-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EXR11elaYvE2xB6tFHEwh7sKSS/4/Z53vPVAZC3Q0gIhws+g0790HzWKMan9IllI hPVk771XLGONvGm//6Sb2w== 0000893877-00-000139.txt : 20000310 0000893877-00-000139.hdr.sgml : 20000310 ACCESSION NUMBER: 0000893877-00-000139 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000221 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 20000309 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDICALOGIC INC CENTRAL INDEX KEY: 0000923899 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 930890696 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-28285 FILM NUMBER: 564370 BUSINESS ADDRESS: STREET 1: 20500 NW EVERGREEN PARKWAY STREET 2: STE 400 CITY: HILLSBORO STATE: OR ZIP: 97124 BUSINESS PHONE: 5036456442 MAIL ADDRESS: STREET 1: 20500 NW EVERGREEN PARKWAY CITY: HILLSBORO STATE: OR ZIP: 97124 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): February 21, 2000 MEDICALOGIC, INC. (Exact name of registrant as specified in its charter) Oregon 000-28285 93-0890696 (State of other jurisdiction (Commission File Number) (I.R.S. Employer incorporation or organization) dentification No.) 20500 NW Evergreen Parkway Hillsboro, Oregon 97124 (Address of principal executive offices) (503) 531-7000 (Registrant's telephone number, including area code) Item 5. Other Events. On February 21, 2000, MedicaLogic, Inc., an Oregon corporation ("MedicaLogic"), AQ Merger Corp., a Delaware corporation and wholly owned subsidiary of MedicaLogic ("AQ"), and Total eMed, Inc., a Delaware corporation ("Total eMed"), entered into an Agreement of Reorganization and Merger (the "Total eMed Merger Agreement"), a copy of which is attached hereto as Exhibit 99.1 and incorporated by reference herein. Pursuant to the terms of the Total eMed Merger Agreement, AQ would merge with and into Total eMed (the "Total eMed Merger"), subject to certain conditions being satisfied or waived. Pursuant to the Total eMed Merger Agreement, each share of Total eMed Common Stock, $0.001 par value, would be converted into the right to receive .8070437 shares of MedicaLogic Common Stock. Conditions to the consummation of the Total eMed Merger include the receipt of regulatory approvals and approval by the shareholders of MedicaLogic and Total eMed. Certain shareholders of MedicaLogic holding approximately 34.9% of the outstanding shares of MedicaLogic have entered into agreements to vote their MedicaLogic shares in favor of the Total eMed Merger, and certain shareholders of Total eMed holding approximately 81% of the outstanding common stock, 60% of the outstanding Series A preferred stock, 99.8% of the outstanding Series B preferred stock, and 99.8% of the outstanding Series C preferred stock of Total eMed have entered into agreements to vote their Total eMed shares in favor of the Total eMed Merger. On February 21, 2000, MedicaLogic, Inc., an Oregon corporation ("MedicaLogic"), Moneypenny Merger Corp., a Delaware corporation and wholly owned subsidiary of MedicaLogic ("Moneypenny"), and Medscape, Inc., a Delaware corporation ("Medscape"), entered into an Agreement of Reorganization and Merger (the "Medscape Merger Agreement"), a copy of which is attached hereto as Exhibit 99.2 and incorporated by reference herein. Pursuant to the terms of the Medscape Merger Agreement, Moneypenny would merge with and into Medscape (the "Medscape Merger"), subject to certain conditions being satisfied or waived. Pursuant to the Medscape Merger Agreement, each outstanding share of Medscape Common Stock, $0.01 par value, would be converted into the right to receive .323 of a share of MedicaLogic Common Stock. Conditions to the consummation of the Medscape Merger include the receipt of regulatory approvals and approval by the shareholders of MedicaLogic and Medscape. Certain shareholders of MedicaLogic holding approximately 34.9% of the outstanding shares of MedicaLogic have entered into agreements to vote their MedicaLogic shares in favor of the Medscape Merger, and certain shareholders of Medscape holding approximately 40.3% of the outstanding shares of Medscape have entered into agreements to vote their Medscape shares in favor of the Medscape Merger. On February 22, 2000, MedicaLogic, Total eMed and Medscape issued a joint press release announcing the execution of the merger agreements, which press release is attached hereto as Exhibit 99.3 and incorporated herein by reference. The foregoing summaries of the merger agreements are qualified in their entirety by reference to the full agreements which are attached hereto as exhibits. 2 The information set forth above shall not be deemed to constitute an offer to sell any security. Any such offer to sell will be made only by means of a prospectus. Item 7. Financial Statements, Pro Forma Financial Information and Exhibits. (c) Exhibits -------- 2.1 Agreement of Reorganization and Merger dated as of February 21, 2000 among MedicaLogic, Inc., Total eMed, Inc. and AQ Merger Corp.* 2.2 Agreement of Reorganization and Merger dated as of February 21, 2000 among MedicaLogic, Inc., Medscape, Inc. and Moneypenny Merger Corp.* 99.1 Text of Joint Press Release, dated February 22, 2000, titled "MedicaLogic and Medscape Agree to Merge; MedicaLogic Also to Acquire Total eMed." - ---------- *Certain exhibits to, and schedules delivered in connection with, the Total eMed Merger Agreement and Medscape Merger Agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. MedicaLogic agrees to supplementally furnish to the Commission a copy of any such exhibit or schedule upon request. 3 Signatures ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: March 7, 2000 MEDICALOGIC, INC. By FRANK J. SPINA ------------------------------------- Frank J. Spina Senior Vice President and Chief Financial Officer 4 EXHIBIT INDEX Ex. No. Description - ------- ----------- 2.1 Agreement of Reorganization and Merger dated as of February 21, 2000 among MedicaLogic, Inc., Total eMed, Inc. and AQ Merger Corp. 2.2 Agreement of Reorganization and Merger dated as of February 21, 2000 among MedicaLogic, Inc., Medscape, Inc. and Moneypenny Merger Corp. 99.1 Text of Joint Press Release, dated February 22, 2000, titled "MedicaLogic and Medscape Agree to Merge; MedicaLogic Also to Acquire Total eMed." EX-2.1 2 TOTAL EMED MERGER AGREEMENT Agreement of Reorganization and Merger among MedicaLogic, Inc., an Oregon corporation, Total eMed, Inc., a Delaware corporation, and AQ Merger Corp., a Delaware corporation, February 21, 2000 TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER .........................................................1 1.1 The Merger ..........................................................1 1.2 Effect of Merger ....................................................1 1.3 Merger Consideration ................................................1 1.3.1 Total eMed Stock ............................................2 1.3.2 Merger Corp. Stock ..........................................2 1.3.3 Options .....................................................2 1.3.4 Stock Splits, Etc. ..........................................3 1.4 Surrender and Cancellation of Certificates ..........................3 1.4.1 Surrender of Certificates ...................................3 1.4.2 No Fractional Shares ........................................4 1.4.3 Escheat .....................................................4 1.4.4 Option Agreements ...........................................4 1.4.5 Treasury Shares .............................................5 1.4.6 Withholding Rights ..........................................5 1.4.7 Shares of Dissenting Stockholders ...........................5 1.5 Stock Transfer Books ................................................5 1.6 Closing .............................................................5 1.7 Subsequent Actions ..................................................6 1.8 Certificate of Incorporation; Bylaws; Directors of the Surviving Corporation .........................................................6 ARTICLE II FURTHER AGREEMENTS ................................................6 2.1 Voting Agreements ...................................................6 ARTICLE III REPRESENTATIONS AND WARRANTIES ...................................7 3.1 Representations and Warranties of Total eMed ........................7 3.1.1 Organization and Status .....................................7 3.1.2 Capitalization ..............................................7 3.1.3 Authority ...................................................8 3.1.4 Subsidiaries and Joint Ventures .............................8 3.1.5 Financial Statements ........................................8 3.1.6 Information Supplied ........................................9 3.1.7 Governmental Filings ........................................9 3.1.8 No Adverse Consequences .....................................9 3.1.9 Undisclosed Liabilities ....................................10 3.1.10 Absence of Certain Changes or Events .......................10 3.1.11 Litigation .................................................10 3.1.12 Employment Matters .........................................10 3.1.12.1 Labor Matters .......................................10 3.1.12.2 Employee Benefits ...................................11 ii 3.1.12.3 Employment Agreements ...............................11 3.1.13 Title to and Condition of Real Property ....................12 3.1.14 Title to and Condition of Fixed Assets .....................12 3.1.15 Intellectual Property ......................................12 3.1.16 Certain Contracts and Arrangements .........................18 3.1.17 Status of Contracts ........................................18 3.1.18 Insurance ..................................................19 3.1.19 Permits and Licenses .......................................19 3.1.20 Taxes ......................................................20 3.1.20.1 Returns .............................................20 3.1.20.2 Taxes Paid or Reserved ..............................20 3.1.20.3 Definitions .........................................21 3.1.21 Related Party Interests ....................................21 3.1.22 No Powers of Attorney or Restrictions ......................21 3.1.23 Environmental Conditions ...................................22 3.1.23.1 Compliance ..........................................22 3.1.23.2 Hazardous Substances ................................22 3.1.23.3 Filings and Notices .................................22 3.1.23.4 Definitions .........................................22 3.1.24 Consents and Approvals .....................................23 3.1.25 Brokers and Finders ........................................23 3.1.26 [Intentionally Omitted] ....................................23 3.1.27 No Other Agreements to Sell Total eMed or Its Assets .......23 3.1.28 Vote Required ..............................................23 3.1.29 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E) .......................................23 3.2 Representations and Warranties of MDLI .............................25 3.2.1 Organization and Status ....................................25 3.2.2 Corporate Authority ........................................25 3.2.3 Governmental Filings .......................................25 3.2.4 Information Supplied .......................................26 3.2.5 SEC Reports and Financial Statements .......................26 3.2.6 No Adverse Consequences ....................................27 3.2.7 Brokers and Finders ........................................27 3.2.8 Opinion of MDLI Financial Advisor ..........................27 3.2.9 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E) .......................................27 3.2.10 Litigation .................................................29 3.2.11 Capitalization .............................................29 3.2.12 Undisclosed Liabilities; Returns ...........................29 3.2.13 Absence of Certain Changes or Events .......................29 3.2.14 Taxes ......................................................30 3.2.14.1 Returns .............................................30 3.2.14.2 Taxes Paid or Reserved ..............................30 3.2.15 Related Party Interests ....................................31 iii 3.2.16 No Powers of Attorney or Restrictions ......................31 3.2.17 Consents and Approvals .....................................31 3.3 Representations and Warranties Relating to Merger Corp. ............31 3.3.1 Organization and Status ....................................31 3.3.2 Capitalization .............................................31 3.3.3 Corporate Authority ........................................31 3.3.4 Governmental Filings .......................................31 3.3.5 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E) ...................................... 32 ARTICLE IV COVENANTS ........................................................32 4.1 Mutual Covenants ...................................................32 4.1.1 Preparation of Registration Statement and the Joint Proxy Statement ..................................................32 4.1.2 Shareholder Meetings .......................................33 4.1.3 Consents and Approvals .....................................33 4.1.4 Best Efforts ...............................................34 4.1.5 Publicity ..................................................34 4.1.6 Confidentiality ............................................34 4.1.7 [Intentionally Omitted] ....................................34 4.1.8 Antitrust Improvements Act .................................34 4.1.9 Restructuring of Merger ....................................34 4.2 Covenants of Total eMed ............................................35 4.2.1 Conduct of Business ........................................35 4.2.2 Acquisition Proposals ......................................36 4.2.3 Investigations .............................................37 4.3 Covenants of MDLI ..................................................37 4.3.1 Investigations .............................................37 4.3.2 Notification to Optionees ..................................37 4.3.3 MDLI Board .................................................37 4.3.4 [Intentionally Omitted] ....................................37 4.3.5 Nasdaq Listing Application .................................38 4.3.6 Officer and Director Indemnification .......................38 4.3.7 Conduct of Business ........................................38 4.3.8 Break Up Fee ...............................................38 4.4 Covenants of Merger Corp. .......................................38 ARTICLE V CONDITIONS ........................................................38 5.1 Conditions to the Obligations of All Parties .......................38 5.1.1 Regulatory Approvals .......................................38 5.1.2 Litigation ................................................39 5.1.3 Shareholder Approval .......................................39 5.1.4 Registration of Securities; Listing ........................39 5.2 Conditions to the Obligations of Total eMed ........................39 5.2.1 Representations, Warranties and Covenants ..................39 5.2.2 No Material Adverse Change .................................39 iv 5.2.3 Legal Opinion ..............................................40 5.3 Conditions to the Obligations of MDLI and Merger Corp. .............40 5.3.1 Representations, Warranties and Covenants ..................40 5.3.2 Lock-up ....................................................40 5.3.3 No Material Adverse Change .................................40 5.3.4 Financial Statements .......................................40 5.3.5 [Intentionally Omitted] ....................................40 5.3.6 Dissenting Shares. .........................................40 5.3.7 Preferred Stock. ...........................................40 5.3.8 Escrow Schedule ............................................41 5.3.9 Legal Opinion ..............................................41 ARTICLE VI TERMINATION 41 6.1 Termination by Mutual Consent ......................................41 6.2 Termination by Either Total eMed or MDLI ...........................41 6.3 Effect of Termination and Abandonment ..............................42 ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW ...............42 7.1 Survival of Representations and Warranties .........................42 7.2 Escrow Arrangements ................................................42 7.2.1 Contract Escrow Fund .......................................42 7.2.1.1 Litigation Escrow Fund ...............................43 7.2.1.2 Distribution from Litigation Escrow Fund .............44 7.2.2 Escrow Period; Distribution upon Termination of Escrow Periods ....................................................45 7.2.3 Protection of Escrow Fund ..................................46 7.2.4 Claims upon Escrow Fund ....................................46 7.2.5 Objections to Claims .......................................47 7.2.6 Resolution of Conflicts; Arbitration .......................47 7.2.7 Securityholder Agent of the Shareholders; Power of Attorney ...................................................48 7.2.8 Actions of the Securityholder Agent ........................49 7.2.9 Third-Party Claims .........................................49 7.2.10 Escrow Agent's Duties ......................................50 7.2.11 Fees .......................................................52 7.2.12 Maximum Liability and Remedies .............................53 ARTICLE VIII MISCELLANEOUS AND GENERAL ......................................53 8.1 Payment of Expenses ................................................53 8.2 Entire Agreement ...................................................53 8.3 Assignment .........................................................53 8.4 Binding Effect; No Third Party Benefit .............................53 8.5 Amendment and Modification .........................................53 8.6 Waiver of Conditions ...............................................54 8.7 Counterparts .......................................................54 8.8 Captions ...........................................................54 8.9 Subsidiary .........................................................54 v 8.10 Notices ............................................................54 8.11 Choice of Law ......................................................55 8.12 Separability .......................................................56 vi EXHIBITS Exhibit A-1 Certificate of Incorporation of the Surviving Corporation Exhibit A-2 Bylaws of the Surviving Corporation Exhibit B Form of Voting Agreement Exhibit C Total eMed Financial Statements Exhibit D MDLI Fairness Opinion Exhibit E Form of Legal Opinion of MDLI's Counsel Exhibit F Form of Legal Opinion of Total eMed's Counsel vii SCHEDULES Schedule 2.1 Individuals Executing Voting Agreements Schedule 3.1 Total eMed Disclosure Schedule Schedule 3.1.2 Capitalization Schedule 3.1.4 Subsidiaries and Joint Ventures Schedule 3.1.11 Litigation Schedule 3.1.12.2 Employee Benefits Schedule 3.1.12.3 Employment Agreements Schedule 3.1.13 Title to and Condition of Real Property Schedule 3.1.14 Title to and Condition of Fixed Assets Schedule 3.1.15 Intellectual Property Schedule 3.1.16 Certain Contracts and Arrangements Schedule 3.1.18 Insurance Schedule 3.1.19 Permits and Licenses Schedule 3.1.20 Taxes Schedule 3.1.21 Related Party Interests Schedule 3.1.27 No Other Agreements to Sell Total eMed or its Assets Schedule 3.2 MDLI Disclosure Schedule Schedule 3.2.10 MDLI Litigation Schedule 3.2.11 MDLI Capitalization Schedule 3.2.13 Absence of Certain Changes or Events Schedule 3.2.14 MDLI Taxes Schedule 3.2.15 MDLI Related Party Interests viii INDEX OF TERMS Term Location of Definition Acquisition Transaction Section 4.2.2 Agreement Preface Bylaws Section 3.1.1 Certificate of Incorporation Section 3.1.1 Closing Section 1.6 Closing Date Section 1.6 Code Section 1.3.3 Confidential Information Section 4.1.6 Confidentiality Agreement Section 4.1.6 Condition Completion Date Section 1.6 Contract Escrow Fund Section 7.2.1 Contracts Section 3.1.17 Conversion Ratio Section 1.3 Copyrights Section 3.1.15 Damages Section 7.3.1 DGCL Section 1.2 Dissenting Shares Section 1.4.7 Dissenting Stockholders Section 1.3 Earn-out Claims Section 7.2.1 Effective Time Section 1.1 Employee Benefit Plans Section 3.1.12.2 Environmental Law Section 3.1.23.4 ERISA Section 3.1.12.2 Escrow Agent Section 7.2.1 Escrow Amount Section 7.2.1 Escrow Fund Section 7.2.3.1 Escrow Period Section 7.2.2 Escrow Schedule Section 7.2.1 Exchange Act Section 3.2.5 Expiration Date Section 7.2.1 Form S-4 Section 3.1.6 GAAP Section 3.1.5 HoldCo. Section 4.1.9.1 Governmental Entity Section 3.1.7 HSR Filing Section 4.1.8 Hazardous Substance Section 3.1.23.4 Intellectual Property Rights Section 3.1.15 Leased Real Property Section 3.1.13 Lien Section 3.1.14 ix INDEX OF TERMS Term Location of Definition Litigation Escrow Fund Section 7.2.1.1 Litigation Expenses Section 7.2.1.2.1 Loss Section 7.2.1 Maskworks Section 3.1.15 Material Adverse Change Section 3.1 Material Adverse Effect Section 3.1 MDLI Preface MDLI Common Stock Section 1.1 MDLI Disclosure Schedule Section 3.2 MDLI Financial Statements Section 3.2.5 MDLI Indemnified Parties Section 7.3.1 MDLI Returns Section 3.2.15.1 MDLI SEC Document Section 3.2.5 MDLI Special Meeting Section 4.1.2 Merger Section 1.1 Merger Consideration Section 1.3 Merger Corp. Preface Most Recent Fiscal Year End Section 3.1.5 New Shares Section 7.2.3 Officer's Certificate Section 7.2.1 Options Section 1.3.3 Patents Section 3.1.15 Permits Section 3.1.19 Policies Section 3.1.18 Previously Leased Real Property Section 3.1.13 Proxy Statement Section 3.1.6 PTO Section 3.1.15 Reorganization Section 4.1.9.1 Registered Intellectual Property Rights Section 3.1.15 Representative Section 4.2.2 Returns Section 3.1.20.1 SEC Section 3.1.6 Securities Act Section 2.3.2 Securityholder Agent Section 7.2.7 Series C Common Equivalents Section 1.3.1 Shareholders Section 7.2.1 Small Business Status Section 3.1.15 Subsidiary Section 8.9 Superior Proposal Section 4.2.2 Total eMed Preface x INDEX OF TERMS Term Location of Definition Total eMed Common Stock Section 1.1 Total eMed Disclosure Schedule Section 3.1 Total eMed Financial Statements Section 3.1.5 Total eMed Indemnifiable Claim Section 7.3.1 Total eMed Intellectual Property Section 3.1.15 Total eMed Option Grants Section 3.1.2 Total eMed Option Plans Section 3.1.2 Total eMed Registered Intellectual Property Rights Section 3.1.15 Total eMed SEC Document Section 3.1.5 Total eMed Preface Special Meeting Section 4.1.2 Voting Agreement Section 2.1 xi Agreement of Reorganization and Merger THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is entered into as of February 21, 2000 among MedicaLogic, Inc., an Oregon corporation ("MDLI"), Total eMed, Inc., a Delaware corporation ("Total eMed"), and AQ Merger Corp., a Delaware corporation ("Merger Corp."). AGREEMENT In consideration of the mutual representations, warranties, covenants, agreements and conditions contained herein, the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. Pursuant to the laws of the State of Delaware, and subject to and in accordance with the terms and conditions of this Agreement, Merger Corp. shall be merged with and into Total eMed, and each outstanding share of common stock of Total eMed (the "Total eMed Common Stock") shall be converted into the right to receive shares of common stock of MDLI (the "MDLI Common Stock") in accordance with Section 1.3 of this Agreement. Total eMed and Merger Corp. shall execute a Certificate of Merger, to be filed with the Secretary of State of Delaware, on the Closing Date, as defined in Section 1.6, or as soon thereafter as practicable. The merger of Merger Corp. with and into Total eMed (the "Merger") shall take effect at the time when the Certificate of Merger is duly filed with the Secretary of State of Delaware, or at such other time as the parties may agree upon in writing pursuant to applicable law (the "Effective Time"). 