇▇▇▇▇@▇▇▇▇▇▇▇.▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇ --------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
27
Annex 1
Number of Shares (including
Options to Purchase Shares) of
Shareholders Common Stock Purchase Price
------------ ------------------------------ --------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 2,744,300 $1.2537 in cash and a number of PHNS Shares per share of
Common Stock, plus any Earn-Out Payments, subject to
adjustment, if any, as provided in Sections 3(e) and 3(f)
of the Agreement and to the vesting provisions set forth
in Annex 2
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ 605,700(1) $1.2537 in cash and a number of PHNS Shares per share of
Common Stock, plus any Earn-Out Payments, subject to
adjustment, if any, as provided in Sections 3(e) and 3(f)
of the Agreement and the vesting provisions set forth in
Annex 2
----------
(1) Excludes an aggregate of 55,500 shares of Common Stock held in
custodial account for the benefit of (i) ▇▇▇▇▇ ▇▇▇▇▇▇, (ii) ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ and (iii) ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and which may be deemed to be owned by
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, the custodian for such accounts.
Annex 1-1
Annexes 2 and 3
Annexes 2 and 3 Omitted
SCHEDULE 6(c)
MGC CAPITALIZATION
SEE SECTION 3.01(b) OF THE MERGER AGREEMENT
SCHEDULE 9(f)
MGC CONSENTS
NONE
SCHEDULE 9(g)
AGREEMENTS WITH AFFILIATES
NONE
SCHEDULE 11(e)
PHNS CAPITALIZATION
Fully Diluted No. of
Shares Assuming Conversion
No. of Shares of all Class C Stock and
Class/Series of Stock Outstanding Exercise of all Options
--------------------- ------------- --------------------------
Preferred Stock:
o Series A Senior Redeemable Preferred Stock 33,000.02
o Series B Junior Redeemable Preferred Stock 45,252.83
----------
78,252.85
==========
Common Stock
o Class A Common Stock --
o Class B Common Stock 12,508,413
o Class B Non-Voting Common Stock (Convertible into 1,000,000
Class B)
o Class C Common Stock (Convertible into Class B) 2,450,200 15,958,613
----------
o Additional shares of Class B Common Stock 1,292,622
issuable on conversion of Class C Common Stock (as of ----------
12/28/01)
Primary 17,251,235
Options to Purchase Class B Common Stock:
o A Options (subject to vesting) 2,237,850
o B Options (subject to 2.5x return) 1,149,900
o C Options (subject to 3.5x return) 1,290,240 4,677,990
---------- ----------
Fully Diluted 21,929,225
==========
Note: PHNS is in the process of amending its Amended and Restated Certificate
of Incorporation to (i) increase the number of authorized shares of all
classes of capital stock from 49,500,000 to 62,000,000, (ii) increase
the number of authorized shares of PHNS Class B Common Stock from
15,000,000 to 30,000,000, and (iii) decrease the number of authorized
shares of PHNS Class C Common Stock from 2,500,000 to 0.
SCHEDULE 11(g)
AMENDMENTS TO PHNS AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION, BY-LAWS
AND PHNS STOCKHOLDERS' AGREEMENT
1. Amended and Restated Certificate of Incorporation. See Note to Schedule
11(e).
2. By-laws. PHNS is in the process of amending Section 10.1(b) of the PHNS
Stockholders' Agreement to provide that the size of the PHNS Board may
be fixed by a resolution of the PHNS Board approved by at least 75% of
the number of directors on the PHNS Board at that time.
3. PHNS Stockholders' Agreement. A similar change to that in 2 above is
being made to the PHNS Stockholders' Agreement.
EXHIBIT A
MERGER AGREEMENT
EXHIBIT B
FORM OF SHAREHOLDERS JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is dated and effective as of
____________, 2002, by and among
Provider HealthNet Services Inc., a
Delaware
corporation ("PHNS"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("WDC") and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("MMC"
and, together with WDC, each a "Shareholder" and collectively the
"Shareholders").
