Proxy
Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934.
x
Filed
by Registrant
o
Filed
by a Party other than the
Registrant
Check
the
appropriate box:
x
Preliminary
Proxy Statement
o
Confidential,
for use by Commission Only (as permitted by Rule
14a-6(e)(2))
o
Definitive
Proxy Statement
o
Definitive
Additional Materials
o
Soliciting
Material Pursuant to ss.240.14a-12
PACE
HEALTH MANAGEMENT SYSTEMS, INC.
(NAME
OF
REGISTRANT AS SPECIFIED IN ITS CHARTER)
N/A
(NAME
OF
PERSONS FILING PROXY STATEMENT, IF OTHER THAN REGISTRANT)
Payment
of Filing Fee (Check the appropriate box):
x
No
fee required.
o
Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1)
Title
of each class of securities to which transaction
applies:
N/A
2)
Aggregate
number of securities to which transaction
applies:
N/A
3)
Per
unit price or other underlying value of transaction computed pursuant
to
Exchange Act Rule 0-11: Set forth the amount on which the filing
fee is
calculated
and state how it was determined.
TO
THE
SHAREHOLDERS OF PACE HEALTH MANAGEMENT SYSTEMS, INC.:
NOTICE
IS
HEREBY GIVEN, that the Special Meeting of the shareholders (the "Meeting")
of
Pace Health Management Systems, Inc., a corporation formed under the laws of
the
State of Iowa (the "Company", “we” or “us”) will be held at 10 A.M. on
____________ 2007 at ___________________, for the following
purpose:
1.
To
approve a plan of recapitalization of the Company including (i) a reverse stock
split of our Common Stock on a 1 for 20 basis; (ii) an increase in the number
of
authorized shares of Common Stock from 20,000,000 to 40,000,000 shares; (iii)
the conversion of all shares of the Company’s outstanding Series A Preferred
Stock (the “Series A Preferred Stock”) into 4,584, 196 shares of Common Stock on
a post reverse split basis, and the waiver of all accrued and unpaid dividends
on the Series A Preferred Stock; (iv) the reincorporation of the Company from
the state of Iowa to the state of Delaware and (v) a change in the name of
the
Company to Conmed
Healthcare Management, Inc.
(we
refer to this proposal as the “Plan of Recapitalization"), all
of
which shall be accomplished through an agreement and plan of merger (“Merger
Agreement”) with our newly formed Delaware subsidiary.
2.
To
elect three Directors to the Board of Directors;
3.
To
approve the adoption of the 2007 Stock Option Plan (the “2007 Plan”);
and
4.
To act
upon such other business as may properly come before the Meeting or any
adjournment thereof.
A
MAJORITY OF EACH CLASS OF THE COMPANY’S OUTSTANDING CAPITAL STOCK, AS
APPLICABLE, HAS AGREED TO VOTE IN FAVOR OF EACH OF THE ITEMS LISTED
ABOVE.
Shareholders
of record at the close of business on February 15, 2007 are entitled to notice
of and to vote at the Meeting or any adjournment or postponement thereof.
Whether you expect to attend the Meeting in person or not, please sign, fill
out, date and return the enclosed proxy in the self-addressed, postage-paid
envelope also enclosed. If you attend the Meeting and prefer to vote in person,
you can revoke your proxy.
SPECIAL
MEETING OF SHAREHOLDERS TO BE HELD ____________ 2007
This
Proxy Statement is being furnished in connection with the solicitation by the
board of directors of Pace Health Management Systems, Inc. (the "Company",
“we”
or “us”), for use at the Special Meeting (the "Meeting") of shareholders (the
"Shareholders") of the Company to be held on ____________ 2007 at 10:00 A.M.
at
______________ and at any adjournment or postponement thereof.
Only
Shareholders of record at the close of business on February 15, 2007 (the
"Record Date") are entitled to vote at the Meeting. As of the Record Date,
there
were issued and outstanding 8,316,074 shares of the Company's common stock
(the
"Common Shares"). Each outstanding Common Share is entitled to one vote on
all
matters coming before the Meeting.
As
of the
Record Date, there were also issued and outstanding 2,850,000 shares of the
Company's Series A Preferred Stock (the "Series A Preferred Stock"). Each
outstanding share of Series A Preferred Stock is entitled to two votes on all
matters coming before the Meeting, for a total of 5,700,000 votes.
As
of the
Record Date, there were also issued and outstanding 15,000 shares of the
Company's Series B Preferred Stock (the "Series B Preferred Stock").
The
Series B Preferred Stock has
no
voting rights
except
with regard to Proposal 1, in which case its vote as a separate class is
required by law.
With
regard to Proposal 1, the Series B Preferred has 15,000 votes.
As
of the
Record Date, there were also issued and outstanding 8,000 shares of the
Company's Series C Preferred Stock (the "Series C Preferred Stock").
The
Series C Preferred Stock has
no
voting rights
except
with regard to Proposal 1, in which case its vote as a separate class is
required by law.
With
regard to Proposal 1, the Series C Preferred has 8,000 votes.
All
properly executed, unrevoked proxies on the enclosed form of proxy that are
received in time will be voted in accordance with the Shareholder's directions
and, unless contrary directions are given, will be voted for the proposals
(the
"Proposals") and the election of Directors as described below. Anyone giving
a
proxy may revoke it at any time before it is exercised by giving the board
of
directors of the Company written notice of the revocation, by submitting a
proxy
bearing a later date or by attending the Meeting and voting in
person.
The
Board
of Directors has approved for submission to our shareholders the following
Proposals and recommends that the Company's Shareholders vote "FOR" each of
the
Proposals and the election of Directors. A majority of each class of the
Company’s outstanding capital stock, as applicable, has agreed to vote in favor
of each of the items listed below::
1.
To
approve the Plan of Recapitalization of the Company including (i) a reverse
stock split of our Common Stock on a 1 for 20 basis; (ii) an increase in the
number of authorized shares of Common Stock from 20,000,000 to 40,000,000
shares; (iii) the conversion of all shares of the Company’s outstanding Series A
Preferred Stock into 4,584,196 shares of Common Stock on a post reverse split
basis, and the waiver of all accrued and unpaid dividends on the Series A
Preferred Stock; and (v) a change in the name of the Company to Conmed
Healthcare Management, Inc.,
all
of
which shall be accomplished through a Merger Agreement with our newly formed
Delaware subsidiary.
2.
To
elect three Directors;
3.
To
approve the adoption of the 2007 Plan; and
to
act
upon such other business as may properly come before the Meeting or any
adjournment thereof.
3
The
presence in person or by properly executed proxy of holders representing a
majority of the issued and outstanding shares of the Company's Common Shares
and
Series A Preferred Stock is necessary to constitute a quorum for the transaction
of business at the Meeting, and with respect to the approval of Proposal 1,
the
Plan of Recapitalization, a majority of the Series B Preferred Stock and Series
C Preferred Stock entitled to vote is necessary as well.
Votes
cast by proxy or in person at the Meeting will be tabulated by the inspector
of
elections appointed for the Meeting, who will determine whether or not a quorum
is present. Shares of Common Stock represented by proxies that are marked
"abstain" will be included in the determination of the number of shares present
and voting for purposes of determining the presence or absence of a quorum
for
the transaction of business. Abstentions are not counted as voted either for
or
against a Proposal but are counted for establishing a quorum. Brokers holding
Common Shares for beneficial owners in "street name" must vote those shares
according to specific instructions they receive from the owners. However,
brokers have discretionary authority to vote on "routine" matters. Absent
specific instructions from the beneficial owners in the case of "non-routine"
matters, the brokers may not vote the shares. "Broker non-votes" result when
brokers are precluded from exercising their discretion on certain types of
proposals. Shares that are voted by brokers on some but not all of the matters
will be treated as shares present for purposes of determining the presence
of a
quorum on all matters, but will not be treated as shares entitled to vote at
the
Meeting on those matters as to which instructions to vote are not provided
by
the owner.
Approval
of Proposal 1 requires the affirmative vote of a majority of the votes cast
by
the holders of the Company's outstanding Common Shares, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, each voting
separately as a class, at a meeting at which a quorum described above is
present. The election of directors requires
the affirmative vote of a plurality of the votes cast at the
meeting.
Approval
of Proposal 3 requires the affirmative vote of the holders of a majority of
the
voting power of the shares present and entitled to vote on that Proposal.
A
majority of each class of the Company’s outstanding capital stock, as
applicable, has agreed to vote in favor of each of the items listed
above.
This
Proxy Statement, the accompanying Notice of Meeting and the form of proxy have
been first sent to the shareholders on or about February 27, 2007.
The
Company will pay all costs associated with the distribution of this Proxy
Statement, including the costs of printing and mailing. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending this Proxy Statement to the
beneficial owners of the Company’s Common Stock, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock.
The
Company will only deliver one Proxy Statement to multiple security holders
sharing an address unless the Company has received contrary instructions from
one or more of the security holders. Upon written or oral request, the Company
will promptly deliver a separate copy of this Proxy Statement and any future
annual reports and information statements to any security holder at a shared
address to which a single copy of this Proxy Statement was delivered, or deliver
a single copy of this Proxy Statement and any future annual reports and
information statements to any security holder or holders sharing an address
to
which multiple copies are now delivered. You should direct any such requests
to
the following address:
The
following is a summary of the terms of the Proposals. This summary is qualified
by the more detailed description appearing elsewhere in this proxy statement.
Unless otherwise indicated, all references to "we", "us", and "our" refer to
Pace Health Management Systems, Inc., a corporation formed under the laws of
the
State of Iowa. We urge you to carefully read this Proxy Statement, and the
exhibits hereto, in their entirety because the information in this summary
is
not complete.
The
first
Proposal consists of several parts, all of which must be approved as a single
proposal. Under the Plan of Recapitalization, we will:
·
reincorporate
the Company into the state of Delaware pursuant to the Merger Agreement;
·
change
the name of the Company from Pace Health Management Systems, Inc.
to
Conmed Healthcare Management, Inc;.
·
enact
a
reverse stock split on a 1 for 20 basis, resulting in every 20 shares
of
outstanding Common Stock being exchanged for one share of Common
Stock,
thereby reducing the number of outstanding shares of Common
Stock;
·
increase
the number of authorized shares of Common Stock from 20,000,000 to
40,000,000 shares; and
·
to
convert the Series A Preferred Stock (and the waiver of all accrued
and
unpaid dividends on the Series A Preferred Stock) into 4,584,196
shares of
Common Stock on a post reverse split basis.
We
have
created a subsidiary (the “Merger Sub”) under the laws of the State of Delaware
and assuming shareholder approval of Proposal 1, including the Merger Agreement,
we will merge into the subsidiary. All of the liabilities and assets of our
company existing prior to the reincorporation will be deemed transferred,
assumed and assigned to the Delaware entity. The certificate of incorporation
and bylaws of the Delaware entity will become our new Certificate of
Incorporation and Bylaws, and reflect the Plan of Recapitalization. Other than
with respect to the amount of shares authorized for issuance by Merger Sub,
the
number of directors on the board of Merger Sub and the name of Merger Sub,
the
certificate of incorporation of Merger Sub is substantially similar to our
articles of incorporation. See “Proposal 1: Approval of the Recapitalization -
Comparison of Rights of Securityholders" for a discussion of differences in
our
charter documents and state law
Assuming
the first Proposal is approved by shareholders, it will not be necessary for
our
shareholders, a term we use to distinguish the security-holders of our Company
from the post reincorporation/Plan of Recapitalization (to whom we refer as
"stockholders"), to send us their certificates for shares of our common stock.
We
are
also seeking approval for the election of three persons, namely John Pappajohn,
Richard Turner and Edward B. Berger to our Board of Directors. See " - Election
of Directors."
We
are
also seeking approval for the adoption of the 2007 Plan. See "Proposal 3 -
Approval of the 2007 Stock Option Plan."
Approval
of Proposal 1 requires the affirmative vote of a majority of the votes cast
by
the holders of the Company's outstanding Common Shares, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, each voting
separately as a class, at a meeting at which a quorum described above is
present. The election of directors requires
the affirmative vote of a plurality of the votes cast at the
meeting.
Approval
of Proposal 3 requires the affirmative vote of the holders of a majority of
the
voting power of the shares present and entitled to vote on this Proposal.
AT
LEAST A MAJORITY OF EACH CLASS OF THE COMPANY’S OUTSTANDING CAPITAL STOCK
HAS
AGREED TO VOTE IN FAVOR OF EACH OF THE ITEMS LISTED
ABOVE
6
QUESTION
AND ANSWER SUMMARY: ABOUT THE PLAN OF RECAPITALIZATION
WHO
ARE WE MERGING WITH?
We
are
merging with Conmed Healthcare Management, Inc., a wholly-owned Delaware
corporation to which we refer as Merger Sub.
HAS
THE BOARD OF DIRECTORS APPROVED THE PLAN OF RECAPITALIZATION AND THE MERGER
?
Yes.
The
Plan of Recapitalization, including the Merger, was approved by the Board on
January 15, 2007. The Merger Agreement was executed on February 14, 2007. Our
board of directors has approved the Merger Agreement and all transactions and
developments contemplated thereby and resolved to seek approval of our
shareholders.
HOW
WILL THE PLAN OF RECAPITALIZATION WORK ?
The
Merger itself will be a very simple, straight-forward transaction. We will
merge
with and into Merger Sub and cease to exist as a separate Iowa entity. Merger
Sub will be the surviving corporation. As a result of the Merger, our name
will
change to Conmed Healthcare Management, Inc. As part of the Plan of
Recapitalization, we will also:
·
enact
a
reverse stock split on a 1 for 20 basis, resulting in every 20 shares
of
outstanding Common Stock being exchanged for one share of Common
Stock,
thereby reducing the number of outstanding shares of Common Stock.
This
will be done in the process of converting your shares of common stock
in
the Iowa corporation into shares of common stock in the Delaware
corporation.
·
We
will also increase the number of authorized shares of Common Stock
from
20,000,000 to 40,000,000 shares; the number of authorized shares
of
Preferred Stock will remain at 5,000,000 shares; these amounts will
be set
forth in the certificate of incorporation for the Delaware
corporation.
·
We
will convert the Series A Preferred Stock (and the waiver of all
accrued
and unpaid dividends on the Series A Preferred Stock) into 4,584,196
shares of Common Stock on a post reverse split basis;
·
We
will also convert the Series B Preferred Stock and Series C Preferred
Stock pursuant to its terms into shares of Common Stock; the terms
of the
Series B Preferred Stock and Series C Preferred Stock provide for
this
conversion, and it will occur automatically upon effectiveness of
the Plan
of Recapitalization.
DO
I HAVE THE RIGHT TO VOTE ON THE PLAN OF RECAPITALIZATION ?
Yes,
you
do. That is the main purpose of this Proxy Statement. Although a majority of
each class of our equity securities has agreed to vote in favor of the Plan
of
Recapitalization, we are soliciting your vote in favor of the Plan of
Recapitalization.
IS
YOUR FINANCIAL CONDITION RELEVANT TO MY DECISION WHETHER TO VOTE FOR THE PLAN
OF
RECAPITALIZATION?
No,
we do
not believe that it is. The business of our company will not change solely
as a
result of the Plan of Recapitalization. We are not paying any finders' fees,
brokers' fees or any other such fees nor have we engaged the services of an
investment bank or other entity to advise us with respect to the Plan of
Recapitalization.
At
least a majority of each class of the Company’s outstanding capital stock has
agreed to vote in favor of the Plan of Recapitalization, thus, if you disagree
with the Plan of Recapitalization, your only remedy is to exercise your
appraisal rights, as further described below.
7
HOW
DO I EXCHANGE MY SHARES OF COMMON STOCK?
You
do
not. If you do not exercise your appraisal rights (as further described below)
your shares will automatically be converted into shares of common stock of
Merger Sub. You have the right to vote on the Plan of Recapitalization and
the
Merger, but there is no step that you are required to take.
HOW
MANY SHARES WILL I HAVE AFTER THE PLAN OF
RECAPITALIZATION?
You
will
own one share for every twenty shares of common stock owned by you prior to
the
Plan of Recapitalization. For an explanation of the reasoning behind this
conversion ratio, please see “Description of Capital Stock; Conversion Ratio.”
Immediately following the Plan of Recapitalization, the holders of Series A
Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock
have agreed to convert their shares of preferred stock into shares of Common
Stock of the Merger Sub.
WHAT
IS THE CONVERSION RATIO FOR COMMON SHARES?
The
conversion ratio will be 1-for-20. For an explanation of the reasoning behind
this conversion ratio, please see “Description of Capital Stock; Conversion
Ratio.”
WHAT
ARE THE BENEFITS OF THE REINCORPORATION?
The
purpose of the reincorporation is to change the state of our incorporation
of
from Iowa to Delaware. The reincorporation is intended to permit us to be
governed by the Delaware General Corporation Law (which we refer to as the
"DGCL") rather than by the Iowa Business Corporation Act (which we refer to
as
the "IBCA").
The
principal reasons that led our board of directors to determine that
reincorporation in Delaware is in the best interests of our shareholders are
outlined below:
·
The
State of Delaware has long been the leader in adopting, construing
and
implementing comprehensive, flexible corporation laws that are conducive
to the operational needs and independence of corporations domiciled
in
that State;
·
The
corporation law of Delaware is widely regarded as the most extensive
and
well-defined body of corporate law in the United
States;
·
Both
the legislature and the courts in Delaware have demonstrated an ability
and a willingness to act quickly and effectively to meet changing
business
needs; and
·
The
Delaware judiciary has acquired considerable expertise in dealing
with
complex corporate issues. Moreover, the Delaware courts have repeatedly
shown their willingness to accelerate the resolution of complex corporate
issues to meet the needs of parties engaged in corporate
litigation.
We
anticipate that the DGCL will continue to be interpreted and construed in
significant court decisions, thus lending greater predictability and guidance
and managing and structuring the internal affairs of our company and its
relationships and contacts with others. In addition, see "Comparison of Rights
of Security-holders" below.
WHAT
ARE THE DISADVANTAGES OF THE REINCORPORATION?
Despite
the belief of our board that the reincorporation is in the best interests of
our
company and that of our shareholders, the IBCA and the DGCL differ in some
respects. The DGCL may not afford stockholders the same rights as the IBCA.
On
balance, however, we believe it is favorable for us to reincorporate in
Delaware.
WHAT
IS THE EFFECT OF THE REINCORPORATION ON OUR COMPANY?
The
Plan
of Recapitalization has been unanimously approved by our board of directors,
based on the Merger Agreement attached hereto as EXHIBIT A. If we receive
approval for the proposal to adopt the Merger Agreement, the Merger will become
effective when a certificate of merger and articles of merger are filed with
the
Secretary of State of Delaware and the Secretary of State of Iowa, respectively.
This filing is anticipated to be made as soon as possible after the Meeting.
At
the effective time of the Merger:
8
· We
will
merge with and into Merger Sub, with Merger Sub being the surviving
corporation;
· We
will
cease to be governed by the IBCA and will be governed by the DGCL;
and
· Merger
Sub will be governed by its certificate of incorporation and bylaws, which
we
have attached as EXHIBIT
B
and EXHIBIT C to this proxy statement.
The
reincorporation is subject to conditions, including the affirmative vote of
a
majority of the votes cast by the holders of the Company's outstanding Common
Shares, Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, each voting separately as a class.
WHAT
IS THE EFFECT OF THE REINCORPORATION ON THE HOLDERS OF OUR
SECURITIES?
At
the
effective time of the Merger, all our securities will be converted into
securities of Merger Sub. At the effective time of the Merger, the conversion
will occur as follows:
All
of
our common stock will be converted into shares of common stock, $.0001 par
value, of Merger Sub, at a conversion ratio of 1 for 20; for an explanation
of
the reasoning behind this conversion ratio, please see “Description of Capital
Stock; Conversion Ratio.”
Each
share of Merger Sub common stock outstanding after the effective time of the
Merger will entitle the holder thereof to voting rights, dividend rights and
liquidation rights equivalent to the rights of holders of our common stock
prior
to the effective time of the Merger (except as provided below - see "Comparison
of Rights of Security-holders"). Shares of our common stock are currently traded
on the over-the-counter market and are quoted on the NASD OTC Bulletin Board
under the symbol "PCSE." Following the effective date of the Plan of
Recapitalization, shares of common stock of Merger Sub will be traded on the
over-the-counter market under a symbol to be assigned to Merger Sub by NASD
Market Operations, which the Company may not know prior to mailing this proxy
statement to its stockholders. The Company will publicly disseminate the new
ticker symbol for the Merger Sub common stock.
WILL
THE CHARTER DOCUMENTS BE AMENDED IN THE MERGER?
HOW
DO THE RIGHTS OF STOCKHOLDERS COMPARE BEFORE AND AFTER THE
REINCORPORATION?
We
are
organized as a corporation under the laws of Iowa. After the reincorporation,
we
will be a corporation incorporated under the laws of Delaware. As an Iowa
corporation, we are governed by; the IBCA, our articles of incorporation and
our
bylaws. As a Delaware corporation we will be governed by; the DGCL, Merger
Sub's
certificate of incorporation, attached to proxy statement as EXHIBIT B, as
may
be further amended from time to time and Merger Sub's bylaws, attached to this
proxy statement as EXHIBIT C, as may be further amended from time to
time.
Certain
material differences between the applicable Iowa and Delaware law and among
these documents are summarized below. The comparison of certain rights of our
stockholders before and after the reincorporation set forth below is not
complete and is subject to and qualified in its entirety by reference to Iowa
law, Delaware law, Merger Sub's certificate of incorporation, Merger Sub's
bylaws, and our articles of incorporation and our bylaws, copies of which may
be
obtained from us by writing us at 9375 Chesapeake Street, Suite 203, La Plata,
Maryland20646, attention: Thomas Fry, Secretary.
WILL
THE SHARES TO BE ISSUED IN THE MERGER BE FREELY TRADING?
The
shares that are not currently freely trading will remain restricted. No shares
will be "issued" as that term is typically understood. Rather, currently
outstanding shares will be converted into shares of Merger Sub. We do not
anticipate that the Merger will in any way affect the status of our shares
that
are currently freely trading.
9
WHEN
DO YOU EXPECT THE PLAN OF RECAPITALIZATION TO BE
COMPLETED?
We
hope
to complete the Plan of Recapitalization on or around ____________ 2007, or
as
soon as practicable thereafter, assuming that all the conditions to the closing
of the Merger as set forth in the Merger Agreement are completed to the
satisfaction of the parties.
WHAT
ARE THE TAX CONSEQUENCES OF THE MERGER ITSELF?
The
Merger is intended to qualify as a tax-free reorganization for United States
federal income tax purposes. If the Merger does so qualify, no gain or loss
would generally be recognized by our U.S. stockholders upon conversion of their
shares of common stock in our company into shares of common stock in Merger
Sub
pursuant to the Merger. We believe, but cannot assure you, that there will
be no
tax consequences for holders of our shares. You are urged to consult your own
tax advisor for tax implications related to your particular situation.
WHAT
REMEDY DO I HAVE IF I DID NOT VOTE FOR THE MERGER?
Iowa
law
requires the provision of appraisal rights in this situation as more fully
set
forth in the section entitled "Appraisal Rights".
WHAT
DO I NEED TO DO IN ORDER TO VOTE?
After
reading this document, you will need to execute the Proxy Card provided to
you
herewith, and any other documents applicable to you that are included in this
packet. Alternatively, you may appear at the Meeting and vote in
person.
WHO
CAN HELP ANSWER MY QUESTIONS?
If
you
have questions about the Merger or our business, you should contact Thomas
Fry,
Chief Financial Officer of Pace, at:
Our
board
of directors is asking shareholders to consider three items at this Special
Meeting of Shareholders:
· To
approve the Plan of Recapitalization;
· To
elect
Directors; and
· To
adopt
the 2007 Plan.
WHAT
ARE THE MAIN TERMS OF THE PLAN OF RECAPITALIZATION?
The
Plan
of Recapitalization consists of several matters, but is one single Proposal
for
the vote of shareholders:
·
to
reincorporate
the Company into the state of Delaware pursuant to the Merger Agreement;
·
to
change the name of the Company from Pace Health Management Systems,
Inc.
to Conmed Healthcare Management,
Inc;.
·
to
enact a
reverse stock split on a 1 for 20 basis, resulting in every 20 shares
of
outstanding Common Stock being
exchanged for one share of Common Stock, thereby reducing the number
of
outstanding shares of Common
Stock;
·
to
increase the number of authorized shares of Common Stock from 20,000,000
to 40,000,000 shares;
·
to
convert the Series A Preferred Stock (and the waiver of all accrued
and
unpaid dividends on the Series A Preferred
Stock) into 4,584,196 shares of Common Stock on a post reverse split
basis.
We
are
currently incorporated in the state of Iowa and therefore are governed by Iowa
law. As we will not operate in Iowa in the future, and since the State of
Delaware has a large and well-settled body of law governing corporations, we
are
proposing the merger with Merger Sub to reincorporate under Delaware law. We
need at least the affirmative vote of a majority of the votes cast by the
holders of the Company's outstanding Common Shares, Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, each voting separately
as
a class, to approve the Plan of Recapitalization and the Merger Agreement for
it
to be adopted. If the Plan of Recapitalization is approved:
· We
will
merge with and into Merger Sub, a Delaware corporation. Merger Sub will be
the
surviving corporation
in the merger.
· We
will
do business under the name of "Conmed Healthcare Management, Inc."
· We
will
be governed by Delaware law and by the certificate of incorporation and bylaws
of Merger Sub, which
are
substantially similar to our articles of incorporation and bylaws and are
attached to this proxy statement
as EXHIBIT B and EXHIBIT C, respectively. The new certificate of incorporation
reflects the reverse
stock split, name change and increase in the authorized shares. Assuming the
Plan of Recapitalization is
approved, the new Certificate of Incorporation will not include any provision
for the Series A Preferred Stock,
Series B Preferred Stock or Series C Preferred Stock as each will automatically
convert into shares of Common
Stock. A
vote in
favor of the Plan of Recapitalization is a vote for the Merger Agreement with
our Delaware
subsidiary.
DO
I NEED TO SURRENDER MY SHARES OF COMMON STOCK FOR NEW
SHARES?
If
the
Plan of Recapitalization is approved, you do not need to submit your existing
shares of Common Stock for new share certificates. Our transfer agent will
be
advised of the Plan of Recapitalization and our stock records will be revised
accordingly.
11
WHO
CAN VOTE AT THE MEETING?