1.2 Effect of Merger. At the Effective Time, Merger Corp. shall be merged with and into Total eMed in the manner and with the effect provided by the Delaware General Corporation Law (the "DGCL"), the separate corporate existence of Merger Corp. shall cease and Total eMed shall be the surviving corporation (the "Surviving Corporation"). The outstanding shares of Total eMed Common Stock shall be converted into shares of MDLI Common Stock, and the outstanding shares of capital stock of Merger Corp. shall be converted into shares of capital stock of the Surviving Corporation, all on the basis, terms and conditions described in Section 1.3. 1.3 Merger Consideration. The aggregate maximum number of shares of MDLI Common Stock to be issued in exchange for the acquisition by MDLI of all outstanding Total eMed Common Stock and all outstanding convertible securities of Total eMed and unexpired and unexercised options, warrants and other rights to acquire any capital stock of Total eMed shall be 8,000,000 (the "Merger Consideration"). 1.3.1 Total eMed Stock. Each share of Total eMed Common Stock outstanding immediately before the Effective Time and each share of Series C Common Equivalents deemed outstanding immediately before the Effective Time (other than shares of Total eMed Common Stock or Series C Common Equivalents held by stockholders exercising appraisal rights under Section 262 of the DGCL ("Dissenting Stockholders")) will cease to exist and will be converted into the right to receive one share of MDLI Common Stock multiplied by the Conversion Ratio (as defined below). The "Conversion Ratio" shall mean the fraction, the numerator of which is the aggregate of 8,000,000 shares of MDLI Common Stock to be issued as Merger Consideration and the denominator of which is the sum on the date of this Agreement of (A) the total number of shares of Total eMed Common Stock issued and outstanding, (B) the total number of shares of Total eMed Common Stock issuable upon the conversion of all issued and outstanding shares of Total eMed's Series A Preferred Stock, par value $.001, and Total eMed's Series B Preferred Stock, par value $.001, and (C) the total number of shares of Total eMed Common Stock issuable upon the exercise of all options, warrants and other rights to purchase or acquire shares of Total eMed Common Stock (excluding the shares issuable pursuant to the Stock Earn-Out, as that term is defined in the Asset Purchase Agreement, dated April 30, 1999, by and among a subsidiary of Total eMed, Bruyn Weber Information Services, Inc., and certain other parties named therein,) and (D) the total number of shares of Series C Common Equivalents deemed outstanding. For the purposes of this Agreement, a holder of one share of Total eMed's Series C Preferred Stock, par value $.001, shall be deemed to hold 25.5407 shares of "Series C Common Equivalents", and such share of Series C Common Equivalents shall be deemed to be outstanding. 1.3.2 Merger Corp. Stock. Each share of common stock of Merger Corp. issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to exist and be converted into and become one share of common stock of the Surviving Corporation. After the Effective Time, MDLI, the sole holder of shares of Merger Corp. common stock outstanding immediately prior to the Effective Time, shall, upon surrender for cancellation of a certificate representing such shares to the Surviving Corporation, be entitled to receive in exchange therefor a certificate representing the number of shares of common stock of the Surviving Corporation into which such shares of Merger Corp. common stock have been converted pursuant to Section 1.3.2. Until so surrendered, the certificates which prior to the Merger represented shares of Merger Corp. common stock shall be deemed, for all corporate purposes, including voting entitlement, to evidence ownership of the shares of the Surviving Corporation common stock into which such shares of Merger Corp. common stock shall have been converted. 1.3.3 Options. Except as otherwise provided in Section 1.3.3, the terms and provisions of the stock options held by those Total eMed option holders under the Total eMed 2 Option Plans and under the Total eMed Option Grants (collectively, the "Options") will continue in full force and effect following the Merger. By virtue of the Merger and at the Effective Time, and without any further action on the part of any holder thereof, each Option will be converted into an option to purchase the number of shares of MDLI Common Stock equal to the product (rounded to the nearest whole number) of (x) the number of shares of Total eMed Common Stock subject to such Option immediately before the Effective Time multiplied by (y) the Conversion Ratio. The exercise price per share for each Option after the Effective Time will be determined by dividing the per share exercise price for such Option immediately before the Effective Time by the Conversion Ratio. The term, exercisability, vesting schedule, status as an incentive stock option under Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"), if applicable, and all other terms and conditions of each Option will, to the extent permitted by the existing terms of the Options or permitted by law, and otherwise reasonably practicable, be unchanged. As promptly as practicable after the Effective Time, MDLI shall issue to each holder of an Option a written instrument informing such holder of the assumption by MDLI of such Option. Unless all Options are, as of the Effective Time, issuable pursuant to an effective registration statement on Form S-8 of MDLI, or in the opinion of counsel of MDLI freely tradable upon issuance pursuant to Rule 701 under the Securities Act of 1933, as Amended (the "Securities Act"), as soon as practicable after the Effective Time, MDLI shall file a registration statement on Form S-8 (or any successor form) with respect to the Options and shall use its reasonable efforts to maintain such registration statement (or any successor form), including the current status of any related prospectus, for so long as the Options remain outstanding. MDLI shall use its reasonable efforts to cause the MDLI Common Stock subject to the Options to be quoted on the Nasdaq National Market or such other system or exchange on which the MDLI Common Stock is then quoted or listed. MDLI shall take all corporate action necessary to reserve for issuance a sufficient number of shares of MDLI Common stock for delivery upon exercise of the Options pursuant to Section 1.3.3 1.3.4 Stock Splits, Etc. If, between the date of this Agreement and the Effective Time, the outstanding shares of either Total eMed Common Stock or MDLI Common Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, combination, recapitalization, stock split, stock dividend, subdivision, exchange of shares, or other extraordinary transaction, the Conversion Ratio and the Merger Consideration shall be adjusted proportionately. 1.4 Surrender and Cancellation of Certificates. ------------------------------------------ 1.4.1 Surrender of Certificates. Promptly after the Effective Time, MDLI will cause its transfer agent (the "Transfer Agent") to send a letter to each holder of shares of Total eMed Common Stock that have been converted into MDLI Common Stock advising such holder that upon surrender to the Transfer Agent of a certificate or certificates representing such shares, along with a letter of transmittal in the form enclosed therein, stock powers duly endorsed in blank with respect to shares of MDLI Common Stock escrowed as provided for in Section 7.2, or other documents as may be reasonably requested by MDLI or its agent, the 3 holder shall be entitled to receive a certificate representing the number of shares of MDLI Common Stock into which such shares of Total eMed Common Stock shall have been converted pursuant to the provisions of Section 1.3. If any certificate for shares of MDLI Common Stock is to be issued in a name other than that in which the certificate for Total eMed Common Stock surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, and that the person requesting such exchange pay to MDLI or its agent designated for such purpose any transfer or other taxes required, or establish to the reasonable satisfaction of MDLI or its agent that such tax has been paid or is not payable. If any holder of Total eMed Common Stock canceled and retired in accordance with this Agreement is unable to deliver a certificate or certificates representing such shares of the holder, MDLI, in the absence of actual notice that any shares theretofore represented by any such certificate have been acquired by a bona fide purchaser, shall deliver to such holder the number of shares of MDLI Common Stock to which such holder is entitled in accordance with the provisions of this Agreement upon the presentation of the following: (i) evidence satisfactory to MDLI (a) that such person is the owner of the shares theretofore represented by each certificate claimed by him, her or it to be lost, wrongfully taken or destroyed and (b) that he, she or it is the person who would be entitled to present each such certificate for conversion pursuant to this Agreement; and (ii) such security or indemnity as may be reasonably requested by MDLI to indemnify and hold MDLI and the Transfer Agent harmless. 1.4.2 No Fractional Shares. No certificates or scrip evidencing fractional shares of MDLI Common Stock shall be issued in the Merger. In lieu of a fractional share, MDLI will pay any holder of shares of Total eMed Common Stock who would otherwise have been entitled to a fraction of a share of MDLI Common Stock upon surrender of the certificates therefor an amount of cash (without interest) determined by multiplying (a) the closing price per share of MDLI Common Stock on the first trading day immediately preceding the Effective Time by (b) the fractional share interest in MDLI Common Stock to which such holder would otherwise be entitled. The provisions of this Section 1.4.2 will apply to the aggregate number of shares of Total eMed Common Stock held by each holder thereof and each such holder will be required to simultaneously surrender all certificates relating to shares of Total eMed Common Stock held by such holder in accordance with the provisions of Section 1.4 in order to surrender any such certificate. 1.4.3 Escheat. Neither MDLI nor Merger Corp. shall be liable to any holder of shares of Total eMed Common Stock for any such shares of MDLI Common Stock (or dividends or distributions with respect thereto) or cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.4.4 Option Agreements. After the Effective Time, each holder of an Option outstanding immediately before the Effective Time will be deemed to hold an option exercisable for MDLI Common Stock in accordance with the provisions of Section 1.3.3. 4 1.4.5 Treasury Shares. At the Effective Time, each share of Total eMed Common Stock or other Total eMed capital stock held in the treasury of Total eMed immediately before the Effective Time will be canceled and extinguished without any conversion thereof and no payment will be made with respect thereto. 1.4.6 Withholding Rights. MDLI shall be entitled to deduct and withhold from the Merger Consideration such amounts as MDLI is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by MDLI, such withheld amounts shall be treated for all purposes of this Agreement as having been paid by the holder of the shares of Total eMed Common Stock in respect of which such deduction and withholding was made by MDLI. 1.4.7 Shares of Dissenting Stockholders. Notwithstanding anything in this Agreement to the contrary, any issued and outstanding Total eMed Common Stock held by any Dissenting Stockholder who has not voted such Total eMed Common Stock in favor of or consented to the Merger and who complies with all the provisions of Section 262 of the DGCL concerning the right of holders of Total eMed Common Stock to dissent from the Merger and require appraisal of their Total eMed Common Stock ("Dissenting Shares") will not be converted as described in Section 1.3 but will become only the right to receive such consideration as may be determined to be due to such Dissenting Stockholder pursuant to such provisions of the DGCL. If, after the Effective Time, such Dissenting Stockholder withdraws the demand for appraisal or fails to perfect or otherwise loses the right of appraisal, in any case pursuant to the DGCL, such Dissenting Stockholder's Total eMed Common Stock will be deemed to be converted as of the Effective Time into the right to receive the Merger Consideration. Total eMed will give MDLI (i) prompt notice of any demands received by Total eMed for appraisal of Total eMed Common Stock and (ii) the opportunity to participate in and direct all negotiations and proceedings with respect to any such demands. Total eMed will not, without the prior written consent of MDLI, make any payment with respect to, or settle, offer to settle, or otherwise negotiate, any such demands. 1.5 Stock Transfer Books. At the Effective Time, the stock transfer books of Total eMed will be closed and there will be no further registration of transfers of Total eMed capital stock or other securities thereafter on the records of Total eMed. 1.6 Closing. The closing of the Merger (the "Closing") shall take place at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, Portland, Oregon at 10:00 a.m. local time on the third business day following the Condition Completion Date (as hereinafter defined), or on such other date and/or at such other place and time as Total eMed, MDLI and Merger Corp. may agree (the "Closing Date"). The "Condition Completion Date" shall be the business day on which the last of the conditions set forth in Article V hereof shall have been fulfilled or waived (other than those conditions which, by their terms, are to be satisfied at Closing). 5 1.7 Subsequent Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to, or under any of the rights, properties or assets of Total eMed or Merger Corp. acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation are authorized to execute and deliver, in the name and on behalf of Total eMed or Merger Corp., or otherwise, all such deeds, bills of sale, assignments and assurances, and to take and do, in the name and on behalf of Total eMed or Merger Corp., or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement. 1.8 Certificate of Incorporation; Bylaws; Directors of the Surviving Corporation. ---------------------------------------------------------------- (a) At the Effective Time, Merger Corp.'s Certificate of Incorporation, a copy of which is attached to this Agreement as Exhibit A-1, shall be the certificate of incorporation of the Surviving Corporation at and after the Effective Time (until amended as provided by law and by that certificate of incorporation). (b) At the Effective Time, Merger Corp.'s bylaws, a copy of which is attached to this Agreement as Exhibit A-2, shall be the bylaws of the Surviving Corporation at and after the Effective Time (until amended as provided by law, the certificate of incorporation of the Surviving Corporation and the bylaws of the Surviving Corporation, as applicable). (c) The directors of Merger Corp. immediately prior to the Effective Time shall be the directors of the Surviving Corporation from and after the Effective Time, until their successors are elected or appointed and qualified or until their resignation or removal. ARTICLE II FURTHER AGREEMENTS 2.1 Voting Agreements. Each of the shareholders of Total eMed and MDLI listed on Schedule 2.1 will execute and deliver, concurrently with the execution of this Agreement, a Voting Agreement in the form attached as Exhibit B (the "Voting Agreement"). Each Voting Agreement provides that the signing holder will vote all of the shares of Total eMed Common Stock or MDLI Common Stock, as the case may be, that such holder is entitled to vote in favor of the Merger. 6 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Total eMed . For purposes of this Agreement, "Material Adverse Effect" or "Material Adverse Change" means any effect, change, event, circumstance or condition which when considered with all other effects, changes, events, circumstances or conditions would affect materially and adversely the business, results of operations or financial condition of a party, in each case including its Subsidiaries together with it taken as a whole. In no event shall any of the following constitute a Material Adverse Effect or a Material Adverse Change: (i) any change in the trading prices of MDLI Common Stock between the date hereof and the Effective Time, in and of itself; (ii) effects, changes, events, circumstances or conditions generally affecting the industry in which either MDLI or Total eMed operates or arising from changes in general business or economic conditions; (iii) any effects, changes, events, circumstances or conditions resulting from any change in law or generally accepted accounting principles, which affect generally entities such as MDLI and Total eMed; and (iv) any effect resulting from compliance by MDLI or Total eMed with the terms of this Agreement. Total eMed hereby represents and warrants to MDLI and Merger Corp. that, except as specifically set forth in Schedule 3.1 (the "Total eMed Disclosure Schedule") in a numbered paragraph that corresponds to the section for which disclosure is made: 3.1.1 Organization and Status. Total eMed and each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation in each jurisdiction where its properties (whether owned, leased or operated) or its business conducted require such qualification, except where failure to be so qualified would not have a Material Adverse Effect on Total eMed. Total eMed has all requisite corporate power and authority to own, operate and lease its property and to carry on its businesses as they are now being conducted. Total eMed has delivered to MDLI complete and accurate copies of its Certificate of Incorporation ("Certificate of Incorporation") and Bylaws ("Bylaws"), each as amended to the date hereof. 3.1.2 Capitalization. Total eMed has authorized capital stock consisting of 20,000,000 shares of Total eMed Common Stock, of which 2,797,790 shares are outstanding; and 461,200 shares of preferred stock (the "Total eMed Preferred Stock"); of which 435,200 shares are designated as Series A Preferred Stock, $.001 par value, of which 435,200 shares are outstanding; 14,000 shares are designated as Series B Preferred Stock, $.001 par value, of which 14,000 shares are outstanding; and 12,000 shares are designated as Series C Preferred Stock, $.001 par value, of which 12,000 shares are outstanding. The Series A Preferred Stock will convert into 2,176,000 shares of Total eMed Common Stock. The Series B Preferred Stock will convert into 3,930,563 shares of Total eMed Common Stock. The Series C Preferred Stock will be deemed to convert into 306,488 shares of Series C Common Equivalents. Options to purchase 444,380 shares of Total eMed Common Stock are 7 outstanding pursuant to grants made under Total eMed's 1999 Incentive Stock Option Plan and 1999 Stock Option and Incentive Plan (collectively, the "Total eMed Option Plans"). Options to purchase 237,500 shares of Total eMed Common Stock are outstanding pursuant to grants made under individual stock option agreements with the following (the "Total eMed Option Grants"): Karen Pou (12,500 shares); Kelly Gill (75,000 shares); and Richard Rehm (150,000 shares). All of the outstanding shares of capital stock of Total eMed have been duly authorized and are validly issued, fully paid and nonassessable, and no shares were issued, and no options were granted, in violation of preemptive or similar rights of any shareholder or in violation of any applicable securities laws. Except as set forth above, or on Schedule 3.1.2, there are no shares of capital stock of Total eMed authorized, issued or outstanding, and there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of Total eMed of any character relating to the issued or unissued capital stock or other securities of Total eMed. There are no outstanding obligations of Total eMed or any of its Subsidiaries to repurchase, redeem or otherwise acquire any of the outstanding shares of capital stock of Total eMed or any of its Subsidiaries. 3.1.3 Authority. Total eMed has the corporate power and authority and, except for the approval of its stockholders, has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly authorized by the Board of Directors of Total eMed, validly executed and delivered by Total eMed. This Agreement constitutes the valid and binding obligation of Total eMed, enforceable against Total eMed in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. 3.1.4 Subsidiaries and Joint Ventures. Except as disclosed on Schedule 3.1.4, Total eMed has no subsidiaries and owns no stock or other interest in any other corporation or in any partnership or limited liability company, or other venture or entity. Except as disclosed on Schedule 3.1.4, Total eMed owns all of the issued and outstanding capital stock and other ownership interests of each of its Subsidiaries, free and clear of all encumbrances, and there are no existing options, warrants, calls, subscriptions, convertible securities or other securities, commitments or obligations of any character relating to the securities of any such Subsidiary. 3.1.5 Financial Statements. Attached hereto as Exhibit C are the following consolidated financial statements (collectively the "Total eMed Financial Statements"): audited consolidated balance sheets and statements of income, changes in stockholders' equity, and cash flow as of and for the fiscal years ended December 31, 1998 and December 31, 1999 (the "Most Recent Fiscal Year End") for Total eMed. The Total eMed Financial Statements (including the notes thereto) have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods covered thereby, present fairly in all material respects the consolidated financial condition of Total eMed as of such dates and the consolidated results of operations of Total eMed for such 8 periods, are correct and complete, and are consistent with the books and records of Total eMed (which books and records are correct and complete in all material respects). 3.1.6 Information Supplied. None of the information supplied or to be supplied by Total eMed in writing specifically for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the Securities and Exchange Commission (the "SEC") by MDLI in connection with the registration of the Merger Consideration, or any of the amendments or supplements thereto (collectively, the "Form S-4"), will, at the time the Form S-4 is filed with the SEC, at any time it is amended or supplemented and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the joint proxy statement for use relating to obtaining approval of the shareholders of MDLI and Total eMed of the Merger (the "Proxy Statement") will, at the time the Proxy Statement is first mailed to Total eMed's stockholders or MDLI's shareholders or at the time of the MDLI Special Meeting and Total eMed Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by Total eMed with respect to statements made or incorporated by reference therein based on information contained therein which is supplied by any other party including without limitation, (i) information supplied by MDLI in writing specifically for inclusion or incorporation by reference therein or (ii) information relating to MDLI which is reviewed by MDLI without objection and with the knowledge it will be used in the Proxy Statement. 