WHEREAS, PHNS and the Shareholders are parties to an
Option and Voting
Agreement, dated as of March 26, 2002 (the "Option Agreement");
WHEREAS, pursuant to the Option Agreement, the Shareholders have
granted to PHNS an option (the "Option") to purchase all the shares of common
stock, par value $.001 per share (the "MGC Common Stock"), of MedGrup
Corporation, a Colorado corporation ("MGC");
WHEREAS, upon exercise of the Option, the Shareholders will receive
consideration of approximately $4,200,000 of cash and, subject to certain
vesting conditions, a number of shares of Class B common stock, par value $.01
per share (the "Class B Common Stock"), of PHNS as calculated pursuant to
Section 3(c) of the Option Agreement;
WHEREAS, the Shareholders may be eligible to receive additional shares
of Class B Common Stock as part of the Earn-Out Payments under the Option
Agreement;
WHEREAS, PHNS and certain of its stockholders are parties to (i) an
Amended and Restated Stockholders' Agreement, dated as of July 5, 2000 (the
"PHNS Stockholders' Agreement"); and (ii) a Registration Rights Agreement, dated
as of July 5, 2000 (the "PHNS Registration Rights Agreement");
WHEREAS, PHNS and the Shareholders desire to set forth certain terms
and conditions relating to the right of PHNS, under certain circumstances, to
repurchase the shares of Class B Common Stock held by them from time to time;
and
WHEREAS, it is a condition to the closing of the sale of the MGC Common
Stock by the Shareholders to PHNS and the purchase of the MGC Common Stock by
PHNS, and the issuance of the Class B Common Stock to the Shareholders by PHNS
in consideration thereof, that the Shareholders execute this joinder agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein and in the Option Agreement, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Definitions. Capitalized terms used but not otherwise defined in
this Agreement shall have the meanings assigned to such terms in the Option
Agreement.
2. Joinder. Each Shareholder hereby acknowledges, agrees and confirms
that, by its execution and delivery of this Agreement and acceptance of the PHNS
Shares issued to such
B-1
Shareholder at the Closing, such Shareholder shall become and be deemed to be a
party to each of the PHNS Stockholders' Agreement and the PHNS Registration
Rights Agreement, agrees to be bound by the terms and conditions of each such
agreement and shall have all of the rights and obligations under such agreement
as if he or she had been an original signatory thereto.
3. Repurchase Right. All shares of Class B Common Stock owned by the
Shareholders shall be subject to the following repurchase provisions:
(a) In the event that WDC's employment with PHNS is terminated (by
either PHNS or by WDC) for any reason, PHNS, or such other party as PHNS may
designate, shall have the right (as described below) to purchase from the
Shareholders and Shareholders' Permitted Transferees (as defined in the PHNS
Stockholders' Agreement), if any (A) if WDC's employment is terminated by PHNS
for Cause (as defined below) or by WDC without Good Reason (as defined below),
any and all shares of Class B Common Stock (such shares, including without
limitation (i) any such shares to which the Shareholders and any Affiliates (as
defined below) of the Shareholders may be entitled to receive pursuant to or in
connection with the Vesting Conditions or Earn-Out Payments pursuant to the
Option Agreement and (ii) any other shares of capital stock of PHNS into which
or for which such shares are converted or exchanged, are herein collectively
called the "Shares") then held by the Shareholders and any Affiliates of the
Shareholders, or (B) if WDC's employment is terminated by PHNS Without Cause or
by WDC for Good Reason or by the death or Disability of WDC, the percentage of
Shares then held by the Shareholders and any Affiliates of the Shareholders as
follows:
PERCENTAGE OF SHARES HELD AT TERMINATION
DATE OF TERMINATION OF WDC OF WDC EMPLOYMENT
-------------------------- ----------------------------------------
on or before _____, 2003 (1st Earn-Out Year) 90%
on or before _____, 2004 (2nd Earn-Out Year) 72
on or before _____, 2005 (3rd Earn-Out Year) 54
on or before _____, 2006 (4th Earn-Our Year) 36
Anytime after _____, 2006 0
This repurchase right shall be exercisable by PHNS, or such other party as PHNS
may designate, by delivery of a repurchase notice to the Shareholders prior to
the date which is six (6) months after the date of termination of WDC's
employment with PHNS for any reason. The price payable to the Shareholders by
PHNS in connection with PHNS' purchase of any Shares pursuant to this Section
3(a) shall be determined as follows:
(i) In the event that WDC's employment is terminated by PHNS
Without Cause or by WDC for Good Reason or by the death of WDC, the purchase
price per Share shall be the Fair Market Value of a Share on the day preceding
the date of repurchase. "Fair Market Value" shall mean, if the Shares are then
admitted to trading on a national securities exchange, the closing sale price,
regular way, as reported by the composite reporting system for such exchange or,
if the Shares are then listed on an inter-dealer quotation system, the average
of the closing bid and asked prices on such system or, if the Shares are neither
admitted for trading on a national securities exchange nor listed on an
inter-dealer quotation system, the Fair Market Value of the Shares as reasonably
determined in good faith by the PHNS Board; provided, that at any
B-2
time that the Shares (or any equity securities of PHNS issuable in lieu of the
Shares) are not publicly traded, the PHNS Board shall use the valuation
methodology previously provided to the Shareholders in determining Fair Market
Value.