Our
board
of directors has set February 15, 2007 as the Record Date for the Meeting.
Only
Shareholders of record at the close of business on the Record Date are entitled
to vote at the Meeting. As of the Record Date, there were issued and outstanding
8,316,074 Common Shares. Each outstanding Common Share is entitled to one vote
on all matters properly coming before the Meeting. As of the Record Date, there
were issued and outstanding 2,850,000 shares of Series A Preferred Stock. Each
outstanding share of Series A Preferred Stock is entitled to two votes on all
matters properly coming before the Meeting. As of the Record Date, there were
issued and outstanding 15,000 shares of Series B Preferred Stock. Outstanding
shares of Series C Preferred Stock are entitled to attend the Meeting and to
cast one vote each on Proposal 1. Holders
of the Series B Preferred Stock are not entitled to vote upon the election
of
Directors or on the proposal for the 2007 Plan. As
of the
Record Date, there were issued and outstanding 8,000 shares of Series C
Preferred Stock. Outstanding shares of Series C Preferred Stock are entitled
to
attend the Meeting and to cast one vote each on Proposal 1. Holders
of the Series C Preferred Stock are not entitled to vote upon the election
of
Directors or on the proposal for the 2007 Plan.
WHAT
CONSTITUTES A QUORUM FOR THE MEETING?
To
have a
quorum, we need at least a majority of the votes entitled to be cast to be
present, in person or by proxy, including votes as to which authority to vote
on
any proposal is withheld; shares of stock abstaining as to any proposal, and
broker non-votes (where a broker submits a proxy but does not have authority
to
vote a customer's shares of stock on one or more matters) on any proposal,
will
be considered present at the Meeting for purposes of establishing a quorum
for
the transaction of business at the Meeting. Each will be tabulated separately.
HOW
DO I VOTE?
If
you
complete and properly sign the accompanying proxy card and return it to us,
it
will be voted as you direct, unless you later revoke the proxy. Unless
instructions to the contrary are marked, or if no instructions are specified,
shares of stock represented by a proxy will be voted for the proposals set
forth
on the proxy, and in the discretion of the persons named as proxies on such
other matters as may properly come before the Meeting. If you are a registered
shareholder, that is, if you hold your shares of stock in certificate form, and
you attend the Meeting, you may deliver your completed proxy card in person.
If
you hold your shares of stock in "street name," that is, if you hold your shares
of stock through a broker or other nominee, and you wish to vote in person
at
the Meeting, you will need to obtain a proxy form from the institution that
holds your shares of stock.
CAN
I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes.
Even
after you have submitted your proxy, you may change your vote at any time before
the proxy is exercised by filing with our Secretary, at the address indicated
above, either a written notice of revocation, a duly executed proxy bearing
a
later date, or if you vote in person at the Meeting. The powers of the proxy
holders will be suspended if you attend the Meeting in person and so request.
However, attendance at the Meeting will not by itself revoke a previously
granted proxy.
Any
written notice of revocation sent to us must include the shareholder's name
and
must be received prior to the Meeting to be effective.
WHAT
VOTE IS REQUIRED TO APPROVE EACH ITEM?
THE
PLAN OF RECAPITALIZATION
Approval
of the Plan of Recapitalization requires the affirmative vote of a majority
of
the votes cast by the holders of the Company's outstanding Common Shares, Series
A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, each
voting separately as a class, at a meeting at which a quorum described above
is
present. The Plan of Recapitalization will be accomplished through the Merger
Agreement, and therefore, the proposal regarding the Plan of Recapitalization
is
also a vote upon the Merger Agreement.
ELECTION
OF DIRECTORS
The
election of directors, provided that a quorum of shareholders is present at
the
meeting in person, or is represented by proxy, and is entitled to vote thereon,
requires the affirmative vote of a plurality of the votes cast at the
meeting.
For the
purposes of election of directors, although abstentions will count toward the
presence of a quorum, they will not be counted as votes cast and will have
no
effect on the result of the vote. The Series B Preferred Stock and the Series
C
Preferred Stock are not entitled to vote on this proposal.
12
ADOPTION
OF 2007 PLAN
The
approval of the adoption of the 2007 Plan requires the affirmative vote of
the
holders of a majority of the voting power of the shares present and entitled
to
vote on that Proposal. The Series B Preferred Stock and the Series C Preferred
Stock are not entitled to vote on this proposal.
AT
LEAST A MAJORITY OF EACH CLASS OF THE COMPANY’S OUTSTANDING CAPITAL STOCK
HAS
AGREED TO VOTE IN FAVOR OF EACH OF THE ITEMS LISTED ABOVE.
WHAT
ELSE DO I NEED TO KNOW?
If
you
hold your shares of stock in "street name," your broker or nominee may not
be
permitted to exercise voting discretion with respect to some of the matters
to
be acted upon. Thus, if you do not give your broker or nominee specific
instructions, your shares of stock may not be voted on those matters and will
not be counted in determining the number of shares of stock necessary for
approval. Shares of stock represented by such "broker non-votes" will, however,
be counted in determining whether there is a quorum.
Votes
cast by proxy will be tabulated by an automated system administered by Wells
Fargo Shareowner Services, our transfer agent. Votes cast by proxy or in person
at the Meeting will be counted by the independent person that we will appoint
to
act as election inspector for the Meeting.
13
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information
included in this Proxy Statement contains forward-looking statements within
the
meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This
information may involve known and unknown risks, uncertainties and other factors
which may cause our actual results, performance or achievements to be materially
different from our future results, performance or achievements expressed or
implied by any forward-looking statements. Forward-looking statements, which
involve assumptions and describe our future plans, strategies and expectations,
are generally identifiable by use of the words "may,""will,""should,""expect,""anticipate,""estimate,""believe,""intend" or "project" or the
negative of these words or other variations on these words or comparable
terminology. These forward-looking statements are based on assumptions that
may
be incorrect, and there can be no assurance that these projections included
in
these forward-looking statements will come to pass. Our actual results could
differ materially from those expressed or implied by the forward-looking
statements as a result of various factors.
It
is
possible that the assumptions made by us for purposes of such forward-looking
statements may not be valid and that the results may not materialize. These
risks, uncertainties and contingencies include, but are not limited to, the
following:
·
Our
agreements with clients generally may be terminated by the clients
for any
reason and on short notice;
·
Our
revenue expectations may not be achieved due to cancelled contracts
or
failure to obtain new business, the demand for our services may decrease
and the pricing of our services may become less
favorable;
·
Our
ability to maintain existing contracts and acquire additional contracts
may be limited if we are unable to obtain required bonds in certain
counties for which we provide our
services.
·
Slowdown
of overall economic conditions;
·
A
reduction in government tax receipts, which may result in lower demand
for
our services;
·
A
county government may file for bankruptcy or not be able to collect
adequate receipts in order to pay its financial
obligations;
·
We
may not be able to grow our market share or increase
revenue;
·
We
may not be able to expand our services offerings and current lines
of
business such as the repricing of healthcare claims for county detention
center inmates;
·
Costs
for healthcare may exceed the budgeted amounts, causing operational
losses;
·
Loss
of key personnel could adversely impact the
business;
·
Our
inability to recruit physicians and nurses at competitive rates could
adversely impact the business;
·
We
could suffer an adverse impact if our employees or contractors became
unionized; and
·
We
could experience certain catastrophic events and/or incur significant
litigation.
We
caution you not to place undue reliance on these forward-looking statements.
Such forward-looking statements relate only to events as of the date on which
the statements are made. We undertake no obligation to update any
forward-looking statements, whether as a result of new information, future
events or otherwise, even if experience or future changes make it clear that
any
projected results or events expressed or implied therein will not be realized.
You are advised, however, to consult any further disclosures we make in future
public statements and press releases.
14
PROPOSAL
1
APPROVAL
OF THE PLAN OF RECAPITALIZATION
DESCRIPTION
OF THE PLAN OF RECAPITALIZATION AND CERTAIN TRANSACTIONS
LEADING
UP TO THE PLAN OF RECAPITALIZATION
Background
of the Plan of Recapitalization
On
January 15, 2007, the Board of Directors approved the Proposals, including
the
Proposal regarding the Plan of Recapitalization. The Plan of Recapitalization
was adopted in order to satisfy our obligations under agreements related to
our
recently completed private placement offering, as well in light of our recent
acquisition of ConMed, Inc., a Maryland corporation (as further described
below), and our transformation from a shell company into an operating company.
The Board believes that the Plan of Recapitalization is in the best interests
of
the shareholders of the Company.
The
Board
recommends that shareholders vote in favor of the Plan of Recapitalization
because it believes that the Plan of Recapitalization, once effected, will
more
accurately reflect the value of the Company and its current operations. In
order
to consummate the Plan of Recapitalization, assuming it is approved by our
shareholders, we will effect the Merger Agreement with our newly created, wholly
owned Merger Sub. The Board has, as part of the process of approving the Plan
of
Recapitalization, approved the Merger Agreement. The Plan of Recapitalization
must be approved or rejected in its entirety. Shareholders are neither requested
nor allowed to vote upon the separate components of the Plan of
Recapitalization.
On
January 26, 2007, we consummated the acquisition (the “Acquisition”) of
ConMed,
Inc., a privately held Maryland corporation. We had entered into a Stock
Purchase Agreement (“Agreement”) with ConMed, Inc., (“ConMed”) and all of its
stockholders (the “ConMed Stockholders”), whereby we acquired 100% ownership of
ConMed. The
ConMed Stockholders collectively owned 100% of the issued and outstanding
capital stock of ConMed (the “ConMed Common Stock”). ConMed is now our
wholly-owned subsidiary.
As
consideration in full for the sale of the ConMed Common Stock, we paid to the
ConMed Stockholders an aggregate of $10,000,000 consisting of (i) $8,000,000
in
cash (the “Cash Consideration”), minus a deposit of $250,000 paid to the ConMed
Stockholders pursuant to an extension agreement on January 12, 2007 and (ii)
8,000 shares of our Series C Preferred Stock (collectively, the “Purchase
Price”). In addition, we approved the issuance, subject to shareholder approval,
of a total of 1,503,000 employee options in exchange for the cancellation of
all
existing employee options of ConMed. We utilized the proceeds of a Private
Placement (described below) to pay the Cash Consideration to the shareholders
of
ConMed. Upon the execution of the Agreement on August 2, 2006, we had also
paid
to the ConMed Stockholders a non-refundable cash deposit of $250,000. This
$250,000 was released to the ConMed stockholders upon expiration of the original
Agreement by its terms on October 31, 2006.
On
January 26, 2007, concurrently with the Acquisition, we consummated a private
offering (the “Private Placement”) to “accredited investors”, of an aggregate of
$15,000,000 of units (“Units”), each Unit consisting of (1) 100 shares of Series
B Preferred Stock, (2) a common stock purchase warrant entitling the holder
to
purchase up to 10,000 shares of Common Stock at an exercise price equal to
$0.30
per share and (3) a common stock purchase warrant entitling the holder to
purchase up to 3,320 shares of Common Stock at an exercise price equal to $2.50
per share. The Units were sold for a price of $100,000 per Unit.
Under
the
terms of the Private Placement, we agreed that the Company would effect the
following corporate matters to reorganize and recapitalize the
Company:
·
reincorporate
in Delaware via the Merger
Agreement;
·
change
our name to more accurately reflect our new business as a result
of the
acquisition of ConMed, Inc. a privately
held company;
·
an
increase in the authorized Common Stock from 20,000,000 to 40,000,000
shares to accommodate the issuance
of new securities and conversion of all our outstanding Series A
Preferred
Stock, Series B Preferred Stock
and Series C Preferred Stock into Common
Stock;
15
·
to
convert the Series A Preferred Stock (and the waiver of all accrued
and
unpaid dividends on the Series A Preferred
Stock) into 4,584,196 shares of Common Stock on a post reverse split
basis; and
·
a
reverse split of our outstanding Common Stock on a 1-for-20
basis.
The
components of the Plan of Recapitalization (i) are required in order to satisfy
our obligations under the Private Placement; (ii) are beneficial to us as a
company in the business judgment of our board of directors; and (iii) are
required for us to transition from our previous status as a publicly traded
shell company into an operating company. For example, investors requested that
we agree to obtain approval for reincorporating in Delaware, and given that
state’s well-settled body of law dealing with corporations, it is also sensible
for us, going forward as an operating company, to effect this reincorporation
from an operational perspective. Further, as a result of the conversion terms
of
the Series B Preferred Stock and Series C Preferred Stock, we are required
to
increase our authorized shares of Common Stock in order to have enough shares
available for the conversion.
We
will
accomplish the Plan of Recapitalization by merging with Merger Sub. The Merger
Sub has no business activities and was formed solely to consummate the Merger
Agreement. The Agreement and Plan of Merger is referred to in this Proxy
Statement as the Merger Agreement. Many of the terms of the Plan of
Recapitalization, such as the increase in authorized capital stock, and the
change in name, will be reflected in the charter documents of the Merger Sub.
Our
board
has recommended that our state of incorporation be changed from Iowa to
Delaware. Reincorporation in Delaware will not result in any change in our
business, management, assets, liabilities or net worth. Reincorporation in
Delaware will allow us to take advantage of certain provisions of the corporate
laws of Delaware.
The
Merger Agreement provides for a tax-free reorganization pursuant to the
provisions of Section 368 of the Internal Revenue Code, whereby we will be
merged with and into Merger Sub, our separate corporate existence shall cease,
and Merger Sub shall continue as the surviving corporation of the merger (the
"Merger"). In the Merger, every twenty issued and outstanding shares of our
common stock shall be converted into one share of common stock of Merger Sub
with no action required on the part our shareholders. This step will constitute
the reverse stock split.
The
Board
has recommended that the Company's state of incorporation be changed from Iowa
to Delaware. Reincorporation in Delaware will not result in any change in the
business, management, assets, liabilities or net worth of the Company.
Reincorporation in Delaware will allow the Company to take advantage of certain
provisions of the corporate laws of Delaware. The purposes and effects of the
proposed change are summarized below.
Assuming
Shareholder approval of the Plan of Recapitalization and upon acceptance for
filing of the appropriate certificates of merger by the Secretary of State
of
Delaware and the Secretary of State of Iowa, the Company will be merged with
and
into Merger Sub pursuant to the Merger Agreement, resulting in a change in
the
Company's state of incorporation. The Company will then be subject to the
Delaware General Corporation Law (the "DGCL") and the Certificate of
Incorporation and Bylaws set forth in EXHIBIT B and EXHIBIT C,
respectively.
Upon
the
effective time of the Plan of Recapitalization,
·
each
outstanding share of Common Stock of the Company will automatically
be
converted into common stock of Merger Sub, on a 1-for-20
ratio;
·
each
share of Series A Preferred Stock will automatically be converted
into
common stock of Merger Sub on a 1.59450-for-1
ratio
(after giving effect to the 1-for-20 conversion ratio set forth above);
·
each
share of Series B Preferred Stock will automatically be converted
into
common stock of Merger Sub on a 400-for-1 ratio(after giving effect
to the
1-for-20 conversion ratio set forth above);
and
·
each
share of Series C Preferred Stock will automatically be converted
into
common stock of Merger Sub on a 100-for-1 ratio (after giving effect
to
the 1-for-20 conversion ratio set forth above).
As
described elsewhere in this proxy statement, outstanding derivatives to purchase
Common Shares will be converted into derivatives to purchase the shares of
the
common stock of Merger Sub.
IT
WILL
NOT BE NECESSARY FOR SHAREHOLDERS OF THE COMPANY TO EXCHANGE THEIR EXISTING
STOCK CERTIFICATES FOR CERTIFICATES OF MERGER SUB. OUTSTANDING STOCK
CERTIFICATES OF THE COMPANY SHOULD NOT BE DESTROYED OR SENT TO THE
COMPANY.
The
Board
believes that the Plan of Recapitalization will provide greater flexibility
for
both the management and business of the Company.
Delaware
is a favorable legal and regulatory environment in which to operate. For many
years, Delaware has followed a policy of encouraging incorporation in that
state
and, in furtherance of that policy, has adopted comprehensive, modern and
flexible corporate laws which are periodically updated and revised to meet
changing business needs. As a result, many major corporations have initially
chosen Delaware for their domicile or have subsequently reincorporated in
Delaware. The Delaware courts have developed considerable expertise in dealing
with corporate issues, and a substantial body of case law has developed
construing Delaware law and establishing public policies with respect to
Delaware corporations thereby providing greater predictability with respect
to
corporate legal affairs. In addition, many investors and securities
professionals are more familiar and comfortable with Delaware corporations
than
corporations governed by the laws of other jurisdictions, even where the laws
are similar.
The
Company is an Iowa corporation and the Iowa Business Corporation Act (the
"IBCA") and the Articles of Incorporation and the Bylaws of the Company govern
the rights of its shareholders. Merger Sub is a Delaware corporation and the
rights of it shareholders are governed by the DGCL and the Certificate of
Incorporation and Bylaws of Merger Sub.
17
SIGNIFICANT
DIFFERENCES BETWEEN THE CORPORATION LAWS OF IOWA AND DELAWARE
DIFFERENCES
RELATED PRIMARILY TO CHARTER DOCUMENTS
AUTHORIZED
CAPITAL
THE
COMPANY. The authorized capital stock of the Company consists of 20,000,000
shares of no par value Common Stock (the "Common Shares") and 5,000,000 shares
of preferred stock, $.01 value per share, divided into three series, Series
A,
of which there are 2,875,000 shares outstanding, Series B, of which there are
15,000 shares outstanding, and Series C, of which there are 8,000 shares
outstanding. There are 8,316,074 Common Shares issued and outstanding as of
the
Record Date.
MERGER
SUB. The authorized capital stock of Merger Sub consists of 40,000,000 shares
of
common stock, par value $0.0001 per share (the "Common Stock"), and 5,000,000
shares of blank check preferred stock, par value $0.0001 per share (the "Blank
Check Preferred Stock"). As of the date of the Merger Agreement, Merger Sub's
issued and outstanding share capital consisted of one share of Common Stock.
Merger Sub's certificate of incorporation (the "Certificate") authorizes its
board of directors to issue shares of Blank Check Preferred Stock in one or
more
series and to fix the designations, preferences, powers and rights of the shares
to be included in each series (see "Proposal 1: Approval of the Merger -
Description of Securities").
Upon
approval by our shareholders of the Plan of Recapitalization, all series of
our
currently outstanding preferred stock will automatically convert into Common
Stock, and no shares of preferred stock will be issued and outstanding at that
time.
VOTING
POWER OF COMMON STOCK
THE
COMPANY. Each holder of Common Shares has the right to cast one vote for each
such Common Share held of record on all matters voted on by the Shareholders,
including the election of directors. Shareholders have no cumulative voting
rights.
MERGER
SUB. Each holder of shares of Common Stock has the right to cast one vote for
each share of Common Stock held of record on all matters voted on by the
Stockholders, including the election of directors. Stockholders have no
cumulative voting rights.
BOARD
OF
DIRECTORS
THE
COMPANY. The Company's charter requires that between 3 and 7 directors shall
serve on its board. The Company's board presently consists of two (2) directors.
Directors are elected at the annual meeting of shareholders, and at each annual
meeting thereafter. Directors are elected by a majority of the votes cast at
a
meeting of shareholders by such shareholders as are entitled to vote on the
election of directors.
MERGER
SUB. Merger Sub's bylaws do not require that a specific number of directors
shall serve on its board, however, its bylaws allow up to seven (7) directors
to
serve on its board. Merger Sub's board presently consists of two (2) directors.
Directors are elected at the annual meeting of stockholders, and at each annual
meeting thereafter. Directors are elected by a plurality of the votes cast
at a
meeting of stockholders by such stockholders as are entitled to vote on the
election of directors. Any vacancies may be filled by the vote of a majority
of
the board of directors, and any such person elected to fill a vacancy shall
serve as a director until the next annual meeting of stockholders.
DIFFERENCES
RELATED PRIMARILY TO STATE LAW
ACTION
BY
DIRECTORS WITHOUT A MEETING
Iowa
and
Delaware law permit directors to take written action without a meeting for
an
action otherwise required or permitted to be taken at a board meeting. More
specifically, Iowa law provides that, except to the extent that a corporation’s
articles of incorporation or bylaws require that all action or certain actions
be taken at a meeting, action required or permitted to be taken by a
corporation’s board of directors may be taken without a meeting if each director
signs a consent describing the action to be taken and delivers it to the
corporation. Delaware law contains a similar provision and, thus, written
actions by the directors of Merger Sub must be unanimous.
18
CONFLICTS
OF INTEREST
Under
both Iowa law and Delaware law, a contract or transaction between a corporation
and one or more of its directors, or an entity in or of which one or more of
the
corporation's directors are directors, officers, or legal representatives or
have a material financial interest, is not void or voidable solely because
of
such reason, provided that the contract or transaction is fair and reasonable
at
the time it is authorized, such contract or transaction is ratified by the
corporation's disinterested stockholders after disclosure of the relationship
or
interest, or such contract or transaction is authorized in good faith by a
majority of the disinterested members of the board of directors after disclosure
of the relationship or interest; provided, however, that, under Iowa law, the
transaction must be authorized, approved, or ratified by more than one
disinterested director. Both Delaware and Iowa law permits the interested
director to be counted in determining whether a quorum of the directors is
present at the meeting approving the contract or transaction, and further
provides that the contract or transaction shall not be void or voidable solely
because the interested director's vote is counted at the meeting which
authorizes the contract or transaction.
NUMBER
OF
DIRECTORS
Iowa
law
provides that a corporation must have a board of directors consisting of one
or
more individuals, the number of which shall be fixed by or in the manner
provided in the articles of incorporation or bylaws, and that the number of
directors may be changed at any time by amendment to or in the manner provided
in the articles of incorporation or bylaws. Under the Bylaws and the Articles
of
Incorporation of the Company, the number of directors shall be no more than
seven nor less than three. Delaware law provides that the number of directors
shall be fixed by, or in the manner provided in, the bylaws, unless the
certificate of incorporation fixes the number of directors, in which case a
change in the number of directors shall be made only by amendment of the
certificate. Under the Bylaws and the Certificate of Incorporation of Merger
Sub, the number of directors shall be the number last elected by a majority
vote
of the shareholders which shall not be less than one nor more than seven
directors.
CLASSIFIED
BOARD OF DIRECTORS
Both
Iowa
and Delaware permit a corporation's bylaws to provide for a classified board
of
directors. Delaware permits a maximum of three classes; Iowa law does not limit
the number of classes. Neither the Company nor Merger Sub currently has a
classified board of directors and the Certificate of Incorporation and the
Bylaws of Merger Sub do not provide for a classified board of
directors.
REMOVAL
OF DIRECTOR
Under
Iowa law, unless a corporation's articles of incorporation provide otherwise,
a
director may be removed with or without cause by the affirmative vote of a
majority of the shareholders or, if cumulative voting is authorized, if the
number of votes sufficient to elect that director under cumulative voting is
voted in favor of the director’s removal. If a director was elected by a voting
group of shareholders, only the shareholders of that voting group may
participate in the vote to remove that director. A director may always be
removed for cause. A director may also be removed through judicial process
upon
a finding that (1) the director engaged in fraudulent conduct with respect
to
the corporation or its shareholders, grossly abused the position of director,
or
intentionally inflicted harm on the corporation; and (2) considering the
director’s course of conduct and the inadequacy of other available remedies,
removal would be in the best interest of the corporation. Under Delaware law
a
director of a corporation may be removed with or without cause by the
affirmative vote of a majority of shares entitled to vote for the election
of
directors. However, a director of a Delaware corporation that has a classified
board may be removed but only for cause, unless the certificate of incorporation
provides otherwise. The Bylaws of Merger Sub provide that a director may be
removed at any time, with our without cause, by a majority vote of the
stockholders.
VACANCIES
ON BOARD OF DIRECTORS
Under
Iowa law, unless the articles of incorporation provide otherwise, if a vacancy
occurs on a board of directors, including a vacancy resulting from an increase
in the number of directors, the vacancy may be filled by (a) majority vote
of
the shareholders at a meeting (or by taking action without meeting as allowed
under Iowa law); (b) majority vote of the board of directors at a meeting (or
by
taking action without meeting as allowed under Iowa law); or (c) if the
directors remaining in office constitute fewer than a quorum of the board,
then
the vacancy may be filled by the affirmative vote of a majority vote of all
directors remaining in office. If the vacant office was held by a director
elected by a voting group of shareholders, only the holders of shares of that
voting group are entitled to vote to fill the vacancy if it is to be filled
by a
vote of the shareholders. Under Delaware law, a vacancy on a corporation's
board
of directors may be filled by a majority of the remaining directors, even if
less than a quorum, or by the affirmative vote of a majority of the outstanding
voting shares, unless otherwise provided in the certificate of incorporation
or
bylaws. The Certificate of Incorporation of Merger Sub provides that a vacancy
on the board of directors shall be filled by the affirmative vote of a majority
of the remaining directors, and not by the stockholders.
19
INTERESTED
DIRECTOR
Under
Iowa law and Delaware law, contracts or transactions between a corporation
and
one or more of its directors or between a corporation and any other entity
in
which one or more of its directors are directors or have a financial interest,
are not void or voidable because of such interest or because such director
is
present at a meeting of the board of directors which authorizes or approves
the
contract or transaction, as long as certain conditions, such as obtaining the
required approval and fulfilling the requirements of good faith and full
disclosure, are met. With certain exceptions, the conditions are similar under
Iowa law and Delaware law. Under both Iowa law and Delaware law, either (1)
the
security holders or the board of directors must approve any such contract or
transaction in good faith after full disclosure of the material facts, or (2)
the contract or transaction must have been "fair." The Merger Sub’s Certificate
of Incorporation provides for stockholder ratification of such contracts at
annual or special meetings of the Merger Sub’s stockholders.
STANDARD
OF CONDUCT FOR DIRECTORS
IOWA.
Iowa law provides that a director must discharge the director's duties in good
faith, in a manner the director reasonably believes to be in the best interests
of the corporation, and when becoming informed in connection with their
decision-making function or devoting attention to their oversight function,
with
the care an ordinarily prudent person in a like position would reasonably
believe to be appropriate under similar circumstances. A director who complies
with such standards may not be held liable by reason of being a director or
having been a director of the corporation.
DELAWARE.