3.1.7 Governmental Filings. Other than (a) the filing of the Certificate of Merger contemplated by Article I, (b) the Proxy Statement described in Section 3.1.6 and (c) the HSR Filing to be made by Total eMed and described in Section 4.1.8, no notices, reports or other filings are required to be made by Total eMed with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Total eMed from, any domestic or foreign governmental or regulatory authority, agency, court, commission or other entity ("Governmental Entity") in connection with the execution and delivery of this Agreement by Total eMed and the consummation by Total eMed of the transactions contemplated hereby. 3.1.8 No Adverse Consequences. Neither the execution and delivery of this Agreement by Total eMed nor the consummation of the transactions contemplated by this Agreement will (a) result in the creation or imposition of any lien, charge, encumbrance or restriction on any of the assets or properties of Total eMed, (b) violate any provision of the Certificate of Incorporation or Bylaws of Total eMed, (c) violate any statute, judgment, order, injunction, decree, rule, regulation or ruling of any Governmental Entity applicable to Total eMed, or (d) either alone or with the giving of notice or the passage of time or both, conflict with, constitute grounds for termination of, accelerate the performance required by, accelerate the maturity of any indebtedness or obligation under, result in the breach of the terms, 9 conditions or provisions of or constitute a default under any mortgage, deed of trust, indenture, note, bond, lease, license, permit or other agreement, instrument or obligation to which Total eMed is a party or by which any of them are bound, except, in the case of clause (c) or (d), for violations, conflicts or breaches that would not have a Material Adverse Effect on Total eMed. 3.1.9 Undisclosed Liabilities. Except for liabilities or obligations which were incurred after the date of the Total eMed Financial Statements in the ordinary course of business and of a type and in an amount consistent with past practices, Total eMed has no material liability or obligation (whether absolute, accrued, contingent, or otherwise, and whether due or to become due) which is not accrued, reserved against, or identified on the Total eMed Financial Statements or included in the notes thereto, except for liabilities or obligations that would not have a Material Adverse Effect on Total eMed. 3.1.10 Absence of Certain Changes or Events. Except as set forth on Schedule 3.1.10, since the date of the Most Recent Fiscal Year End, there has not been: (a) Any Material Adverse Change in Total eMed; or (b) Any change by Total eMed in accounting methods, principles or practices. 3.1.11 Litigation. Except as listed on Schedule 3.1.11, no material litigation, proceeding or governmental investigation is pending or, to Total eMed's knowledge, threatened against or relating to Total eMed, its officers or directors in their capacities as such, or any of Total eMed's properties, businesses or Subsidiaries. 3.1.12 Employment Matters. ------------------ 3.1.12.1 Labor Matters. Neither Total eMed nor any of its Subsidiaries is a party to or otherwise subject to any collective bargaining or other agreement governing the wages, hours or terms of employment of employees. Total eMed and each of its Subsidiaries is and have been in material compliance with all applicable laws regarding employment and employment practices, terms and conditions of employment, wages and hours and is not and has not been engaged in any unfair labor practice. There is no (a) unfair labor practice complaint against Total eMed or any of its Subsidiaries pending before the National Labor Relations Board or any other Governmental Entity, (b) labor strike, slowdown or work stoppage actually occurring or, to the knowledge of Total eMed, threatened against Total eMed or any of its Subsidiaries, (c) representation petition respecting the employees of Total eMed or any of its Subsidiaries pending before the National Labor Relations Board or similar agency, or (d) grievance or any arbitration proceeding pending arising out of or under collective bargaining agreements applicable to Total eMed or any of its Subsidiaries. Total eMed and its Subsidiaries have not experienced any primary work stoppage or other organized work stoppage involving their employees in the past two years. Total eMed is not aware of any labor strike, slowdown, or work stoppage occurring or, to the knowledge of Total eMed, threatened against any of Total eMed's principal suppliers that might be expected to have a Material 10 Adverse Effect on Total eMed or its Subsidiaries. All of the employees of Total eMed and its Subsidiaries working in the United States are citizens or permanent residents of the United States. No employee of Total eMed or its Subsidiaries is the beneficiary under an employer-sponsored non-immigrant visa and no approvals, permits or consents of any governmental entity are required in order for Total eMed or its Subsidiaries to employ any current employee as a result of or in connection with such employee's immigration status in the United States. Total eMed and its Subsidiaries have fully completed and retained a Form I-9 for each of their employees in accordance with applicable law, and Total eMed and its Subsidiaries are not its Subsidiaries is subject to examination in connection with such forms or to any fines or other penalties under laws relating to employees who are not authorized to work in the United States. 3.1.12.2 Employee Benefits. Schedule 3.1.12.2 lists all pension, retirement, profit sharing, deferred compensation, bonus, commission, incentive compensation (including cash, stock and option plans or arrangements), life insurance, health and disability insurance, hospitalization and all other employee benefit plans or arrangements (including, without limitation, any contracts or agreements with trustees, insurance companies or others relating to any such employee benefit plans or arrangements) established or maintained by Total eMed or its Subsidiaries, and complete and accurate copies of all those plans or arrangements have been provided to MDLI (the "Employee Benefit Plans"). The Employee Benefit Plans are listed separately on Schedule 3.1.12.2 and comply in all material respects with the requirements of applicable law. None of the Employee Benefit Plans, their related trusts or any trustee, investment manager or administrator thereof has engaged in a nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code. Total eMed and its Subsidiaries have no obligation of any kind (whether under the terms of the Employee Benefit Plans or under any understanding with employees) to make payments under, or to pay contributions to, any plan, agreement or other arrangement for deferred compensation of employees, whether or not tax qualified, including, without limitation, a single employer tax qualified plan, a tax qualified plan of a controlled group of corporations, a multi-employer pension plan, a "defined benefit" plan, a nonqualified deferred compensation plan, an individual employment or compensation agreement or a commitment to provide medical benefits to retirees. 3.1.12.3 Employment Agreements. Except as set forth on Schedule 3.1.12.3, each employee of Total eMed or its Subsidiaries is an "at-will" employee and there are no written employment, commission or compensation agreements of any kind between Total eMed or its Subsidiaries and any employees. Schedule 3.1.12.3 lists all Total eMed's or its Subsidiaries' employment or supervisory manuals, employment or supervisory policies, and written information generally provided to employees (such as applications or notices), and complete and accurate copies of those manuals, policies and written information have been provided to MDLI. Total eMed and its Subsidiaries do not have any agreements or understandings with employees, including without limitation any agreements or understandings regarding compensation of any nature, severance payments or retirement benefits, except as reflected in the items listed in Schedules 3.1.12.2 and 3.1.12.3. 11 3.1.13 Title to and Condition of Real Property. Total eMed does not own any real property. Schedule 3.1.13 contains a list of all real property currently leased or occupied by Total eMed or its Subsidiaries (the "Leased Real Property"), including the dates of and parties to all leases and any amendments thereof and a list of all real property previously leased or occupied by Total eMed or its Subsidiaries (the "Previously Leased Real Property"). All Leased Real Property (including improvements thereon) is in satisfactory condition and repair consistent with its present use, and is available for immediate use in the conduct of Total eMed's business. Neither the operations of Total eMed or its Subsidiaries on any Leased Real Property, nor any improvements on the Leased Real Property, violates any applicable building or zoning code or regulation of any governmental authority having jurisdiction, except where such violation would not have a Material Adverse Effect on Total eMed. The Leased Real Property includes all real property necessary to conduct the business of Total eMed and its Subsidiaries as presently conducted. None of the Leased Real Property has been condemned or otherwise taken by public authority and no such condemnation is, to the knowledge of Total eMed, threatened or contemplated. 3.1.14 Title to and Condition of Fixed Assets. Schedule 3.1.14 contains a complete and accurate list of all tangible personal property (excluding inventory) owned or leased by Total eMed or its Subsidiaries (the "Tangible Personal Property"), including the dates of and parties to all leases and any amendments thereof except for items of Tangible Personal Property with a cost basis of less than $25,000. Except as set forth in Schedule 3.1.14, Total eMed or its Subsidiaries have good and marketable title to all of the Tangible Personal Property, free and clear of all liens, mortgages, pledges, leases, restrictions and other claims and encumbrances of any nature whatsoever (each, a "Lien"), except for statutory liens and other Liens that would not materially interfere with the intended use of such Tangible Personal Property. In all material respects, the Tangible Personal Property is in good operating condition and repair (ordinary wear and tear excepted), is performing satisfactorily, and is adequate for the conduct of the business of Total eMed. All Tangible Personal Property and the state of maintenance thereof are in compliance with all applicable laws and regulations. 3.1.15 Intellectual Property. --------------------- 3.1.15.1 Definitions. For all purposes of this Agreement, the following terms shall have the following respective meanings: (i) "Technology" shall mean any or all of the following: (A) works of authorship including, without limitation, computer programs, source code and executable code, whether embodied in software, firmware or otherwise, documentation, designs, files, net lists, records (not including medical records), data and mask works; (B) inventions (whether or not patentable), improvements and technology; (C) proprietary and confidential information, including technical data and customer and supplier lists, trade secrets and know how; (D) databases, data compilations and collections and technical data; (E) logos, trade names, trade dress, trademarks and service marks; (F) World Wide Web addresses, domain names and 12 sites; (G) tools, methods and processes; and (H) all instances of the foregoing in any form and embodied in any media. (ii) "Intellectual Property Rights" shall mean any or all of the following and all rights in, arising out of, or associated therewith: (A) all United States and foreign patents and utility models and applications therefor and all reissues, divisions, re-examinations, renewals, extensions, provisionals, continuations and continuations-in-part thereof and equivalent or similar rights anywhere in the world in inventions and discoveries, including, without limitation, invention disclosures ("Patents"); (B) all trade secrets and other rights in know-how and confidential or proprietary information; (C) all copyrights, copyrights registrations and applications therefor and all other rights corresponding thereto throughout the world ("Copyrights"); (D) all mask works, mask work registrations and applications therefor, and any equivalent or similar rights in semiconductor masks, layouts, architectures or topology ("Maskworks"); (E) all industrial designs and any registrations and applications therefor throughout the world; (F) all rights in World Wide Web addresses and domain names and applications and registrations therefor; (G) all trade names, logos, common law trademarks and service marks, trademark and service mark registrations and applications therefor and all goodwill associated therewith throughout the world ("Trademarks"); and (H) any similar, corresponding or equivalent rights to any of the foregoing anywhere in the world. (iii) "Total eMed Intellectual Property" shall mean any Technology and Intellectual Property Rights including Total eMed Registered Intellectual Property Rights (as defined below) that are owned (in whole or in part) by Total eMed or any of its Subsidiaries. (iv) "Registered Intellectual Property Rights" shall mean all United States, international and foreign: (A) Patents, including applications therefor; (B) registered Trademarks, applications to register Trademarks, including intent-to-use applications, or other registrations or applications related to Trademarks; (C) Copyright registrations and applications to register Copyrights; (D) Maskwork registrations and applications to register Maskworks; and (E) any other Technology that is the subject of an application, certificate, filing, registration or other document issued by, filed with, or recorded by, any state, government or other public or private legal authority at any time, which application, certificate, filing, registration or other document gives the owner thereof rights against a third party. 3.1.15.2 Schedule 3.1.15.2 lists all Registered Intellectual Property Rights owned by, filed in the name of, or applied for, by Total eMed or any of its Subsidiaries (the "Total eMed Registered Intellectual Property Rights") and lists any proceedings or actions currently pending and which Total eMed or any of its Subsidiaries have initiated or of which Total eMed or any of its Subsidiaries have requested written notice before any court, tribunal (including the United States Patent and Trademark Office (the "PTO") or equivalent authority anywhere in the world) related to any of Total eMed Registered Intellectual Property Rights or Total eMed Intellectual Property. 13 3.1.15.3 Each registration of Total eMed Registered Intellectual Property Rights is valid and subsisting or pending, and all necessary registration, maintenance and renewal fees that have come due in connection with such Total eMed Registered Intellectual Property Rights have been paid and all necessary documents and certificates that have come due in connection with such Total eMed Registered Intellectual Property Rights have been filed with the relevant patent, copyright, trademark or other authorities in the United States or foreign jurisdictions, as the case may be, for the purposes of maintaining such Registered Intellectual Property Rights. Except as set forth on Schedule 3.1.15.3, there are no actions that must be taken by Total eMed or any of its Subsidiaries within 120 days of the Closing Date, including the payment of any registration, maintenance or renewal fees or the filing of any responses to PTO office actions, documents, applications or certificates for the purposes of obtaining, maintaining, perfecting or preserving or renewing any Total eMed Registered Intellectual Property Rights. In each case in which Total eMed or any of its Subsidiaries has acquired all rights, title and interest in, as opposed to the right to use, any Technology or Intellectual Property Right from any person, Total eMed or its Subsidiaries have obtained a valid and enforceable assignment sufficient to irrevocably transfer all rights in such Technology or Intellectual Property Rights to Total eMed or to its Subsidiaries, except for such assignments that failure of which to obtain will not have a Material Adverse Effect. Except as set forth on Schedule 3.1.15.3, neither Total eMed nor its Subsidiaries has claimed a particular status, including "Small Business Status," in the application for any Total eMed Intellectual Property Rights, which claim of status was not at the time made, or which has since become, inaccurate or false or that will no longer be true and accurate as a result of the Closing. 3.1.15.4 Neither Total eMed nor its Subsidiaries has knowledge of any facts or circumstances that would render any Total eMed Intellectual Property invalid or unenforceable. Except as set forth on Schedule 3.1.15.4, Neither Total eMed nor any of its Subsidiaries knows of information, materials, facts or circumstances, including any information or fact that would constitute prior art, that would render any of Total eMed Registered Intellectual Property Rights invalid or unenforceable, or would adversely effect any pending application for any Total eMed Registered Intellectual Property Right and neither Total eMed nor any of its Subsidiaries has knowledge of any misrepresentation or failure to disclose, any fact or circumstances in any application for any Total eMed Registered Intellectual Property Right that would constitute fraud or a misrepresentation with respect to such application or that would otherwise affect the validity or enforceability of any Total eMed Registered Intellectual Property Right. 3.1.15.5 Each item of Total eMed Intellectual Property is free and clear of any Liens except for non-exclusive licenses granted to end-user customers in the ordinary course of business. The Total eMed Intellectual Property is subject only to non-exclusive licenses granted to distributors, resellers and end-users. Without limiting the foregoing, to the knowledge of Total eMed or any of its Subsidiaries: (i) Total eMed and/or its Subsidiaries is the exclusive owner(s) of all Trademarks used by Total eMed or any of its Subsidiaries in connection with the operation or conduct of the business of Total eMed or any 14 of its Subsidiaries, including the sale, licensing, distribution or provision of any products or services by Total eMed or any of its Subsidiaries; and (ii) except as set forth on Schedule 3.1.15.5, Total eMed or its Subsidiaries owns exclusively, and has good title to, all copyrighted works created by Total eMed or its Subsidiaries or which Total eMed or any of its Subsidiaries otherwise purports to own. 3.1.15.6 Except as set forth in Schedule 3.1.15.6, all Total eMed Intellectual Property will be fully transferable, alienable or licensable by Surviving Corporation and/or MDLI without restriction to the extent Total eMed or any of its Subsidiaries could do the same and except that any such transfer, alienation or license shall be subject to non-exclusive licenses granted to end user customers in the ordinary course of Total eMed's or its Subsidiaries' business prior to the Merger and without payment of any kind to any third party other than royalties and fees payable in the ordinary course of Total eMed's or its Subsidiaries' business prior to the Merger. 3.1.15.7 To the extent that any Technology has been developed or created by a third party for Total eMed or any of its Subsidiaries, Total eMed or its Subsidiaries have a written agreement with such third party with respect thereto and Total eMed or its Subsidiaries thereby either (i) have obtained ownership of, and is the exclusive owner of, or (ii) have obtained a license, in each case, sufficient for the conduct of its business as currently conducted, to such third party's Intellectual Property Rights in such Technology by operation of law or by valid assignment or license. 3.1.15.8 Except as set forth on Schedule 3.1.15.8 and with the exception of "shrink-wrap" or similar widely-available commercial end-user licenses, all Technology used in or to Total eMed's knowledge necessary to the conduct of Total eMed's or any of its Subsidiaries' business as presently conducted by Total eMed or its Subsidiaries was written and created solely by either (i) employees of Total eMed or its Subsidiaries acting within the scope of their employment or (ii) by third parties who have validly licensed rights to Total eMed or its Subsidiaries or who have validly and irrevocably assigned all of their rights, including Intellectual Property Rights therein, to Total eMed or its Subsidiaries, and no third party owns or has any rights to any of Total eMed or its Subsidiaries Intellectual Property. 3.1.15.9 The employees of Total eMed or any of its Subsidiaries listed on Schedule 3.1.15.9 have entered into a valid and binding written agreement with Total eMed or its Subsidiaries sufficient to vest title in Total eMed or its Subsidiaries to all Technology, including without limitation all Total eMed Intellectual Property, created by such employee in the scope of his or her employment with Total eMed or its Subsidiaries. 3.1.15.10 Except as set forth on Schedule 3.1.15.10, no person who has licensed Technology or Intellectual Property Rights to Total eMed or any of its Subsidiaries has ownership rights or license rights to improvements made by Total eMed or its Subsidiaries in such Technology or Intellectual Property Rights. 15 3.1.15.11 Neither Total eMed nor any of its Subsidiaries has transferred ownership of, or granted any exclusive license of or right to use, or authorized the retention of any exclusive rights to use or joint ownership of, any Technology or Intellectual Property Right that is Intellectual Property, to any other person. 3.1.15.12 Schedule 3.1.15.12 lists material contracts, licenses and agreements to which Total eMed or any of its Subsidiaries is a party with respect to any Technology or Intellectual Property Rights. Neither Total eMed nor any of its Subsidiaries are in breach of or have failed to perform under, any of the foregoing contracts, licenses or agreements and, to Total eMed's or its Subsidiaries' knowledge, no other party to any such contract, license or agreement is in breach thereof or has failed to perform thereunder, except for breaches or failures to perform that would not have a Material Adverse Effect on Total eMed or any of its Subsidiaries. 3.1.15.13 Schedule 3.1.15.13 lists all material contracts, licenses and agreements between Total eMed or any of its Subsidiaries and any other person wherein or whereby Total eMed or its Subsidiaries have agreed to, or assumed, any obligation or duty to warrant, indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any obligation or liability or provide a right of rescission with respect to the infringement or misappropriation by Total eMed or its Subsidiaries or such other person of the Intellectual Property Rights of any person other than Total eMed or its Subsidiaries. 3.1.15.14 To the knowledge of Total eMed or any of its Subsidiaries, there are no contracts, licenses or agreements between Total eMed or its Subsidiaries and any other person with respect to Total eMed Intellectual Property under which there is any dispute regarding the scope of such agreement, or performance under such agreement, including with respect to any payments to be made or received by Total eMed or any of its Subsidiaries thereunder. 3.1.15.15 To the knowledge of Total eMed and any of its Subsidiaries, the operation of the business of Total eMed and its Subsidiaries as it currently is conducted, including but not limited to the design, development, use, import, branding, advertising, promotion, marketing, manufacture and sale of the products, technology or services (including products, technology or services currently under development) of Total eMed and its Subsidiaries does not and will not and will not when conducted by MDLI and/or Surviving Corporation in the same manner following the Closing, infringe or misappropriate any Intellectual Property Right of any person or constitute unfair competition or trade practices under the laws of any jurisdiction, and Total eMed and its Subsidiaries have not received written notice from any person claiming, or has any reason to believe, that such operation or any act, product, technology or service (including products, technology or services currently under development) of Total eMed or any of its Subsidiaries infringes or misappropriates any Intellectual Property Right of any person or constitutes unfair competition or trade practices under the laws of any jurisdiction. 