(ii) In the event that WDC's employment is terminated by PHNS
for Cause or by WDC without Good Reason, (a) the purchase price per Share (other
than Shares issued, or to which the Shareholders or any Affiliates of the
Shareholders may be entitled to receive, pursuant to or in connection with any
Earn-Out Payment) shall be equal to the lesser of (i) the price at which the
Shares were issued by PHNS pursuant to the Option Agreement, and (ii) the Fair
Market Value of a Share on the date preceding the day of purchase, and (b) the
purchase price per Share for Shares issued, or to which the Shareholders or any
Affiliates of the Shareholders may be entitled to receive, pursuant to or in
connection with any Earn-Out Payment pursuant to the Option Agreement, shall be
equal to the Fair Market Value per Share multiplied by the following applicable
percentage:
APPLICABLE
EARN-OUT YEAR PERCENTAGE
------------- ----------
1st year 50%
2nd year 60
3rd year 75
4th year 90
Thereafter 100
(b) All sales of Shares to PHNS and or its designee pursuant to this
Section 3 shall be consummated contemporaneously at the offices of PHNS on the
later of (i) a mutually satisfactory business day within 60 days after PHNS'
delivery of a repurchase notice to the Shareholders or (ii) the fifth business
day following the receipt of all regulatory approvals, if any, applicable to
such sales, or at such other time and/or place as the parties to such sales may
agree. The delivery of certificates or other instruments evidencing such Shares
duly endorsed for transfer and accompanied by stock powers shall be made on such
date against payment of the purchase price for such Shares as provided in
paragraph (c) below.
(c) All Shares to be purchased by PHNS pursuant to paragraph (b) above
may be paid for, at PHNS' option, by PHNS either (i) in cash at the date of
delivery of certificates or other instruments evidencing the Shares to be sold;
(ii) by offsetting any amounts due to PHNS from WDC, or (iii) with a note
bearing a maturity of not longer than 2 years and bearing an interest rate equal
to the rate on U.S. Government treasury notes of comparable maturity on the date
of issuance plus 100 basis points.
(d) "Affiliate" of a person means an "affiliate" of such person as
defined in Section 8.03(a) of the Merger Agreement and any "associate" or member
of the "immediate family" (as such terms are defined in the Exchange Act) of
such person.
(e) "Without Cause" and "Cause" shall be as defined in Section 6(n) of
Annex 2 to the Option Agreement.
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(f) "Good Reason" shall mean (i) any material breach by PHNS of a
non-competition agreement or option agreement or other material agreement
entered into with, or provided to, WDC, if such breach shall not have been cured
by PHNS within 30 days of WDC's delivery of notice to PHNS of such breach, (ii)
a material reduction in WDC's title, duties, responsibilities or status or (iii)
the assignment to WDC of different or additional material duties that are
significantly inconsistent with WDC's position.
(g) The provisions of this Section 3 will terminate in the event of a
Change of Control as defined in Section 6(b) of Annex 2 to the Option Agreement.
4. Acknowledgment. Each Shareholder hereby acknowledges, agrees and
confirms that it takes ownership of the PHNS Shares subject to all the terms and
conditions of the PHNS Stockholders' Agreement.
5. Notices. The address of each Shareholder for purposes of Section 23
of the PHNS Stockholders' Agreement shall be the address set forth in the Option
Agreement.
6. Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of
Delaware without giving effect to
choice of law principles.
7. Counterparts. This Agreement may be executed in two or more
counterparts, each and all of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
B-4
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed on the date first written above.
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
PROVIDER HEALTHNET SERVICES INC.