Under the DGCL, the standards of conduct for directors have developed through
written opinions of the Delaware courts. Generally, directors of Delaware
corporations are subject to a duty of loyalty and a duty of care. The duty
of
loyalty has been said to require directors to refrain from self-dealing and
the
duty of care requires directors managing the corporate affairs to use that
amount of care which ordinarily careful and prudent persons would use in similar
circumstances. In general, gross negligence has been established as the test
for
breach of the standard for the duty of care in the process of decision-making
by
directors of Delaware corporations. When directors act consistently with their
duties of loyalty and care, their decisions generally are presumed to be valid
under the business judgment rule.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
Iowa
law
provides for mandatory indemnification of directors in the case where a director
is wholly successful, on the merits or otherwise, in the defense of any
proceeding to which the director was a party because the director is or was
a
director of the corporation. In addition, a corporation may indemnify a director
or officer against liability incurred in a proceeding if either (a) the director
or officer acted in good faith; and (b) the director or officer reasonably
believed that the conduct was in or at least not opposed to the best interest
of
the corporation; or (c) the director or officer engaged in conduct for which
broader indemnification has been made permissible under a corporation’s articles
of incorporation. Indemnification is available in a criminal action only if
the
person seeking indemnity had no reasonable cause to believe that the person’s
conduct was unlawful. Iowa law generally does not allow indemnification in
connection with a proceeding with respect to conduct for which a director or
officer receives a financial benefit for which he or she was not entitled,
whether or not the director or officer was acting in his or her official
capacity. A director or officer can also not be indemnified in connection with
a
proceeding by or in the right of the corporation, except for reasonable expenses
if it is determined that the director or officer has met the relevant standard
of conduct. Delaware law permits a corporation to indemnify officers, directors,
employees or agents and expressly provides that the indemnification provided
for
therein shall not be deemed exclusive of any indemnification right provided
under any bylaw, vote of stockholders or disinterested directors or otherwise.
In this way, the provision in Delaware law is broader than that in Iowa law.
Delaware law permits indemnification against expenses and certain other
liabilities arising out of legal actions brought or threatened against parties
entitled to indemnity for their conduct on behalf of the corporation, provided
that each such person acted in good faith and in a manner such person reasonably
believed was in or not opposed to the best interests of the corporation.
Indemnification is available in a criminal action only if the person seeking
indemnity had no reasonable cause to believe that the person's conduct was
unlawful. Delaware law does not allow indemnification for directors in the
case
of an action by or in the right of the corporation (including stockholder
derivative suits) as to which such director shall have been adjudged to be
liable to the corporation unless indemnification (limited to expenses) is
ordered by a court. The Bylaws of the Company provide for indemnification to
the
fullest extent provided by Iowa law. The Charter and Bylaws of Merger Sub also
provide for indemnification to the fullest extent permitted by Delaware
law.
20
LIMITATION
OF LIABILITY
Iowa
law
provides that a director or officer shall not be liable to the corporation
or
its shareholders for any decision as director to take or not to take action,
or
any failure to take any action, unless the party asserting liability in a
proceeding establishes both (1) that the provisions of the corporation’s
articles of incorporation do not preclude liability; and (2) that the challenged
conduct consisted or was the result of (a) an action not in good faith, (b)
a
decision that the director or officer did not reasonably believe to be in the
best interest of the corporation, (c) a decision made by the director or officer
while the director or officer was not informed of the situation to an extent
that the director reasonably believed appropriate in the circumstances, (d)
a
decision made with lack of objectivity due to the director of officer’s
familial, financial, or business relationship, or lack of independence due
to
domination or control by, another person having a material interest in the
transaction which dominion or control could reasonably be expected to have
affected the director’s judgment and a showing that the transaction was not in
the best interest of the corporation, (e) the director or officers sustained
failure of his or her oversight duties, (f) receipt of a financial benefit
to
which the director or officer was not entitled, or (g) any other breach of
the
director’s duties to deal fairly with the corporation and its shareholders. The
Company's Articles of Incorporation provide that, to the fullest extent
permitted by the IBCA, a director that shall not be personally liable to the
Company or its shareholders for monetary damages for breach of a directors'
fiduciary duty. Delaware law provides that if the certificate of incorporation
so provides, the personal liability of a director for breach of fiduciary duty
as a director may be eliminated or limited, but that the liability of a
directors is not limited or eliminated for (a) any breach of the directors'
duty
of loyalty to the corporation or its shareholders, (b) acts or omissions not
in
good faith or involving intentional misconduct or a knowing violation of law,
(c) the payment of unlawful dividends, stock repurchases or redemptions, or
(d)
any transaction in which the director received an improper personal benefit.
Merger Sub's Certificate contains a provision eliminating the personal liability
of its directors for breach of fiduciary duty, subject to the foregoing
limitations. The Company is not aware of any pending or threatened litigation
to
which the limitation of directors' liability would apply.
TREASURY
SHARES
Iowa
law
provides that a corporation may acquire its own shares but any shares acquired
shall constitute authorized but unissued shares. Under the DGCL, the Company
may
hold treasury shares and such shares may be held, sold, loaned, pledged or
exchanged by the Company. Such treasury shares, however, are not outstanding
shares and therefore do not receive any dividends and do not have voting
rights.
IOWA.
In
general, if a corporation has issued shares, an amendment to its articles of
incorporation must be adopted by the corporation’s board of directors and
submitted to the shareholders for approval. The board must also transmit to
the
shareholders, a recommendation that the shareholders approve the amendment,
unless the board of directors makes a determination that, because of conflicts
of interest or other special circumstances, it should not make such
recommendation. Approval of the amendment requires the approval of the
shareholders at a meeting at which a quorum consisting of at least a majority
of
the votes entitled to be cast on the amendment exists, and, if any class or
series of shares is entitled to vote as a separate group, at a meeting at which
a quorum of the voting group consisting of at least a majority of the votes
entitled to be cast on the amendment by that voting group exists.
DELAWARE.
The DGCL provides that the certificate of incorporation of a Delaware
corporation may be amended upon adoption by the board of directors of a
resolution setting forth the proposed amendment and declaring its advisability,
followed by the affirmative vote of a majority of the outstanding shares
entitled to vote. It also provides that a certificate of incorporation may
provide for a greater or lesser vote than would otherwise be required by the
DGCL. Merger Sub's Certificate of Incorporation does not so
provide.
IOWA.
A
corporation’s shareholders may amend or repeal a corporation’s bylaws. A
corporation’s board of directors may amend or repeal the bylaws unless either
(1) the corporation’s articles of incorporation reserves that power, in whole or
in part, to the corporation’s shareholders, or (2) the shareholders amendment,
repealing or adopting a bylaw expressly provide that the board of directors
shall not amend, repeal, or reinstate that bylaw. The Company’s bylaws provide
that the board may amend or repeal and issue new bylaws.
21
DELAWARE.
Under the DGCL, stockholders have the authority to make, alter, amend or repeal
the bylaws of a corporation and such power may be delegated to the board of
directors. Merger Sub's bylaws provide that the directors may amend the bylaws,
but this power does not alter the power of the Stockholders to also amend the
bylaws. The Merger Sub’s charter allows the Merger Sub’s directors to amend or
repeal, without
a
vote of the stockholders, the Merger Sub’s bylaws.
SHAREHOLDER
ACTION
Under
both the Iowa Act and Delaware Law, action on certain matters, including the
sale, lease or exchange of all or substantially all of the Company's property
or
assets, mergers, and consolidations and voluntary dissolution, must be approved
by the shareholders. Under Iowa law, the action must generally be approved
by a
majority of the votes at a meeting at which a quorum consisting of at least
a
majority of the votes entitled to be cast on the disposition exists. Delaware
law generally requires that approval by the holders of a majority of the
outstanding shares. In addition, both states' laws provide that the articles
or
certificate of incorporation may provide for a supermajority of the voting
power
of the outstanding shares to approve such extraordinary corporate transactions.
Neither the Company's Articles nor Merger Sub's Certificate contains such a
provision.
SHAREHOLDERS'
ACTION WITHOUT A MEETING
Under
Iowa law, any action required or permitted to be taken at a shareholders'
meeting may be taken without a meeting by written consent signed by all holders
of outstanding shares having not less than ninety percent of the votes entitled
to be cast at a meeting at which all shares entitled to vote on the action
were
present and voted, and a publicly-held company cannot provide for a lower
threshold in its articles of incorporation. This power can be restricted by
a
corporation's articles of incorporation. Stockholders who do not sign the
written consent must be notified promptly following the effectiveness of the
written consent. In contrast, Delaware law permits such an action to be taken
if
the written consent is signed by the holders of shares that would have been
required to effect the action at a meeting of the stockholders. Stockholders
who
do not sign the written consent must be notified promptly following the
effectiveness of a written consent. Generally, holders of a majority of the
Company's outstanding shares may take action by written consent in lieu of
a
shareholder meeting. However, Delaware law also provides that a corporation's
certificate of incorporation may restrict or prohibit stockholders' action
without a meeting. Merger Sub's Certificate does not contain any such
restriction, so actions may be adopted by a written consent signed by the
holders of shares that would have been required to vote in favor of the proposed
action at a meeting of stockholders.
ANNUAL
MEETINGS
IOWA.
Iowa law requires a corporation to hold an annual meeting at a time stated
in or
fixed in accordance with the corporation’s bylaws. According to the Company's
bylaws, the Board of Directors shall call Annual Meetings of the Company's
shareholders.
DELAWARE.
The DGCL provides that Annual Meetings of the stockholders of a corporation
may
be called by the corporation's board of directors or by such other persons
as
may be authorized in the corporation's certificate of incorporation or bylaws.
Neither the Certificate nor the Bylaws amend or supplement the
foregoing.
DIVIDENDS
Generally,
a Iowa corporation may pay a dividend if its board of directors determines
that
the corporation will be able to pay its debts in the ordinary course of business
after paying the dividend and if, among other things, the dividend payment
does
not reduce the remaining net assets of the corporation below the aggregate
preferential amount payable in the event of liquidation to the holders of the
shares having superior rights to those receiving the distribution. A Delaware
corporation may pay dividends out of surplus or, if there is no surplus, out
of
net profits for the fiscal year in which the dividend is declared and/or for
the
preceding fiscal year, except that dividends may not be paid out of net profits
if, after the payment of the dividend, capital is less than the capital
represented by the outstanding stock of all classes having a preference upon
the
distribution of assets.
BUSINESS
COMBINATION RESTRICTIONS
Both
Iowa
and Delaware have business combination statutes that are intended primarily
to
deter highly leveraged takeover bid which propose to use the target's assets
as
collateral for the offeror's debt financing and to liquidate the target, in
whole or in part, to satisfy financing obligations. The Iowa statute provides
that an issuing public corporation (as described above with respect to the
Iowa
control share acquisition statute) may not engage in certain business
combinations with any person that acquires beneficial ownership of ten percent
or more of the voting stock of that corporation (i.e., an interested
stockholder) for a period of three years following the date that the person
became a ten percent stockholder (the share acquisition date) unless, prior
to
that share acquisition date, (a) the corporation’s board of directors approved
the transaction; (b) the shareholder acquired more than eighty-five percent
of
the corporation’s outstanding stock; or (c) the business combination was
approved by disinterested shareholders by a two-thirds margin. Similarly, in
Delaware, an otherwise prohibited business combination may be permitted by
board
approval, by stockholder approval, or by an acquisition of 85 percent of the
outstanding shares of voting stock. In addition, the Delaware statute provides
that if the corporation proposes a merger or sale of assets, or does not oppose
a tender offer, all interested stockholders are released from the three year
prohibition and may compete with the company-sponsored transaction in certain
circumstances. The Iowa statute does not have a comparable provision. Both
the
Iowa and Delaware provisions permit a corporation to "opt out" of the business
combination statute by electing to do so in its articles or certificate of
incorporation or bylaws. Neither the Certificate of Incorporation nor the Bylaws
of the Company contain such an "opt out" provision. Similarly, neither the
Articles of Incorporation nor the Bylaws of Merger Sub contain such an "opt
out"
provision.
22
OTHER
ANTI-TAKEOVER PROVISIONS
Both
Iowa
and Delaware law permit the use of the “poison pill” defense against hostile
acquisition transactions. Iowa law also authorizes the board of directors,
in
considering the best interests of the corporation with respect to a proposed
acquisition of an interest in the corporation, to consider the interest of
the
corporation's employees, customers, suppliers and creditors, the economy of
the
state and nation, community and social considerations and the long-term as
well
as short-term interests of the corporation and its stockholders, including
the
possibility that these interests may best be served by the continued
independence of the corporation. Delaware law does not have a similar
provision.
VOLUNTARY
AND JUDICIAL DISSOLUTION
Iowa
and
Delaware law provides that voluntary dissolution of a corporation first must
be
deemed advisable by a majority of the board of directors and then approved
by a
majority of the outstanding stock entitled to vote. Iowa law further provides
that the board shall not make such recommendation if a conflict of interest
or
other special circumstance exists and communicates the basis for its
determination to the shareholders. Delaware law provides for voluntary
dissolution of a corporation without action of the directors if all of the
stockholders entitled to vote on such dissolution consent in writing to such
dissolution.
Iowa
law
provides that a court may dissolve a corporation in an action by a shareholder
where: (a) the situation involves a deadlock in the management of corporate
affairs and the shareholders cannot break the deadlock and either irreparable
injury to the corporation is threatened or being suffered, or the business
and
affairs of the corporation can no longer be conducted to the advantage of the
shareholders generally, because of the deadlock; (b) the directors have acted
fraudulently, illegally, or in a manner that is oppressive to the corporation;
(c) the shareholders are divided in voting power for two consecutive regular
meetings to the point where successor directors are not elected; or (d) there
is
a case of misapplication or waste of corporate assets. Delaware law provides
that courts may revoke or forfeit the charter of any corporation for abuse,
misuse or nonuse of its corporate powers, privileges or franchises.
INSPECTION
OF SHAREHOLDER LISTS
Under
Iowa law, a corporation is required to prepare a shareholder list within two
days of fixing a record date for a meeting. The list must be made available
from
this time up and through the meeting. A shareholder or a shareholder’s agent or
attorney, is entitled on written demand, to inspect and to copy the list during
regular business hours and at the person’s expense, during the period that the
list is available for inspection. Under Delaware law, any stockholder, upon
written demand under oath stating the purpose thereof, has the right during
the
usual hours for business to inspect for any proper purpose a list of the
corporation's stockholders and to make copies or extracts
therefrom.
APPRAISAL
RIGHTS IN CONNECTION WITH CORPORATE REORGANIZATIONS AND OTHER
ACTIONS.
In
some
circumstances under Iowa law and Delaware law, shareholders have the right
to
dissent from certain corporate transactions by demanding payment in cash for
their shares equal to the fair value of the shares as determined by agreement
with the corporation or by a court in an action timely brought by the dissenting
shareholders. Iowa law, in general, affords appraisal rights upon certain
amendments to the articles of incorporation that materially and adversely affect
the rights or preferences of the shares of the dissenting shareholder, upon
the
sale of substantially all corporate assets and upon merger or exchange by a
corporation. Delaware law allows for dissenters' rights only in connection
with
certain mergers or consolidations. No such appraisal rights exist, however,
for
corporations whose shares are listed on a national securities exchange or held
of record by more than 2,000 stockholders unless the certificate of
incorporation provides otherwise (the Merger Sub Certificate does not provide
otherwise) or the shareholders are to receive in the merger or consolidation
anything other than (a) shares of stock of the corporation surviving or
resulting from such merger or consolidation, (b) shares of stock of any other
corporation which at the effective date of the merger or consolidation will
be
either listed on a national securities exchange or held of record by more than
2,000 shareholders, (c) cash in lieu of fractional shares of the corporation
described in the foregoing clauses (a) and (b), or (d) any combination of
clauses (a), (b), or (c). Similarly, under Iowa law, appraisal rights are not
available for holders of shares listed on a national securities exchange or
held
of record by more than 2,000 shareholders and the outstanding shares of such
class or series has a market value of at least twenty million dollars. The
procedures for asserting dissenters' rights in Delaware impose most of the
initial costs of such assertion on the dissenting shareholder, whereas the
Iowa
procedures pose little financial risk to the dissenting shareholder in demanding
payment in excess of the amount the corporation determined to be the fair value
of its shares.
23
Section
490.1302 of the IBCA grants any shareholder of the Company of record on February15, 2007 who objects to the Plan of Recapitalization the right to have the
Company purchase the shares owned by the dissenting shareholder at their fair
value at the Effective Time.
REQUIREMENTS
FOR EXERCISING APPRAISAL RIGHTS
TO
BE
ENTITLED TO PAYMENT, THE DISSENTING SHAREHOLDER MUST FILE WITH THE COMPANY
BEFORE THE VOTE FOR THE PROPOSED MERGER A WRITTEN NOTICE OF INTENT TO DEMAND
PAYMENT OF THE FAIR VALUE OF THE SHARES AND MUST NOT VOTE IN FAVOR OF THE
PROPOSED MERGER; PROVIDED, THAT SUCH DEMAND SHALL BE OF NO FORCE AND EFFECT
IF
THE PROPOSED MERGER IS NOT EFFECTED. The notice must be submitted to the Company
at 9375
Chesapeake Street, Suite 203, La Plata, Maryland20646,
Attention: Richard Turner, Chief Executive Officer, and must be received before
the vote for the proposed Merger. The submission of a blank proxy will
constitute a vote in favor of the Merger and a waiver of appraisal rights.
A
vote against the Merger is not necessary for the shareholder to exercise
appraisal rights and require the Company to purchase their shares. A vote
against the Merger will not be deemed to satisfy the notice requirements of
state law. The liability to the dissenting shareholder for the fair value of
the
shares also shall be the liability of Merger Sub Holding Corporation when and
if
the Merger is consummated. Any shareholder contemplating the exercise of these
appraisal rights should review carefully the provisions of Sections 490.1302,
490.1321, 490.1322 and 490.1323 of the IBCA, particularly the procedural steps
required to perfect such rights. SUCH APPRAISAL RIGHTS WILL BE LOST IF THE
PROCEDURAL REQUIREMENTS OF SECTIONS 490.1321 and 490.1323 ARE NOT FULLY AND
PRECISELY SATISFIED. A COPY OF SECTIONS 490.1321 and 490.1323 IS ATTACHED AS
PART OF EXHIBIT E.
NOTICE
OF
PROCEDURE
If
and
when the proposed Plan of Recapitalization is approved by shareholders of the
Company and the Plan of Recapitalization is not abandoned by the Board of
Directors, the Company will deliver to all shareholders who have duly dissented
to the Plan of Recapitalization a notice that: (1) lists the address to which
demand for payment and certificates for shares must be sent to obtain payment
for such shares and the date by which such certificates must be received; (2)
describes any restriction on transfer of uncertificated shares that will apply
after the demand for payment is received; (3) encloses a form to demand payment
and to be used to certify the date on which the shareholder, or the beneficial
owner on whose behalf the shareholder dissents, acquired the shares or an
interest in them; and (4) encloses a copy of Sections 490.1320 through 490.1329
of the IBCA and a brief description of the procedures to be followed to dissent
and obtain payment of fair values for shares.
SUBMISSION
OF SHARE CERTIFICATES
To
receive the fair value of his or her shares, a dissenting shareholder must
demand payment and deposit his or her share certificates within 40 days after
the notice is delivered by the Company, but the dissenting shareholder retains
all other rights of a shareholder until the proposed action takes effect. Under
Iowa law, notice by mail is made by the Company when deposited in the United
States mail. A shareholder who fails to make demand for payment and fails to
deposit certificates will lose the right to receive the fair value of the shares
notwithstanding the timely filing of such shareholder's notice of intent to
demand payment.
24
PURCHASE
OF DISSENTING SHARES
After
the
Effective Time, the Company shall remit to the dissenting shareholders who
have
complied with the above-described procedures the amount the Company estimates
to
be the fair value of the shares held by such shareholders, plus interest
accompanied by certain financial information about the Company, an estimate
of
the fair value of the shares and the method used and a copy of Sections 490.1320
through 490.1329 of the IBCA.
ACCEPTANCE
OR SETTLEMENT OF DEMAND
If
a
dissenting shareholder believes that the amount remitted by the Company is
less
than the fair value of the shares, with interest, the dissenting shareholder
may
give written notice to the Company of his or her estimate of fair value, with
interest, within 40 days after the Company mails such remittance and must demand
payment of the difference. UNLESS A SHAREHOLDER MAKES SUCH A DEMAND WITHIN
SUCH
FORTY-DAY PERIOD, THE SHAREHOLDER WILL BE ENTITLED ONLY TO THE AMOUNT REMITTED
BY THE COMPANY. Within 30 days after the Company receives
such a demand from a shareholder, it will be required either to pay the
shareholder the amount demanded (or agreed to after discussion between the
shareholder and the Company) or to file in court a petition requesting that
the
court determine the fair value of the shares, with interest.
COURT
DETERMINATION
All
shareholders who have demanded payment for their shares, but have not reached
agreement with the Company, will be made parties to such court proceeding.
The
court will then determine whether the dissenting shareholders have fully
complied with the provisions of Sections 490.1321 and 490.1323 of the IBCA
and
will determine the fair value of the shares, taking into account any and all
factors the court finds relevant (including the recommendation of any appraisers
appointed by the court), computed by any method that the court, in its
discretion, sees fit to use, whether or not such method was used by the Company
or a shareholder. The expenses of the court proceeding will be assessed against
the Company, except that the court may assess part or all of those costs and
expenses against a shareholder whose action in demanding payment is found to
be
arbitrary, vexatious, or not in good faith. The fair value of the Company's
shares means the fair value of the shares immediately before the Effective
Time.
Under Section 490.1302 of the IBCA, a shareholder of the Company has no right
at
law or equity to set aside the consummation of the Merger, except if such
consummation is fraudulent with respect to such shareholder or the Company.
Any
shareholder making a demand for payment of fair value for his or her shares
may
withdraw the demand at any time before the determination of the fair value
of
the shares by filing with the Company written notice of such
withdrawal.
ABANDONMENT
OF MERGER
Notwithstanding
shareholder approval, the Board of Directors of the Company may terminate the
Merger Agreement and abandon the Merger at any time before consummation of
the
Merger if: (i) shareholders exercise appraisal rights and the Company becomes
obligated to make a substantial payment to such dissenting shareholders; or
(ii)
the Board of Directors of the Company determines that in its judgment the Merger
does not appear to be in the best interests of the Company or its shareholders.
In the event the Merger Agreement is terminated, the Board of Directors abandons
the Merger, or the Company's shareholders fail to approve the Merger, the
Company would remain an Iowa corporation.
The
authorized capital stock of Merger Sub consists of 40,000,000 shares of Common
Stock and 5,000,000 shares of Preferred Stock. Upon completion of the Merger,
there will be 11,800,000 shares of common stock issued and outstanding and
no
shares of Preferred Stock outstanding. All currently-outstanding shares of
our
preferred stock will convert into shares of common stock of Merger Sub in the
Merger, and no preferred stock will be issued and outstanding after such
time.
The
following is a summary of some of the provisions of Merger Sub's Common Stock
and of its certificate of incorporation and assumes the Merger and Plan of
Recapitalization has occurred and that all Series A Preferred Stock, Series
B
Preferred Stock and Series C Preferred Stock has converted into shares of Common
Stock.
Common
Stock
The
holders of the Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to
preferences that may be applicable to any outstanding shares of preferred stock,
the holders of Common Stock are entitled to receive ratably such dividends,
if
any, as may be declared by the board out of funds legally available therefor.
In
the event of the Company's liquidation, dissolution or winding up, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares
of
preferred stock. Holders of Common Stock have no preemptive rights or rights
to
convert their Common Stock into any other securities. There are no redemption
or
sinking fund provisions applicable to the Common Stock. All outstanding shares
of Common Stock are fully paid and non-assessable.
Preferred
Stock
Our
certificate of incorporation authorizes the issuance of up to 5,000,000 shares
of blank check preferred stock, the rights, privileges and preferences of which
may be designated by our board of directors from time to time. Accordingly,
our
board of directors is empowered, without stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, or other rights that
could adversely affect the rights of our stockholders. These shares may have
rights which are senior to our common stock. Preferred stock may be issued
in
the future in connection with acquisitions, finances or such other matters
as
our board of directors deems to be appropriate. In the event that any such
shares of preferred stock shall be issued, a certificate of designation, setting
forth the series of such preferred stock and the relative rights, privileges
and
designations with respect thereto, shall be filed with the Secretary of State
of
the State of Delaware. The effect of such preferred stock is that our board
of
directors alone may authorize the issuance of preferred stock which could have
the effect of making more difficult or discouraging an attempt to obtain control
of us by means of a merger, tender offer, proxy contest or other
means.
There
are
currently no plans, understandings or arrangements for the sale or issuance
of
any shares of our preferred stock.
Warrants
and Options
Existing
Warrants @ $0.30 per share
On
October 24, 2005, the Company issued 750,000 warrants to purchase Common Stock.
Of these warrants, 600,000 were issued to John Pappajohn and the remaining
150,000 warrants were issued to his designees. The warrants were issued as
compensation for past services rendered and all warrants were immediately
vested. The warrants have an exercise price of $0.50, which exceeded the market
price of the Company’s common stock at the time of issuance. The value of the
warrants was separately estimated at $0.01 per share or $10,000 based on the
Black-Scholes valuation of the call option associated with a five year warrant.
As part of the financing, Mr. Pappajohn relinquished the 600,000 warrants that
were issued to him, and the remaining 150,000 warrants issued to his designees
will be adjusted to 250,000 warrants (post-Plan of Recapitalization) to purchase
common stock exercisable at $0.30 per share.
Investor
Warrants @ $0.30 per share
In
connection with the Private Placement, each investor received a warrant to
purchase up to a number of shares of Common Stock equal to 25% of such
investor’s subscription amount divided by the conversion price of the Series B
Preferred Stock, with an exercise price equal to $0.30. The Company issued
to
investors warrants to purchase an aggregate of 1,500,000 shares of Common Stock,
exercisable at $0.30 per share, expiring five years from the
date
the Plan of Recapitalization has been approved by the stockholders of the
Company.
26
Investor
Warrants @ $2.50 per share
In
connection with the Private Placement, each investor received a warrant to
purchase up to a number of shares of Common Stock equal to 8.3% of such
investor’s subscription amount divided by the conversion price of the Series B
Preferred Stock, with an exercise price equal to $2.50 per share. The Company
issued to
investors warrants to purchase an aggregate of 500,000 shares of Common Stock,
exercisable at $2.50 per share, expiring five years from the
date
the Plan of Recapitalization has been approved by the stockholders of the
Company.