16 3.1.15.16 To Total eMed's or any of its Subsidiaries' knowledge, no person is infringing or misappropriating any Total eMed Intellectual Property. 3.1.15.17 No Total eMed Intellectual Property or service of Total eMed or any of its Subsidiaries is subject to any proceeding of which Total eMed or any of its Subsidiaries has received written notice or outstanding decree, order, judgment or settlement agreement or stipulation that restricts in any manner the use, transfer or licensing thereof by Total eMed or any of its Subsidiaries or may affect the validity, use or enforceability of such Total eMed Intellectual Property. 3.1.15.18 No (i) product, technology, service or publication of Total eMed or any of its Subsidiaries, (ii) material published or distributed by Total eMed or any of its Subsidiaries or (iii) conduct or statement of Total eMed or any of its Subsidiaries constitutes obscene material, a defamatory statement or material, false advertising or, to Total eMed's or any of its Subsidiaries' knowledge, otherwise violates in any material respect any law or regulation. 3.1.15.19 To Total eMed's or any of its Subsidiaries' knowledge, except as set forth on Schedule 3.1.15.19, and except for Technology or Intellectual Property subject to "shrink wrap" or similar widely available commercial end user licenses, Total eMed Intellectual Property constitutes all the Technology and Intellectual Property Rights used in and/or to our knowledge necessary to the conduct of the business of Total eMed or its Subsidiaries as it currently is conducted, including, without limitation, the design, development, manufacture, use, import and sale of products, technology and performance of services. 3.1.15.20 Except to the extent resulting from the continuation of contracts and licenses of Total eMed or any of its Subsidiaries following the Closing on the terms applicable prior to the Closing, and except for the contracts identified in Schedule 3.1.15.20, neither this Agreement nor the transactions contemplated by this Agreement by operation of law or otherwise, of any contracts or agreements to which Total eMed or any of its Subsidiaries is a party, will result in (i) the Surviving Corporation's granting to any third party any right to or with respect to any Technology or Intellectual Property Right owned by, or licensed to, either of them, (ii) either MDLI's or the Surviving Corporation's being obligated to pay any royalties or other amounts to any third party in excess of those payable by Total eMed or any of its Subsidiaries, MDLI or Surviving Corporation, respectively, prior to the Closing. 3.1.15.21 All Technology used in Total eMed's products and services, and all Technology used in the operation of Total eMed's or any of its Subsidiaries' business is Year 2000 compliant, except where the failure to be Year 2000 compliant will not have a Material Adverse Effect. As used in this agreement, "Year 2000 compliant" means that the Technology is designed to be used prior to, during and after the calendar year 2000, and the technology will accurately receive, provide and process date and time data (including, but 17 not limited to, calculating, comparing and sequencing) from, into and between the 20th and 21st centuries, including the years 1999 and 2000, and leap-year calculations and will not malfunction, cease to function, or provide invalid or incorrect results as a result of date and time data, to the extent that other Technology used in combination with the Technology that is the subject of this representation, properly exchanges date and time data with it. 3.1.16 Certain Contracts and Arrangements. Schedule 3.1.16, which is organized by type of agreement, contains a complete and accurate list of each of the following types of agreements or arrangements, including any amendments thereto, to which Total eMed or any of its Subsidiaries is a party or by which it is bound: (a) any mortgage, note or other instrument or agreement relating to the borrowing of money or the incurrence of indebtedness or the guaranty of any obligation for the borrowing of money; (b) any contract, agreement, purchase order or acknowledgment form for the purchase, sale, lease or other disposition of equipment, products, materials or capital assets, or for the performance of services (including without limitation consulting services), with respect to which the annual aggregate dollar amount either due to or payable by Total eMed or its Subsidiaries exceeds $50,000; (c) contracts or agreements for the joint performance of work or services, and all other joint venture agreements; (d) written contracts or agreements with agents, brokers, consignees, sales representatives or distributors relating to the sale of products or services in excess of $50,000; (e) confidentiality or inventions assignment agreements with parties other than employees of Total eMed; and (f) any other contract, instrument, agreement or obligation not described in any other Schedule which contains unfulfilled obligations, is not terminable without payment of premium or penalty upon 30 days' notice or less and the annual amount either due to or payable by Total eMed or its Subsidiaries exceeds $50,000 for any single contract or $100,000 in the aggregate. 3.1.17 Status of Contracts. Each of the contracts, agreements, commitments and instruments listed on Schedules 3.1.13, 3.1.14, 3.1.15, and 3.1.16 (collectively, the "Contracts") is in full force and effect and is valid, binding and enforceable by or its Subsidiaries in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. There is no existing default or violation by Total eMed or its Subsidiaries under any Contract and no event has occurred which (whether with or without 18 notice, lapse of time or both) would constitute a default of Total eMed or its Subsidiaries under any Contract, except for such defaults as would not in the aggregate have a Material Adverse Effect. There is no pending or threatened proceeding which would interfere with the quiet enjoyment of any leasehold of which Total eMed or any of its Subsidiaries is lessee or sublessee. Complete and accurate copies of all Contracts have been delivered to MDLI. Total eMed is not aware of any default by any other party to any Contract or of any event which (whether with or without notice, lapse of time or both) would constitute a material default by any other party with respect to obligations of that party under any Contract, and, to the knowledge of Total eMed, there are no facts that exist indicating that any of the Contracts may be totally or partially terminated or suspended by the other parties, except for defaults that would not have a Material Adverse Effect on Total eMed or its Subsidiaries. Total eMed has not granted any waiver or forbearance with respect to any of the Contracts. 3.1.18 Insurance. Schedule 3.1.18 contains a complete and accurate list of all policies of fire, liability, worker's compensation and other forms of insurance insuring Total eMed, its officers or directors, its assets or its operations (the "Policies"), setting forth the applicable deductible amounts. All of the Policies are valid, enforceable and in full force and effect, all premiums with respect to the Policies covering all periods up to and including the date as of which this representation is being made have been paid and no notice of cancellation or termination has been received with respect to any Policy. The Policies are sufficient for compliance with all requirements of law and agreements to which Total eMed or any of its Subsidiaries is a party, and Total eMed believes the Policies are sufficient to provide insurance for the risks and in the amounts and types of coverage necessary for the operation of Total eMed's and its Subsidiaries' businesses. There have been no claims made for insurance payment under any of the Policies in the three years preceding the date of this Agreement. Complete and accurate copies of the Policies and all endorsements thereto have been delivered to MDLI. Total eMed has not been refused any insurance coverage and no insurance coverage has been canceled during the three years preceding the date of this Agreement. 3.1.19 Permits and Licenses. Schedule 3.1.19 contains a complete and accurate list of all material governmental licenses, permits, franchises, easements and authorizations (collectively, "Permits") held by Total eMed or its Subsidiaries, listed by Governmental Entity. Each of Total eMed and its Subsidiaries holds, and at all times has held, all Permits necessary for the lawful conduct of its business pursuant to all applicable statutes, laws, ordinances, rules and regulations of all Governmental Entities having jurisdiction over it or any part of its operations, except for Permits the failure of which to obtain would not have a Material Adverse Effect on Total eMed or its Subsidiaries. Each of Total eMed and its Subsidiaries is in material compliance with each of the terms of the applicable Permits listed on Schedule 3.1.19, and there are no claims of violation by Total eMed or any of its Subsidiaries of any of such Permits. Complete and accurate copies of all Permits held by Total eMed and its Subsidiaries have been delivered to MDLI. All Governmental Entities that have issued any Permits to or with respect to Total eMed or its business have consented to the consummation of the transactions contemplated by this Agreement without requiring modification of the rights or obligations of Total eMed or is Subsidiaries under any of such Permits. 19 3.1.20 Taxes. ----- 3.1.20.1 Returns. Except as set forth on Schedule 3.1.20, Total eMed has filed on a timely basis all federal, state, local, foreign and other returns, reports, forms, declarations and information returns required to be filed by them with respect to Taxes (as defined below) which relate to the business, results of operations, financial condition, properties or assets of Total eMed for all periods (collectively, the "Returns") and have paid on a timely basis all Taxes shown to be due on the Returns. All Returns filed are complete and accurate in all material respects and no additional Taxes are owed by Total eMed with respect to the periods covered by the Returns or for any other period. Total eMed has provided MDLI with complete and accurate copies of all Returns for each of Total eMed's fiscal years. Total eMed has never been a member of an affiliated group filing consolidated returns and has no any liability for Taxes of any person (other than itself), whether arising under federal, state, local or foreign law, as a transferee or successor, by contract, pursuant to Treas Reg ss. 1.1502-6 or otherwise. Except as set forth on Schedule 3.1.20, Total eMed is not currently the beneficiary of any extension of time within which to file any Return. Except as set forth on Schedule 3.1.20, no Returns have been examined by the applicable taxing authorities for any period and, except as set forth on Schedule 3.1.20, Total eMed has not received any notice of audit or review with respect to any Return or any fiscal year, has no knowledge of any planned audit or review, and there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes for any period. No claim has ever been made by an authority in a jurisdiction where Total eMed does not file Returns that Total eMed is or may be subject to taxation by that jurisdiction. All Taxes that are or have been required to be withheld or collected by Total eMed or its predecessors have been duly withheld and collected and, to the extent required, have been properly paid or deposited as required by applicable laws. Neither Total eMed nor any of its predecessors has made any payment, or is obligated to make any payment, or is a party to an agreement that in certain circumstances could obligate it to make a payment, that is not deductible under Section 280G of the Code. Except as set forth in Schedule 3.1.20, Total eMed is not an obligor on, and none of its assets have been financed directly or indirectly by, any tax exempt bonds. Total eMed is not now nor during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code has ever been a United States real property holding corporation as defined in Section 897(c)(2) of the Code. Total eMed has not filed a consent pursuant to Section 341(f) of the Code nor has Total eMed agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by Total eMed. 3.1.20.2 Taxes Paid or Reserved. The unpaid Taxes of Total eMed (a) did not as of the Most Recent Fiscal Year End exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the Total eMed Financial Statements (rather than in any notes thereto) and (b) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Total eMed in filing its Returns. 20 3.1.20.3 Definitions. The term "Taxes" shall mean all federal, state, local or foreign taxes, charges, fees, levies or other assessments, however documented, including, without limitation, all net income, gross income, gross receipts, premium, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated severance, stamp, occupation, property, transfer, workers' compensation, Pension Benefit Guaranty Corporation premiums, or other taxes, fees, assessments or charges of any kind whatsoever that Total eMed is required to pay or collect, together with any interest and any penalties (including penalties for failure to file in accordance with applicable information reporting requirements), and additions to tax. 3.1.21 Related Party Interests. Except as listed in Schedule 3.1.21, no shareholder, officer or director of Total eMed (or any entity owned or controlled by one or more of such parties) (a) has any interest in any property, real or personal, tangible or intangible, used in or pertaining to Total eMed's business, (b) is indebted to Total eMed or any of its Subsidiaries, or (c) to the knowledge of Total eMed has any financial interest, direct or indirect, in any supplier or customer of, or other outside business which has significant transactions with Total eMed. True and complete copies of all agreements listed on Schedule 3.1.21 have been provided to MDLI. Total eMed is not indebted to any of its shareholders, directors or officers (or any entity owned or controlled by one or more of such parties) except for amounts due under normal salary arrangements and for reimbursement of ordinary business expenses. The consummation of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any act or event, or with the lapse of time, or both) result in any payment (severance or other) becoming due from Total eMed to any of its shareholders, officers, directors or employees (or any entity owned or controlled by one or more of such parties). 3.1.22 No Powers of Attorney or Restrictions. No power of attorney or similar authorization given by Total eMed or any of its Subsidiaries is presently in effect or outstanding. No contract or agreement to which Total eMed or any of its Subsidiaries is a party or is bound or to which any of its properties or assets is subject limits the freedom of Total eMed to compete in any line of business or with any person. To the knowledge of Total eMed none of the employees of Total eMed or its Subsidiaries is obligated under any contract (including licenses, covenants or commitments of any nature), or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of Total eMed or any of its Subsidiaries or that would conflict with the business of Total eMed or its Subsidiaries as now conducted or proposed to be conducted. 21 3.1.23 Environmental Conditions. ------------------------ 3.1.23.1 Compliance. The business and assets of Total eMed and its Subsidiaries, including without limitation the Leased Real Property and, during the term of possession by Total eMed, the Previously Leased Real Property, are and have been in compliance with all Environmental Laws (as defined below) and all Permits required under any Environmental Laws are listed separately in Schedule 3.1.19. There are no pending or threatened claims, actions or proceedings against Total eMed or any of its Subsidiaries under any Environmental Law or related Permit. All wastes generated in connection with the business of Total eMed and its Subsidiaries are and have been transported and disposed of off-site in compliance with all Environmental Laws, and true and correct logs of such transportation and disposal have been made available to MDLI. 3.1.23.2 Hazardous Substances. To the knowledge of Total eMed, no Hazardous Substance has been disposed of, spilled, leaked or otherwise released on, in, under or from the Leased Real Property or the Previously Leased Real Property or has otherwise come to be located in the soil or water (including surface and ground water) on or under the Leased Real Property or the Previously Leased Real Property, in each case while such property was leased by Total eMed. To the knowledge of Total eMed, none of the assets of Total eMed or its Subsidiaries, or the improvements on the Leased Real Property or the Previously Leased Real Property, have incorporated into them any asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls (including in any electrical transformer or capacitor located on such property), or any other Hazardous Substance which is prohibited, restricted or regulated when present in buildings, structures, fixtures or equipment. To the knowledge of Total eMed, no Hazardous Substance is or has been generated, manufactured, treated, stored, transported, used or otherwise handled on the Leased Real Property or the Previously Leased Real Property or in connection with the business of Total eMed or its Subsidiaries while occupied by Total eMed or its Subsidiaries. To the knowledge of Total eMed, there are not and never have been any above-ground or underground storage tanks on the Leased Real Property or on the Previously Leased Property (whether or not regulated and whether or not out of service, closed or decommissioned). 3.1.23.3 Filings and Notices. Total eMed and its Subsidiaries have timely filed all required reports, obtained all required approvals and permits, and generated and maintained all required data, documentation and records under all applicable Environmental Laws. All notifications required by any Environmental Law in respect of any discharge, release or emission, including any notices required to be provided under any applicable state or local law, if any, have been made within the time prescribed by such Environmental Law, and copies of all such notifications have been provided to MDLI. No part of the Leased Real Property or the Previously Leased Real Property is listed as a site contaminated by Hazardous Substances pursuant to any Environmental Law. 3.1.23.4 Definitions. As used in this Agreement, (a) "Environmental Law" means any federal, state, foreign or local statute, ordinance or 22 regulation pertaining to the protection of human health or the environment and any applicable orders, judgments, decrees, permits, licenses or other authorizations or mandates under such statutes, ordinances or regulations, and (b) "Hazardous Substance" means any hazardous, toxic, radioactive or infectious substance, material or waste as defined, listed or regulated under any Environmental Law, and includes without limitation radioactive material and petroleum oil and its fractions. 3.1.24 Consents and Approvals. Except as set forth in Section 3.1.7, no consent, approval, or authorization of, or filing or registration with, any court, regulatory authority, governmental body, or any other entity or person not a party to this Agreement is required to be obtained by Total eMed or any of its Subsidiaries for the consummation of the transactions described in this Agreement, except for consents, approvals, authorizations, filings or registrations that would not have a Material Adverse Effect on Total eMed or its Subsidiaries. 3.1.25 Brokers and Finders. Except for fees owing to Credit Suisse First Boston Corporation, Total eMed has not incurred any liability for any brokerage or investment banking fees, commissions or finders' fees in connection with the Merger. 3.1.26 [Intentionally Omitted]. ---------------------- 3.1.27 No Other Agreements to Sell Total eMed or Its Assets. Except as set forth in Schedule 3.1.27, Total eMed has no legal obligation, absolute or contingent, to any other person to sell any material portion of Total eMed's assets, to sell the capital stock or other ownership interests of Total eMed, or to effect any merger, consolidation or other reorganization of Total eMed of any of its Subsidiaries or to enter into any agreement with respect thereto. As of the date hereof, Total eMed is not engaged, directly or indirectly, in any discussions or negotiations with any other party with respect to an Acquisition Transaction, as defined in Section 4.2.2. 3.1.28 Vote Required. The approval by a majority of the voting power represented by the outstanding shares of Total eMed Common Stock and by each class of Total eMed Preferred Stock (each voting separately as a class) is the only vote of the holders of any class or series of Total eMed capital stock necessary to approve the transactions contemplated by this Agreement. 3.1.29 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E). ----------------------------------------------------- 3.1.29.1 Immediately following the Merger, Surviving Corporation will hold at least 90 percent of the fair market value of Total eMed's net assets and at least 70 percent of the fair market value of Total eMed's gross assets held immediately prior to the Merger. For purposes of this representation, amounts paid by Total eMed to its shareholders who receive cash or other property, Total 23 eMed assets used to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Total eMed prior to and in connection with the Merger, will be included as assets of Total eMed held immediately prior to the Merger. 3.1.29.2 There is no intercorporate indebtedness existing between MDLI and Total eMed or between Merger Corp. and Total eMed that was issued, acquired, or will be settled at a discount. 3.1.29.3 Total eMed has no plan or intention to issue additional shares of its stock that would result in MDLI losing control of Total eMed within the meaning of Section 368(c) of the Code. At the time of the Merger, Total eMed will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Total eMed that, if exercised or converted, would affect MDLI's acquisition or retention or control of Surviving Corporation, as defined in Section 368(c) of the Code. As defined in Section 368(c) of the Code, "control" means the ownership of stock possessing at least 80 percent of the total combined voting power of all classes of stock entitled to vote and at least 80 percent of the total number of shares of all other classes of stock. 3.1.29.4 Total eMed is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 3.1.29.5 On the date of the Merger, the fair market value of the assets of Total eMed will exceed the sum of its liabilities plus the amount of liabilities, if any, to which its assets are subject. 3.1.29.6 Total eMed is not under the jurisdiction of a court in a title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 3.1.29.7 None of the compensation received by any shareholder-employee of Total eMed will be separate consideration for, or allocable to, any of his or her shares of Total eMed stock; none of the shares of MDLI stock received by any shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the compensation paid to any shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. 