By:
-----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chief Administrative Officer
B-5
Exhibit C
FORM OF EMPLOYEE JOINDER AGREEMENT
THIS JOINDER AGREEMENT (this "Agreement") is dated and effective as of
____________, ____, by and among
Provider HealthNet Services Inc., a
Delaware
corporation ("PHNS"), and __________ ("Employee").
WHEREAS, PHNS, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ("WDC") and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
(together with WDC, the "Majority Shareholders") are parties to an
Option and
Voting Agreement, dated as of March 26, 2002 (the "Option Agreement");
WHEREAS, the Majority Shareholders may be eligible to receive
additional shares (the "Earn-Out Shares") of Class B common stock, par value
$.01 per share (the "Class B Common Stock") of PHNS as part of the Earn-Out
Payments under the Option Agreement;
WHEREAS, the Majority Shareholders have agreed to transfer 50% of the
Earn-Out Shares to certain employees on terms and conditions to be mutually
agreed upon by PHNS and the Majority Shareholders;
WHEREAS, PHNS and certain of its stockholders are parties to (i) an
Amended and Restated Stockholders' Agreement, dated as of July 5, 2000 (the
"PHNS Stockholders' Agreement"); and (ii) a Registration Rights Agreement, dated
as of July 5, 2000 (the "PHNS Registration Rights Agreement");
WHEREAS, PHNS and Employee desire to set forth certain terms and
conditions relating to the right of PHNS, under certain circumstances, to
repurchase the shares of Class B Common Stock held by Employee from time to
time; and
WHEREAS, it is a condition to the ownership of shares of Class B Common
Stock by Employee that Employee execute this joinder agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. Definitions. Capitalized terms used but not otherwise defined in
this Agreement shall have the meanings assigned to such terms in the Option
Agreement.
2. Joinder. Employee hereby acknowledges, agrees and confirms that, by
Employee's execution and delivery of this Agreement and acceptance of shares of
Class B Common Stock from the Majority Shareholders, Employee shall become and
be deemed to be a party to each of the PHNS Stockholders' Agreement and the PHNS
Registration Rights Agreement, agrees to be bound by the terms and conditions of
each such agreement and shall have all of the rights and obligations under such
agreement as if Employee had been an original signatory thereto.
▇-▇
▇. ▇▇▇▇▇▇▇▇▇▇ Right. All shares of Class B Common Stock owned by
Employee shall be subject to the following repurchase provisions:
(a) In the event that Employee's employment with PHNS is terminated (by
either PHNS or by Employee) for any reason, PHNS, or such other party as PHNS
may designate, shall have the right (as described below) to purchase from
Employee or Employee's Permitted Transferees (as defined in the PHNS
Stockholders' Agreement) (A) if Employee is terminated by PHNS for Cause (as
defined below) or by Employee without Good Reason (as defined below), any and
all shares of Class B Common Stock (such shares, including without limitation
(i) any such shares to which Employee may be entitled to receive from the
Majority Shareholders pursuant to or in connection with the Earn-Out Payment
pursuant to the Option Agreement and (ii) any other shares of capital stock of
PHNS into which or for which such shares are converted or exchanged, are herein
collectively called the "Shares") then held by Employee and any Permitted
Transferee of Employee, or (B) if Employee's employment is terminated by PHNS
Without Cause or by Employee for Good Reason or by the death of Employee, the
percentage of Shares then held by Employee as follows:
PERCENTAGE OF SHARES HELD AT
DATE OF TERMINATION OF EMPLOYEE TERMINATION OF EMPLOYMENT
------------------------------- ----------------------------
on or before _____, 2003 (1st Earn-Out Year) 90%
on or before _____, 2004 (2nd Earn-Out Year) 72
on or before _____, 2005 (3rd Earn-Out Year) 54
on or before _____, 2006 (4th Earn-Our Year) 36
Anytime after _____, 2006 0
This repurchase right shall be exercisable by PHNS, or such other party as PHNS
may designate, by delivery of a repurchase notice to Employee prior to the date
which is six (6) months after the date of termination of Employee's employment
with PHNS for any reason. The price payable to Employee by PHNS in connection
with PHNS' purchase of any Shares pursuant to this Section 3(a) shall be
determined as follows:
(i) In the event that Employee's employment is terminated by
PHNS Without Cause or by Employee for Good Reason or by the death of Employee,
the purchase price per Share shall be the Fair Market Value of a Share on the
day preceding the date of repurchase. "Fair Market Value" shall mean, if the
Shares are then admitted to trading on a national securities exchange, the
closing sale price, regular way, as reported by the composite reporting system
for such exchange or, if the Shares are then listed on an inter-dealer quotation
system, the average of the closing bid and asked prices on such system or, if
the Shares are neither admitted for trading on a national securities exchange
nor listed on an inter-dealer quotation system, the Fair Market Value of the
Shares as reasonably determined in good faith by the PHNS Board; provided, that
at any time that the Shares (or any equity securities of PHNS issuable in lieu
of the Shares) are not publicly traded, the PHNS Board shall use the valuation
methodology previously provided to the Shareholders in determining Fair Market
Value.