Placement
Agent Warrants @ $2.75 per share
In
connection with the Private Placement, the Company issued to the Maxim Group
LLC
(the “Placement Agent”) a warrant to purchase 5% of the Common Stock issuable
upon conversion of the Series B Preferred Stock at an exercise price equal
to
$2.75 per share. The Company issued to
the
Placement Agent warrants to purchase an aggregate of 300,000 shares of Common
Stock,
exercisable at $2.75 per share (post-Plan of Recapitalization), and expiring
five years from the date of grant.
In
sum,
after effectiveness of the Plan of Recapitalization, the Company will have
outstanding warrants to purchase an aggregate of 2,550,000 shares of the
Company’s Common Stock, and the Company has reserved shares of its Common Stock
for issuance in connection with the potential exercise thereof.
Common
stock options
The
Board
of Directors has adopted the 2007 Stock Option Plan, subject to the
effectiveness of the Plan of Recapitalization (the “2007 Plan”). The 2007 Plan
will provide for the grant of 1,600,000 incentive stock options, nonqualified
stock options, restricted stock, stock bonuses and stock appreciation rights.
The 2007 Plan will be administered by the Board of Directors which has the
authority and discretion to determine: (1) the persons to whom the options
will
be granted; when the options will be granted; the number of shares subject
to
each option; the price at which the shares subject to each option may be
purchased; and when each option will become exercisable.
The
Board
of Directors has approved and authorized the issuance from the 2007 Plan of
1,503,000 incentive stock options to certain employees of ConMed at the closing
of the Acquisition, exercisable at a price per share of $2.01 (which the Board
determined to be the fair market value at the time of such award) and
expiring10
years
from the grant date, such issuance subject to shareholder approval of the Plan
of Recapitalization and the 2007 Plan, as well as 40,000 non-qualified stock
options to Mr. Berger, a non-employee director, vesting
over three years and contingent upon Mr. Berger’s continued service on the
Board.
Market
for Common Stock
Shares
of
our Common Stock are listed on the Bulletin Board under the symbol PCES.OB.
A
new symbol will be provided to us after the approval of our name change to
ConMed Healthcare Management, Inc.
Transfer
Agent and Registrar
Our
transfer agent and registrar is Wells Fargo Shareowner Services, P.O. Box 64875,
St. Paul, MN55164-0875.
Conversion
Ratio
Our
board
of directors has approved a conversion ratio whereby our Stockholders shall
be
entitled to receive one share of Merger Sub common stock for every twenty shares
of our Common Stock held by them. As part of the Plan of Recapitalization we
will be effectively conducting a one-for-twenty reverse split of our shares
of
Common Stock and our issued and authorized shares of common stock shall become
11,800,000. In determining the conversion ratio, our board of directors has
considered numerous factors including the mandatory conversion of all
outstanding preferred stock, the historical and projected performance of our
common stock, prevailing market conditions and general economic trends. Our
board of directors has also considered the impact of the conversion ratio on
investor interest, and agreed to this conversion ratio as a term of the Private
Placement.
27
Our
board
of directors approved the 1 for 20 conversion ratio because, in their business
judgment:
·
our
board of directors believes a higher stock price may help generate
investor interest in the Company;
·
our
board of directors believes this action will attract additional investment
in the Company, and focus interest on the business of ConMed ;
·
our
board of directors believes this action is the next logical step
in the
process of restructuring the combined company to align our outstanding
shares of capital stock with our existing financial condition and
operations to provide an opportunity for potential realization of
stockholder value, which is currently subject to the dilutive effects
of
our capital structure.
POTENTIAL
INCREASED INVESTOR INTEREST
On
January 26, 2007, the date the Acquisition was consummated, our common stock
closed at $0.25 per share. In approving the conversion ratio, our board of
directors considered that our common stock may not appeal to brokerage firms
that are reluctant to recommend lower priced securities to their clients.
Investors may also be dissuaded from purchasing lower priced stocks because
the
brokerage commissions, as a percentage of the total transaction, tend to be
higher for such stocks. Moreover, the analysts at many brokerage firms do not
monitor the trading activity or otherwise provide coverage of lower priced
stocks. Also, our board of directors believes that most investment funds are
reluctant to invest in lower priced stocks.
We
cannot
predict whether the conversion ratio will increase the market price for our
common stock. The history of similar stock split combinations for companies
in
like circumstances is varied. There can be no assurance that:
·
the
market price per share of our common stock after the conversion will
rise
in proportion to the reduction in the number of shares of our common
stock
outstanding before the conversion, or the old shares;
and
·
the
conversion will result in a per share price that will attract brokers
and
investors who do not trade in lower priced
stocks.
The
market price of our common stock will also be based on our performance and
other
factors, some of which are unrelated to the number of shares outstanding. After
the conversion is effected, if the market price of our common stock declines,
the percentage decline as an absolute number and as a percentage of our overall
market capitalization may be greater than would occur in the absence of a
conversion. Furthermore, the liquidity of our common stock could be adversely
affected by the reduced number of shares that would be outstanding after the
conversion.
PRINCIPAL
EFFECTS OF THE CONVERSION
The
conversion will occur immediately upon the completion of the Merger.
The
conversion will be effected simultaneously for all of our common stock and
each
series of our preferred stock (which shall be converted into common stock in
the
Merger), and the conversion ratio shall be the same for all of our common stock.
The conversion will affect all of our common stockholders uniformly and will
not
affect any common stockholder's percentage ownership interests in the company,
except to the extent that the conversion results in any of our stockholders
owning a fractional share. Common stock issued pursuant to the conversion will
remain fully paid and non-assessable. The conversion will not affect our
continuing to be subject to the periodic reporting requirements of the
Securities and Exchange Act of 1934, as amended. The terms and conditions under
which our Series A Preferred Stock holders, our Series B Preferred Stock holders
and our Series C Preferred Stockholders will convert are described elsewhere
in
this proxy statement.
28
For
illustrative purposes only, the following table shows approximately the effect
on our common stock of the conversion:
PRIOR
TO
CONVERSION
AFTER
MERGER
AND
1 FOR 20 CONVERSION
Authorized
20,000,000
40,000,000
Issued
and Outstanding
Common
Stock
8,316,074
11,800,000
Available
for future issuance
11,683,926
28,200,000
Based
on
stock information as of the record date, after completion of the Merger,
conversion, Series A Preferred Stock conversion, Series B Preferred Stock
conversion and Series C Preferred Stock Conversion, we will have approximately
28,200,000 shares of authorized but unissued common stock. These additional
shares would be available from time to time for corporate purposes including
raising additional capital, acquisitions of companies or assets, for strategic
transactions, including a sale of all or a portion of the company, and sales
of
stock or securities convertible into common stock. We currently have no present
intention, plan, arrangement or agreement, written or oral, to issue shares
of
our common stock for any purpose except for the issuance of shares of common
stock upon the exercise of outstanding options or warrants to purchase our
common stock, and the conversion of existing series of our preferred stock.
Although we have no present intention to issue shares of common stock, except
as
noted above, we may in the future raise funds through the issuance of common
stock when conditions are favorable, even if we do not have an immediate need
for additional capital at such time. We believe that the availability of the
additional shares will provide us with the flexibility to meet business needs
as
they arise, to take advantage of favorable opportunities and to respond to
a
changing corporate environment. If we issue additional shares, the ownership
interests of holders of our common stock may be diluted.
PROCEDURE
FOR EFFECTING CONVERSION AND EXCHANGE OF STOCK CERTIFICATES
Upon
completion of the Merger with and into Merger Sub the conversion will become
effective and you will be entitled to receive one share of Merger Sub common
stock for every twenty shares of our common stock.
The
conversion will take place without any action on the part of the holders of
the
Common Stock and without regard to current certificates representing shares
of
Common Stock being physically surrendered for certificates representing the
number of shares of Common Stock each shareholder is entitled to receive as
a
result of the conversion. New certificates of Common Stock will be issued upon
partial sales or other transfers thereafter.
Any
old
shares submitted for transfer, whether pursuant to a sale or other disposition,
or otherwise, will automatically be exchanged for new shares.
STOCKHOLDERS
SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT SUBMIT ANY
CERTIFICATE(S) UNLESS REQUESTED TO DO SO.
No
fractional shares will be issued in connection with the conversion. Stockholders
who would otherwise be entitled to receive fractional shares as a result of
the
conversion will have the number of new shares to which they are entitled rounded
up to the next whole number of shares. Stockholders will not receive cash in
lieu of fractional shares.
ACCOUNTING
MATTERS
The
conversion will not affect total stockholders' equity on our balance sheet.
However, because the par value of our common stock will remain unchanged on
the
split effective date, the components that make up total stockholders' equity
will change by offsetting amounts. The stated capital component will be reduced
to an amount equal to one-twentieth (1/20) of its present amount, and the
additional paid-in capital component will be increased with the amount by which
the stated capital is reduced. The per share net income or loss and net book
value of our common stock will be increased because there will be fewer shares
of our common stock outstanding. Prior periods' per share amounts will be
restated to reflect the conversion.
29
POTENTIAL
ANTI-TAKEOVER EFFECT
Although
the increased proportion of unissued authorized shares to be issued could,
under
certain circumstances, have an anti-takeover effect (for example, by permitting
issuances that would dilute the stock ownership of a person seeking to effect
a
change in the composition of our board of directors or contemplating a tender
offer or other transaction for the combination of the company with another
company), the conversion is not being effected in response to any effort of
which we are aware to accumulate shares of our common stock or obtain control
of
us, nor is it part of a plan by management to recommend a series of similar
amendments to our board of directors and stockholders. Other than the conversion
our board of directors does not currently contemplate recommending the adoption
of any other actions that could be construed to affect the ability of third
parties to take over or change control of the company.
FEDERAL
INCOME TAX CONSEQUENCES OF THE CONVERSION
The
following is a summary of certain material federal income tax consequences
of
the conversion and does not purport to be a complete discussion of all of the
possible federal income tax consequences of the conversion and is included
for
general information only. Further, it does not address any state, local or
foreign income or other tax consequences. For example, the state and local
tax
consequences of the conversion may vary significantly as to each stockholder,
depending upon the state in which such stockholder resides. Also, it does not
address the tax consequences to holders that are subject to special tax rules,
such as banks, insurance companies, regulated investment companies, personal
holding companies, foreign entities, nonresident alien individuals,
broker-dealers and tax-exempt entities. The discussion is based on the
provisions of the United States federal income tax law as of the date hereof,
which is subject to change retroactively as well as prospectively. This summary
also assumes that the old shares were, and the new shares will be, held as
a
"capital asset," as defined in the Internal Revenue Code of 1986, as amended
(the "Code") (generally, property held for investment). The tax treatment of
a
stockholder may vary depending upon the particular facts and circumstances
of
such stockholder. Each stockholder is urged to consult with such stockholder's
own tax advisor with respect to the tax consequences of the
conversion.
No
gain
or loss should be recognized by a stockholder upon such stockholder's exchange
of old shares for new shares pursuant to the conversion. The aggregate tax
basis
of the new shares received in the conversion (including any fraction of a New
Share deemed to have been received) will be the same as the stockholder's
aggregate tax basis in the old shares exchanged therefor. The stockholder's
holding period for the new shares will include the period during which the
stockholder held the old shares surrendered in the conversion.
Our
view
regarding the tax consequence of the conversion is not binding on the Internal
Revenue Service or the courts. Accordingly, each stockholder should consult
with
such stockholder's own tax advisor with respect to all of the potential tax
consequences to such stockholder of the conversion.
Approval
of Proposal 1 requires the affirmative vote of a majority of the votes cast
by
the holders of the Company's outstanding Common Shares, Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock, each voting
separately as a class., at a meeting at which a quorum described above is
present.
The
holders of 100% of the Series A Preferred Stock, 100% of our Series B Preferred
Stock, 100% of our Series C Preferred Stock, as well as a majority of our Common
Shares, have agreed to vote in favor of the Plan of Recapitalization and the
Merger Agreement.
THE
BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THIS PROPOSAL 1 TO
APPROVE THE PLAN OF RECAPITALIZATION, INCLUDING THE MERGER AGREEMENT.
At
the
Special Meeting, three individuals, Messrs. John Pappajohn, Richard Turner
and
Edward B. Berger, will be elected to serve as directors until the next annual
meeting or until their successors are duly elected, appointed and qualified.
Our
Board of Directors currently consists of two persons. All of the individuals
who
are nominated for election to the Board of Directors are existing directors
of
the Company. Unless a stockholder WITHHOLDS AUTHORITY, a properly signed and
dated proxy will be voted “FOR” the election of the persons named below, unless
the proxy contains contrary instructions. Management has no reason to believe
that any of the nominees will not be a candidate or will be unable to serve
as a
director. However, in the event any nominee is not a candidate or is unable
or
unwilling to serve as a director at the time of the election, unless the
stockholder withholds authority from voting, the proxies will be voted “FOR” any
nominee who shall be designated by the present Board of Directors to fill such
vacancy.
Board
members are elected annually by the stockholders and the
officers
are appointed annually by the Board of Directors.
Management
As
a
result of the Acquisition, our management and Board of Directors have been
reconstituted. The
names, ages and positions of our directors, executive officers and certain
significant employees following the Acquisition are as follows:
Name
Age
Position
Richard
Turner, PH.D.
60
President,
Chief Executive Officer and Director
(Pace
and ConMed)
Howard
M. Haft, MD
57
Executive
Vice President and Chief Medical Officer
(Pace
and ConMed)
John
Pappajohn
78
Chairman
of the Board of Directors and Director
(Pace
and ConMed)
Ronald
H. Grubman
57
Executive
Vice President of Mid-Atlantic Region
(ConMed)
Edward
B. Berger
77
Director
(Pace)
Richard
M. Aiello
61
Chief
Operations Officer
(ConMed)
Thomas
W. Fry
62
Chief
Financial Officer and Secretary
(Pace
and ConMed)
Richard
P. Olson
54
Consultant
(ConMed)
There
are
no familial relationships among our directors and/or officers. Directors hold
office until the next annual meeting of stockholders or until their respective
successors have been elected and qualified.
Richard
Turner, Ph.D., President, Chief Executive Officer and Director of Pace and
ConMed
Dr.
Turner is currently our President, Chief Executive Officer and a Director.
Prior
to consulting for PACE in May of 2006, Dr. Turner served as President and Chief
Executive officer of EyeTel Imaging since January 2004. Prior to January 2004,
Dr. Turner previously served as President and Chief Executive Officer of BEI
Medical Systems (“BEI Medical”), a company engaged in the development and
marketing of a minimally invasive endometrial ablation system. BEI Medical
was
sold to Boston Scientific for approximately $95 million in 2002. Previously,
President of the Healthcare Group for the Cooper Companies, Dr. Turner has
held
executive leadership positions in the medical industry for approximately 25
years, including President and Director of CooperLaserSonics, Inc., President
of
CooperVision,Inc., President and Chief Executive Officer/Director of Pancretec,
Inc. (sold to Abbott Labs, Inc.) and President of Kay Laboratories (sold to
Baxter, Inc.). Dr. Turner graduated from Old Dominion University with a Bachelor
of Science degree, earned his M.B.A. from Pepperdine University and earned
his
PhD from Berne University.
31
Howard
Haft, MD - Executive Vice President and Chief Medical Officer of Pace and
ConMed
Dr.
Haft
is a founder of ConMed and acted as Director and Chief Medical Officer of ConMed
from 1984 to January 2007. He also serves as the President of the Maryland
Healthcare Associates and Georgetown Affiliate Multispecialty Group Practice.
He
serves on the Board of Directors of Apollo Medical Corporation that provides
practice management services to Maryland Healthcare Associates. He also serves
as President of the Maryland Foundation for Quality Healthcare, a not for profit
corporation providing healthcare education to the underprivileged of Maryland.
Dr. Haft holds a Medical Degree from Penn State University, Residency in
Internal Medicine from Brown University, a Masters in Medical Management from
Tulane University, and is recognized as a Certified Physician Executive by
the
American College of Physician Executives. He is Board Certified in Internal
Medicine and Emergency Medicine.
John
Pappajohn - Chairman of the Board of Directors of Pace and
ConMed
Mr.
Pappajohn has been a Director of PACE Health Management Systems, Inc. since
1995. Since 1969, Mr. Pappajohn has been the President and principal stockholder
of Equity Dynamics, Inc., a financial consulting firm, and the sole owner of
Pappajohn Capital Resources, a venture capital firm, both located in Des Moines,
Iowa. He also serves as a director for the following public companies: Allion
Healthcare, Inc., American CareSource Holdings, Inc., Healthcare Acquisition
Corp., MC Informatics, Inc., and Careguide, Inc. Mr. Pappajohn has been an
active private equity investor in healthcare companies for more than 30 years
and has served as a director of more than 40 public companies. Mr. Pappajohn
received his B.S.C. from the University of Iowa.
Ronald
H. Grubman, PA-C -
Executive
Vice President of Mid-Atlantic Region of ConMed
Mr.
Grubman, along with Dr. Haft, founded ConMed in 1984 with the introduction
of
St. Mary’s County Detention center. Mr. Grubman was President, Chief Executive
Officer and Director of ConMed from 1984 to
January 2007.
He
graduated from Long Island University and earned his B.S. from the Brooklyn
Cumberland Physician Assistant Program in 1975.
Edward
B. Berger -Director of Pace
Mr.
Berger is the President CEO of Berger Equities Inc.,
director and Chairman of the Audit and Nominating Committees of Healthcare
Acquisition Corp., a public company, and a director of Compass Bank of
Tucson, AZ., American CareSource Holdings, Inc., both of which are public
companies. Mr. Berger has extensive healthcare experience: past
President and CEO of Palo Verde Hospital; past President and member
of the Board of Trustees of Kino Community Hospital; past member of the
Long Range Planning Committee of Tucson Medical Center, all in
Tucson, AZ. Mr. Berger is currently an Adjunct Professor in
Political Science at Pima Community College and is the Retiring Chairman
of the MBA Advisory Council, Eller Graduate School of Management at the
University of Arizona. He has been admitted to practice law before the
U.S. Supreme Court, U.S. Court of Appeals for the 9th Circuit and the U.S.
District Court-Arizona. He is admitted to the New York Bar, the Arizona Bar
and
the District of Columbia Bar. Mr. Berger received his Juris Doctor degree from
New York Law School. Mr. Berger is a member of both our Audit Committee
and our Nominating Committee.
Richard
M. Aiello, MS, FBINA - Chief Operations Officer of ConMed
Mr.
Aiello has been Chief Operations Officer of ConMed since 2005. As such, he
provides leadership and management for all aspects of corporate operations
for
ConMed. Mr. Aiello is a 37-year veteran of public safety, with 27 years of
experience in law enforcement, rising to the rank of Major, as well as 10 years
of experience in corrections
where he
served
both as an Assistant Warden and Warden of an American Correctional Association
(ACA) accredited facility. He is a former Associate Professor at Harford
Community College and a graduate of the F.B I. National Academy, 147th
session.
Mr. Aiello graduated from the University of Maryland University College with
a
Bachelor of Science degree and earned his Master of Science Degree from Johns
Hopkins University.
Thomas
W. Fry, Chief Financial Officer and Secretary of Pace and
ConMed
Prior
to
joining PACE in September of 2006, Mr. Fry served as Chief Financial Officer
of
Vasomedical, Inc. from September 2003 to September 2006 and as Vice President,
Finance and Administration of BEI Medical Systems Company, Inc. from September
1997 until December 2002. From October 1992 until November 1997, Mr. Fry was
Vice President, Finance and Administration of its predecessor company of the
same name, which merged into BEI Medical Systems Company, Inc. in November
1997.
Mr. Fry has held various executive financial positions for approximately 27
years, including Corporate Controller of Disctronics Ltd. from 1989 to 1992,
Controller and Chief Financial Officer of Cavitron, Inc./CUSA, a medical device,
engineering and manufacturing company, from 1986 to 1989, and Manager of Profit
Planning and Manufacturing Controller of Chesebrough-Ponds International, from
1979 to 1986. Prior to that time, Mr. Fry was employed by Chesebrough-Ponds
and
GTE in various accounting and financial management positions. Mr. Fry graduated
from Southeast Missouri State University with a Bachelor of Science degree,
and
earned his M.B.A. from Pace University.
32
Richard
R. Olson, PA-C - Consultant -
ConMed
Mr.
Olson, currently a consultant for ConMed, joined ConMed as a partner in 1989
and
served as the Chief of Correctional Programs until January 26, 2007. Mr. Olson
was responsible for ConMed’s correctional healthcare operations. Mr. Olson
graduated from the George Washington University Physician Assistant Program
in
1978. He was Board Certified in 1980 and was subsequently hired by the Federal
Bureau of Prisons, as a Physician Assistant. While serving with the Bureau
of
Prisons, he was trained as a healthcare administrator and was named the Bureau’s
Coordinator of Infectious Diseases.
Employment
Agreements and Compensation Packages
Dr.
Richard Turner, President and Chief Executive Officer, has executed a
consulting/employment agreement effective as of January 26, 2007. The agreement
provides for an annual salary of $235,800; an annual target bonus of fifty
percent of annual salary (based on Mr. Turner’s performance and certain to be
determined milestones); option grant to purchase 1,000,000 shares of Common
Stock; health, disability and life insurance and retirement plan; and auto
gas
and maintenance expenses. In the event Mr. Turner’s employment is terminated
other than for good cause (as defined in the employment agreement), he will
receive a payment equal to his then applicable annual salary, excluding bonus,
for a period of six (6) months after termination.
Dr.
Howard Haft, Executive Vice President and Chief Medical Officer, has executed
an
employment agreement effective as of January 26, 2007. The agreement provides
for an annual salary of $250,000; an annual bonus equal to a value of up to
20%
of annual salary (such amount to be approved by the Board); life insurance
and
retirement plan; and travel expenses. In the event Dr. Haft’s employment is
terminated other than for good cause (as defined in the employment agreement),
he will receive a payment equal to his then applicable annual salary, excluding
bonus, for a period of six (6) months after termination.
Mr.
Ronald Grubman, Executive Vice President of Mid-Atlantic Region, has executed
an
employment agreement effective as of January 26, 2007. The agreement provides
for an annual salary of $190,000; an annual bonus equal to a maximum amount
of
$40,000 (from a bonus pool, based on Mr. Grubman’s ability to maintain the
Company’s current business and revenues generated by all Maryland sites for the
year 2007), as well as an additional bonus in the amount equal to one half
(1/2)
of one percent (1%) of the first twelve (12) months of gross revenue actually
collected and received by the Company from any new business services generated
by Mr. Grubman, excluding price escalators and cost-of-living adjustments;
health and life insurance and retirement plan; and travel expenses, in addition
to a monthly car allowance in the amount of $800 per month. In the event Mr.
Grubman’s employment is terminated other than for good cause, he will receive a
payment equal to his then applicable annual salary, excluding bonus, for a
period of six (6) months after termination.
Mr.
Richard Aiello, Chief Operating Officer of ConMed, has executed an employment
agreement effective as of July 1, 2004. The agreement provides for a five (5)
year term of employment; an annual salary of $136,600; a bonus which shall
be
determined
from time to time by the Board of Directors of ConMed in its sole
discretion;
retirement
plan and auto gas and maintenance expenses.
In the
event that Mr. Aiello’s employment is terminated other than for good cause, he
will receive a payment in the amounts equal to his then applicable salary,
plus
benefits, for a period of six (6) months after termination.
Mr.
Thomas W. Fry, Chief Financial Officer of CONMED,
has
executed an employment letter effective as of September 15, 2006. The agreement
provides for an annual salary of $175,000; bonus compensation plan will be
considered by the Board of Directors of CONMED
with a
target of twenty percent (20%) of annual salary; stock option plan will be
considered by the Board of Directors of CONMED
with
options to purchase up to 118,000 shares; retirement plan; travel expenses
and
other approved business expenses. In the event that Mr. Fry’s employment is
terminated, he will receive a payment in the amounts equal to his then
applicable salary for a period of six (6) months after termination.
33
Mr.
Richard Olson, formerly Executive Vice President of Correctional Programs and
currently a consultant, executed an agreement effective as of January 26, 2007,
and for a period of sixty (60) days thereafter. The agreement provides for
an
annual salary of $120,000; life insurance and retirement plan; and travel
expenses. In the event Mr. Olson’s employment is terminated other than for good
cause, he will receive a payment in the amounts equal to his then applicable
annual salary, excluding bonus, for a period of sixty (60) days after
termination.
Compensation
of the Board of Directors
The
Board
of Directors has adopted the Company’s 2007 Stock Option Plan, subject to
shareholder approval. The
2007
Stock Option Plan provides for the grant of incentive stock options,
nonqualified stock options, restricted stock, stock bonuses and stock
appreciation rights to, among others, Company directors. The 2007 Stock Option
Plan will be administered by the Board of Directors which has the authority
and
discretion to determine: (1) the persons to whom the options will be granted;
when the options will be granted; number of shares subject to each option;
the
price at which the shares subject to each option may be purchased; and when
each
option will become exercisable.
Each
non-employee director of the Company shall be entitled to (i) a fee of $1,000.00
for attending, in person, a regularly scheduled or special meeting of the Board
of Directors; (ii) $500.00 if such non-employee director participates in the
meeting via conference call or (iii) a fee of $500.00 for attending in person
a
regularly scheduled or special committee meeting,, if the meeting is held on
a
different day than the Board meeting. In addition, a one-time grant of 40,000
non-qualified stock options will be issued to non-employee directors on the
date
of their initial appointment to the Board of Directors at the closing price
of
the Common Stock on the issue date, vesting over three years and contingent
upon
their continued service on the Board.
The
Company will reimburse all directors for approved board-related business travel
expenses, along with other approved board-related expenses.
Audit
Committee and Compensation Committee
During
fiscal 2007, the Company’s Board of Directors intends to create and establish an
Audit Committee and a Compensation Committee on behalf of the Company.