3.1.29.8 Except as listed on Schedule 3.1.29.8, during the past five years, neither Total eMed nor any person related to Total eMed (as defined in Treas Reg ss. 1.368-1(e)(3)) has directly or through any transaction, agreement, or arrangement with any other person, (i) acquired stock of Total eMed with consideration other than common stock of MDLI or Total eMed, or (ii) redeemed or made distributions with respect to Total eMed stock. 3.1.29.9 Total eMed has not paid dividends financed, directly or indirectly, with borrowed funds. 24 3.1.29.10 No Total eMed shareholder has guaranteed any debt of Total eMed. 3.1.29.11 Except as otherwise provided in this Agreement, Total eMed will pay its own expenses, if any, incurred in connection with the Merger and will not pay expenses of MDLI or Merger Corp. 3.1.29.12 For purposes of satisfying the requirements of Treas Regss. 1.368-1(d), Total eMed's significant historic lines of business are medical record transcription and related services to healthcare providers practicing in outpatient settings. 3.1.29.13 In the Merger, shares of Total eMed stock representing control of Total eMed, as defined in Section 368(c) of the Code, will be exchanged solely for voting stock of MDLI. 3.2 Representations and Warranties of MDLI. MDLI hereby represents and warrants to Total eMed that, except as specifically set forth in Schedule 3.2 (the "MDLI Disclosure Schedule") in a numbered paragraph that corresponds to the section for which disclosure is made: 3.2.1 Organization and Status. MDLI is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except where the failure to so qualify or be in good standing, when taken together with all such failures, would not have a Material Adverse Effect on MDLI. MDLI has all requisite corporate power and authority to own, operate and lease its property and to carry on its businesses as they are now being conducted. 3.2.2 Corporate Authority. MDLI has the corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and, upon receipt of the shareholder approval contemplated in Section 4.1.2, to consummate the transactions contemplated hereby. This Agreement has been duly and validly authorized by the Board of Directors of MDLI and duly and validly executed and delivered by MDLI and as of the Closing Date will be validly authorized by MDLI shareholders. This Agreement constitutes the valid and binding obligation of MDLI, enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. 3.2.3 Governmental Filings. Other than (a) the filing of the Certificate of Merger contemplated by Article I, (b) the HSR Filing to be made by MDLI and Total eMed described in Section 4.1.8 and (c) the Form S-4 and Proxy Statement described in Section 4.1.1, no notices, reports or other filings are required to be made by MDLI with, nor are any 25 consents, registrations, approvals, permits or authorizations required to be obtained by MDLI from, any Governmental Entity in connection with the execution and delivery of this Agreement by MDLI and the consummation by MDLI of the transactions contemplated hereby. 3.2.4 Information Supplied. None of the information supplied or to be supplied by MDLI specifically for inclusion or incorporation by reference in the Form S-4 or the Proxy Statement for use relating to registration of the Merger Consideration or to obtain approval of the shareholders of MDLI and Total eMed of the Merger, respectively, will, at the time the Form S-4 is filed with the SEC or at the time the Proxy Statement is first mailed to Total eMed's stockholders or MDLI's shareholders or at the time of the MDLI Special Meeting and Total eMed Special Meeting, respectively, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by MDLI with respect to statements made or incorporated by reference therein based on (i) information supplied by Total eMed in writing specifically for inclusion or incorporation by reference therein or (ii) information relating to Total eMed which is reviewed by Total eMed without objection and with knowledge that it will be used in the Form S-4 or the Proxy Statement. 3.2.5 SEC Reports and Financial Statements. MDLI has filed with the SEC, and has made available to Total eMed true and complete copies of, all forms, reports, schedules, statements, and other documents required to be filed by it since September 30, 1999 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") or the Securities Act (each of such forms, reports, schedules, statements, and other documents, to the extent filed and publicly available before the date of this Agreement, other than preliminary or pre-effective filings, is referred to as a "MDLI SEC Document"). Each MDLI SEC Document, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements included in the MDLI SEC Documents (the "MDLI Financial Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present in all material respects (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the consolidated financial position of MDLI and its consolidated subsidiaries as at the dates thereof, the consolidated results of their operations and cash flows for the periods then ended, are correct and complete, and are consistent with the books and records of MDLI (which books and records are correct and complete in all material respects). 26 3.2.6 No Adverse Consequences. Neither the execution and delivery of this Agreement by MDLI nor the consummation of the transactions contemplated by this Agreement will (a) result in the creation or imposition of any Lien on any of the assets or properties of MDLI, (b) violate any provision of the Articles of Incorporation or Bylaws of MDLI, (c) to the knowledge of MDLI, violate any statute, judgment, order, injunction, decree, rule, regulation or ruling of any governmental authority applicable to MDLI, or (d) either alone or with the giving of notice or the passage of time or both, conflict with, constitute grounds for termination of, accelerate the performance required by, accelerate the maturity of any indebtedness or obligation under, result in the breach of the terms, conditions or provisions of or constitute a default under any mortgage, deed of trust, indenture, note, bond, lease, license, permit or other agreement, instrument or obligation to which either MDLI is a party or by which any of them is bound. 3.2.7 Brokers and Finders. Except for fees to be paid by MDLI to Donaldson, Lufkin & Jenrette in connection with a fairness opinion, MDLI has not incurred any liability for any brokerage or investment banking fees, commissions or finders' fees in connection with the Merger. 3.2.8 Opinion of MDLI Financial Advisor. The Board of Directors of MDLI has received from Donaldson, Lufkin & Jenrette an opinion as to the fairness from a financial point of view of the ratio to be applied for the exchange of common stock in the Merger. A copy of such opinion is attached hereto as Exhibit D. 3.2.9 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E). ----------------------------------------------------- 3.2.9.1 Immediately following the Merger, Surviving Corporation will hold at least 90 percent of the fair market value of Merger Corp.'s net assets and at least 70 percent of the fair market value of Merger Corp.'s gross assets held immediately prior to the Merger. For purposes of this representation, amounts paid by Merger Corp. to Total eMed shareholders who receive cash or other property and Merger Corp. assets used to pay reorganization expenses will be included as assets of Merger Corp. held immediately prior to the Merger. 3.2.9.2 Prior to the Merger, MDLI will be in control of Merger Corp. within the meaning of Section 368(c) of the Code. 3.2.9.3 MDLI has no plan or intention to cause or allow Surviving Corporation to issue additional shares of its stock that would result in MDLI losing control of Surviving Corporation within the meaning of Section 368(c) of the Code. 3.2.9.4 Prior to or in the Merger, neither MDLI nor any person related to MDLI (as defined in Treas Reg ss. 1.368-1(e)(3)) will have acquired directly or through any transaction, agreement or arrangement with any other person, stock of Total eMed with consideration other than common stock of MDLI. There is no plan or intention by MDLI or 27 any person related to MDLI (as defined in Treas Reg ss. 1.368-1(e)(3)) to acquire or redeem any of the stock of MDLI issued in the Merger either directly or through any transaction, agreement, or arrangement with any other person. 3.2.9.5 MDLI has no plan or intention to liquidate Surviving Corporation; to merge Surviving Corporation with and into another corporation; to sell or otherwise dispose of the stock of Surviving Corporation; or to cause Surviving Corporation to sell or otherwise dispose of any of the assets of Total eMed or Merger Corp., except for dispositions made in the ordinary course of business or transfers of assets to a corporation controlled by Surviving Corporation. 3.2.9.6 Merger Corp. will have no liabilities assumed by Surviving Corporation and will not transfer to Surviving Corporation in the Merger any assets subject to liabilities. 3.2.9.7 Following the Merger, MDLI will cause Surviving Corporation to continue the historic business of Total eMed or use a significant portion of Total eMed's business assets in a business. 3.2.9.8 MDLI does not own, nor has it owned during the past five years, any shares of the stock of Total eMed. 3.2.9.9 MDLI is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 3.2.9.10 The payment of cash in lieu of fractional shares of MDLI stock is solely for the purpose of avoiding the expense and inconvenience to MDLI of issuing fractional shares and does not represent separately bargained-for consideration. The total cash consideration that will be paid in the Merger to the Total eMed shareholders instead of issuing fractional shares of MDLI stock will not exceed one percent of the total consideration that will be issued in the Merger to the Total eMed shareholders in exchange for their shares of Total eMed stock. The fractional share interests of each Total eMed shareholder will be aggregated, and no Total eMed shareholder will receive cash in an amount equal to or greater than the value of one full share of MDLI stock. 3.2.9.11 Following and in connection with the Merger, MDLI will not transfer any shares of Total eMed Common Stock to (a) a corporation that is not a member of MDLI's "qualified group" as defined in Treas Reg ss. 1.368-1(d)(4)(ii) or (b) a partnership. 3.2.9.12 MDLI will not redeem any of the MDLI Common Stock exchanged for Total eMed Common Stock in connection with the Merger, other than pursuant to an ongoing stock repurchase program not created or modified in connection with the Merger. 28 3.2.9.13 No person related to MDLI, as defined in Treas Regss.1.368-1(e)(3) will acquire, with consideration other than a proprietary interest in MDLI, Total eMed Common Stock exchanged for MDLI Common Stock in the Merger. 3.2.9.14 Except as otherwise provided in this Agreement, MDLI will pay its own expenses, if any, incurred in connection with the Merger and will not pay expenses of Total eMed. 3.2.9.15 In the Merger, shares of Total eMed stock representing control of Total eMed, as defined in Section 368(c) of the Code, will be exchanged solely for voting stock of MDLI. 3.2.10 Litigation. Except as listed on Schedule 3.2.10, no material litigation, proceeding or governmental investigation is pending or, to MDLI's knowledge, threatened against or relating to MDLI, its officers or directors in their capacities as such, or any of MDLI's properties or businesses. 3.2.11 Capitalization. MDLI has authorized capital stock consisting of 100,000,000 shares of MDLI Common Stock, no par value, of which 30,776,975 shares were outstanding on December 31, 1999 and 50,000,000 shares of Preferred Stock, of which no shares were outstanding on December 31, 1999. As of November 30, 1999, a total of options to purchase 2,878,560 shares of MDLI Common Stock were outstanding pursuant to grants made under MDLI's 1996 Stock Incentive Plan and MDLI's 1993 Stock Incentive Plan. All of the outstanding shares of capital stock of MDLI have been duly authorized and are validly issued, fully paid and nonassessable, and no shares were issued, and no options were granted, in violation of preemptive or similar rights of any shareholder or in violation of any applicable securities laws. Except as set forth above, or on Schedule 3.2.11, there are no shares of capital stock of MDLI authorized, issued or outstanding, and there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of MDLI of any character relating to the issued or unissued capital stock or other securities of MDLI. There are no outstanding obligations of MDLI to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock. All shares of MDLI Common Stock to be issued and delivered in the Merger shall be, at the time of such issuance and delivery, validly issued, fully paid and nonassessable shares of MDLI Common Stock, free of all preemptive rights. 3.2.12 Undisclosed Liabilities. Except for liabilities or obligations which were incurred after September 30, 1999 in the ordinary course of business and of a type and in an amount consistent with past practices, MDLI has no material liability or obligation (whether absolute, accrued, contingent or otherwise, and whether due or to become due) which is not accrued, reserved against, or identified in the most recent MDLI Financial Statements. 3.2.13 Absence of Certain Changes or Events. Except as set forth on Schedule 3.2.13, since September 30, 1999 there has not been a Material Adverse Change. 29 3.2.14 Taxes. ----- 3.2.14.1 Returns. MDLI has filed on a timely basis all federal, state, local, foreign and other returns, reports, forms, declarations and information returns required to be filed by them with respect to Taxes which relate to the business, results of operations, financial condition, properties or assets of MDLI for all periods (collectively, the "MDLI Returns") and has paid on a timely basis all Taxes shown to be due on the MDLI Returns. All MDLI Returns filed are complete and accurate in all material respects and no additional Taxes are owed by MDLI or its subsidiaries with respect to the periods covered by the MDLI Returns or for any other period. MDLI has no any liability for Taxes of any person (other than themselves), whether arising under federal, state, local or foreign law, as a transferee or successor, by contract, pursuant to Treas Reg ss. 1.1502-6 or otherwise. Except as set forth on Schedule 3.2.14, MDLI is not currently the beneficiary of any extension of time within which to file any MDLI Return. Except as set forth on Schedule 3.2.14, no MDLI Returns have been examined by the applicable taxing authorities and, except as set forth on Schedule 3.2.14, MDLI has not received any notice of audit or review with respect to any MDLI Return or any fiscal year, has no knowledge of any planned audit or review, and there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes for any period. No claim has ever been made by an authority in a jurisdiction where MDLI does not file MDLI Returns that they are or may be subject to taxation by that jurisdiction. All Taxes that are or have been required to be withheld or collected by MDLI or its predecessors have been duly withheld and collected and, to the extent required, have been properly paid or deposited as required by applicable laws. Neither MDLI nor any of its predecessors has made any payment, or is obligated to make any payment, or is a party to an agreement that in certain circumstances could obligate it to make a payment, that is not deductible under Section 280G of the Code. Except as set forth in Schedule 3.2.14, MDLI is not an obligor on, and none of its assets have been financed directly or indirectly by, any tax exempt bonds. MDLI is not now nor during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code has ever been a United States real property holding corporation as defined in Section 897(c)(2) of the Code. MDLI has not filed a consent pursuant to Section 341(f) of the Code nor has MDLI agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by MDLI. 3.2.14.2 Taxes Paid or Reserved. The unpaid Taxes of MDLI (A) did not as of December 31, 1999 exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of the most recent balance sheet included in an MDLI SEC Document (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of MDLI in filing its MDLI Returns. 30 3.2.15 Related Party Interests. There are no other material related-party transactions, as defined under Regulation S-K of the Securities Act, other than those listed on Schedule 3.2.15. 3.2.16 No Powers of Attorney or Restrictions. No power of attorney or similar authorization given by MDLI is presently in effect or outstanding. No contract or agreement to which MDLI is a party or is bound or to which any of its properties or assets is subject limits the freedom of MDLI to compete in any line of business or with any person. To the knowledge of MDLI none of the employees of MDLI is obligated under any contract (including licenses, covenants or commitments of any nature), or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of MDLI or that would conflict with the business of MDLI as now conducted or proposed to be conducted. 3.2.17 Consents and Approvals. Except as set forth in Section 3.2.3, no consent, approval, or authorization of, or filing or registration with, any court, regulatory authority, governmental body, or any other entity or person not a party to this Agreement is required to be obtained by MDLI for the consummation of the transactions described in this Agreement. 3.3 Representations and Warranties Relating to Merger Corp. MDLI and Merger Corp. hereby represent and warrant to Total eMed that: 3.3.1 Organization and Status. Merger Corp. is a corporation duly organized and validly existing under the laws of the State of Delaware. Merger Corp. does not own any properties (other than the initial cash subscription for shares) nor has it commenced any business or operations. 3.3.2 Capitalization. Merger Corp. has an authorized capital stock consisting of 100 shares of Common Stock. All of the issued and outstanding shares of capital stock of Merger Corp. are owned by MDLI. 3.3.3 Corporate Authority. Merger Corp. has the corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Agreement has been duly and validly authorized by the Board of Directors and sole shareholder of Merger Corp., duly and validly executed and delivered by Merger Corp. and constitutes the valid and binding obligation of Merger Corp., enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. 3.3.4 Governmental Filings. Other than the filing of the Certificate of Merger contemplated by Article I, no notices, reports or other filings are required to be made by 31 Merger Corp. with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Merger Corp. from, any Governmental Entity in connection with the execution and delivery of this Agreement by Merger Corp. and the consummation by Merger Corp. of the transactions contemplated hereby. 3.3.5 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E). ----------------------------------------------------- 3.3.5.1 Merger Corp. is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 3.3.5.2 Except as otherwise provided in this Agreement, Merger Corp. will pay its own expenses, if any, incurred in connection with the Merger and will not pay expenses of MDLI or Total eMed. 3.3.5.3 Merger Corp. has been formed solely in order to consummate the Merger, and Merger Corp. has not conducted and will not conduct any business activities or other operations of any kind other than the issuance of its stock to MDLI, prior to the Effective Date. ARTICLE IV COVENANTS 4.1 Mutual Covenants. Total eMed and MDLI mutually covenant and agree as follows: 4.1.1 Preparation of Registration Statement and the Proxy Statement. Promptly following the date of this Agreement and as soon as practicable, Total eMed and MDLI shall prepare and file with the SEC the Proxy Statement, and MDLI shall prepare and file with the SEC the Form S-4, in which the Proxy Statement will be included as a prospectus. Each of Total eMed and MDLI shall use its reasonable best efforts to have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing. MDLI will use its reasonable best efforts to cause the Proxy Statement to be mailed to its shareholders as promptly as practicable after the Form S-4 is declared effective under the Securities Act. MDLI shall also take any action required to be taken under any applicable state securities law in connection with the issuance of MDLI Common Stock in the Merger, and Total eMed shall furnish all information concerning Total eMed and the holders of Total eMed Common Stock and rights to acquire Total eMed Common Stock as may be reasonably required in connection with any such action. Each of MDLI and Total eMed shall furnish all information concerning itself to the other as may be reasonably requested in connection with any such action and the preparation, filing and distribution of the Form S-4 and the preparation, filing and distribution of the Proxy Statement. Total eMed and MDLI each agree to correct any information provided by it for use in the Form S-4 or the Proxy Statement which shall have become false or misleading. MDLI shall notify Total eMed promptly (i) of the receipt of the comments of the 32 SEC, (ii) of any request by the SEC for amendments or supplements to the S-4, (iii) of the time when the S-4 has become effective or any supplement or amendment has been filed, or the issuance of any stop order and (iv) of the suspension of the qualification of the MDLI Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction and shall supply Total eMed with copies of all correspondence with the SEC with respect to the S-4. 4.1.2 Shareholder Meetings. -------------------- (a) MDLI shall (i) promptly and duly call, give notice of, convene and hold as soon as practicable following the date upon which the Form S-4 becomes effective a meeting of the holders of MDLI Common Stock for the purpose of voting to approve the issuance of the MDLI Common Stock in the Merger (the "MDLI Special Meeting"), and (ii) take all reasonable and lawful action to solicit and obtain such approval. Except as limited by the fiduciary obligations of the MDLI Board of Directors, the S-4 shall include the recommendation of the MDLI Board of Directors in favor of the issuance of the MDLI Common Stock in connection with the Merger and, to the extent required by applicable law or otherwise, the other transactions contemplated hereby (the "Proposal"). Unless and until this Agreement is validly terminated in accordance with its terms, nothing herein shall limit or eliminate in any way MDLI's obligation to call, give notice of, convene and hold the MDLI Special Meeting and at such meeting to submit the Proposal to a vote of the MDLI shareholders (and not postpone or adjourn such meeting or the vote of the MDLI shareholders upon the Proposal to another date without Total eMed's approval, not to be unreasonably withheld if and only to the extent such postponement or adjournment is required by law or by the SEC or Nasdaq regulation). Total eMed shall (i) promptly and duly call, give notice of, convene and hold on the same date as the MDLI Special Meeting is held a meeting of the holders of Total eMed Capital Stock for the purpose of voting to approve the Merger (the "Total eMed Special Meeting"), and (ii) take all reasonable and lawful action to solicit and obtain such approval. (b) Except as limited by the fiduciary obligations of the Total eMed Board of Directors, the Proxy Statement shall include the recommendation of the Total eMed Board of Directors in favor of the Merger. Unless and until this Agreement is validly terminated in accordance with its terms, nothing herein shall limit or eliminate in any way Total eMed's obligation to call, give notice of, convene and hold the Total eMed Special Meeting and at such meeting to submit the Proposal to a vote of the Total eMed shareholders (and not postpone or adjourn such meeting or the vote of the Total eMed shareholders upon the Merger to another date without MDLI's approval, not to be unreasonably withheld if and only to the extent such postponement or adjournment is required by law or by the SEC or Nasdaq regulation). 