C-2
(ii) In the event that Employee's employment is terminated by
PHNS for Cause or by Employee without Good Reason, (a) the purchase price per
Share (other than Shares issued, or to which Employee may be entitled to receive
from the Majority Shareholders, pursuant to or in connection with any Earn-Out
Payment) shall be equal to the lesser of (i) the price at which the Shares were
issued by PHNS pursuant to the Option Agreement or the Agreement and Plan of
Merger dated as of March 26, 2002 among PHNS, MGC Acquisition Corp. and MedGrup
Corporation (the "Merger Agreement"), and (ii) the Fair Market Value of a Share
on the date preceding the day of purchase, and (b) the purchase price per Share
for Shares issued, or to which Employee may be entitled to receive from the
Majority Shareholders, pursuant to or in connection with any Earn-Out Payment
pursuant to the Option Agreement, shall be equal to the Fair Market Value per
Share multiplied by the following applicable percentage:
APPLICABLE
EARN-OUT YEAR PERCENTAGE
------------- ----------
1st year 50%
2nd year 60
3rd year 75
4th year 90
Thereafter 100
(b) All sales of Shares to PHNS and or its designee pursuant to this
Section 3 shall be consummated contemporaneously at the offices of PHNS on the
later of (i) a mutually satisfactory business day within 60 days after the
delivery of a repurchase notice to Employee or (ii) the fifth business day
following the receipt of all regulatory approvals, if any, applicable to such
sales, or at such other time and/or place as the parties to such sales may
agree. The delivery of certificates or other instruments evidencing such Shares
duly endorsed for transfer and accompanied by stock powers shall be made on such
date against payment of the purchase price for such Shares as provided in
paragraph (c) below.
(c) All Shares to be purchased by PHNS pursuant to paragraph (b) above
may be paid for, at PHNS' option, by PHNS either (i) in cash at the date of
delivery of certificates or other instruments evidencing the Shares to be sold;
(ii) by offsetting any amounts due to PHNS from Employee, or (iii) with a note
bearing a maturity of not longer than 2 years and bearing an interest rate equal
to the rate on U.S. Government treasury notes of comparable maturity on the date
of issuance plus 100 basis points.
(d) "Without Cause" and "Cause" shall be as defined in Section 6(n) of
Annex 2 to the Option Agreement, provided, however, that all references therein
to WDC should be deemed to refer to Employee.
(e) "Good Reason" shall mean (i) any material breach by PHNS of a
non-competition agreement or option agreement or other material agreement
entered into with, or provided to, Employee, if such breach shall not have been
cured by PHNS within 30 days of Employee's delivery of notice to PHNS of such
breach, (ii) a material reduction in Employee's title, duties, responsibilities
or status or (iii) the assignment to Employee of different or additional
material duties that are significantly inconsistent with Employee's position.
C-3
(f) The provisions of this Section 3 will terminate in the event of a
Change of Control as defined in Section 6(b) of Annex 2 to the Option Agreement.
4. Acknowledgment. Employee hereby acknowledges, agrees and confirms
that it takes ownership of the PHNS Shares subject to all the terms and
conditions of the PHNS Stockholders' Agreement.
5. Notices. The address of Employee for purposes of Section 23 of the
PHNS Stockholders' Agreement is as follows:
-------------------------
-------------------------
-------------------------
6. Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of
Delaware without giving effect to
choice of law principles.
7. Counterparts. This Agreement may be executed in two or more
counterparts, each and all of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
C-4
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be duly executed on the date first written above.
EMPLOYEE
-------------------------------------
Name:
--------------------------------
PROVIDER HEALTHNET SERVICES INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
C-5