34
PRINCIPAL
SHAREHOLDERS
Beneficial
Ownership - Current
As
of the
Record Date, there were 8,316,074 shares of Common Stock, 2,875,000 shares
of
Series A Preferred Stock, 15,000 shares of Series B Preferred Stock and 8,000
shares of Series C Preferred Stock issued and outstanding. The following table
sets forth the names and beneficial ownership of our Common Stock, Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock owned
as
of the Record Date, but without giving effect to the Plan of Recapitalziation,
by: (i) each of our directors, (ii) all our directors and executive officers
as
a group, and, to the best of our knowledge, (iii) all holders of 5% or more
of
the outstanding shares of our Common Stock. Unless otherwise noted, the address
of all the individuals and entities named below is care of ConMed, Inc., 9375
Chesapeake Street, Suite 203, La Plata, Maryland20646:
Name
of Beneficial Owner (1)
Number
of Shares (Common)
%
of Class
Number
of Shares (Series A)
%
of Class
Number
of Shares
(Series
B)
%
of Class
Number
of Shares
(Series
C)
%
of Class
DIRECTORS
AND OFFICERS:
John
Pappajohn (2)
2,331,740
28.0
%
1,500,000
52.2
%
-
0.0
%
-
0.0
%
Richard
Turner (3)
-
0.0
%
-
0.0
%
-
0.0
%
-
0.0
%
Howard
M. Haft (4)
-
0.0
%
-
0.0
%
-
0.0
%
5,333
66.7
%
Ronald
H. Grubman (4)
-
0.0
%
-
0.0
%
-
0.0
%
1,333
16.7
%
Edward
B. Berger (5)
-
0.0
%
-
0.0
%
-
0.0
%
-
0.0
%
Richard
P. Olson (4)
-
0.0
%
-
0.0
%
-
0.0
%
1,333
16.7
%
Thomas
W. Fry (6)
-
0.0
%
-
0.0
%
-
0.0
%
-
0.0
%
All
directors and named executive officers as a group
(1)
Except as indicated by footnotes, beneficial ownership is determined in
accordance with Rule 13d-3(a) of the Securities Exchange Act of 1934 and
generally includes voting or investment power with respect to securities. Except
as indicated by footnotes and subject to community property laws, where
applicable, the person named above has sole voting and investment power with
respect to all shares of the common stock shown as beneficially owned by him
or
her.
35
(2)
Includes 100,000 shares of common stock held by Halkis, Ltd, and 109,917 shares
of common stock held by the John and Mary Pappajohn Scholarship Foundation,
both
affiliates of Mr. Pappajohn. Includes 2,121,823 shares of common stock, but
does
not include (i) 3,000,000 shares of common stock issuable on conversion of
1,500,000 shares of Series A Preferred Stock and (ii) cumulative dividends
convertible into an aggregate of 1,356,521 shares of common stock, in each
case
issuable as part of the Plan of Recapitalization, subject to shareholder
approval. Mr. Pappajohn’s address is 2116 Financial Center, Des Moines, Iowa50309
(3)
Dr. Turner’s beneficial ownership excludes options to purchase 1,000,000 shares
of common stock issued under the 2007 Stock Option Plan, subject to approval
by
shareholders as part of the Plan of Recapitalization that may be acquired more
than 60 days after such approval.
(4)
The beneficial ownership of Dr. Haft , Mr. Grubman and Mr. Olson excludes
533,334, 133,333 and 133,333, respectively, shares of common stock issuable
on
conversion of Series C Preferred Stock in the Plan of Recapitalization. It
also
excludes options to purchase 83,333 shares of common stock issued (250,000
shares in aggregate) under the 2007 Stock Option Plan, subject to approval
by
shareholders as part of the Plan of Recapitalization that may be acquired more
than 60 days after such approval.
(5)
Mr. Berger’s beneficial ownership excludes options to purchase 40,000 shares of
common stock issued under the 2007 Stock Option Plan, subject to approval by
shareholders as part of the Plan of Recapitalization that may be acquired more
than 60 days after such approval.
(6)
Mr.
Fry’s beneficial ownership excludes 118,000 shares of common stock issued under
the 2007 Stock Option Plan, subject to approval by shareholders as part of
the
Plan of Recapitalization that may be acquired more than 60 days after such
approval.
(7)
Lehman Brother's and Pinnacle's beneficial ownership each excludes (i) 2,000,000
shares of common stock issuable on conversion of shares of Series B Preferred
Stock, and (ii) 500,000 warrants to purchase common stock at $0.30 per share
and
166,667 warrants to purchase common stock at $2.50 per share, each only
exercisable upon approval of the Plan of Recapitalization by the
shareholders.
36
Beneficial
Ownership - Post-Plan of Recapitalization
The
following table sets forth the names and beneficial ownership of our Common
Stock owned as of the Record Date, and after giving effect to the Plan of
Recapitalization, by: (i) each of our directors, (ii) all our directors and
executive officers as a group, and, to the best of our knowledge, (iii) all
holders of 5% or more of the outstanding shares of our Common Stock. Unless
otherwise noted, the address of all the individuals and entities named below
is
care of ConMed, Inc., 9375 Chesapeake Street, Suite 203, La Plata, Maryland20646:
Number
of Shares (Common)
%
of Class
DIRECTORS
AND OFFICERS(1)
John
Pappajohn (2)
2,508,342
21.3
%
Richard
Turner (3)
100,000
*
Ronald
H. Grubman (4)
133,333
*
Edward
B. Berger (5)
-
*
Richard
P. Olson (4)
133,333
*
Howard
M. Haft (4)
533,334
4.5
%
Thomas
W. Fry (5)
-
*
All
directors and named executive officers as a group
(1)
Beneficial ownership is determined in accordance with Rule 13d-3(a) of the
Securities Exchange Act of 1934 and generally includes voting or investment
power with respect to securities. Except as indicated by footnotes and subject
to community property laws, where applicable, the person named above has sole
voting and investment power with respect to all shares of the common stock
shown
as beneficially owned by him or her.
37
(2)
Includes 100,000 shares of common stock held by Halkis, Ltd, and 109,917 shares
of common stock held by the John and Mary Pappajohn Scholarship Foundation,
both
affiliates of Mr. Pappajohn. Mr. Pappajohn’s address is 2116 Financial Center,
Des Moines, Iowa50309.
(3)
Dr. Turner’s beneficial ownership includes options to purchase 100,000 shares of
common stock issued under the 2007 Stock Option Plan, subject to approval by
shareholders as part of the Plan of Recapitalization that may be acquired within
60 days of such approval. Dr. Turner’s beneficial ownership excludes 900,000
shares of common stock issued under the 2007 Stock Option Plan, subject to
approval by shareholders as part of the Plan of Recapitalization that may be
acquired immediately after such approval.
(4)
The beneficial ownership of Mr. Grubman, Mr. Olson and Dr. Haft excludes options
to purchase 83,333 shares of common stock issued to each (250,000 shares in
aggregate) under the 2007 Stock Option Plan, subject to approval by shareholders
as part of the Plan of Recapitalization that may be acquired more than 60 days
after such approval.
(5)
Mr.
Berger’s beneficial ownership excludes options to purchase 40,000 shares of
common stock issued under the 2007 Stock Option Plan, subject to approval by
shareholders as part of the Plan of Recapitalization that may be acquired more
than 60 days after such approval.
(6)
Mr. Fry’s beneficial ownership excludes 118,000 shares of common stock issued
under the 2007 Stock Option Plan, subject to approval by shareholders as part
of
the Plan of Recapitalization that may be acquired more than 60 days after such
approval.
(7)
Lehman Brother's and Pinnacle's beneficial ownership each includes 500,000
warrants to purchase common stock at $0.30 per share as well as warrants to
purchase 166,667 shares common stock at $2.50 per share.
CERTAIN
RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
During
2006 and 2005, the Company paid $4,167 on a monthly basis, plus direct expenses,
to Equity Dynamics, Inc., an entity wholly owned by John Pappajohn, a director
of the Company, for administrative services that include among other things;
accounting, investor relations, and Commission reporting. Total payments
received during 2006 and 2005 were $78,390 and $50,500,
respectively.
On
October 24, 2005, Pace issued 750,000 warrants to purchase Common Stock. Of
these warrants, 600,000 were issued to John Pappajohn and the remaining 150,000
warrants were issued to his designees. The warrants were issued as compensation
for past services rendered and all warrants immediately vested. The warrants
have an exercise price of $0.50, which exceeded the market price of Common
Stock
at the time of issuance. The value of the warrants was separately estimated
at
$0.01 per share or $10,000 based on the Black-Scholes valuation of the call
option associated with a five year warrant. As part of the Plan of
Recapitalization, Mr. Pappajohn relinquished the 600,000 warrants that were
issued to him, and the remaining 150,000 warrants issued to his designees were
adjusted to 250,000 warrants to purchase Common Stock, exercisable at $0.30
per
share (post-split).
John
Pappajohn, Pace’s chairman and, at the time, sole director, retained Maxim Group
LLC as the placement agent in the Private Placement and is engaged in other
matters with Maxim Group LLC unrelated to Pace and ConMed.
SHAREHOLDER
VOTE REQUIRED
Provided
that a quorum of shareholders is present at the meeting in person, or is
represented by proxy, and is entitled to vote thereon, Directors will be elected
by a plurality of the votes cast at the meeting.
For the
purposes of election of directors, although abstentions will count toward the
presence of a quorum, they will not be counted as votes cast and will have
no
effect on the result of the vote.
The
holders of 100% of the Series A Preferred Stock, as well as a majority of our
Common Stock, have agreed to vote in favor of the election of Messrs. Pappajohn
and Turner as Directors of the Company. The Series B Preferred Stock and the
Series C Preferred Stock do note vote on this Proposal.
THE
BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE ELECTION OF MESSRS.
PAPPAJOHN AND TURNER AS DIRECTORS OF THE COMPANY
38
PROPOSAL
3
APPROVAL
OF THE 2007 STOCK OPTION PLAN
GENERAL
At
the
Meeting a vote will be taken on a Proposal to ratify the adoption of the
Company's 2007 Stock Option Plan (the "2007 Plan"), under which 1,600,000 Common
Shares underlying stock options and restricted stock awards are available for
grant. The 2007 Plan was adopted by the Board of Directors on January 15, 2007.
A copy of the 2007 Plan is attached hereto as EXHIBIT D. As of the date of
this
Proxy, 1,543,000 options to purchase shares of Common Stock or restricted stock
awards have been granted under the 2007 Plan.
DESCRIPTION
OF THE 2007 PLAN
THE
PURPOSE OF THE 2007 Plan. The purpose of the 2007 Plan is to provide additional
incentive to the Directors, officers, employees and consultants of the Company
who are primarily responsible for the management and growth of the Company.
Each
option shall be designated at the time of grant as either an incentive stock
option (an "ISO") or as a non-qualified stock option (a "NQSO"). The 2007 Plan
also provides for the issuance of restricted stock units to such
parties.
The
purpose of the 2007 Plan is to provide additional incentives to the directors,
officers, employees and consultants of the Company who are primarily responsible
for the management and growth of the Company. Each option shall be designated
at
the time of grant as either an incentive stock option (an "ISO") or a
non-qualified stock option (a "NQSO"). The Board of Directors believes that
the
ability to grant stock options to employees which qualify for ISO treatment
provides an additional material incentive to certain key employees. The Internal
Revenue Code requires that ISOs be granted pursuant to an option plan that
receives stockholder approval within one year of its adoption. The Company
adopted the 2007 Plan in order to comply with this statutory requirement and
preserve its ability to grant ISOs.
The
benefits to be derived from the 2007 Plan, if any, are not quantifiable or
determinable.
ADMINISTRATION
OF THE PLAN. The 2007 Plan shall be administered by the Board of Directors
of
the Company, or by any committee that the Company may in the future form and
to
which the Board of Directors may delegate the authority to perform such
functions (in either case, the "Administrator"). The Board of Directors shall
appoint and remove members of the committee in its discretion in accordance
with
applicable laws. In the event that the Company establishes such a committee
and
is required to comply with Rule 16b-3 under the Exchange Act and Section 162(m)
of the Internal Revenue Code (the "Code"), the committee shall, in the Board
of
Director's discretion, be comprised solely of "non-employee directors" within
the meaning of said Rule 16b-3 and "outside directors" within the meaning of
Section 162(m) of the Code. Notwithstanding the foregoing, the Administrator
may
delegate non-discretionary administrative duties to such employees of the
Company as it deems proper and the Board of Directors, in its absolute
discretion, may at any time and from time to time exercise any and all rights
and duties of the Administrator under the 2007 Plan.
Subject
to the other provisions of the 2007 Plan, the Administrator shall have the
authority, in its discretion: (i) to grant options and restricted stock units;
(ii) to determine the fair market value of the Common Stock subject to options
and restricted stock grants; (iii) to determine the exercise price of options
granted; (iv) to determine the persons to whom, and the time or times at which,
options or restricted stock units shall be granted, and the number of shares
subject to each option or restricted stock award; (v) to interpret the 2007
Plan; (vi) to prescribe, amend, and rescind rules and regulations relating
to
the 2007 Plan; (vii) to determine the terms and provisions of each option
granted (which need not be identical), including but not limited to, the time
or
times at which options shall be exercisable; (viii) with the consent of the
optionee or grantee, to modify or amend any option or restricted stock grant;
(ix) to defer (with the consent of the optionee) the exercise date of any
option; (x) to authorize any person to execute on behalf of the Company any
instrument evidencing the grant of an option or restricted stock unit; and
(xi)
to make all other determinations deemed necessary or advisable for the
administration of the 2007 Plan. The Administrator may delegate
non-discretionary administrative duties to such employees of the Company as
it
deems proper.
SHARES
OF
STOCK SUBJECT TO THE 2007 PLAN. Subject to the conditions outlined below, the
total number of shares of stock which may be issued under options or restricted
stock units granted pursuant to the 2007 Plan shall not exceed 1,600,000 shares
of Common Stock, $.0001 par value per share.
The
number of shares of Common Stock subject to options or restricted stock units
granted pursuant to the 2007 Plan may be adjusted under certain conditions.
If
the stock of the Company is changed by reason of a stock split, reverse stock
split, stock dividend, recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board of Directors in (i) the
number and class of shares of stock subject to the 2007 Plan, and (ii) the
exercise price of each outstanding option; provided, however, that the Company
shall not be required to issue fractional shares as a result of any such
adjustments. Each such adjustment shall be subject to approval by the Board
of
Directors in its sole discretion.
39
LIQUIDATION,
DISSOLUTION OR CHANGE OF CONTROL. In the event of the proposed dissolution
or
liquidation of the Company, the Administrator shall notify each optionee and
grantee at least thirty days prior to such proposed action. To the extent not
previously exercised, all options will terminate immediately prior to the
consummation of such proposed action; provided, however, that the Administrator,
in the exercise of its sole discretion, may permit exercise of any options
prior
to their termination, even if such options were not otherwise exercisable.
In
the event of a merger or consolidation of the Company with or into another
corporation or entity in which the Company does not survive, or in the event
of
a sale of all or substantially all of the assets of the Company in which the
Stockholders of the Company receive securities of the acquiring entity or an
affiliate thereof, all options and grants shall be assumed or equivalent options
or grants shall be substituted by the successor corporation (or other entity)
or
a parent or subsidiary of such successor corporation (or other entity);
provided, however, that if such successor does not agree to assume the options
or to substitute equivalent options therefor, the Administrator, in the exercise
of its sole discretion, may permit the exercise of any of the options prior
to
consummation of such event, even if such options were not otherwise
exercisable.
PARTICIPATION.
Every person who at the date of grant of an option or restricted stock unit
is
an employee of the Company or of any Affiliate (as defined below) of the Company
is eligible to receive NQSOs, ISOs or restricted stock awards under the 2007
Plan. Every person who at the date of grant is a consultant to, or non-employee
director of, the Company or any Affiliate (as defined below) of the Company
is
eligible to receive NQSOs or restricted stock awards under the 2007 Plan. The
term "Affiliate" as used in the 2007 Plan means a parent or subsidiary
corporation as defined in the applicable provisions (currently Sections 424(e)
and (f), respectively) of the Code. The term "employee" includes an officer
or
director who is an employee of the Company. The term "consultant" includes
persons employed by, or otherwise affiliated with, a consultant.
TERM
OF
THE OPTIONS. The Administrator, in its sole discretion, shall fix the term
of
each option, provided that the maximum term of an option shall be ten years.
ISOs granted to a 10% Stockholder shall expire not more than five years after
the date of grant. The 2007 Plan provides for the earlier expiration of options
in the event of certain terminations of employment of the holder.
RESTRICTIONS
ON GRANT AND EXERCISE OF OPTIONS. Except with the express written approval
of
the Administrator which approval the Administrator is authorized to give only
with respect to NQSOs, no option granted under the 2007 Plan shall be assignable
or otherwise transferable by the optionee except by will or by operation of
law.
During the life of the optionee, an option shall be exercisable only by the
optionee.
RESTRICTIONS
ON GRANT OF RESTRICTED STOCK. A
grantee
of restricted stock may not sell, assign, transfer, pledge, hypothecate or
otherwise dispose of any restricted stock units, nor may such restricted stock
units be made subject to execution, attachment or similar process or otherwise
be disposed of, whether by operation of law or otherwise, until the lapse of
the
period during which restrictions on transfer, and such other restrictions as
the
Board may impose, are in effect. The Board may in its discretion impose such
other restrictions and conditions on restricted stock units awarded as it deems
appropriate , including, without limitation, the imposition of provisions that
will result in the forfeiture of restricted stock units (or gains realized
by a
grantee) in the event the grantee breaches covenants relating to
non-competition, confidentiality and non-solicitation of employees and
customers.
TERMINATION
OF THE 2007 PLAN. The 2007 Plan shall become effective upon adoption by the
Board of Directors; provided, however, that no option shall be exercisable,
nor
shall any grants of restricted stock be made thereunder, unless and until
written consent of the Stockholders of the Company, or approval of Stockholders
of the Company voting at a validly called Stockholders' meeting, is obtained
within twelve months after adoption by the Board of Directors. If such
Stockholder approval is not obtained within such time, options granted pursuant
to the 2007 Plan shall be of the same force and effect as if such approval
was
obtained except that all ISOs granted pursuant to the 2007 Plan shall be treated
as NQSOs. Options and restricted stock units may be granted and exercised under
the 2007 Plan only after there has been compliance with all applicable federal
and state securities laws. The 2007 Plan shall terminate within ten years from
the date of its adoption by the Board of Directors.
40
TERMINATION
OF EMPLOYMENT OF OPTIONEE. If for any reason other than death or permanent
and
total disability, an optionee ceases to be employed by the Company or any of
its
Affiliates (such event being called a "Termination"), options held at the date
of Termination (to the extent then exercisable) may be exercised in whole or
in
part at any time within three months of the date of such Termination, or such
other period of not less than thirty days after the date of such Termination
as
is specified in the Option Agreement or by amendment thereof (but in no event
after the expiration date of the option (the "Expiration Date")); provided,
however, that if such exercise of the option would result in liability for
the
optionee under Section 16(b) of the Exchange Act, then such three-month period
automatically shall be extended until the tenth day following the last date
upon
which optionee has any liability under Section 16(b) (but in no event after
the
Expiration Date). If an optionee dies or becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while employed
by
the Company or an Affiliate or within the period that the option remains
exercisable after Termination, options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee's personal representative or by the person to whom the option is
transferred by devise or the laws of descent and distribution, at any time
within twelve months after the death or twelve months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
"Employment" includes service as a director or as a consultant. For purposes
of
the 2007 Plan, an optionee's employment shall not be deemed to terminate by
reason of sick leave, military leave or other leave of absence approved by
the
Administrator, if the period of any such leave does not exceed 90 days or,
if
longer, if the optionee's right to reemployment by the Company or any Affiliate
is guaranteed either contractually or by statute.
TERMINATION
OF EMPLOYMENT OF GRANTEE: If a grantee is subject to a Termination prior to
the
expiration of the restricted period applicable to any restricted stock units
granted to such grantee, or prior to the satisfaction of any other conditions
established by the Board applicable to such grant, any such restricted stock
units then remaining subject to restrictions shall be forfeited by the grantee.
Restricted stock units forfeited pursuant to the preceding sentence shall be
transferred to, and cancelled by, the Company without payment of any
consideration by the Company, and neither the grantee nor any of the grantee’s
successors, heirs, assigns or personal representatives shall thereafter have
any
rights or interests in such restricted stock units.
TAX
TREATMENT OF THE OPTIONS. Under the Code, neither the grant nor the exercise
of
an ISO is a taxable event to the optionee (except to the extent an optionee
may
be subject to alternative minimum tax); rather, the optionee is subject to
tax
only upon the sale of the Common Stock acquired upon exercise of the ISO. Upon
such a sale, the entire difference between the amount realized upon the sale
and
the exercise price of the option will be taxable to the optionee. Subject to
certain holding period requirements, such difference will be taxed as a capital
gain rather than as ordinary income. Optionees who receive NQSOs will be subject
to taxation upon exercise of such options on the spread between the fair market
value of the Common Stock on the date of exercise and the exercise price of
such
options. This spread is treated as ordinary income to the optionee, and the
Company is permitted to deduct as an employee expense a corresponding amount.
NQSOs do not give rise to a tax preference item subject to the alternative
minimum tax.
TAX
TREATMENT OF RESTRICTED STOCK GRANTS. A grantee of restricted stock under the
2007 Plan will recognize ordinary income in an amount equal to the fair market
value of the stock. Generally the income will be recognized at the time the
stock vests and will equal the fair market value of the stock on the date it
vests. However, a recipient may, by following certain procedures, elect to
recognize the income at the date of the grant of the stock. In this case, the
amount of income recognized will equal the fair market value of the stock
on the date of grant. In general, the Company will receive a compensation
expense deduction with respect to grants of restricted stock made under the
2007
Plan. The amount of the deduction in any tax year will generally be equal to
the
amounts included as compensation in the income of grant recipients in that
year.
Accordingly, the amount and timing of the Company's deduction will depend,
among
other things, on the value of the Company's stock from time to time and on
whether recipients make the election to recognize income on the date grants
are
made.
41
The
Company will not able to deduct, with respect to grants of restricted stock
made
under the 2007 Plan, any amount that would not be deductible under the ordinary
rules relating to the deduction of compensation. For example, under
certain circumstances, accelerated vesting of restricted stock in connection
with a change in control of the Company could, when combined with other
compensation that might be paid by the Company in connection with such event,
give rise to a so-called "excess parachute payment" for tax purposes. If
this were to occur, the Company will not be able to deduct the excess parachute
payment.
A
recipient of restricted stock under the 2007 Plan who elects to recognize income
at the date of the grant of the stock may later forfeit the stock. In this
case the Company will have to add to its taxable income an amount equal to
any
compensation expense deduction received by it with respect to the grant.
The
Board
has unanimously approved and unanimously recommends that the shareholders ratify
the adoption of the 2007 Plan. The
Board
has approved and authorized the issuance from the 2007 Plan of (i) 1,503,000
stock options to certain employees of ConMed at the closing of the Acquisition,
exercisable at a price per share equal to $2.01 per share (which the Board
determined to be the fair market value at such time of the award), and
expiring10
years
from January 26, 2007, as well as (ii) 40,000 non-qualified stock options to
Mr.
Berger, a non-employee director, vesting
over three years and contingent upon Mr. Berger’s continued service on the
Board, such
issuance subject to shareholder approval of the Plan of Recapitalization and
the
2007 Plan as set forth in this proxy statement.
SHAREHOLDER
VOTE REQUIRED
The
approval of the adoption of the 2007 Plan requires the affirmative vote of
the
holders of a majority of the voting power of the shares present and entitled
to
vote on this Proposal.
The
holders of 100% of the Series A Preferred Stock, as well as a majority of our
Common Stock, have agreed to vote in favor of approving the 2007 Plan. The
Series B Preferred Stock and the Series C Preferred Stock do note vote on this
Proposal.
THE
BOARD
OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THIS PROPOSAL 3 AND
THE
RATIFICATION OF THE 2007 PLAN.
42
OTHER
MATTERS
The
Board
of Directors knows of no other business that will be presented for consideration
at the Special Meeting. If other matters are properly brought before the
meeting, however, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance
with
their best judgment.
THIS
AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is made and entered into
on February 14, 2007, pursuant to Section 490.1102 of the Iowa Business
Corporation Act (the "IBCA") and Section 252 of the General Corporation Law
of
the State of Delaware (the "DGCL") by and between Pace Health Management
Systems, Inc., an Iowa corporation (the "Iowa Corporation"), and, ConMed
Healthcare Management, Inc., a Delaware corporation (the "Delaware
Corporation"), being sometimes referred to herein individually as a "Constituent
Corporation" and collectively as the "Constituent Corporations."
WITNESSETH:
WHEREAS,
the Iowa Corporation is a corporation duly organized, validly existing and
in
good standing under the laws of the State of Iowa with an authorized capital
stock consisting of 20,000,000 shares of common stock, no par value per share
(the "Common Shares"), 8,316,074 of which are issued and outstanding on the
date
hereof, and 5,000,000 shares of preferred stock, $.01 par value, 4,000,000
of
which have been designated Series A Preferred Stock, 15,000 of which have been
designated Series B Preferred Stock, and 8,000 of which have been designated
Series C Preferred Stock, each of which is issued and outstanding in the amounts
indicated;
WHEREAS,
there are issued and outstanding (i) 1,503,000 options to purchase Common Shares
(the "Iowa Options"), (ii) warrants to purchase 150,000 Common Shares at $0.30
per share (the "Founder $0.30 Warrants"), (iii) warrants to purchase 1,500,000
Common Shares at $0.30 per share (the “Investor $0.30 Warrants”); (iv) warrants
to purchase 500,000 Common Shares at $2.50 per share (the “$2.50 Warrants”); and
(v) warrants to purchase 300,000 Common Shares at $2.75 per share (the “$2.75
Warrants”, collectively, such warrants are the “Iowa Warrants”);
WHEREAS,
the Delaware Corporation is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware with an authorized
capital stock consisting of 40,000,000 shares of common stock, $.0001 par value
per share (the "Common Stock"), one share of which is issued and outstanding
on
the date hereof and held by the Iowa Corporation, and 5,000,000 shares of
preferred stock, $.0001 par value per share (the "Preferred Stock"), none of
which is issued and outstanding;
WHEREAS,
the Delaware Corporation has no options (the "Delaware Options") or warrants
(the "Delaware Warrants") issued and outstanding;
WHEREAS,
the respective Boards of Directors of the Constituent Corporations have
authorized and approved the merger of the Iowa Corporation with and into the
Delaware Corporation subject to and upon the terms and conditions of this Merger
Agreement (the "Merger") and Sections 490.1101 to 490.1108 of the IBCA and
Section 252 of the DGCL, and have approved this Merger Agreement and directed
that it be executed by the undersigned officers and that it be submitted to
the
shareholders of each of the Constituent Corporations for their approval;
and
WHEREAS,
it is the intention of the Constituent Corporations that (i) the Merger shall
be
a tax-free reorganization within the meaning of Section 368 (a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code"); and (ii) that this
Agreement shall constitute a plan of reorganization within the meaning of
Section 368 of the Code;
NOW,
THEREFORE in consideration of the premises, which are hereby incorporated into
the terms hereof, and the mutual covenants and agreements herein contained,
and
for the purpose of stating the terms and conditions of the merger, the mode
of
effectuating the same, and other details and provisions that are deemed
desirable, the parties have agreed and do hereby agree, subject to the terms
and
conditions set forth as follows:
ARTICLE
I
TERMS
OF
MERGER
1.1
MERGER. On the Effective Date of the Merger (as hereinafter defined), in
accordance with the provisions of the IBCA and the DGCL, the Iowa Corporation
shall be merged with and into the Delaware Corporation (at times referred to
herein as the "Surviving Corporation") upon the terms and conditions set forth
in the subsequent provisions of this Merger Agreement.