4.1.3 Consents and Approvals. Total eMed and MDLI each will use reasonable best efforts to secure, and MDLI will cause Merger Corp. to use its reasonable best efforts to secure, all consents, approvals, licenses or permits which may be required in connection with the Merger, and each will cooperate with the other to secure all such consents, approvals, licenses or permits in a form mutually satisfactory to Total eMed and MDLI. 33 4.1.4 Best Efforts. Subject to the terms of this Agreement, Total eMed and MDLI each will use reasonable best efforts, and MDLI will cause Merger Corp. to use its reasonable best efforts, to effectuate the transactions contemplated hereby and to fulfill the conditions of their respective obligations under this Agreement. 4.1.5 Publicity. Except as required by law, no party will issue any press releases or otherwise make any public statements with respect to the transactions contemplated hereby without the prior written consent of MDLI and Total eMed, in each case not to be unreasonably withheld. 4.1.6 Confidentiality. The provisions of the Mutual Confidential Disclosure Agreement between MDLI and Total eMed (the "Confidentiality Agreement") shall apply to all "Confidential Information" (as defined in the Confidentiality Agreement) obtained by any party pursuant to this Agreement. 4.1.7 [Intentionally Omitted]. ---------------------- 4.1.8 Antitrust Improvements Act. Each of MDLI and Total eMed will timely and promptly make the filing required to be made by it under the Antitrust Improvements Act of 1976, as amended (each such filing an "HSR Filing"). MDLI and Total eMed will furnish to one another such information and assistance as the other party may reasonably request in connection with the other party's preparation of filings or submissions to any governmental agency, including, without limitation, any HSR Filing. As reasonably requested by the other party, MDLI and Total eMed will supply one another with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between MDLI and Total eMed or their respective representatives, on the one hand, and the Federal Trade Commission, the Antitrust Division of the United States Department of Justice or any other governmental agency or authority or members of their respective staffs, on the other hand, with respect to this Agreement or the transaction contemplated hereby. 4.1.9 Restructuring of Merger. The parties expressly acknowledge and agree that, although it is their current intention to effect a business combination among themselves in the form contemplated by this Agreement, it may be preferable to effectuate such a business combination by means of an alternate structure as described below. 4.1.9.1 MDLI, in its sole discretion, may determine, not later than March 31, 2000, to reorganize for the purpose of effecting one or more business combinations in addition to the combination contemplated by this Agreement (the "Reorganization"). As a result of the Reorganization, a newly-established holding company ("HoldCo") would directly own all of the issued and outstanding capital stock of MDLI, and the articles of incorporation of HoldCo would be the same as the articles of incorporation of MDLI (other than in any respect which does not materially adversely affect the benefits of the Merger for Total eMed stockholders). 34 4.1.9.2 In the event MDLI determines to effect the Reorganization, this Agreement shall be amended so that the rights and obligations of MDLI shall become the rights and obligations of HoldCo, the representations and warranties of MDLI shall be repeated by HoldCo (subject to such changes as may be necessary to reflect the Reorganization), and in all other respects this Agreement shall remain the same, except for those changes as may be necessary to reflect the Reorganization. In no event shall such changes materially adversely affect the relative rights, obligations, benefits and burdens of MDLI/HoldCo and Total eMed, or the benefits of the Merger for Total eMed stockholders. 4.1.9.3 The parties agree that any Reorganization and the steps, actions or approvals required, taken or proposed to implement the same shall not give rise to any breach of this Agreement or right to terminate this Agreement, and that the amendments to this Agreement required to give effect to the Reorganization shall not have any effect on the binding nature of this Agreement or the obligations of the parties to effect and consummate the transactions contemplated hereby. The parties further agree to use all reasonable best efforts to ensure that the Reorganization and the Merger are completed. 4.2 Covenants of Total eMed. Total eMed covenants and agrees as follows: 4.2.1 Conduct of Business. Prior to the Effective Time, Total eMed will carry on its business in the ordinary and usual manner and maintain its existing relationships with suppliers, customers, employees and business associates, and will not, without the prior written consent of MDLI: (a) amend its Certificate of Incorporation or Bylaws; (b) enter into any new agreements or modify existing agreements respecting an increase in compensation or benefits payable to its officers or employees; except that Total eMed may, without MDLI's prior written consent, enter into new employment agreements or hire new employees in its ordinary course of business and with respect to nonmanagement positions; (c) split, combine, reclassify any of the outstanding shares of its capital stock or otherwise change its authorized capitalization; (d) declare, set aside or pay any dividends payable in cash, stock or property with respect to shares of its capital stock; (e) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class (other than pursuant to Options in the ordinary course and consistent with past practice and other than conversions of Preferred Stock in connection with the transactions contemplated by this Agreement); 35 (f) redeem, purchase or otherwise acquire any shares of its capital stock, merge into or consolidate with any other corporation or permit any other corporation to merge into or consolidate with it, liquidate or sell or dispose of any of its assets other than in the ordinary course of business, or close any plant or business operation; (g) except for short-term indebtedness and indebtedness incurred pursuant to Total eMed's revolving credit agreement and renewals, replacements and amendments thereof not in excess of the current maximum under such credit agreement incurred in the ordinary course of business, incur, assume or guarantee (other than endorsements) any indebtedness, or modify or repay any existing indebtedness; (h) enter into any transaction, make any commitment (whether or not subject to the approval of the Board of Directors of Total eMed) or modify any Contracts, except as otherwise contemplated or permitted by this Agreement or in the ordinary course of business and not exceeding $25,000 singly, or take any action which could be reasonably anticipated to have a Material Adverse Effect on Total eMed; (i) transfer, lease, license, guarantee, sell, mortgage, pledge, or dispose of, any property or assets (including without limitation any intellectual property), encumber any property or assets or incur or modify any liability, other than the sale of inventory in the ordinary and usual course of business; (j) authorize capital expenditures other than in the ordinary course of business, form any subsidiary, or make any acquisition of, or investment in, assets or stock of any other person or entity; (k) make any tax election; (l) permit any insurance policy naming it as a beneficiary or a loss payable payee to be canceled or terminated without prior notice to MDLI; (m) change its method of accounting as in effect at the Most Recent Fiscal Year End except as required by changes in GAAP as concurred with by Total eMed's independent auditors, or change its fiscal year; (n) authorize or enter into an agreement to do any of the actions referred to in paragraphs (a) through (m) above. 4.2.2 Acquisition Proposals. Unless and until this Agreement shall have been terminated pursuant to Section 6.1 or Section 6.2, Total eMed shall not directly, or indirectly through any officer, director, agent, employee or representative (each, a "Representative") (i) encourage, initiate, solicit or entertain, on or after the date hereof, any inquiries or the submission of any proposals or offers from any person relating to any merger, consolidation, sale of all or substantially all of its assets or similar business transaction involving Total eMed (each, an "Acquisition Transaction"); (ii) participate in any negotiations regarding, furnish to 36 any other person any information with respect to, or otherwise assist or participate in, any attempt by any third party to propose or offer any Acquisition Transaction; (iii) enter into or execute any agreement relating to an Acquisition Transaction; or (iv) make or authorize any public statement, recommendation or solicitation in support of any Acquisition Transaction or any proposal or offer relating to an Acquisition Transaction, in each case other than with respect to the Merger. Total eMed will promptly (a) notify MDLI in writing if, on or after the date of this Agreement, it receives any proposal or written inquiry or written request for information in connection with an Acquisition Transaction or potential Acquisition Transaction and (b) notify MDLI in writing of the significant terms and conditions of any Acquisition Transaction or potential Acquisition Transaction including the identity of the party making an Acquisition Transaction. In addition, from and after the date of this Agreement, until the earlier to occur of the Effective time or termination of this Agreement pursuant to its terms, Total eMed will not, and will instruct its directors, officers, employees, representatives, investment bankers, agents and affiliates not to, directly or indirectly, make or authorize any public statement, recommendation or solicitation in support of any Acquisition Transaction made by any person, entity or group (other than MDLI). 4.2.3 Investigations. Total eMed agrees to give MDLI and its representatives and agents reasonable access to all its premises, books and records and agreements and files and to cause its officers of Total eMed to furnish MDLI with such financial and operating data and other information with respect to its business and properties as MDLI shall from time to time reasonably request. Any such investigations (a) shall be conducted in such manner as not to interfere unreasonably with the operation of Total eMed's business; and (b) shall not diminish any of the representations and warranties hereunder. 4.3 Covenants of MDLI. ----------------- 4.3.1 Investigations. MDLI agrees to give Total eMed and its representatives and agents reasonable access to all its premises, books and records and agreements and files and to cause its officers of MDLI to furnish Total eMed with such financial operating data and other information with respect to its business and properties as Total eMed shall from time to time reasonably request. Any such investigations (a) shall be conducted in such manner as not to interfere unreasonably with the operation of MDLI's business; and (b) shall not diminish any of the representations and warranties hereunder. 4.3.2 Notification to Optionees. Promptly after the Effective Date, MDLI will notify in writing each holder of an Option of the exchange of the Option for an option to purchase MDLI Common Stock in accordance with Section 1.3.3 of this Agreement. 4.3.3 MDLI Board. Effective on the Closing, MDLI will cause two persons designated by Total eMed, who are reasonably acceptable to MDLI, to be elected or appointed to the MDLI Board of Directors. 4.3.4 [Intentionally Omitted]. ---------------------- 37 4.3.5 Nasdaq Listing Application. MDLI shall promptly prepare and submit to Nasdaq a listing application for the MDLI Common Stock to be issued in the Merger, and shall use its reasonable best efforts to obtain, prior to the Effective Time, approval for the listing of such MDLI Common Stock. 4.3.6 Officer and Director Indemnification. For a period of six years from the Closing Date, MDLI agrees to indemnify the officers and directors of Total eMed for all actions taken prior to Closing to the extent authorized in Total eMed's charter and bylaws prior to Closing and to the extent such officer and director liability coverage was maintained by Total eMed prior to Closing. For a period of six years MDLI agrees to maintain officer and director liability coverage for the benefit of the officers and directors of Total eMed in such amounts and on such terms substantially equivalent to the coverage maintained by Total eMed prior to the Effective Time. 4.3.7 Conduct of Business. Prior to the Effective Time, MDLI will not: (a) amend its Articles of Incorporation or Bylaws if the amendment would materially and adversely affect the relative rights, preferences and privileges of the MDLI Common Stock; or (b) declare, set aside or pay any dividends payable in cash, stock or property with respect to shares of its Capital Stock. 4.3.8 Break Up Fee. If the shareholders of MDLI fail to approve the issuance of the MDLI Common Stock in the Merger at the MDLI Special Meeting and Total eMed is not in breach of this Agreement in any material respect, MDLI shall within five business days pay to Total eMed the cash amount of $6,000,000. 4.4 Covenants of Merger Corp. Merger Corp. covenants and agrees that, except as is contemplated by this Agreement, prior to the Effective Time, Merger Corp., subject to Section 4.1.9 above, will not engage in any business activities or liquidate, merge into or consolidate with any other corporation or permit any other corporation to merge into or consolidate with it; or increase its authorized capital stock; or issue options, rights or warrants to purchase any of its capital stock. ARTICLE V CONDITIONS 5.1 Conditions to the Obligations of All Parties. The obligations of Total eMed, MDLI and Merger Corp. to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions: 5.1.1 Regulatory Approvals. The parties shall have made all filings and received all approvals of any Governmental Entity of competent jurisdiction necessary in order 38 to consummate the Merger, and each of such approvals shall be in full force and effect at the Closing and not subject to any condition which requires the taking or refraining from taking of any action which would have a Material Adverse Effect on Total eMed or on MDLI. 5.1.2 Litigation. There shall not be in effect any order, decree or injunction of a Federal or State court of competent jurisdiction restraining, enjoining or prohibiting the consummation of the transactions contemplated by this Agreement (each party agreeing to use its reasonable best efforts, including appeals to higher courts, to have any such non-final, appealable order, decree or injunction set aside or lifted), and no action shall have been taken, and no statute, rule or regulation shall have been enacted, by any state or federal government or governmental agency in the United States which would prevent the consummation of the Merger. 5.1.3 Shareholder Approval. Each class or series of the capital stock of Total eMed shall have approved the Merger in accordance with Total eMed's Certificate of Incorporation, the rights and privileges of such class or series, and the DGCL. The issuance of MDLI Common Stock in the Merger shall have been approved by the affirmative vote of the holders of a majority of the shares of MDLI Common Stock present in person or represented by proxy, entitled to vote and voted at the MDLI Special Meeting. 5.1.4 Registration of Securities; Listing. The shares of MDLI Common Stock to be issued pursuant to this Agreement will have been registered under the Securities Act, and under the securities laws of such states as counsel for MDLI deems necessary or exemptions from such state registrations or qualifications will have been determined by such counsel to be available, and will have been listed on the Nasdaq National Market System. 5.2 Conditions to the Obligations of Total eMed. The obligations of Total eMed to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions: 5.2.1 Representations, Warranties and Covenants. The representations and warranties of MDLI contained in this Agreement qualified by "Material Adverse Effect" shall be true and correct in all respects, and all other representations and warranties of MDLI contained in this Agreement shall be true and correct in all respects, except where the failure to be true and correct would not have a Material Adverse Effect on MDLI, except for representations and warranties made as of a specific date, which representations and warranties need only be true and correct as of such date, and for changes specifically contemplated by this Agreement, and MDLI and Merger Corp. shall have performed in all material respects all of their respective covenants and obligations hereunder to be performed as of the Closing. Total eMed shall have received at the Closing certificates to the foregoing effect, dated the Closing Date, and executed on behalf of MDLI by an executive officer of MDLI and on behalf of Merger Corp. by an executive officer of Merger Corp. 5.2.2 No Material Adverse Change. Since September 30, 1999, there shall have been no Material Adverse Change, or discovery of a condition or occurrence of an event, 39 which has resulted or reasonably can be expected to result in a Material Adverse Change of MDLI and its subsidiaries taken as a whole. 5.2.3 Legal Opinion. Total eMed shall have received from legal counsel to MDLI an opinion dated as of the Closing, substantially in the form attached to this Agreement as Exhibit E. 5.3 Conditions to the Obligations of MDLI and Merger Corp. The obligations of MDLI and Merger Corp. to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions: 5.3.1 Representations, Warranties and Covenants. The representations and warranties of Total eMed contained in this Agreement qualified by "Material Adverse Effect" shall be true and correct in all respects, and all other representations and warranties of Total eMed contained in this Agreement shall be true and correct in all respects, except where the failure to be true and correct would not have a Material Adverse Effect on Total eMed, except for representations and warranties made as of a specific date, which representations and warranties need only be true and correct as of such date, and for changes specifically contemplated by this Agreement and Total eMed shall have performed in all material respects all of its covenants and obligations hereunder to be performed as of the Closing. MDLI shall have received at the Closing certificates to the foregoing effect, dated the Closing Date, and executed on behalf of Total eMed by an executive officer of Total eMed. 5.3.2 Lock-up. The stockholders of Total eMed listed on Schedule 2.1 shall at MDLI's request enter into an agreement with the underwriters in MDLI's initial public offering in customary form providing that before June 7, 2000 the stockholders may not sell or otherwise transfer any securities of MDLI. 5.3.3 No Material Adverse Change. Since the Most Recent Fiscal Year End, there shall have been no Material Adverse Change, or discovery of a condition or occurrence of an event, which has resulted or reasonably can be expected to result in a Material Adverse Change of Total eMed and its Subsidiaries taken as a whole. 5.3.4 [Intentionally Omitted]. ----------------------- 5.3.5 [Intentionally Omitted]. ----------------------- 5.3.6 Dissenting Shares. Not more than ten percent of the total issued and outstanding Total eMed Common Shares (taking into account all Total eMed Common Shares issued or issuable pursuant to options, warrants, convertible securities, or other rights to acquire Total eMed Common Stock) shall be Dissenting Shares. 5.3.7 Preferred Stock. Immediately prior to the Effective Time, all of the issued and outstanding shares of Preferred Stock of Total eMed shall have been converted into shares of Common Stock of Total eMed in accordance with their terms, except for Total 40 eMed's Series C Preferred Stock, par value $.001, which shall be deemed to be converted into Series C Common Equivalents, and which shall deemed to be outstanding. 5.3.8 Escrow Schedule. Total eMed shall have executed and delivered to MDLI the Escrow Schedule (as defined in Section 7.2.1 of this Agreement). 5.3.9 Legal Opinion. MDLI shall have received from legal counsel to Total eMed an opinion dated as of the Closing, substantially in the form attached to this Agreement as Exhibit F. ARTICLE VI TERMINATION 6.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by the mutual consent of Total eMed and MDLI. 6.2 Termination by Either Total eMed or MDLI. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a) by MDLI or Total eMed if the Merger shall not have become effective on or prior to July 31, 2000, provided, however, that the right to terminate this Agreement pursuant to this Section 6.2(a) shall not be available to any party whose breach of this Agreement has been the cause of, or resulted in, the failure of the Merger to occur on or before such date; (b) by MDLI or Total eMed if any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree (other than a temporary restraining order) restraining, enjoining or otherwise prohibiting the Merger and such order, judgment or decree shall have become final and nonappealable; (c) by MDLI if MDLI is not in material breach of this Agreement and there has been a material breach by Total eMed of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within a reasonable time (but in no event more than 30 days) after written notice of such breach is given by Total eMed to MDLI; or (d) by Total eMed if Total eMed is not in material breach of this Agreement and there has been a material breach by MDLI of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within a reasonable time (but in no event more than 30 days) after written notice of such breach is given by MDLI to Total eMed. 41 6.3 Effect of Termination and Abandonment. In the event of termination of this Agreement and abandonment of the Merger pursuant to this Article VI, (i) this Agreement immediately will become void and of no effect, except that Sections 4.1.6, and 8.1 will survive the event of termination; and (ii) no party hereto (or any of its directors of officers) shall have any liability or further obligation to any other party to this Agreement, except for breach of this Agreement. ARTICLE VII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW 7.1 Survival of Representations and Warranties. All of Total eMed's representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement (each as modified by the Disclosure Schedules) shall survive the Merger and continue until 5:00 p.m., Pacific time, on the fifth business day after the delivery to MDLI of the audit report of its independent public accountants regarding MDLI's consolidated financial statements for the year ended December 31, 2000 (the "Expiration Date"). The representations, warranties and covenants of MDLI in this Agreement shall not survive the Merger and shall terminate at the Effective Time. 7.2 Escrow Arrangements. ------------------- 7.2.1 Contract Escrow Fund. At the Effective Time, holders of Total eMed Common Stock immediately before the Effective Time (the "Shareholders") will be deemed to have received and deposited with the Escrow Agent (as defined below) five percent of the shares of MDLI Common Stock to be received by the holders of Total eMed Common Stock pursuant to Section 1.3 of this Agreement, provided that the shares to be delivered on behalf of each such holder shall be rounded down to the nearest whole share of MDLI Common Stock (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by MDLI after the Effective Time) (the "Escrow Amount") without any act of any shareholder. As soon as practicable after the Effective Time, the Escrow Amount, without any act of any Total eMed shareholder, will be deposited with West Coast Trust (or other institution acceptable to MDLI and the Securityholder Agent (as defined in Section 7.2.7 below)) as Escrow Agent (the "Escrow Agent"), such deposit to constitute an escrow fund (the "Contract Escrow Fund") to be governed by the terms set forth herein. The portion of the Escrow Amount contributed on behalf of each shareholder of Total eMed shall be in proportion to the aggregate MDLI Common Stock to which such holder would otherwise be entitled under Section 1.3 and shall be in the respective share amounts and percentages listed opposite each Shareholder's names listed in a schedule to be executed by Total eMed and delivered to MDLI at Closing (the "Escrow Schedule"). The Contract Escrow Fund shall be available to compensate MDLI and its affiliates (including the Surviving Corporation) for any claims, losses, liabilities, obligations, damages, deficiencies, costs and expenses, including reasonable attorneys' fees and expenses, and expenses of investigation and defense (hereinafter individually a "Loss" and collectively "Losses") incurred by MDLI, its officers, directors, or 42 affiliates (including the Surviving Corporation) directly or indirectly as a result of any inaccuracy or breach of a representation or warranty of Total eMed contained herein (or in any certificate, instrument, schedule or document attached to this Agreement and delivered by Total eMed in connection with the Merger). Except as otherwise provided herein, MDLI may not receive any shares from the Contract Escrow Fund unless and until Officer's Certificates (as defined in Section 7.2.4.1 below) identifying Losses, the aggregate amount of which exceeds $1,000,000 (except in the case of Losses arising from any breach or inaccuracy of Sections 3.1.2 (Capitalization), 3.1.15 (Intellectual Property) and 3.1.20 (Taxes), as to which such threshold shall not apply), have been delivered to the Escrow Agent as provided in Section 7.2.5 and such amount is determined pursuant to this Article VII to be payable; in such case, MDLI may recover shares from the Contract Escrow Fund equal in value to all indemnified Losses (to the extent such Losses exceed the $1,000,000 threshold) for which there is no objection or any objection had been resolved in accordance with the provisions of this Article VII. For purposes of this Article VII, each of the matters described on Schedule 3.1.2 of Total eMed's Disclosure Schedules shall be deemed to be a breach of Total eMed's representations and warranties in Section 3.1.2 of this Agreement (the "Earn-out Claim(s)"). The Earn-out Claims shall not be subject to the $1,000,000 threshold. MDLI may make claims against the Contract Escrow Fund with respect to any and all Earn-out Claims (a) to compensate for any Losses; (b) to satisfy any obligation to issue shares of the capital stock of MDLI or any of its affiliates; and/or (c) to compensate and reimburse MDLI for any Losses or other amounts MDLI directly or indirectly incurs or expends to redeem, acquire or cancel by any means permitted by law such shares of the capital stock of MDLI's affiliate. 7.2.1.1 Litigation Escrow Fund. In addition to the shares placed in the Contract Escrow Fund, at the Effective Time, the Shareholders will be deemed to have received and deposited with the Escrow Agent shares of MDLI Common Stock whose market value equals $21,000,000, based on the average closing price of MDLI Common Stock for the ten full trading days immediately preceding the Effective Time. The shares to be delivered on behalf of each such holder shall be rounded down to the nearest whole share of MDLI Common Stock (plus any additional shares as may be issued upon any stock split, stock dividend or recapitalization effected by MDLI after the Effective Time) without any act of any shareholder. Such deposit shall constitute an escrow fund (the "Litigation Escrow Fund") which shall be available to compensate MDLI and its affiliates (including the Surviving Corporation) for any and all Losses, whether by way of settlement, arbitration, adjudication or other quasi-judicial proceeding, arising from or relating to the lawsuit styled MedQuist MRC, Inc. v. John H. Dayani and Network Health Services, Inc. in the United States District Court, Northern District of Ohio, Eastern Division, Case Number 1:99CV 2010, subsequently transferred to the United States District Court, Middle Tennessee District (the "Litigation"). The portion of the shares contributed to the Litigation Escrow Fund on behalf of each Shareholder shall be in the respective share amounts and percentages listed opposite each Shareholder's names listed in the Escrow Schedule. At all times during the term of the Litigation Escrow Fund, the Shareholders shall be deemed to be the record holders of their respective amounts of the MDLI Common Stock in such fund. 43 7.2.1.2 Distribution from Litigation Escrow Fund. The shares in the Litigation Escrow Fund shall be distributed only in accordance with the provisions hereof. 7.2.1.2.1 Except as otherwise provided herein, MDLI may not receive any shares from the Litigation Escrow Fund for losses relating to fees and expenses of the Litigation (the "Litigation Expenses") unless and until Officer's Certificates (as defined in Section 7.2.4.1 below) identifying Litigation Expenses, the aggregate amount of which exceeds $1,000,000 (provided that this threshold shall only apply to Litigation Expenses and shall not apply to any other Losses agreed to in any settlement or awarded in any arbitration, adjudication or other quasi-judicial proceeding), have been delivered to the Escrow Agent as provided in Section 7.2.5 and such amount is determined pursuant to this Article VII to be payable; in such case, MDLI may recover shares from the Litigation Escrow Fund equal in value to all indemnified Litigation Expenses (to the extent such Litigation Expenses exceed the $1,000,000 threshold) for which there is no objection or any objection had been resolved in accordance with the provisions of this Article VII. 7.2.1.2.2 In the event of final settlement or arbitration award or the entry of a final order in adjudication of the Litigation, the Securityholder Agent and MDLI shall both certify to the Escrow Agent the amount of the Losses incurred by MDLI and/or its affiliates in the Litigation. As promptly as practicable after receipt thereof, the Escrow Agent shall deliver to MDLI the number of shares equal to the amount of Losses agreed to or awarded to MDLI or any of its affiliates in any settlement, arbitration, adjudication or quasi-judicial proceeding divided by the closing price per share of MDLI Common Stock on the date that the settlement, award, or order becomes final. The Escrow Agent shall also deliver any remaining shares to the Shareholders in proportion to their respective original contributions to the Litigation Escrow Fund (as set forth on the Escrow Schedule). This Section 7.2.1.2.2 shall not apply to the distribution of shares from the Litigation Escrow Fund for payment of Litigation Expenses. 7.2.1.2.3 Prior to the settlement, arbitration or adjudication of the Litigation, the Securityholder Agent may periodically, but no more often than twice each calendar year, request that MDLI consider releasing shares from the Litigation Escrow Fund (each such consideration, a "Litigation Assessment"). The request for a Litigation Assessment shall be accompanied by an explanation of any facts and circumstances that merit the release of shares from the Litigation Escrow Fund. MDLI shall in good faith consider those facts and circumstances and any other information which MDLI deems reasonable, including the market value of the shares in the Litigation Escrow Fund relative to the original $21,000,000 valuation, and shall evaluate the risk of a finding of liability against MDLI and its affiliates in the Litigation. After conducting the Litigation Assessment and within fourteen days of receiving the request for the Litigation Assessment, MDLI shall respond to the Securityholder Agent in writing with its decision as to whether to allow the distribution of any shares from the Litigation Escrow Fund. In the event MDLI allows such a distribution, it will direct the Escrow Agent to release to the Shareholders the particular number of shares, and the Escrow 44 Agent shall thereupon release to the Shareholders such shares, in proportion to their respective original contributions to the Litigation Escrow Fund (as set forth on the Escrow Schedule). 7.2.1.2.4 The rights of MDLI to make claims upon the Litigation Escrow Fund shall be the sole and exclusive remedy of MDLI as against the Shareholders after the Effective Time with respect to the Litigation. 7.2.1.2.5 The provisions of Sections 7.2.3, 7.2.4 (solely with respect to Litigation Expenses), 7.2.5 (solely with respect to Litigation Expenses), 7.2.6 (solely with respect to Litigation Expenses), 7.2.7, 7.2.8, 7.2.9, 7.2.10 and 7.2.11 shall apply to the existence and operation of the Litigation Escrow Fund. 7.2.2 Escrow Period; Distribution upon Termination of Escrow Periods. Subject to the following requirements, the Contract Escrow Fund shall be in existence immediately following the Effective Time and shall terminate at 5:00 p.m., Pacific time, on the Expiration Date (the "Escrow Period"); provided, however, that the Escrow Period shall not terminate with respect to such amount (or some portion thereof), that together with the aggregate amount remaining in the Contract Escrow Fund is reasonably necessary to satisfy any unsatisfied claims concerning facts and circumstances existing prior to the termination of such Escrow Period specified in any Officer's Certificate delivered to the Escrow Agent prior to termination of such Escrow Period. MDLI and Total eMed, on behalf of itself and its stockholders, agree that (i) as of the Expiration Date, any and all Earn-out Claims shall be deemed to be an unsatisfied claim; (ii) MDLI may make claims against the Contract Escrow Fund with respect to the Earn-out Claims after the Expiration Date; and (iii) the Escrow Period shall extend with until final resolution of all Earn-out Claims. As soon as all such unsatisfied claims have been resolved, as evidenced by written memorandum of the Securityholder Agent and MDLI, the Escrow Agent shall deliver to the Shareholders the remaining portion of the Contract Escrow Fund not required to satisfy such unsatisfied claims; provided, however, the Escrow Agent shall release to the Shareholders on the Expiration Date such portion of the Contract Escrow Fund that is in excess of the amount in dispute of any unsatisfied claims. Deliveries of Escrow Amounts to the Shareholders pursuant to this Section 7.2.2 shall be made in proportion to their respective original contributions to the Contract Escrow Fund (as set forth on the Escrow Schedule). At all times during the Escrow Period, the Shareholders shall be deemed to be the record holders of their respective amounts of the MDLI Common Stock comprising the Escrow Amount. Securityholder Agent shall provide to the Escrow Agent a current schedule of the Shareholders' names and addresses and pro rata share of the Escrow Amount prior to the date of distribution of the Escrow Amount. 45 7.2.3 Protection of Escrow Fund. ------------------------- 7.2.3.1 For purposes of this Article VII, the Contract Escrow Fund and the Litigation Escrow Fund shall be collectively referred to as the "Escrow Fund." 7.2.3.2 The Escrow Agent shall hold and safeguard the Escrow Fund during the Escrow Period, shall treat such fund as a trust fund in accordance with the terms of this Agreement and shall hold and dispose of the Escrow Fund only in accordance with the terms hereof. 7.2.3.3 Any shares of MDLI Common Stock or other equity securities issued or distributed by MDLI (including shares issued upon a stock split or stock dividend) ("New Shares") in respect of MDLI Common Stock in the Escrow Fund which have not been released from the Escrow Fund shall be added to the Escrow Fund and become a part thereof. New Shares issued in respect of shares of MDLI Common Stock which have been released from the Escrow Fund shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. Cash dividends on MDLI Common Stock shall not be added to the Escrow Fund but shall be distributed to the recordholders thereof. 7.2.3.4 Each Shareholder shall be deemed the record holder of, and shall have voting, dividend, distribution and all other rights with respect to the shares of MDLI Common Stock contributed to the Escrow Fund by such Shareholder (and on any voting securities and other equity securities added to the Escrow Fund in respect of such shares of MDLI Common Stock). 7.2.4 Claims upon Escrow Fund. ----------------------- 7.2.4.1 Upon receipt by the Escrow Agent at any time on or before the Expiration Date of a certificate (an "Officer's Certificate") signed by any officer of MDLI: (A) stating that MDLI has paid or properly incurred Losses, and (B) specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued, and the nature of the misrepresentation, breach of warranty, covenant, obligation or claim to which such item is related, the Escrow Agent shall, subject to the provisions of Section 7.2.5 hereof, deliver to MDLI out of the Escrow Fund, as promptly as practicable, shares of MDLI Common Stock held in the Escrow Fund in an amount equal to such Losses. 7.2.4.2 For the purposes of determining the number of shares of MDLI Common Stock to be delivered out of the Escrow Fund pursuant to Sections 7.2.4.1 of this Agreement, the shares of MDLI Common Stock shall be valued at the closing price per share of MDLI Common Stock on the later of the date of the Officer's Certificate or the date of the resolution of any objection to an Officer's Certificate. 7.2.4.3 Litigation Expenses shall be paid with shares from the Litigation Escrow Fund. 46 7.2.4.4 In the event of a breach of the representation set forth in Section 3.1.15.21 of this Agreement, MDLI agrees to pursue its rights and remedies under a vendor's warranty policy with respect to the Technology, if any, before pursuing a claim against the Contract Escrow Fund. 7.2.5 Objections to Claims. At the time of delivery of any Officer's Certificate to the Escrow Agent by the Securityholder Agent, the party delivering the Officer's Certificate shall deliver a duplicate copy of such certificate to the other party and for a period of 30 days after such delivery, the Escrow Agent shall not deliver any Escrow Amounts pursuant to Section 7.2.4 hereof unless the Escrow Agent shall have received written authorization from such other party to make such delivery. After the expiration of such 30 day period, the Escrow Agent shall make delivery of shares of MDLI Common Stock from the Escrow Fund in accordance with Section 7.2.4 hereof, provided that no such payment or delivery may be made if such other party shall object in a written statement to the claim made in the Officer's Certificate, and such statement shall have been delivered to the Escrow Agent prior to the expiration of such 30 day period. 7.2.6 Resolution of Conflicts; Arbitration. ------------------------------------ 7.2.6.1 In case the Securityholder Agent shall so object in writing to any claim or claims made in any Officer's Certificate, the Securityholder Agent and MDLI shall attempt in good faith to agree upon the rights of the respective parties with respect to each of such claims. If the Securityholder Agent and MDLI should so agree, a memorandum setting forth such agreement shall be prepared and signed by both parties and shall be furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such memorandum and distribute shares of MDLI Common Stock from the Escrow Fund in accordance with the terms thereof. 7.2.6.2 If no such agreement can be reached after good faith negotiation, and in any event not later than 60 days after receipt of the written objection of the Securityholder Agent, either MDLI or the Securityholder Agent may demand arbitration of the matter unless the amount of the damage or loss is at issue in pending litigation with a third party, in which event arbitration shall not be commenced until such amount is ascertained or both parties agree to arbitration; and in either such event the matter shall be settled by arbitration conducted by three arbitrators. MDLI and the Securityholder Agent shall each select one arbitrator, and the two arbitrators so selected shall select a third arbitrator, each of which arbitrators shall be independent and have at least ten years relevant experience. The arbitrators shall set a limited time period and establish procedures designed to reduce the cost and time for discovery while allowing the parties an opportunity, adequate in the sole judgment of the arbitrators, to discover relevant information from the opposing parties about the subject matter of the dispute. The arbitrators shall rule upon motions to compel or limit discovery and shall have the authority to impose sanctions, including attorneys fees and costs, to the extent as a court of competent law or equity, should the arbitrators determine that discovery was sought without substantial justification or that discovery was refused or objected to without substantial 47 justification. The decision of a majority of the three arbitrators as to the validity and amount of any claim in such Officer's Certificate shall be binding and conclusive upon the parties to this Agreement, and notwithstanding anything in Section 7.2.5 hereof, the Escrow Agent shall be entitled to act in accordance with such decision and make or withhold payments out of the Escrow Fund in accordance therewith. Such decision shall be written and shall be supported by written findings of fact and conclusions which shall set forth the award, judgment, decree or order awarded by the arbitrators. 7.2.6.3 Judgment upon any award rendered by the arbitrators may be entered in any court having jurisdiction. Any such arbitration shall be held in San Francisco, California under the rules then in effect of the Judicial Arbitration and Mediation Services, Inc. For purposes of this Section 7.2.6, in any arbitration hereunder in which any claim or the amount thereof stated in the Officer's Certificate is at issue, the party delivering the Officer's Certificate shall be deemed to be the Non-Prevailing Party in the event that the arbitrators award the sum of one-half or less of the disputed amount plus any amounts not in dispute; otherwise, the other party shall be deemed to be the Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its own expenses, the fees of each arbitrator, the administrative costs of the arbitration, and the expenses, including without limitation, reasonable attorneys' fees and costs, incurred by the other party to the arbitration, independent of the escrow fund. 7.2.7 Securityholder Agent of the Shareholders; Power of Attorney. -------------------------------------------------- 7.2.7.1 In the event that the Merger is approved, effective upon such vote, and without further act of any shareholder, EF Private Equity Partners (Americas) LP shall be appointed as agent and attorney-in-fact (the "Securityholder Agent") for each shareholder of Total eMed (except such shareholders, if any, as shall have perfected their appraisal rights under the DGCL, for and on behalf of the Shareholders, to give and receive notices and communications, to authorize delivery to MDLI of shares of MDLI Common Stock from the Escrow Fund in satisfaction of claims by MDLI, to object to such deliveries, to agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of Securityholder Agent for the accomplishment of the foregoing. Such agency may be changed by the Shareholders from time to time upon not less than 30 days prior written notice to MDLI; provided that the Securityholder Agent may not be removed unless holders of a two-thirds interest of the Escrow Fund agree to such removal and to the identity of the substituted agent. Any vacancy in the position of Securityholder Agent may be filled by approval of the holders of a majority in interest of the Escrow Fund. No bond shall be required of the Securityholder Agent, and the Securityholder Agent shall not receive compensation for his or her services. Notices or communications to or from the Securityholder Agent shall constitute notice to or from each of the shareholders of Total eMed. 48 7.2.7.2 The Securityholder Agent shall not be liable for any act done or omitted hereunder as Securityholder Agent while acting in good faith and in the exercise of reasonable judgment. The Shareholders on whose behalf the Escrow Amount was contributed to the Escrow Fund shall jointly and severally indemnify the Securityholder Agent and hold the Securityholder Agent harmless against any loss, liability or expense incurred without negligence or bad faith on the part of the Securityholder Agent and arising out of or in connection with the acceptance or administration of the Securityholder Agent's duties hereunder, including the reasonable fees and expenses of any legal counsel retained by the Securityholder Agent. 7.2.8 Actions of the Securityholder Agent. A decision, act, consent or instruction of the Securityholder Agent shall constitute a decision of all the Shareholders for whom a portion of the Escrow Amount otherwise issuable to them are deposited in the Escrow Fund and shall be final, binding and conclusive upon each of such Shareholders, and the Escrow Agent and MDLI may rely upon any such written decision, consent or instruction of the Securityholder Agent as being the decision, consent or instruction of each every such Shareholder. The Escrow Agent and MDLI are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, consent or instruction of the Securityholder Agent. 7.2.9 Third-Party Claims. ------------------ 7.2.9.1 If any third party shall notify MDLI or its affiliates with respect to any matter (hereinafter referred to as a "Third Party Claim"), which may give rise to a claim by MDLI against the Escrow Fund, then MDLI shall give notice to the Securityholder Agent within 30 days of MDLI becoming aware of any such Third Party Claim or of facts upon which any such Third Party Claim will be based setting forth such material information with respect to the Third Party Claim as is reasonably available to MDLI; provided, however, that no delay or failure on the part of MDLI in notifying the Securityholder Agent shall relieve the Securityholder Agent and the Shareholders from any obligation hereunder unless the Securityholder Agent and the Shareholders are thereby materially prejudiced (and then solely to the extent of such prejudice). The Securityholder Agent and the Shareholders shall not be liable for any attorneys fees and expenses incurred by MDLI prior to MDLI's giving notice to the Securityholder Agent of a Third Party Claim. The Shareholders shall be entitled, at their expense, to participate, but without controlling, in any defense of a Third Party Claim; provided, however, the Shareholders may assume the defense of the Third Party Claim, if permitted by Section 7.2.9.2, if the Securityholder Agent notifies MDLI in writing, within ten days after receiving notice of the Third Party Claim, of the Shareholders intent to assume the defense. 