1.2
APPROVAL OF SHAREHOLDERS. This Merger Agreement shall be submitted as promptly
as practicable to the respective shareholders of the Iowa Corporation and the
Delaware Corporation as provided by the IBCA and the DGCL. After adoption and
approval of this Merger Agreement and all the transactions and developments
contemplated hereby by the respective shareholders of the Iowa Corporation
and
the Delaware Corporation, and provided this Merger Agreement is not terminated
and abandoned pursuant to the provisions hereof, Articles of Merger shall be
filed in accordance with the applicable provisions of the IBCA and a Certificate
of Merger shall be filed in accordance with the applicable provisions of the
DGCL.
1.3
FILINGS AND EFFECTIVENESS. As soon as practicable following the date of
execution hereof, the Iowa Corporation and the Delaware Corporation will,
subject to the approval by the shareholders of each of the Constituent
Corporations, cause (i) the Articles of Merger along with any other required
document to be filed with the Secretary of State of the State of Iowa pursuant
to Section 490.1106 of the IBCA, and (ii) the Certificate of Merger along with
any other required document to be filed with the Office of the Secretary of
the
State of Delaware pursuant to Section 252 of the DGCL. The Merger shall become
effective upon the occurrence of each of the following actions:
(a)
All
of the conditions precedent to the consummation of the Merger specified in
this
Merger Agreement shall have been satisfied or duly waived;
(b)
An
executed Articles of Merger meeting the requirements of the IBCA shall have
been
filed with the Secretary of State of the State of Iowa and said Secretary of
State shall have accepted such Articles of Merger; and
(c)
An
executed Certificate of Merger meeting the requirements of the DGCL shall have
been accepted by the Secretary of the State of Delaware and said Secretary
of
State shall have issued a Certificate of Merger.
The
date
and time when the Merger shall become effective, as aforesaid, is herein called
the "Effective Date" and "Effective Time," respectively.
1.4
EFFECT OF MERGER - SECURITIES. As of the Effective Time, by virtue of the Merger
and without any action on the part of the holder of any shares of capital stock
of the Iowa Corporation, or holders of any Iowa Options or Iowa
Warrants:
(a) The
issued and outstanding shares of capital stock of the Iowa Corporation shall
convert as follows: (i) each 20 Common Shares shall be converted into the right
to receive 1 validly issued, fully paid and non-assessable share of Common
Stock; (ii) Series A Preferred Stock shall be converted into the right to
receive 1.59450 validly issued, fully paid and non-assessable shares of Common
Stock (after
giving effect to the 1-for-20 conversion ratio set forth in
1.4(a)(i));
(iii)
Series B Preferred Stock shall be converted into the right to receive 400
validly issued, fully paid and non-assessable shares of Common Stock
(after
giving effect to the 1-for-20 conversion ratio set forth in
1.4(a)(i));
and (iv)
Series C Preferred Stock shall be converted into the right to receive 100
validly issued, fully paid and non-assessable shares of Common Stock
(after
giving effect to the 1-for-20 conversion ratio set forth in
1.4(a)(i)).
Certificates for Common Stock will be delivered only in the manner provided
by
Section 1.4(e).
(b) Each
Common Share held in treasury by the Iowa Corporation shall be cancelled and
retired, and shall cease to exist, and no consideration shall be delivered
in
exchange therefor.
(c) The
one
share of Common Stock issued and outstanding and held by the Iowa Corporation
immediately prior to the Effective Time shall be cancelled and retired, and
shall cease to exist, and no consideration shall be delivered in exchange
therefor.
(d) Notwithstanding
anything in this Agreement to the contrary, shares of capital stock of the
Iowa
Corporation held by a person (a “Dissenting Shareholder”) who complies with all
the provisions of Iowa law concerning the right of holders of capital stock
of
the Iowa Corporation to dissent from the Merger and require appraisal of such
shares (“Dissenting Shares”) shall not be converted as described in Section
1.4(a) but shall become the right only to receive such consideration as may
be
determined to be due to such Dissenting Shareholder pursuant to the laws of
the
State of Iowa. If, after the Effective Time, such Dissenting Shareholder
withdraws his demand for appraisal or fails to perfect or otherwise loses his
right of appraisal, in any case pursuant to the IBCA, his shares of capital
stock of the Iowa corporation shall be deemed converted as of the Effective
Time
into the right to receive Common Stock as provided in Section
1.4(a).
(e)
At
the Effective Time, the stock transfer books of the Iowa Corporation shall
be
closed as to the holders of capital stock of the Iowa Corporation immediately
prior to the Effective Time and no transfer of capital stock of the Iowa
Corporation by any such holder shall thereafter be made or recognized. If,
after
the Effective Time, certificates which represented shares of capital stock
of
the Iowa Corporation immediately prior to the Effective Time are properly
presented to the exchange agent, Wells Fargo Shareholder Services, such
certificates shall be cancelled and exchanged for certificates representing
the
number of shares of Common Stock into which the shares of capital stock of
the
Iowa Corporation represented thereby were converted in the Merger.
(f)
The
consideration provided pursuant to this Article I to persons identified on
the
books and records of Iowa Corporation as the owners of capital stock of the
Iowa
Corporation shall be deemed to have been paid in full satisfaction of all rights
pertaining to such securities theretofore existing, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of such securities which were outstanding immediately prior to
the
Effective Time. None of Iowa Corporation, Delaware Corporation, the Surviving
Corporation or the Exchange Agent shall be liable to any person in respect
of
any property delivered in good faith to a public official pursuant to any
abandoned property, escheat or other similar law.
(g)
No
fractional shares will be issued in connection with the Merger. Stockholders
who
would otherwise be entitled to receive fractional shares as a result of the
Merger will have the number of new shares to which they are entitled rounded
up
to the next whole number of shares. Stockholders will not receive cash in lieu
of fractional shares.
(e)
Conversion of Iowa Options. The number of shares underlying the Iowa Options
as
well as the exercise price, date of grant, vesting, exercisability and
expiration date thereof are set forth in the Iowa Corporation’s 2007 Stock Plan,
as approved by the Iowa Corporation’s Board of Directors, subject to shareholder
approval (the “2007 Plan”). All rights under the Iowa Options shall be treated
as provided in the 2007 Plan, and to the extent the terms of this Agreement
are
inconsistent with the treatment to be accorded to the Iowa Options as provided
therein, then the Iowa Corporation shall cause this Agreement to be amended,
and
all required third party, governmental and regulatory body consents or approvals
to such amendments to be procured, such that all such inconsistencies shall
be
eliminated by the Effective Time.
At
the
Effective Time, notwithstanding any contrary provision of the option agreements,
the Iowa Options shall, at and after the Effective Time, evidence options (the
"Delaware Options") to purchase such number of shares of Common Stock on the
terms and conditions as stated in the 2007 Plan.
(f)
Conversion of Iowa Warrants. The number of shares underlying the Iowa Warrants
as well as the exercise price, date of grant, vesting, exercisability and
expiration date thereof are set forth in the respective warrant agreement
applicable thereto. All rights under the Iowa Warrants shall be treated as
provided therein, and to the extent the terms of this Agreement are inconsistent
with the treatment to be accorded to the Iowa Warrants as provided therein,
then
the Iowa Corporation shall cause this Agreement to be amended, and all required
third party, governmental and regulatory body consents or approvals to such
amendments to be procured, such that all such inconsistencies shall be
eliminated by the Effective Time.
At
the
Effective Time, notwithstanding any contrary provision of the warrant
agreements, the Iowa Warrants shall, at and after the Effective Time, evidence
warrants (the "Delaware Warrants") to purchase such number of shares of Common
Stock on the terms and conditions as stated in the respective warrant
agreement.
1.5
EFFECT OF MERGER - GENERAL. At and after the Effective Time, the Merger shall
be
effective as provided in the applicable provisions of the DGCL and the IBCA.
The
corporate existence of the Delaware Corporation, as the Surviving Corporation,
with all of its purposes and powers, shall continue unaffected and unimpaired
by
the Merger, and, as the Surviving Corporation, it shall be governed by the
DGCL
and succeed to all rights, assets, liabilities and obligations of the Iowa
Corporation in accordance with the DGCL. Without limiting the generality of
the
foregoing, and subject thereto, at the Effective Time, except as otherwise
provided herein, all the property, rights, privileges, powers and franchises
of
the Delaware Corporation and the Iowa Corporation shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Delaware Corporation
and the Iowa Corporation shall become the debts, liabilities and duties of
the
Surviving Corporation. The separate existence and corporate organization of
the
Iowa Corporation shall cease at the Effective Time, with the Delaware
Corporation continuing as the Surviving Corporation of the Merger.
1.6
CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION. The Certificate of
Incorporation of the Delaware Corporation as in effect immediately prior to
the
Effective Date of the Merger shall continue in full force and effect as the
Certificate of Incorporation of the Surviving Corporation until duly amended
in
accordance with the provisions thereof and applicable law.
1.7
BY-LAWS OF SURVIVING CORPORATION. The By-Laws of the Delaware Corporation as
in
effect immediately prior to the Effective Date of the Merger shall continue
in
full force and effect as the By-Laws of the Surviving Corporation until altered,
amended or repealed as provided in the By-Laws or as provided by applicable
law.
1.8
DIRECTORS OF SURVIVING CORPORATION. The directors of the Iowa Corporation as
of
the Effective Date of the Merger shall be and become the directors of the
Surviving Corporation.
1.9
OFFICERS OF SURVIVING COMPANY. The officers of the Iowa Corporation as of the
Effective Date of the Merger shall be and become the officers of the Surviving
Corporation.
The
obligations of the Constituent Corporations to consummate the Merger are subject
to satisfaction of the following conditions:
2.1
AUTHORIZATION. The Merger and the Merger Agreement shall have been approved
by
the affirmative vote of a majority of the votes cast by the holders of the
Company's outstanding Common Shares, Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, each voting separately as a class.
All necessary action shall have been taken to authorize the execution, delivery
and performance of this Merger Agreement by each of the Constituent
Corporations.
ARTICLE
III
GENERAL
PROVISIONS
3.1
BINDING AGREEMENT. This Merger Agreement shall be binding upon and shall inure
to the benefit of the parties and their respective successors and assigns;
provided, however, that this Merger Agreement may not be assigned by any party
without the written consent of the other party.
3.2
AMENDMENTS. The Boards of Directors of the Iowa Corporation and the Delaware
Corporation may amend this Merger Agreement at any time prior to the filing
of
this Merger Agreement (or a certificate in lieu thereof) with the Secretary
of
State of Delaware, provided that an amendment made subsequent to the adoption
of
this Merger Agreement by the shareholders of either the Iowa Corporation or
the
Delaware Corporation shall not: (i) alter or change the amount or kind of
shares, securities, interests, obligations, rights to acquire shares or other
securities, cash, property and/or rights to be received in exchange for or
on
conversion of all or any of the shares or interest of any class or series
thereof of the Iowa Corporation or the Delaware Corporation, (ii) alter or
change any term of the Certificate of Incorporation of the Surviving
Corporation, or (iii) alter or change any of the terms or conditions of this
Merger Agreement if such alteration or change would adversely affect the holders
of any class or series of capital stock of either the Iowa Corporation or the
Delaware Corporation in any material respect.
3.3
FURTHER ASSURANCES. From time to time, as and when required by the Delaware
Corporation or by its successors or assigns, there shall be executed and
delivered on behalf of the Iowa Corporation such deeds and other instruments,
and there shall be taken or caused to be taken by the Iowa Corporation such
further and other actions as shall be appropriate or necessary in order to
vest
or perfect in or confirm of record or otherwise by the Delaware Corporation
the
title to and possession of all the property, rights, privileges, powers,
franchises, assets, immunities and authority of the Iowa Corporation and
otherwise to carry out the purposes of this Merger Agreement. The officers
and
directors of the Delaware Corporation are fully authorized in the name and
on
behalf of the Iowa Corporation or otherwise to take any and all such action
and
to execute and deliver any and all such deeds or other instruments.
3.4
ABANDONMENT. At any time before the Effective Date of the Merger, this Merger
Agreement may be terminated and the Merger may be abandoned for any reason
whatsoever by the Board of Directors of either the Iowa Corporation or the
Delaware Corporation, or by both, by the adoption of appropriate resolutions
and
written notification thereof to the other party to the Merger, notwithstanding
the approval of this Merger Agreement by the shareholders of the Iowa
Corporation or the Delaware Corporation, or by both. In the event of the
termination of this Merger Agreement and the abandonment of the Merger pursuant
to the provisions of this section, this Merger Agreement shall become void
and
have no effect, without any liability on the part of either of the Constituent
Corporations or their respective officers, directors or shareholders in respect
thereof.
3.5
GOVERNING LAW. This Merger Agreement shall be construed, interpreted and
enforced in accordance with and governed by the laws of the State of Delaware
and, so far as applicable, the merger provisions of the IBCA.
[SIGNATURES
ON FOLLOWING PAGE]
IN
WITNESS WHEREOF, each of the undersigned corporations has caused this Merger
Agreement to be signed in its corporate name by its duly authorized officer
as
of the date first written above.
The
undersigned, being the Secretary of CONMED HEALTHCARE MANAGEMENT, INC., does
hereby certify that the foregoing Agreement of Merger has been adopted upon
behalf of said corporation pursuant to the provisions of Subsection (f) of
Section 251 of the Delaware General Corporation Law, and that, as of the date
of
this Certificate, the outstanding shares of said corporation were such as to
render the provisions of said Subsection (f) applicable.
Executed
on this _____ day of ______, 2007.
Thomas
Fry
Secretary
Exhibit
B
CERTIFICATE
OF INCORPORATION
OF
CONMED
HEALTHCARE MANAGEMENT, INC.
*
* *
*
FIRST:
The name of the corporation is CONMED HEALTHCARE MANAGEMENT, INC. (the
"Corporation").
SECOND:
The
address of the Corporation’s registered office in the State of Delaware is
National Registered Agents, Inc., 160 Greentree Drive, Suite 101, Dover,
Delaware19904, County of Kent. The name of the Corporation’s registered agent
at such address is National Registered Agents, Inc.
THIRD:
The purpose or purposes of the Corporation shall be to engage in any lawful
act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH:
The aggregate number of shares which the Corporation is authorized to issue
is
forty five million (45,000,000), divided into classes as follows:
A.
Forty
million (40,000,000) shares of common stock, $.0001 par value per share
(hereinafter called the "Common Stock");
B.
Five
million (5,000,000) shares of preferred stock, $.0001 par value per share,
to be
issued in series (the "Preferred Stock").
The
following is a statement of the designations, powers, preferences and rights,
and the qualifications, limitations or restrictions with respect to the
Preferred Stock of the Corporation: The shares of Preferred Stock may be issued
in one or more series, and each series shall be so designated as to distinguish
the shares thereof from the shares of all other series. Authority is hereby
expressly granted to the Board of Directors of the Corporation to fix, subject
to the provisions herein set forth, before the issuance of any shares of a
particular series, the number, designations and relative rights, preferences,
and limitations of the shares of such series including (1) voting rights, if
any, which may include the right to vote together as a single class with the
Common Stock and any other series of the Preferred Stock with the number of
votes per share accorded to shares of such series being the same as or different
from that accorded to such other shares, (2) the dividend rate per annum, if
any, and the terms and conditions pertaining to dividends and whether such
dividends shall be cumulative, (3) the amount or amounts payable upon such
voluntary or involuntary liquidation, (4) the redemption price or prices, if
any, and the terms and conditions of the redemption, (5) sinking fund
provisions, if any, for the redemption or purchase of such shares, (6) the
terms
and conditions on which such shares are convertible, in the event the shares
are
to have conversion rights, and (7) any other rights, preferences and limitations
pertaining to such series which may be fixed by the Board of Directors pursuant
to the Delaware General Corporation Law.
FIFTH: The
following provisions are inserted for the management of the business and for
the
conduct of the affairs of the Corporation, and for further definition,
limitation and regulation of the powers of the Corporation and of its directors
and stockholders:
A.
Election
of directors need not be by ballot unless the by-laws of the Corporation so
provide.
B.
The
Board
of Directors shall have the power, without the assent or vote of the
stockholders, to make, alter, amend, change, add to or repeal the by-laws of
the
Corporation.
C.
The
directors in their discretion may submit any contract or act for approval or
ratification at any annual meeting of the stockholders or at any meeting of
the
stockholders called for the purpose of considering any such act or contract,
and
any contract or act that shall be approved or be ratified by the vote of the
holders of a majority of the stock of the Corporation which is represented
in
person or by proxy at such meeting and entitled to vote thereat (provided that
a
lawful quorum of stockholders be there represented in person or by proxy) shall
be as valid and binding upon the Corporation and upon all the stockholders
as
though it had been approved or ratified by every stockholder of the Corporation,
whether or not the contract or act would otherwise be open to legal attack
because of directors’ interests, or for any other reason.
D.
In
addition to the powers and authorities hereinbefore or by statute expressly
conferred upon them, the directors are hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this Certificate of Incorporation, and to any by-laws from time
to
time made by the stockholders; provided, however, that no by-law so made shall
invalidate any prior act of the directors which would have been valid if such
by-law had not been made.
SIXTH:
A.
A
director of the Corporation shall not be personally liable to the Corporation
or
its stockholders for monetary damages for any breach of fiduciary duty by such
director as a director, except for liability (i) for any breach of the
director’s duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct
or a
knowing violation of law, (iii) under Section 174 of the DGCL, or
(iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended. Any repeal or modification of
this
paragraph A by the stockholders of the Corporation shall not adversely affect
any right or protection of a director of the Corporation with respect to events
occurring prior to the time of such repeal or modification.
B.
The
Corporation, to the full extent permitted by Section 145 of the DGCL, as
amended from time to time, shall indemnify all persons whom it may indemnify
pursuant thereto. Expenses (including attorneys’ fees) incurred by an officer or
director in defending any civil, criminal, administrative, or investigative
action, suit or proceeding for which such officer or director may be entitled
to
indemnification hereunder shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount
if
it shall ultimately be determined that he is not entitled to be indemnified
by
the Corporation as authorized hereby.
SEVENTH:
The name and address of the sole incorporator is:
EIGHTH: Whenever
a compromise or arrangement is proposed between this Corporation and its
creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application
of
any receiver or receivers appointed for this Corporation under Section 291
of Title 8 of the Delaware Code or on the application of trustees in dissolution
or of any receiver or receivers appointed for this Corporation under
Section 279 of Title 8 of the Delaware Code order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three
fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may
be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned
by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
NINTH: The
Corporation hereby elects not to be governed by Section 203 of the
DGCL.
I,
THE
UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose
of
forming a corporation pursuant to the General Corporation Law of the State
of
Delaware, do make this certificate, hereby declaring and certifying that this
is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hands this ___ day of February, 2007.
INCORPORATED
UNDER THE LAWS OF THE STATE OF DELAWARE
ARTICLE
I
OFFICES
AND RECORDS
Section
1.1. DELAWARE OFFICE. The principal office of CONMED HEALTHCARE MANAGEMENT,
INC.
(the "Corporation") in the State of Delaware shall be located in the City of
Dover, County of Kent, and the name and address of its registered agent is
National Registered Agents, Inc., 9 East Loockerman Street, Suite 1B, Dover,
Delaware.
Section
1.2. OTHER OFFICES. The Corporation may have such other offices, either within
or without the State of Delaware, as the Board of Directors may designate or
as
the business of the Corporation may from time to time require.
Section
1.3. BOOKS AND RECORDS. The books and records of the Corporation may be kept
at
the Corporation's headquarters or at such other locations outside the State
of
Delaware as may from time to time be designated by the Board of
Directors.
ARTICLE
II
STOCKHOLDERS
Section
2.1. ANNUAL MEETINGS. An annual meeting of stockholders shall be held for the
election of directors at such date, time and place, either within or without
the
State of Delaware, as may be designated by resolution of the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section
2.2. SPECIAL MEETINGS. Special meetings of stockholders for any purpose or
purposes may be called at any time by the Chairman of the Board or a majority
of
the members of the Board of Directors.
Section
2.3. NOTICE OF MEETINGS. Whenever stockholders are required or permitted to
take
any action at a meeting, a written notice of the meeting shall be given that
shall state the place, date and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise provided by law, the Certificate of Incorporation or these Bylaws,
the
written notice of any meeting shall be given not less than ten or more than
sixty days before the date of the meeting to each stockholder entitled to vote
at such meeting. If mailed, such notice shall be deemed to be given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation.
Section
2.4. ADJOURNMENTS. Any meeting of stockholders, annual or special, may adjourn
from time to time to reconvene at the same or some other place, and notice
need
not be given of any such adjourned meeting if the time and place thereof is
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder
of
record entitled to vote at the meeting.
Section
2.6. ORGANIZATION. Meetings of stockholders shall be presided over by the
Chairman of the Board, or in his or her absence by the President, or in the
absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his or
her
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section
2.7. VOTING.
(a)
Except as otherwise provided by law, the Certificate of Incorporation, or these
Bylaws, any corporate action, other than the election of Directors, the
affirmative vote of the majority of shares entitled to vote on that matter
and
represented either in person or by proxy at a meeting of stockholders
at which a quorum is present shall be the act of the stockholders of the
Corporation.
(b)
Unless otherwise provided for in the Certificate of Incorporation of the
Corporation, Directors will be elected by a plurality of the votes cast by
the
shares, present in person or by proxy, entitled to vote in the election at
a
meeting at which a quorum is present and each stockholder entitled to vote
has
the right to vote the number of shares owned by him or her for as many
persons as there are Directors to be elected. The Board of Directors may at
any
time amend this provision to reduce the number of votes cast for the election
of
a director to a plurality of the votes cast in the manner provided immediately
above.
(c)
Except as otherwise provided by statute, the Certificate of Incorporation,
or
these Bylaws, at each meeting of stockholders, each stockholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his or her name on the books of the
Corporation.
Section
2.8 PROXIES. Each stockholder entitled to vote or to express consent or dissent
without a meeting, may do so either in person or by proxy, so long as such
proxy
is executed in writing by the stockholder himself or herself, or by his or
her
attorney-in-fact thereunto duly authorized in writing. Every proxy shall be
revocable at will unless the proxy conspicuously states that it is irrevocable
and the proxy is coupled with an interest. A telegram, telex, cablegram, or
similar transmission by the stockholder, or as a photographic, photostatic,
facsimile, shall be treated as a valid proxy, and treated as a substitution
of
the original proxy, so long as such transmission is a complete reproduction
executed by the stockholder. No proxy shall be valid after the expiration of
three years from the date of its execution, unless otherwise provided in the
proxy. Such instrument shall be exhibited to the Secretary at the meeting and
shall be filed with the records of the Corporation.
Section
2.10. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. In order that
the
Corporation may determine the stockholders entitled to notice of or to vote
at
any meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors
and
which record date: (i) in the case of determination of stockholders entitled
to
vote at any meeting of stockholders or adjournment thereof, shall, unless
otherwise required by law, not be more than sixty nor less than ten days before
the date of such meeting and (ii) in the case of any other action, shall not
be
more than sixty days prior to such other action. If no record date is fixed:
(i)
the record date for determining stockholders entitled to notice of or to vote
at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held
and (ii) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall
apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section
2.11. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary shall prepare and
make, at least ten days before every meeting of stockholders, a complete list
of
the stockholders entitled to vote at the meeting, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified in the notice of the meeting or, if not so specified, at
the
place where the meeting is to be held. The list shall also be produced and
kept
at the time and place of the meeting during the whole time thereof and may
be
inspected by any stockholder who is present. The stock ledger shall be the
only
evidence as to which stockholders are entitled to examine the stock ledger,
the
list of stockholders or the books of the Corporation, or to vote in person
or by
proxy at any meeting of stockholders.
Section
2.13. INSPECTORS OF ELECTIONS; OPENING AND CLOSING THE POLLS. The Board of
Directors by resolution may appoint one or more inspectors, which inspector
or
inspectors may include individuals who serve the Corporation in other
capacities, including, without limitation, as officers, employees, agents or
representatives of the Corporation, to act at the meeting and make a written
report thereof. One or more persons may be designated as alternate inspectors
to
replace any inspector who fails to act. If no inspector or alternate has been
appointed
to act, or if all inspectors or alternates who have been appointed are unable
to
act, at a meeting of stockholders, the chairman of the meeting shall appoint
one
or more inspectors to act at the meeting. Each inspector, before discharging
his
or her duties, shall take and sign an oath faithfully to execute the duties
of
inspector with strict impartiality and according to the best of his or her
ability. The inspectors shall have the duties prescribed by the General
Corporation Law of the State of Delaware. The chairman of the meeting shall
fix
and announce at the meeting the date and time of the opening and the closing
of
the polls for each matter upon which the stockholders will vote at a
meeting.
ARTICLE
III
BOARD
OF
DIRECTORS
Section
3.1. GENERAL POWERS. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors. In addition to
the
powers and authorities by these Bylaws expressly conferred upon them, the Board
of Directors may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law, by the Certificate of Incorporation
or
by these Bylaws required to be exercised or done by the
stockholders.
Section
3.2. NUMBER; QUALIFICATIONS. The Board of Directors need not be composed of
a
particular number of members nor must such number be within any particular
range, unless the Certificate of Incorporation, an amendment to these Bylaws
or
the Board of Directors shall otherwise provide. The number of Directors shall
until such time, if ever, be determined from time to time by resolution of
the
Board of Directors. Directors need not be stockholders or residents of the
State
of Delaware.
Section
3.3. ELECTION, RESIGNATION. The first Board of Directors shall hold office
until
the first annual meeting of stockholders and until their successors have been
duly elected and qualified or until there is a decrease in the number of
Directors. Thereafter, each Director will be elected at the annual meeting
of
stockholders and shall hold office until the annual meeting of the stockholders
next succeeding his or her election, or until his or her prior death,
resignation or removal. Any Director may resign at any time upon written notice
to the Board of Directors, the President or the Secretary of the Corporation.
Such resignation shall be effective upon receipt unless the notice specifies
a
later time for that resignation to become effective.
Section
3.5. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held
at
such places within or without the State of Delaware and at such times as the
Board of Directors may from time to time determine, and if so determined notices
thereof need not be given.
Section
3.6. SPECIAL MEETINGS. Special meetings of the Board of Directors may be held
at
any time or place within or without the State of Delaware whenever called by
the
Chairman of the Board, the President, the Secretary, or by any two members
of
the Board of Directors. Notice of the date, time and place of a special meeting
of the Board of Directors shall be delivered by the person or persons calling
the meeting personally, by facsimile or by telephone to each Director or sent
by
first-class mail or telegram, charges prepaid, addressed to each Director at
that Directors' address as it is shown on the records of the Corporation. If
the
notice is mailed, it shall be deposited in the United States mail at least
four
days before the time of the holding of the meeting. If the notice is delivered
personally or by telephone or telegraph, it shall be delivered at least
forty-eight hours before the time of the holding of the special meeting. If
by
facsimile transmission, such notice shall be transmitted at least twenty-four
hours before the time of holding of the special meeting. Any oral notice given
personally or by telephone may be communicated either to the Director or to
a
person at the office of the Director who the person giving the notice has reason
to believe will promptly communicate it to the Director. The notice need not
specify the purpose or purposes of the special meeting or the place of the
special meeting, if the meeting is to be held at the principal office of the
Corporation.
Section
3.7. TELEPHONIC MEETINGS PERMITTED. Members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting
thereof by means of conference telephone or similar communications equipment
by
means of which all persons participating in the meeting can hear each other,
and
participation in a meeting pursuant to this Bylaw shall constitute presence
in
person at such meeting.
Section
3.8. QUORUM; VOTE REQUIRED FOR ACTION; ADJOURNMENT. At all meetings of the
Board
of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business. Except in cases in which the Certificate
of Incorporation or these Bylaws otherwise provide, the vote of a majority
of
the Directors present at a meeting at which a quorum is present shall be the
act
of the Board of Directors. A majority of the Directors
present,
whether or not a quorum, may adjourn any meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given
unless the meeting is adjourned for more than twenty-four hours. If the meeting
is adjourned for more than twenty-four hours, then notice of the time and place
of the adjourned meeting shall be given to the Directors who were not present
at
the time of the adjournment in the manner specified in Section 3.6.
Section
3.9. ORGANIZATION. Meetings of the Board of Directors shall be presided over
by
the Chairman of the Board, or in his or her absence by a chairman chosen at
the
meeting. The Secretary shall act as secretary of the meeting, but in his or
her
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section
3.11. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees
may receive such compensation, if any, for their services and such reimbursement
of expenses as may be fixed or determined by resolution of the Board of
Directors. This Section 3.11 shall not be construed to preclude any Director
from serving the Corporation in any other capacity as an officer, agent,
employee or otherwise and receiving compensation for those
services.
Section
3.12 REMOVAL. One or more or all the Directors of the Corporation may be
removed, at any time, with our without cause, by a majority vote of the
stockholders, provided however that such Director shall not be removed if the
Certificate of Incorporation or Bylaws provides that its Directors shall be
elected by cumulative voting and there are a sufficient number of shares cast
against his or her removal, which if cumulatively voted at an election of
Directors would be sufficient to elect him or her.
ARTICLE
IV
COMMITTEES
Section
4.1. COMMITTEES. The Board of Directors may designate from among its members
one
or more standing or special committees, each committee to consist of one or
more
of the Directors of the Corporation. The Board of Directors may designate one
or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of the committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he
or
she or they constitute a quorum, may unanimously appoint another member of
the
Board of Directors to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent permitted by law and
to
the extent provided in the resolution of the Board of Directors, shall have
and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation, and may authorize
the
seal of the Corporation to be affixed to all papers which may require
it.
Section
4.2. COMMITTEE RULES. Unless the Board of Directors otherwise provides, each
committee designated by the Board of Directors may make, alter and repeal rules
for the conduct of its business. In the absence of such rules each committee
shall conduct its business in the same manner as the Board of Directors conducts
its business pursuant to Article III of these Bylaws.
Section
4.3. MINUTES OF MEETINGS. All committees appointed in accordance with Section
4.1 shall keep regular minutes of their meetings and shall cause them to be
recorded in books kept for that purpose in the office of the
Corporation.
ARTICLE
V
OFFICERS
Section
5.1. DESIGNATIONS. The officers of the Corporation shall be a Chairman of the
Board, a President, a Secretary, Chief Financial Officer and, at the discretion
of the Board of Directors, one or more Directors and one or more Vice-Presidents
(one or more of whom may be Executive Vice-Presidents). The Board of Directors
shall appoint all officers. Any two or more offices may be held by the same
individual.
Section
5.2. APPOINTMENT AND TERM OF OFFICE. The officers of the Corporation shall
be
appointed annually by the Board of Directors at the first meeting of the Board
of Directors held after each annual meeting of the stockholders. Each officer
shall hold office until a successor shall have been appointed and qualified,
or
until such officer's earlier death, resignation or removal.
Section
5.3. POWERS AND DUTIES. If the Board appoints persons to fill the following
positions, such officers shall have the power and duties set forth
below:
(a)
THE
CHAIRMAN: The Chairman shall have general control and management of the Board
of
Directors and may also be the President of the Corporation. He or she shall
preside at all meetings of the Board of Directors at which he or she is present.
He or she shall have such other powers and perform such other duties as from
time to time may be conferred or imposed upon him or her by the Board of
Directors.
(b)
THE
PRESIDENT: The President of the Corporation shall be generally responsible
for
the proper conduct and the day to day operations of the business of the
Corporation. He or she shall possess power to sign all certificates, contracts
and other instruments of the Corporation. In the absence of the Chairman, he
or
she shall preside at all meetings of the stockholders. He or she shall perform
all such other duties as are incident to his or her office or are properly
required of him or her by the Board of Directors.
(c)
CHIEF
FINANCIAL OFFICER: The Chief Financial Officer shall keep or cause to be kept
adequate and correct books and records of accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any Director. The Chief Financial Officer shall (1) deposit
corporate funds and other valuables in the Corporation's name and to its credit
with depositories designated by the Board of Directors; (2) make disbursements
of corporate funds as authorized by the Board of Directors; (3) render a
statement of the corporation's financial condition and an account of all
transactions conducted as chief financial officer whenever requested by the
President or the Board of Directors; and (4) have other powers and perform
other
duties
as
prescribed by the President or the Board of Directors or the Bylaws. Unless
the
board of directors has elected a separate Treasurer, the Chief Financial Officer
shall be deemed to be the treasurer for purposes of giving any reports or
executing any certificates or other documents.
(d)
VICE
PRESIDENT: Each Vice-President shall have such powers and discharge such duties
as may be assigned to him or her from time to time by the President or the
Board
of Directors.
(e)
SECRETARY AND ASSISTANT SECRETARIES: The Secretary shall issue notices for
all
meetings, shall keep minutes of all meetings, shall have charge of the seal
and
the corporate books, and shall make such reports and perform such other duties
as are incident to his or her office, or are properly required of him or her
by
the Board of Directors. The Assistant Secretary, if any, or Assistant
Secretaries in order designated by the Board of Directors, shall perform all
of
the duties of the Secretary during the absence or disability of the Secretary,
and at other times may perform such duties as are directed by the President
or
the Board of Directors.
Section
5.4. DELEGATION. In the case of the absence or inability to act of any officer
of the Corporation and of any person herein authorized to act in such officer's
place, the Board of Directors may from time to time delegate the powers or
duties of such officer to any other officer or any Director or other person
whom
it may in its sole discretion select.
Section
5.6. OTHER OFFICERS. The Board of Directors, or a duly appointed officer to
whom
such authority has been delegated by Board resolution, may appoint such other
officers and agents as it shall deem necessary or expedient, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of
Directors.
Section
5.7. RESIGNATION. An officer may resign at any time by delivering notice to
the
Corporation. Such notice shall be effective when delivered unless the notice
specifies a later effective date. Any such resignation shall not affect the
Corporation's contract rights, if any, with the officer.
Section
5.8. REMOVAL. Any officer elected or appointed by the Board of Directors may
be
removed at any time, with or without cause, by the affirmative vote of a
majority of the whole Board of Directors, but such removal shall be without
prejudice to the contract rights, if any, of the person so removed.
Section
5.9. BONDS. The Board of Directors may, by resolution, require any and all
of
the officers to give bonds to the Corporation, with sufficient surety or
sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time
to
time be required by the Board of Directors.
ARTICLE
VI
STOCK
Section
6.1. ISSUANCE OF SHARES. No shares of the Corporation shall be issued unless
authorized by the Board of Directors or a duly constituted committee thereof.
Such authorization shall include the number of shares to be issued, the
consideration to be received and a statement regarding the adequacy of the
consideration.
Section
6.2. CERTIFICATES. Every holder of stock shall be entitled to have a certificate
signed by or in the name of the Corporation by the Chairman of the Board of
Directors, if any, or the President or a Vice President, and the Secretary
or an
Assistant Secretary, of the Corporation certifying the number of shares owned
by
him or her in the Corporation. Any of or all the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of
issue.
Section
6.3. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.
The Corporation may issue a new certificate of stock in the place of any
certificate theretofore issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his or her legal representative, to give the
Corporation indemnification or a bond sufficient to indemnify it against any
claim that may be made against it on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new
certificate.
Section
6.4. TRANSFERS OF STOCK.
(a)
Transfers of stock shall be made only upon the stock transfer records of the
Corporation, which records shall be kept at the registered office of the
Corporation or at its principal place of business, or at the office of its
transfer agent or registrar. The Board of Directors may, by resolution, open
a
share register in any state of the United States, and may employ an agent or
agents to keep such register and to record transfers of shares
therein.
Section
6.5. SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation in another
corporation, domestic or foreign, may be voted by such officer, agent or proxy
as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE
VII
INDEMNIFICATION
Section
7.1. RIGHT TO INDEMNIFICATION. The Corporation shall indemnify and hold
harmless, to the fullest extent permitted by applicable law as it presently
exists or may hereafter be amended, any person who was or is made or is
threatened to be made a party or is otherwise involved in any action, suit
or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding") by reason of the fact that he or she, or a person for whom he
or
she is the legal representative, is or was a director, officer, employee or
agent of the Corporation or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or nonprofit entity, including
service with respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred by such
person. Notwithstanding the preceding sentence, the Corporation shall be
required to indemnify a person in connection with a proceeding (or part thereof)
initiated by such person only if the proceeding (or part thereof) was
authorized
by
the
Board of Directors of the Corporation.
Section
7.2. PREPAYMENT OF EXPENSES. The Corporation shall pay the expenses (including
attorneys' fees) incurred in defending any proceeding in advance of its final
disposition; provided, however, that the payment of expenses incurred by a
Director or officer in advance of the final disposition of the proceeding shall
be made only upon receipt of an undertaking by the Director or officer to repay
all amounts advanced if it should be ultimately determined that the Director
or
officer is not entitled to be indemnified under this Article VII or
otherwise.
Section
7.3. CLAIMS. If a claim for indemnification or payment of expenses under this
Article VII is not paid in full within sixty days after a written claim therefor
has been received by the Corporation, the claimant may file suit to recover
the
unpaid amount of such claim and, if successful in whole or in part, shall be
entitled to be paid the expense of prosecuting such claim. In any such action
the Corporation shall have the burden of proving that the claimant was not
entitled to the requested indemnification or payment of expenses under
applicable law.
Section
7.4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this
Article VII shall not be exclusive of any other rights which such person may
have or hereafter acquire under any statute, provision of the Certificate of
Incorporation, these Bylaws, agreement, vote of stockholders or Directors or
otherwise.
Section
7.6. AMENDMENT OR REPEAL. Any repeal or modification of the foregoing provisions
of this Article VII shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the time
of
such repeal or modification.
ARTICLE
VIII
MISCELLANEOUS
Section
8.1. FISCAL YEAR. The fiscal year of the Corporation shall be determined by
resolution of the Board of Directors.
Section
8.2. SEAL. The corporate seal shall have the name of the Corporation inscribed
thereon and shall be in such form as may be approved from time to time by the
Board of Directors.
Section
8.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS AND COMMITTEES.
Any
written waiver of notice, signed by the person entitled to notice, whether
before or after the time stated therein, shall be deemed equivalent to notice.
Attendance of a person at a meeting shall constitute a waiver of notice of
such
meeting, except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened. Neither the business
to
be transacted at nor the purpose of any regular or special meeting of the
stockholders, Directors or members of a committee of Directors need be specified
in any written waiver of notice.
Section
8.4. INTERESTED DIRECTORS; QUORUM. No contract or transaction between the
Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its Directors or officers are directors
or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (i) the material facts as to his or
her
relationship or interest and as to the contract or transaction are disclosed
or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though
the
disinterested directors be less than a quorum; or (ii) the material facts as
to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof, or the stockholders. Common or nterested Directors may
be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or
transaction.
Section
8.5. BOOKS AND RECORDS. The Corporation shall maintain appropriate ccounting
records and shall keep as permanent records minutes of all meetings of its
stockholders and Board of Directors, a record of all actions taken by the Board
of Directors without a meeting and a record of all actions taken by a committee
of the Board of Directors. In addition, the orporation shall keep at its
registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its stockholders, giving the names
and
addresses of all stockholders in alphabetical order by class of shares showing
the number and class of the shares held by each. Any books, records and minutes
may be in written form or any other form capable of being converted into written
form within a reasonable time.
The
purposes of the 2007 Stock Option Plan (the “Plan”)
of Pace
Health Management Systems, Inc., an Iowa corporation (together with any
successor entity via merger or otherwise, the “Company”),
are
to:
(a) Encourage
selected employees, directors and consultants (sometimes referred to herein
as
“Eligible
Persons”)
to
improve operations and increase profits of the Company;
(b) Encourage
selected employees, directors and consultants to accept or continue employment
or association with the Company or its Affiliates; and
(c) Increase
the interest of selected employees, directors and consultants in the Company’s
welfare through participation in the growth in value of the common stock of
the
Company (the “Shares”).
Eligible
Persons shall be entitled to receive grants of options as well as Restricted
Stock Units (as defined below). Options granted under this Plan (“Options”)
may be
“incentive
stock options”
(“ISOs”)
intended to satisfy the requirements of Section 422 of the Internal Revenue
Code
of 1986, as amended, and the regulations thereunder (the “Code”),
or
“non-qualified stock options” (“NQSOs”).
Restricted Stock Units (“Restricted
Stock Units”)
may
also be granted under the terms of the Plan. A Restricted Stock Unit is a right
to receive Shares pursuant to the terms and conditions of the Plan. An
“Award”
or
“Awards”
means
a
grant made under this Plan in the form of Options or Restricted Stock
Units.
2. ELIGIBLE
PERSONS
Every
person who at the date of grant of an Award is an employee of the Company or
of
any Affiliate (as defined below) of the Company is eligible to receive Awards
under this Plan. Every person who at the date of grant is a consultant to,
or
non-employee director of, the Company or any Affiliate (as defined below) of
the
Company is eligible to receive NQSOs under this Plan. The term “Affiliate”
as
used
in the Plan means a parent or subsidiary corporation as defined in the
applicable provisions (currently Sections 424(e) and (f), respectively) of
the
Code. The term “employee”
includes an officer or director who is an employee of the Company or an
Affiliate. The term “consultant”
includes persons employed by, or otherwise affiliated with, a
consultant.
3. STOCK
SUBJECT TO THIS PLAN; MAXIMUM NUMBER OF GRANTS
Subject
to the provisions of Section 6.1.1 of the Plan, the total number of Shares
which
may be issued under Awards granted pursuant to this Plan shall not exceed one
million six hundred thousand (1,600,000) Shares. The Shares covered by the
portion of any grant or Award under the Plan which expires unexercised shall
become available again for grants under the Plan.
4. ADMINISTRATION
(a) The
Plan
shall be administered by either the Board of Directors of the Company (the
“Board”)
or by
a committee (the “Committee”)
to
which administration of the Plan, or of part of the Plan, may be delegated
by
the Board (in either case, the “Administrator”).
The
Board shall appoint and remove members of such Committee, if any, in its
discretion in accordance with applicable laws. If necessary in order to comply
with Rule 16b-3 under the Exchange Act, the Committee shall, in the Board’s
discretion, be comprised solely of “non-employee
directors”
within
the meaning of said Rule 16b-3. Notwithstanding the foregoing, the Administrator
may delegate nondiscretionary administrative duties to such employees of the
Company as it deems proper and the Board, in its absolute discretion, may at
any
time and from time to time exercise any and all rights and duties of the
Administrator under the Plan. The Board may permit recipients or grantees of
Awards to elect to defer any
Award
payment, subject
to Code
Section 409A and such rules, regulations, procedures, and programs as it may
establish. No
member
of the Board or of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Award or Award agreement.
(b) Subject
to the other provisions of this Plan, the Administrator shall have the
authority, in its discretion: (i) to grant Awards; (ii) to determine the fair
market value of the Shares subject to Awards; (iii) to determine the exercise
price of Options granted; (iv) to determine the persons to whom, and the time
or
times at which, Awards shall be granted, and the number of shares subject to
each Award; (v) to interpret this Plan; (vi) to prescribe, amend, and rescind
rules and regulations relating to this Plan; (vii) to determine the terms and
provisions of each Award granted (which need not be identical), including but
not limited to, the time or times at which Awards shall be exercisable; (viii)
with the consent of the awardee, to modify or amend any Award; (ix) to defer
(with the consent of the optionee) the exercise date of any Option; (x) to
authorize any person to execute on behalf of the Company any instrument
evidencing the grant of an Award; and (xi) to make all other determinations
deemed necessary or advisable for the administration of this Plan. The
Administrator may delegate nondiscretionary administrative duties to such
employees of the Company as it deems proper.
(c) As
a
condition to any subsequent Award, the Administrator shall have the right,
at
its discretion, to require grantees to return to the Company Awards previously
made under the Plan. Subject to the terms and conditions of the Plan, any such
new Award shall be upon such terms and conditions as are specified by the
Administrator at the time the new Award is made. The Administrator shall have
the right, in its discretion, to make Awards in substitution or exchange for
any
other award under another plan of the Company, any Affiliate, or any business
entity to be acquired by the Company or an Affiliate. The Company may retain
the
right in an Award agreement to cause a forfeiture of the Award and/or the gain
realized by a grantee on account of actions taken by the grantee in violation
or
breach of or in conflict with any non-competition agreement, any agreement
prohibiting solicitation of employees or clients of the Company or any Affiliate
thereof or any confidentiality obligation with respect to the Company or any
Affiliate thereof or otherwise in competition with the Company or any Affiliate
thereof, to the extent specified in such Award agreement applicable to the
grantee.
2
(d) All
questions of interpretation, implementation, and application of this Plan shall
be determined by the Administrator. Such determinations shall be final and
binding on all persons.
5. GRANTING
OF OPTIONS; OPTION AGREEMENT
(a) No
Options shall be granted under this Plan after 10 years from the date of
adoption of this Plan by the Board.
(b) Each
Option shall be evidenced by a written stock option agreement, in form
satisfactory to the Administrator, executed by the Company and the person to
whom such Option is granted.
(c) The
stock
option agreement shall specify whether each Option it evidences is an NQSO
or an
ISO.
(d) Subject
to Section 6.3.3 with respect to ISOs, the Administrator may approve the grant
of Options under this Plan to persons who are expected to become employees,
directors or consultants of the Company or its Affiliates, but are not
employees, directors or consultants at the date of approval, and the date of
hire or retention shall be deemed to be the date of grant unless otherwise
specified by the Administrator.
6. TERMS
AND
CONDITIONS OF OPTIONS
Each
Option granted under this Plan shall be subject to the terms and conditions
set
forth in Section 6.1. NQSOs shall also be subject to the terms and conditions
set forth in Section 6.2, but not those set forth in Section 6.3. ISOs shall
also be subject to the terms and conditions set forth in Section 6.3, but not
those set forth in Section 6.2.
6.1Terms
and Conditions to Which All Options Are Subject.
All
Options granted under this Plan shall be subject to the following terms and
conditions:
6.1.1Changes
in Capital Structure.
Subject
to Section 6.1.2, if the stock of the Company is changed by reason of a stock
split, reverse stock split, stock dividend, or recapitalization, combination
or
reclassification, appropriate adjustments shall be made by the Board in (a)
the
number and class of shares of stock subject to this Plan and each Option
outstanding under this Plan, and (b) the exercise price of each outstanding
Option; provided,
however,
that
the Company shall not be required to issue fractional shares as a result of
any
such adjustments and provided,
further,
that no
adjustment shall be made hereunder due to a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification which
occurs as a result of the anticipated merger with and into Conmed Healthcare
Management Inc., a Delaware corporation. Each such adjustment shall be subject
to approval by the Board in its sole discretion.
3
6.1.2Corporate
Transactions.
In the
event of the proposed dissolution or liquidation of the Company, the
Administrator shall notify each optionee at least 30 days prior to such proposed
action. To the extent not previously exercised, all Options will terminate
immediately prior to the consummation of such proposed action; provided,
however,
that
the Administrator, in the exercise of its sole discretion, may permit exercise
of any Options prior to their termination, even if such Options were not
otherwise exercisable. In the event of a merger or consolidation of the Company
with or into another corporation or entity in which the Company does not
survive, or in the event of a sale of all or substantially all of the assets
of
the Company in which the shareholders of the Company receive securities of
the
acquiring entity or an affiliate thereof, all Options shall be assumed or
equivalent options shall be substituted by the successor corporation (or other
entity) or a parent or subsidiary of such successor corporation (or other
entity); provided,
however,
that if
such successor does not agree to assume the Options or to substitute equivalent
options therefor, the Administrator, in the exercise of its sole discretion,
may
permit the exercise of any of the Options prior to consummation of such event,
even if such Options were not otherwise exercisable.
6.1.3Time
of Option Exercise.
Subject
to Section 5 and Section 6.3.4, Options granted under this Plan shall be
exercisable (a) immediately as of the effective date of the stock option
agreement granting the Option, or (b) in accordance with a schedule as may
be
set by the Administrator (each such date on such schedule, the “Vesting
Base Date”)
and
specified in the written stock option agreement relating to such Option. In
any
case, no Option shall be exercisable until a written stock option agreement
in
form satisfactory to the Company is executed by the Company and the
optionee.
6.1.4Option
Grant Date.
The
date of grant of an Option under this Plan shall be the date upon which the
Administrator approves the grant.
6.1.5Non-transferability
of Option Rights.
Except
with the express written approval of the Administrator which approval the
Administrator is authorized to give only with respect to NQSOs, no Option
granted under this Plan shall be assignable or otherwise transferable by the
optionee except by will, by the laws of descent and distribution or pursuant
to
a qualified domestic relations order. During the life of the optionee, an Option
shall be exercisable only by the optionee.
6.1.6Payment.
Except
as provided below, payment in full, in cash, shall be made for all stock
purchased at the time written notice of exercise of an Option is given to the
Company, and proceeds of any payment shall constitute general funds of the
Company. The Administrator, in the exercise of its absolute discretion, may
authorize any one or more of the following additional methods of
payment:
(a) Subject
to the discretion of the Administrator and the terms of the stock option
agreement granting the Option, delivery by the optionee of Shares already owned
by the optionee for all or part of the Option price, provided,
that,
the
fair market value (determined as set forth in Section 6.1.9) of such Shares
being delivered is equal on the date of exercise to the Option price, or such
portion thereof as the optionee is authorized to pay by delivery of such stock;
and
4
(b) Subject
to the discretion of the Administrator, through the surrender of Shares then
issuable upon exercise of the Option, provided,
that,
the
fair market value (determined as set forth in Section 6.1.9) of such Shares
is
equal on the date of exercise to the Option price, or such portion thereof
as
the optionee is authorized to pay by surrender of such stock.
6.1.7Termination
of Employment.
If for
any reason other than death or permanent and total disability, an optionee
ceases to be employed by the Company or any of its Affiliates (such event being
called a “Termination”),
Options held at the date of Termination (to the extent then exercisable) may
be
exercised in whole or in part at any time within three months of the date of
such Termination, or such other period of not less than 30 days after the date
of such Termination as is specified in the Option Agreement or by amendment
thereof (but in no event after the Expiration Date); provided,
however,
that if
such exercise of the Option would result in liability for the optionee under
Section 16(b) of the Exchange Act, then such three-month period automatically
shall be extended until the tenth day following the last date upon which
optionee has any liability under Section 16(b) (but in no event after the
Expiration Date). If an optionee dies or becomes permanently and totally
disabled (within the meaning of Section 22(e)(3) of the Code) while employed
by
the Company or an Affiliate or within the period that the Option remains
exercisable after Termination, Options then held (to the extent then
exercisable) may be exercised, in whole or in part, by the optionee, by the
optionee’s personal representative or by the person to whom the Option is
transferred by devise or the laws of descent and distribution, at any time
within twelve months after the death or twelve months after the permanent and
total disability of the optionee or any longer period specified in the Option
Agreement or by amendment thereof (but in no event after the Expiration Date).
For purposes of this Section 6.1.7, “employment”
includes service as a director or as a consultant. For purposes of this Section
6.1.7, an optionee’s employment shall not be deemed terminated by reason of sick
leave, military leave or other leave of absence approved by the Administrator,
if the period of any such leave does not exceed 90 days or, if longer, if the
optionee’s right to reemployment by the Company or any Affiliate is guaranteed
either contractually or by statute.
6.1.8Other
Provisions.
Each
Option granted under this Plan may contain such other terms, provisions, and
conditions consistent with this Plan as may be determined by the Administrator,
and each ISO granted under this Plan shall include such provisions and
conditions as are necessary to qualify the Option as an “incentive stock option”
within the meaning of Section 422 of the Code.
6.1.9Determination
of Value.
For
purposes of the Plan, the fair market value of Shares or other securities of
the
Company shall be determined as follows:
(a)“Fair
market value” shall be the closing price of such stock on the date before the
date the value is to be determined on the principal recognized securities
exchange or recognized securities market on which such stock is reported,
however, if selling prices are not reported, the fair market value shall be
the
mean between the high bid and low asked prices for such stock on the date before
the date the value is to be determined (or if there are no quoted prices for
such date, then for the last preceding business day on which there were quoted
prices).
5
(b) In
the
absence of an established market for the stock, the fair market value thereof
shall be determined in good faith by the Administrator, with reference to the
Company’s net worth, prospective earning power, dividend-paying capacity, and
other relevant factors, including the goodwill of the Company, the economic
outlook in the Company’s industry, the Company’s position in the industry, the
Company’s management, and the values of stock of other corporations in the same
or similar line of business.
6.1.10Option
Term.
Subject
to Section 6.3.4, no Option shall be exercisable more than 10 years after the
date of grant, or such lesser period of time as is set forth in the stock option
agreement (the end of the maximum exercise period stated in the stock option
agreement is referred to in this Plan as the “Expiration
Date”).
6.2Terms
and Conditions to Which Only NQSOs Are Subject.
Options
granted under this Plan which are designated as NQSOs shall be subject to the
following terms and conditions:
6.2.1
Exercise
Price.
(a) Except
as
set forth in Section 6.2.1(b), the exercise price of an NQSO shall be not less
than the fair market value (determined in accordance with Section 6.1.9) of
the
stock subject to the Option on the date of grant.
(b) To
the
extent required by applicable laws, rules and regulations, the exercise price
of
an NQSO granted to any person who owns, directly or by attribution under the
Code (currently Section 424(d)), stock possessing more than ten percent of
the
total combined voting power of all classes of stock of the Company or of any
Affiliate (a “Ten
Percent Shareholder”)
shall
in no event be less than 110% of the fair market value (determined in accordance
with Section 6.1.9) of the stock covered by the Option at the time the Option
is
granted.
6.3Terms
and Conditions to Which Only ISOs Are Subject.
Options
granted under this Plan which are designated as ISOs shall be subject to the
following terms and conditions:
6.3.1Exercise
Price.
(a) Except
as
set forth in Section 6.3.1(b), the exercise price of an ISO shall be determined
in accordance with the applicable provisions of the Code and shall in no event
be less than the fair market value (determined in accordance with Section 6.1.9)
of the stock covered by the Option at the time the Option is
granted.
(b) The
exercise price of an ISO granted to any Ten Percent Shareholder shall in no
event be less than 110% of the fair market value (determined in accordance
with
Section 6.1.9) of the stock covered by the Option at the time the Option is
granted.
6
6.3.2Disqualifying
Dispositions.
If
stock acquired by exercise of an ISO granted pursuant to this Plan is disposed
of in a “disqualifying
disposition”
within
the meaning of Section 422 of the Code (a disposition within two years from
the
date of grant of the Option or within one year after the transfer such stock
on
exercise of the Option), the holder of the stock immediately before the
disposition shall promptly notify the Company in writing of the date and terms
of the disposition and shall provide such other information regarding the Option
as the Company may reasonably require.
6.3.3Grant
Date.
If an
ISO is granted in anticipation of employment as provided in Section 5(d), the
Option shall be deemed granted, without further approval, on the date the
grantee assumes the employment relationship forming the basis for such grant,
and, in addition, satisfies all requirements of this Plan for Options granted
on
that date.
6.3.4Term.
Notwithstanding Section 6.1.10, no ISO granted to any Ten Percent Shareholder
shall be exercisable more than five years after the date of grant.
7. MANNER
OF
EXERCISE
(a) An
optionee wishing to exercise an Option shall give written notice to the Company
at its principal executive office, to the attention of the officer of the
Company designated by the Administrator, accompanied by payment of the exercise
price and withholding taxes as provided in Section 6.1.6 and Section 10. The
date the Company receives written notice of an exercise hereunder accompanied
by
payment of the exercise price will be considered as the date such Option was
exercised.
(b) Promptly
after receipt of written notice of exercise of an Option and the payments called
for by Section 7(a), the Company shall, without stock issue or transfer taxes
to
the optionee or other person entitled to exercise the Option, deliver to the
optionee or such other person a certificate or certificates for the requisite
number of shares of stock. An optionee or permitted transferee of the Option
shall not have any privileges as a shareholder with respect to any shares of
stock covered by the Option until the date of issuance (as evidenced by the
appropriate entry on the books of the Company or a duly authorized transfer
agent) of such shares.
8. TERMS
AND
CONDITIONS OF RESTRICTED STOCK UNITS
8.1 Each
Restricted Stock Unit granted under the Plan shall be evidenced by a written
agreement between the Company and the grantee, which agreement shall comply
with, and be subject to, the terms and conditions set forth in Section
8.1:
8.1.1Number
of Shares and Units.
The
Board shall determine the number of Restricted Stock Units to be awarded to
a
grantee pursuant to a Restricted Stock Unit Award, as well as the specific
terms
of any Restricted Stock Unit Award.
7
8.1.2Non-transferability.
Except
as set forth in 8.1.7, a grantee may not sell, assign, transfer, pledge,
hypothecate or otherwise dispose of any Restricted Stock Units awarded to said
grantee under this Plan, nor may such Restricted Stock Units be made subject
to
execution, attachment or similar process or otherwise be disposed of, whether
by
operation of law or otherwise (including but not limited to, by will, by the
laws of descent and distribution or pursuant to a qualified domestic relations
order), until the Restricted Period (as defined below) shall have elapsed.
The
Board may also in its discretion impose such other restrictions and conditions
on Restricted Stock Units awarded as it deems appropriate , including, without
limitation, the imposition of provisions that will result in the forfeiture
of
Restricted Stock Units (or gains realized by a grantee) in the event the grantee
breaches covenants relating to non-competition, confidentiality and
non-solicitation of employees and customers. In determining the Restricted
Period of an Award, the Board or Administrator may provide that the restrictions
shall lapse with respect to specified percentages of the awarded units on
successive anniversaries of the date of such Award or upon the satisfaction
of
such other conditions as the Board may impose. In no event shall the Restricted
Period end with respect to a Restricted Stock Unit Award prior to the
satisfaction by the grantee of any liability arising under Section 10 hereof.
Any attempt to dispose of any Restricted Stock Units in contravention of any
such restrictions shall be null and void and without effect. The period during
which such restrictions on transfer, and such other restrictions as the Board
may impose, are in effect is referred to as the “Restricted
Period.”
8.1.3Certificates.
Upon
the
expiration or termination of the Restricted Period and the satisfaction of
any
other conditions prescribed by the Board or Administrator, the restrictions
applicable to Restricted Stock Units shall lapse, and, unless otherwise provided
in the agreement evidencing the Award, a stock certificate for the shares of
Stock covered by such Restricted Stock Units shall be delivered, free of all
such restrictions, to the grantee or the Beneficiary, as the case may be.
Notwithstanding the foregoing, a grantee may elect to defer payment in the
manner set forth by the Board and in accordance with Code Section 409A and
subject to Section 12.2 hereof.
8.1.4Termination.
If the
grantee’s continuous employment with the Company or an Affiliate shall terminate
for any reason, other than death or permanent and total disability, prior to
the
expiration of the Restricted Period applicable to any Restricted Stock Units
granted to such grantee, or prior to the satisfaction of any other conditions
established by the Board or Administrator applicable to such Award, any such
Restricted Stock Units then remaining subject to restrictions shall thereupon
be
forfeited by the grantee. Units forfeited pursuant to the preceding sentence
shall be transferred to, and cancelled by, the Company without payment of any
consideration by the Company, and neither the grantee nor any of the grantee’s
successors, heirs, assigns or personal representatives shall thereafter have
any
rights or interests in such Units. If a grantee dies or becomes permanently
and
totally disabled (within the meaning of Section 22(e)(3) of the Code) while
employed by the Company or an Affiliate or within the Restricted Period, the
Restricted Stock Units then held may be transferred, in whole or in part, by
the
grantee, by the grantee’s personal representative or by the person to whom the
Award is transferred by devise or the laws of descent and distribution, at
any
time within twelve months after the death or twelve months after the permanent
and total disability of the grantee or any longer period specified in the Award
or by amendment thereof. For purposes of this Section 8.1.4, “employment”
includes service as a director or as a consultant. For purposes of this Section
8.1.4, a grantee’s employment shall not be deemed to terminate by reason of sick
leave, military leave or other leave of absence approved by the Administrator,
if the period of any such leave does not exceed 90 days or, if longer, if the
grantee’s right to reemployment by the Company or any Affiliate is guaranteed
either contractually or by statute.
8
8.1.5Rights
as a Stockholder.
A
grantee or a transferee of a Restricted Stock Unit shall have no rights of
stockholder with respect to any Share covered by the Restricted Stock Unit
until
the date of the issuance of a stock certificate for such shares, and then only
with respect to shares subject to a Restricted Stock Unit Award which have
vested..
8.1.6Deferral
Election.
Each
grantee of a Restricted Stock Unit Award shall be entitled to elect to defer
all
or a percentage of any Stock he or she may be entitled to receive upon the
expiration of the Restricted Period. This election shall be made by giving
notice in a manner and within the time prescribed by the Board and in compliance
with Code Section 409A and
subject to Section 12.2 hereof.
8.1.7Changes
in Capital Structure.
If the
stock of the Company is changed by reason of a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification,
appropriate adjustments shall be made by the Board in the number and class
of
shares of stock subject to this Plan and each Restricted Stock Unit Award
outstanding under this Plan, provided,
however,
that
the Company shall not be required to issue fractional shares as a result of
any
such adjustments and provided,
further,
that no
adjustment shall be made hereunder due to a stock split, reverse stock split,
stock dividend, or recapitalization, combination or reclassification which
occurs as a result of the anticipated merger with and into Conmed Healthcare
Management Inc., a Delaware corporation. Each such adjustment shall be subject
to approval by the Board in its sole discretion.
8.1.8Dividend
Equivalents.
Dividend equivalents shall be credited in respect of Restricted Stock Units.
Cash dividends shall be credited on behalf of the grantee of a Restricted Stock
Unit Award to a deferred cash account (in a manner in compliance with Code
Section 409A). Stock dividends shall be converted into additional Restricted
Stock Units, which shall be subject to all of the terms and conditions of the
underlying Restricted Stock Unit Award, including the same vesting restrictions
as the underlying Award.
8.1.9Other
Provisions.
The
Board shall have the authority (and the Restricted Stock Unit Agreement may
so
provide) to cancel all or any portion of any outstanding restrictions and
conditions prior to the expiration of the Restricted Period with respect to
all
or part of a Restricted Stock Unit Award on such terms and conditions as the
Board may deem appropriate. The Restricted Stock Unit Award Agreements
authorized under this Plan shall contain such other provisions not inconsistent
with the terms hereof as the Board shall deem advisable.
9
9. EMPLOYMENT
OR CONSULTING RELATIONSHIP
Nothing
in this Plan or any Award granted hereunder shall interfere with or limit in
any
way the right of the Company or of any of its Affiliates to terminate any
awardee’s employment or consulting at any time, nor confer upon any awardee any
right to continue in the employ of, or consult with, the Company or any of
its
Affiliates.
10. CONDITIONS
UPON ISSUANCE OF SHARES
10.1 The
Plan
and the other obligations of the Company under the Plan and any agreement
thereunder shall be subject to all applicable federal and state laws, rules
and
regulations, and to such approvals by any regulatory or governmental agency
as
may be required. The Company, in its discretion, may postpone the issuance
or
delivery of Shares under any Award as the Company may consider appropriate,
and
may require any grantee or awardee to make such representations and furnish
such
information as it may consider appropriate in connection with the issuance
or
delivery of Shares in compliance with applicable laws, rules and
regulations.
10.2 When
a
grantee, awardee or other person becomes entitled to receive Shares pursuant
to
the exercise of an Option or with respect to a Restricted Stock Unit upon the
lapse of restrictions relating thereto, the Company shall have the right to
require the grantee, awardee or such other person to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements related thereto. Unless otherwise prohibited by the Board or by
applicable law, satisfaction of the withholding tax obligation may be
accomplished by any of the following methods or by a combination of such
methods: (a) tendering a cash payment, and (b) authorizing the Company to
withhold from the Shares otherwise payable one or more of such shares having
an
aggregate fair market value (as set forth in Section 6.1.9), determined as
of
the date the withholding tax obligation arises, less than or equal to the amount
of the total withholding tax obligation.
11. NON-EXCLUSIVITY
OF THE PLAN
The
adoption of the Plan shall not be construed as creating any limitations on
the
power of the Company to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting of stock options or
restricted stock other than under the Plan.
12. AMENDMENTS
TO PLAN
12.1 The
Board
may at any time amend, alter, suspend or discontinue this Plan. Without the
consent of an awardee, no amendment, alteration, suspension or discontinuance
may adversely affect outstanding Awards except to conform this Plan and ISOs
granted under this Plan to the requirements of federal or other tax laws
relating to incentive stock options. No amendment, alteration, suspension or
discontinuance shall require shareholder approval unless (a) shareholder
approval is required to preserve incentive stock option treatment for federal
income tax purposes or (b) the Board otherwise concludes that shareholder
approval is advisable.
10
12.2 If
at any
time the Board determines that any Award may be subject to Code
Section 409A, the Board shall have the right, in its sole discretion, and
without a Participant’s prior consent, to amend the Plan or any Award as
it may determine is necessary or desirable either for the Plan and
Awards to be exempt from the application of Section 409A or to satisfy
the requirements of Section 409A, including the addition of conditions with
respect to the vesting and/or the payment of the Awards.
13. EFFECTIVE
DATE OF PLAN; TERMINATION
This
Plan
shall become effective upon adoption by the Board; provided,
however,
that no
Option shall be exercisable and no Restricted Stock Units shall be granted
unless and until written consent of the shareholders of the Company, or approval
of shareholders of the Company voting at a validly called shareholders’ meeting,
is obtained within twelve months after adoption by the Board. If such
shareholder approval is not obtained within such time, Options granted hereunder
shall be of the same force and effect as if such approval was obtained except
that all ISOs granted hereunder shall be treated as NQSOs. Options may be
granted and exercised under this Plan only after there has been compliance
with
all applicable federal and state securities laws. This Plan shall terminate
within ten years from the date of its adoption by the Board.
11
PART
B
PROCEDURE
FOR EXERCISE OF APPRAISAL RIGHTS
490.1320
NOTICE
OF
APPRAISAL RIGHTS.
1. If
proposed corporate action described in section 490.1302, subsection 1, is
to be
submitted to a vote at a shareholders' meeting, the meeting notice must state
that the corporation has concluded that the shareholders are, are not, or
may be
entitled to
assert
appraisal rights under this part. If the corporation concludes that appraisal
rights are or may be available, a copy of this part must accompany the meeting
notice sent to those record shareholders entitled to exercise appraisal
rights.
2. In
a
merger pursuant to section 490.1105, the parent corporation must notify in
writing all record shareholders of the subsidiary who are entitled to assert
appraisal rights that the corporate action became effective. Such notice
must be
sent within ten days after the corporate action became effective and include
the
materials described in section 490.1322.
490.1321
NOTICE
OF
INTENT TO DEMAND PAYMENT.
1. If
proposed corporate action requiring appraisal rights under section 490.1302
is
submitted to a vote at a shareholders' meeting, a shareholder who wishes
to
assert appraisal rights with respect to any class or series of shares must
do
all of the following:
a. Deliver
to the corporation before the vote is taken written notice of the shareholder's
intent to demand payment if the proposed action is effectuated.
b. Not
vote,
or cause or permit to be voted, any shares of such class or series in favor
of
the proposed action.
2. A
shareholder who does not satisfy the requirements of subsection 1 is not
entitled to payment under this part.
490.1322
APPRAISAL
NOTICE AND FORM.
1. If
proposed corporate action requiring appraisal rights under section 490.1302,
subsection 1, becomes effective, the corporation must deliver a written
appraisal notice and form required by subsection 2, paragraph "a", to all
shareholders who satisfied the requirements of section 490.1321. In the case
of
a merger under section 490.1105, the parent must deliver a written appraisal
notice and form to all record shareholders who may be entitled to assert
appraisal rights.
2. The
appraisal notice must be sent no earlier than the date the corporate action
became effective and no later than ten days after such date and must do all
of
the following:
a. Be
accompanied by a form that specifies the date of the first announcement to
shareholders of the principal terms of the proposed corporate action and
requires the shareholder asserting appraisal rights to certify whether or
not
beneficial ownership of those shares for which appraisal rights are asserted
was
acquired before that date, and that the shareholder did not vote for the
transaction.
b. State
all
of the following:
(1) Where
the
form must be sent and where certificates for certificated shares must be
deposited and the date by which those certificates must be deposited, which
date
shall not be earlier than the date for receiving the required form under
subparagraph (2).
(2) A
date by
which the corporation must receive the form, which date shall not be fewer
than
forty nor more than sixty days after the date the appraisal notice and form
are
sent under subsection 1, and state that the shareholder shall have waived
the
right to demand appraisal with respect to the shares unless the form is received
by the corporation by such specified date.
(3) The
corporation's estimate of the fair value of the shares.
(4) That,
if
requested in writing, the corporation will provide, to the shareholder so
requesting, within ten days after the date specified in subparagraph (2)
the
number of shareholders who return the forms by the specified date and the
total
number of shares owned by them.
(5) The
date
by which the notice to withdraw under section 490.1323 must be received,
which
date must be within twenty days after the date specified in subparagraph
(2).
c. Be
accompanied by a copy of this division.
490.1323
PERFECTION
OF RIGHTS -- RIGHT TO WITHDRAW.
1. A
shareholder who receives notice pursuant to section 490.1322 and who wishes
to
exercise appraisal rights must certify on the form sent by the corporation
whether the beneficial owner of such shares acquired beneficial ownership
of the
shares before the date required to be set forth in the notice pursuant to
section 490.1322, subsection 2, paragraph "a". If a shareholder fails to
make
this certification, the corporation may elect to treat the shareholder's
shares
as after-acquired shares under section 490.1325. In addition, a shareholder
who
wishes to exercise appraisal rights must execute and return the form and,
in a
case of certificated shares, deposit the shareholder's certificates in
accordance with the terms of the notice by the date referred to in the notice
pursuant to section 490.1322, subsection 2, paragraph "b", subparagraph (2).
Once a shareholder deposits that shareholder's certificates or, in the case
of
uncertificated shares, returns the executed forms, that shareholder loses
all
rights as a shareholder, unless the shareholder withdraws pursuant to subsection
2.
2. A
shareholder who has complied with subsection 1 may nevertheless decline to
exercise appraisal rights and withdraw from the appraisal process by so
notifying the corporation in writing by the date set forth in the appraisal
notice pursuant to section 490.1322, subsection 2, paragraph "b", subparagraph
(5). A shareholder who fails to so withdraw from the appraisal process shall
not
thereafter withdraw without the corporation's written consent.
3. A
shareholder who does not execute and return the form and, in the case of
certificated shares, deposit the shareholder's share certificates where
required, each by the date set forth in the notice described in section
490.1322, subsection 2, shall not be entitled to payment under this
division.
490.1324
PAYMENT.
1. Except
as
provided in section 490.1325, within thirty days after the form required
by
section 490.1322, subsection 2, paragraph "b", subparagraph (2), is due,
the
corporation shall pay in cash to those shareholders who complied with section
490.1323, subsection 1, the amount the corporation estimates to be the fair
value of their shares, plus interest.
2. The
payment to each shareholder pursuant to subsection 1 must be accompanied
by all
of the following:
a. Financial
statements of the corporation that issued the shares to be appraised, consisting
of a balance sheet as of the end of a fiscal year ending not more than sixteen
months before the date of payment, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any.
b. A
statement of the corporation's estimate of the fair value of the shares,
which
estimate must equal or exceed the corporation's estimate given pursuant to
section 490.1322, subsection 2, paragraph "b", subparagraph (3).
c. A
statement that shareholders described in subsection 1 have the right to demand
further payment under section 490.1326 and that if any such shareholder does
not
do so within the time period specified therein, such shareholder shall be
deemed
to have accepted the payment to the shareholder pursuant to subsection 1
in full
satisfaction of the corporation's obligations under this chapter.
490.1325
AFTER-ACQUIRED
SHARES.
1. A
corporation may elect to withhold payment required by section 490.1324 from
any
shareholder who did not certify that beneficial ownership of all of the
shareholder's shares for which appraisal rights are asserted was acquired
before
the date set forth in the appraisal notice sent pursuant to section 490.1322,
subsection 2, paragraph "a".
2. If
the
corporation elects to withhold payment under subsection 1, it must within
thirty
days after the form required by section 490.1322, subsection 2, paragraph
"b",
subparagraph (2), is due, notify all shareholders who are described in
subsection 1 regarding all of the following:
a. Of
the
information required by section 490.1324, subsection 2, paragraph
"a".
b. Of
the
corporation's estimate of fair value pursuant to section 490.1324, subsection
2,
paragraph "b".
c. That
they
may accept the corporation's estimate of fair value, plus interest, in full
satisfaction of their demands or demand appraisal under section
490.1326.
d. That
those shareholders who wish to accept such offer must notify the corporation
of
their acceptance of the corporation's offer within thirty days after receiving
the offer.
e. That
those shareholders who do not satisfy the requirements for demanding appraisal
under section 490.1326 shall be deemed to have accepted the corporation's
offer.
3. Within
ten days after receiving the shareholder's acceptance pursuant to subsection
2,
the corporation must pay in cash the amount it offered under subsection 2,
paragraph "b", to each shareholder who agreed to accept the corporation's
offer
in full satisfaction of the shareholder's demand.
4. Within
forty days after sending the notice described in subsection 2, the corporation
must pay in cash the amount it offered to pay under subsection 2, paragraph
"b",
to each shareholder described in subsection 2, paragraph "e".
490.1326
PROCEDURE
IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
1. A
shareholder paid pursuant to section 490.1324 who is dissatisfied with the
amount of the payment must notify the corporation in writing of that
shareholder's estimate of the fair value of the shares and demand payment
of
that estimate plus interest, less any payment under section 490.1324. A
shareholder offered payment under section 490.1325 who is dissatisfied with
that
offer must reject the offer and demand payment of the shareholder's stated
estimate of the fair value of the shares plus interest.
2. A
shareholder who fails to notify the corporation in writing of that shareholder's
demand to be paid the shareholder's stated estimate of the fair value plus
interest under subsection 1 within thirty days after receiving the corporation's
payment or offer of payment under section 490.1324 or 490.1325, respectively,
waives the right to demand payment under this section and shall be entitled
only
to the payment made or offered pursuant to those respective
sections.
Preliminary
Copy
PACE
HEALTH MANAGEMENT SYSTEMS, INC.
THIS
PROXY IS BEING SOLICITED ON BEHALF OF OUR BOARD OF DIRECTORS
The
undersigned hereby appoints John Pappajohn and Richard Turner, together as
proxies and each with full power of substitution, to represent and to vote
all
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred
Stock and common stock (each as applicable) of Pace Health Management Systems,
Inc. (“Pace”), at the special meeting of stockholders of Pace to be held on
_______, 2007, at 10:00 a.m. eastern time, and at any adjournment or
postponement thereof, hereby revoking any and all proxies heretofore given.
AT
LEAST A MAJORITY OF EACH CLASS OF THE COMPANY’S OUTSTANDING CAPITAL STOCK HAS
AGREED TO VOTE IN FAVOR OF EACH OF THE ITEMS LISTED
BELOW.
1.
Proposal
1:
to
approve the Plan of Recapitalization, including:
(i)
reincorporation of Pace into the state of Delaware pursuant to the
Merger
Agreement;
(ii)
changing the name of Pace from Pace Health Management Systems, Inc.
to
ConMed Healthcare Management, Inc;.
(iii)
enacting a
reverse stock split on a 1 for 20 basis, resulting in every 20 shares
of
outstanding Common Stock being exchanged for one share of Common
Stock,
thereby reducing the number of outstanding shares of Common
Stock;
(iv)
increasing the number of authorized shares of Common Stock from 20,000,000
to 40,000,000 shares; and
(v)
converting the Series A Preferred Stock (and the waiver of all accrued
and
unpaid dividends on the Series A Preferred Stock) into 4,584,196
shares of
Common Stock on a post reverse split basis.
¨ FOR
¨ AGAINST
¨ ABSTAIN
2.
Proposal
2: to
vote FOR ALL nominees listed below to Pace’s Board of Directors, EXCEPT as
marked to the contrary below:
John
Pappajohn
Richard
Turner
Edward
B. Berger
(INSTRUCTION:
To withhold authority to vote for any individual nominee strike a
line
through the nominee’s name above.)
¨
FOR ¨ AGAINST ¨ ABSTAIN
3.
Proposal
3:
to
approve the 2007 Stock Option Plan Proposal- the adoption of the
2007
Stock Option Plan pursuant to which Pace has reserved 1,600,000 shares
of
common stock for issuance pursuant to the terms of such Plan.
¨
FOR ¨ AGAINST ¨ ABSTAIN
This
proxy, when properly executed, will be voted in the manner directed herein
by
the undersigned stockholder. If no direction is made, this proxy will be voted
“FOR”
Proposals 1, 2,and 3.
Our
board of directors believes that the Plan of Recapitalization as well as the
other Proposals are fair to, and in the best interests of, all of our
shareholders. Accordingly, our board of directors unanimously recommends that
you vote “FOR” Proposals 1, 2, and 3.
In
their
discretion, the proxies are authorized to vote upon such other matters as may
properly come before the special meeting or any adjournments thereof. If you
wish to vote in accordance with our board of directors’ recommendations, just
sign below. You need not mark any boxes.
Dated
2007
Signature of Shareholder
Signature of Shareholder (if held jointly)
NOTES:
1.
Please
sign exactly as the name appears on your stock certificate. When shares of
capital stock are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee, guardian, or corporate officer,
please include full title as such. If the shares of capital stock are owned
by a
corporation, sign in the full corporate name by an authorized officer. If the
shares of capital stock are owned by a partnership, sign in the name of the
partnership by an authorized officer.
2.
To be
valid, the enclosed form of proxy for the special meeting, together with the
power of attorney or other authority, if any, under which it is signed,
must be received by
[ ],
eastern time,
on [ ],
2007 at the offices of our transfer agent, Wells Fargo Shareowner Services,
P.O.
Box 64875, St. Paul, MN55164-0875
3.
Returning the enclosed form of proxy will not prevent you from attending and
voting in person at the special meeting or any adjournment or postponement
thereof.
PLEASE
COMPLETE, CUT OFF, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY
TO WELLS
FARGO SHAREOWNER SERVICES
Dates Referenced Herein and Documents Incorporated by Reference