7.2.9.2 The Shareholders may elect to assume the defense of the Third Party Claim unless (i) such Third Party Claim seeks an order, injunction, or other equitable relief against MDLI or any of its subsidiaries (and either (A) the third party seeks a temporary restraining order or preliminary injunction, or (B) MDLI reasonably determines that the relief 49 sought would be materially adverse to it) or (ii) MDLI has reasonably concluded that there is a conflict of interest between it and the Shareholders in the conduct of the defense of such claim. If the Shareholders assume the defense of the Third-Party Claim, the Securityholder Agent shall undertake, conduct, and control the settlement or defense of the Third-Party Claim diligently, through counsel chosen by it and approved by MDLI, and shall use all reasonable efforts in good faith to resolve the Third Party Claim expeditiously and at the least possible cost under the circumstances; provided, however, that the Securityholder Agent shall have no obligation to undertake any separate obligation or duty in settlement of such claim. MDLI shall cooperate with the indemnifying party in connection therewith and make available to the Securityholder Agent all relevant information reasonably available to it that is material to the defense of the Third Party Claim. MDLI may participate in the defense of the Third Party Claim through counsel of its choice. Neither the Securityholder Agent nor the Shareholders shall, without the prior written consent of MDLI, settle or compromise, or consent to the entry of any judgment in, any such claim or any pending or threatened claim or action in respect of which indemnification may be sought under this Article VII, unless such settlement, compromise, or consent includes an unconditional release of MDLI and each of its subsidiaries from all liability arising out of such claim or action. If the Shareholders do not elect to assume the defense of the Third Party Claim, then MDLI shall undertake, conduct, and control the settlement or defense of the Third Party Claim diligently, through counsel chosen by MDLI, and shall use all reasonable efforts in good faith to resolve the Third Party Claim expeditiously and at the least possible cost under the circumstances; provided, however, that MDLI shall have no obligation to undertake any separate obligation or duty in settlement of such claim or to undertake any action that would materially adversely affect the future conduct of its business. The Securityholder Agent shall cooperate with MDLI in connection therewith and make available to MDLI all relevant information reasonably available to the Securityholder Agent or the Shareholders that is material to the defense of the Third Party Claim. MDLI shall have the right in its sole discretion to settle any Claim; provided, however, that MDLI may not settle any Third Party Claim without the consent of the Securityholder Agent, which consent shall not be unreasonably withheld. 7.2.10 Escrow Agent's Duties. --------------------- 7.2.10.1 The Escrow Agent shall be obligated only for the performance of such duties as are specifically set forth herein, and as set forth in any additional written escrow instructions which the Escrow Agent may receive after the date of this Agreement which are signed by an officer of MDLI and the Securityholder Agent and agreed to and signed by the Escrow Agent, and may rely and shall be protected in relying or refraining from acting on any instrument reasonably believed to be genuine and to have been signed or presented by the proper party or parties. The Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow Agent while acting in good faith and in the exercise of reasonable judgment, and any act done or omitted pursuant to the advice of counsel shall be conclusive evidence of such good faith. 50 7.2.10.2 The Escrow Agent is hereby expressly authorized to disregard any and all warnings given by any of the parties hereto or by any other person, excepting only orders or process of courts of law, and is hereby expressly authorized to comply with and obey orders, judgments or decrees of any court. In case the Escrow Agent obeys or complies with any such order, judgment or decree of any court, the Escrow Agent shall not be liable to any of the parties hereto or to any other person by reason of such compliance, notwithstanding any such order, judgment or decree being subsequently reversed, modified, annulled, set aside, vacated or found to have been entered without jurisdiction. 7.2.10.3 The Escrow Agent shall not be liable in any respect on account of the identity, authority or rights of the parties executing or delivering or purporting to execute or deliver this Agreement or any documents or papers deposited or called for hereunder. 7.2.10.4 The Escrow Agent shall not be liable for the expiration of any rights under any statute of limitations with respect to this Agreement or any documents deposited with the Escrow Agent. 7.2.10.5 In performing any duties under the Agreement, the Escrow Agent shall not be liable to any party for damages, losses, or expenses, except for gross negligence or willful misconduct on the part of the Escrow Agent. The Escrow Agent shall not incur any such liability for (A) any act or failure to act made or omitted in good faith, or (B) any action taken or omitted in reliance upon any written instrument, including any written statement or affidavit provided for in this Agreement that the Escrow Agent shall in good faith believe to be genuine, nor will the Escrow Agent be liable or responsible for forgeries, fraud, impersonations, or determining the scope of any representative authority. In addition, the Escrow Agent may consult with the legal counsel in connection with Escrow Agent's duties under this Agreement and shall be fully protected in any act taken, suffered, or permitted by him/her in good faith in accordance with the advice of counsel. The Escrow Agent is not responsible for determining and verifying the authority of any person acting or purporting to act on behalf of any party to this Agreement. 7.2.10.6 If any controversy arises between the parties to this Agreement, or with any other party, concerning the subject matter of this Agreement, its terms or conditions, the Escrow Agent will not be required to determine the controversy or to take any action regarding it. The Escrow Agent may hold all documents and shares of MDLI Common Stock and may wait for settlement of any such controversy by final appropriate legal proceedings or other means as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite what may be set forth elsewhere in this Agreement. In such event, the Escrow Agent will not be liable for damage. Furthermore, the Escrow Agent may at its option, file an action of interpleader requiring the parties to answer and litigate any claims and rights among themselves. The Escrow Agent is authorized to deposit with the clerk of the court all documents and shares of MDLI Common Stock held in escrow, except all cost, expenses, charges and reasonable attorney fees incurred by the Escrow Agent due to the 51 interpleader action and which the parties jointly and severally agree to pay. Upon initiating such action, the Escrow Agent shall be fully released and discharged of and from all obligations and liability imposed by the terms of this Agreement. 7.2.10.7 MDLI and the Surviving Corporation agree jointly and severally to indemnify and hold Escrow Agent harmless against any and all losses, claims, damages, liabilities, and expenses, including reasonable costs of investigation, counsel fees, and disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in connection with the performance of his/her duties under this Agreement, including but not limited to any litigation arising from this Agreement or involving its subject matter; provided, however, that in the event the Securityholder Agent shall be the Non-Prevailing Party in connection with any claim or action initiated by one or more of the Shareholders, then Shareholders shall be responsible for the indemnification of the Escrow Agent to the full extent provided by this Section 7.2.10.7. 7.2.10.8 The Escrow Agent may resign at any time upon giving at least 30 days written notice to the parties; provided, however, that no such resignation shall become effective until the appointment of a successor escrow agent which shall be accomplished as follows: the parties shall use their best efforts to mutually agree on a successor escrow agent within 30 days after receiving such notice. If the parties fail to agree upon a successor escrow agent within such time, the Escrow Agent shall have the right to appoint a successor escrow agent. The successor escrow agent shall execute and deliver an instrument accepting such appointment and it shall, without further acts, be vested with all the estates, properties, rights, powers, and duties of the predecessor escrow agent as if originally named as escrow agent. The Escrow Agent shall be discharged from any further duties and liability under this Agreement. 7.2.10.9 Anything in this Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Escrow Agent has been advised of the likelihood of such loss or damage and regardless of the form of action. 7.2.10.10 It is further understood that any corporation into which the Escrow Agent is its individual capacity may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Escrow Agent in its individual capacity shall be a party, or any corporation to which substantially all the corporate trust business of the Escrow Agent in its individual capacity my be transferred, shall be the Escrow Agent under this Escrow Agreement without further act. 7.2.11 Fees. All fees of the Escrow Agent for performance of its duties hereunder shall be paid by MDLI. It is understood that the fees and usual charges agreed upon for services of the Escrow Agent shall be considered compensation for ordinary services as contemplated by this Agreement. In the event that the conditions of this Agreement are not promptly fulfilled, or if the Escrow Agent renders any service not provided for in this 52 Agreement, or if the parties request a substantial modification of its terms, or if any controversy arises, or if the Escrow Agent is made a party to, or intervenes in, any litigation pertaining to this escrow or its subject matter, the Escrow Agent shall be reasonably compensated for such extraordinary services and reimbursed for all costs, attorneys' fees, and expenses occasioned by such default, delay, controversy or litigation. MDLI promises to pay these sums upon demand. 7.2.12 Maximum Liability and Remedies. The rights of MDLI to make claims upon the Contract Escrow Fund in accordance with this Article VII shall be the sole and exclusive remedy of MDLI after the Closing with respect to any representation or warranty made by Total eMed under this Agreement. ARTICLE VIII MISCELLANEOUS AND GENERAL 8.1 Payment of Expenses. If the Merger is not consummated, each party shall pay its own out-of-pocket legal, accounting, investment banking and other expenses incidental to this Agreement and the transactions contemplated by this Agreement, except for the HSR Filing fees, which shall be shared equally by Total eMed and MDLI. Nothing in this Agreement is meant to limit the right of a non-breaching party to obtain reimbursement of expenses and other damages, including attorneys' fees, incurred as a result of a breach of this Agreement by the other party. 8.2 Entire Agreement. This Agreement, including the schedules and the exhibits hereto, constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. 8.3 Assignment. This Agreement shall not be assignable by any of the parties to this Agreement without the prior written consent of each of MDLI and Total eMed; provided that MDLI may assign this Agreement to an affiliate; provided no such assignment shall result in Total eMed shareholders receiving consideration in any form other than stock of MDLI or such affiliate which has been registered under the Securities Act. 8.4 Binding Effect; No Third Party Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, subject to the restrictions on assignment contained in Section 8.3. Except as provided for in Section 4.3.6 and Article VII of this Agreement, nothing express or implied in this Agreement is intended or shall be construed to confer upon or give to a person, firm or corporation other than the parties hereto any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. 8.5 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented at any time prior to or at the Closing, whether before 53 or after the votes of shareholders of Total eMed, by written agreement executed and delivered by the duly authorized officers of Total eMed and MDLI. 8.6 Waiver of Conditions. The conditions to each of the parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law; provided, however, that any waiver by a party must be in writing. 8.7 Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 8.8 Captions. The article, section and paragraph captions herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 8.9 Subsidiary. When a reference is made in this Agreement to a subsidiary of a party, the term "subsidiary" means any corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries. 8.10 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, certified or registered mail with postage prepaid, or sent by telex, telegram or facsimile (in each case with evidence of confirmed transmission) as follows: If to Total eMed, to it at: 5301 Virginia Way Suite 250 Brentwood, TN 37027 Attn: President Fax: (615) 234 1319 Tel: (615) 234-1300 x113 54 with copies to: Harwell Howard Hyne Gabbert & Manner, PC 1800 First American Center 315 Deaderick Street Nashville, TN 37238 Attn: Peter Oldham Fax: (615) 251-1059 Tel: (615) 251-1069 If to MDLI or Merger Corp., to it at: 20500 NW Evergreen Parkway Hillsboro, OR 97124 Attn: David C. Moffenbeier Fax: (503) 531-7134 Tel: (503) 531-7010 with copies to: Stoel Rives LLP 900 SW Fifth Avenue, Suite 2600 Portland, OR 97204 Attn: Stephen E. Babson Fax: (503) 220-2480 Tel: (503) 294-9645 If to the Escrow Agent, to it at: West Coast Trust 801 Main Street Vancouver, WA 98666 Atten: Mr. Robert W. Ives Fax: (360) 693-5667 Tel: (360) 693-6092 or to such other person or address as any party shall specify by notice in writing. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery or on the third business day after the mailing thereof. 8.11 Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, exclusive of choice of law or conflicts of 55 law rules, provisions, or principles, except that the provisions of this Agreement relating to the Merger shall also be governed by the merger provisions of the DGCL. 8.12 Separability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. [SIGNATURE PAGES FOLLOW] 56 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties to this Agreement as of the date set forth in the preface of this Agreement. MEDICALOGIC, INC. By: MARK K. LEAVITT ----------------------------------------- Name: Mark K. Leavitt, MD Title: CEO TOTAL EMED, INC. By: RICHARD REHM, MD ----------------------------------------- Name: Richard Rehm, MD Title: CEO AQ MERGER CORP. By: DAVID C. MOFFENBEIER ----------------------------------------- Name: David C. Moffenbeier Title: President 57 WEST COAST TRUST CO., INC., doing business as WEST COAST TRUST By: ROBERT W. IVES ----------------------------------------- Name: Robert W. Ives Title: Trust Officer West Coast Trust Company, Inc. EX-2.2 3 MEDSCAPE MERGER AGREEMENT Agreement of Reorganization and Merger among MedicaLogic, Inc., an Oregon corporation, Medscape, Inc., a Delaware corporation, and Moneypenny Merger Corp., a Delaware corporation, February 21, 2000 TABLE OF CONTENTS Page ---- ARTICLE I THE MERGER..........................................................1 1.1 The Merger.......................................................1 1.2 Effect of Merger.................................................1 1.3 Merger Consideration.............................................2 1.3.1 Medscape Stock..........................................2 1.3.2 Merger Corp. Stock......................................2 1.3.3 Options and Warrants....................................2 1.3.4 Stock Splits, Etc.......................................3 1.4 Surrender and Cancellation of Certificates.......................3 1.4.1 Surrender of Certificates...............................3 1.4.2 No Fractional Shares....................................4 1.4.3 Escheat.................................................4 1.4.4 Option and Warrant Agreements...........................4 1.4.5 Treasury Shares.........................................4 1.5 Stock Transfer Books.............................................4 1.6 Closing..........................................................5 1.7 Subsequent Actions...............................................5 1.8 Certificate of Incorporation; Bylaws; Directors and Officers of the Surviving Corporation....................................5 1.9 Shareholder Rights...............................................6 ARTICLE II FURTHER AGREEMENTS.................................................6 2.1 Voting Agreements................................................6 ARTICLE III REPRESENTATIONS AND WARRANTIES....................................6 3.1 Representations and Warranties of Medscape.......................6 3.1.1 Organization and Status.................................7 3.1.2 Capitalization..........................................7 3.1.3 Corporate Authority.....................................8 3.1.4 Subsidiaries and Joint Ventures.........................8 3.1.5 SEC Reports and Financial Statements....................8 3.1.6 Information Supplied....................................9 3.1.7 Governmental Filings....................................9 3.1.8 No Adverse Consequences.................................9 3.1.9 Undisclosed Liabilities; Returns.......................10 3.1.10 Absence of Certain Changes or Events...................10 3.1.11 Litigation.............................................10 3.1.12 Employment Matters.....................................10 3.1.12.1 Labor Matters.............................10 3.1.12.2 Employee Benefits.........................11 3.1.12.3 Employment Agreements.....................12 i 3.1.13 Intellectual Property..................................12 3.1.14 [Reserved].............................................12 3.1.15 Status of Contracts....................................12 3.1.16 [Reserved].............................................13 3.1.17 Permits and Licenses...................................13 3.1.18 Taxes..................................................13 3.1.18.1 Returns...................................13 3.1.18.2 Taxes Paid or Reserved.......................14 3.1.18.3 Definitions..................................14 3.1.19 Related Party Interests................................14 3.1.20 No Powers of Attorney or Restrictions..................15 3.1.21 [Reserved].............................................15 3.1.22 Consents and Approvals.................................15 3.1.23 Brokers and Finders....................................15 3.1.24 Opinion of Medscape Financial Advisor..................15 3.1.25 No Other Agreements to Sell Medscape or its Assets.....15 3.1.26 Vote Required..........................................16 3.1.27 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E)..............................16 3.2 Representations and Warranties of MedicaLogic...................17 3.2.1 Organization and Status................................17 3.2.2 Capitalization.........................................18 3.2.3 Corporate Authority....................................18 3.2.4 Subsidiaries and Joint Ventures........................18 3.2.5 SEC Reports and Financial Statements...................18 3.2.6 Information Supplied...................................19 3.2.7 Governmental Filings...................................19 3.2.8 No Adverse Consequences................................20 3.2.9 Undisclosed Liabilities; Returns.......................20 3.2.10 Absence of Certain Changes or Events...................20 3.2.11 Litigation.............................................20 3.2.12 Employment Matters.....................................20 3.2.12.1 Labor Matters.............................20 3.2.12.2 Employee Benefits.........................21 3.2.12.3 Employment Agreements.....................22 3.2.13 Intellectual Property..................................22 3.2.14 Status of Contracts....................................22 3.2.15 Permits and Licenses...................................23 3.2.16 Taxes..................................................23 3.2.16.1 Returns...................................23 3.2.16.2 Taxes Paid or Reserved....................24 3.2.17 Related Party Interests................................24 3.2.18 No Powers of Attorney or Restrictions..................24 3.2.19 Consents and Approvals.................................25 ii 3.2.20 Brokers and Finders....................................25 3.2.21 No Other Agreements to Sell MedicaLogic or its Assets.................................................25 3.2.22 Opinion of MedicaLogic Financial Advisor...............25 3.2.23 Vote Required..........................................25 3.2.24 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E)..............................25 3.2.25 Total eMed.............................................27 3.3 Representations and Warranties Relating to Merger Corp..........27 3.3.1 Organization and Status................................27 3.3.2 Capitalization.........................................27 3.3.3 Corporate Authority....................................27 3.3.4 Governmental Filings...................................28 3.3.5 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E)..............................28 ARTICLE IV COVENANTS.........................................................28 4.1 Mutual Covenants................................................28 4.1.1 Preparation of Registration Statement and the Joint Proxy Statement........................................28 4.1.2 Shareholder Meetings...................................29 4.1.3 Consents and Approvals.................................30 4.1.4 Best Efforts...........................................30 4.1.5 Publicity..............................................30 4.1.6 Confidentiality........................................30 4.1.7 Antitrust Improvements Act.............................30 4.2 Covenants of Medscape...........................................30 4.2.1 Conduct of Business....................................30 4.2.2 Acquisition Proposals..................................31 4.2.3 Investigations.........................................33 4.2.4 [Reserved].............................................33 4.2.5 Notice and Cure........................................33 4.3 Covenants of MedicaLogic........................................33 4.3.1 Conduct of Business....................................34 4.3.2 Investigations.........................................34 4.3.3 Notification to Optionees..............................34 4.3.4 Officer and Director Indemnification...................34 4.3.5 MedicaLogic Board......................................35 4.3.6 Editor-in-Chief........................................35 4.3.7 Notice and Cure........................................35 4.3.8 Change of Control......................................35 4.3.9 No Amendment to Total eMed Agreement...................36 4.4 Covenants of Merger Corp........................................36 ARTICLE V CONDITIONS.........................................................36 5.1 Conditions to the Obligations of All Parties....................36 iii 5.1.1 Regulatory Approvals...................................36 5.1.2 Litigation.............................................36 5.1.3 Shareholder Approval...................................37 5.1.4 Registration of Securities; Listing....................37 5.2 Conditions to the Obligations of Medscape.......................37 5.2.1 Representations, Warranties and Covenants..............37 5.2.2 No Material Adverse Change.............................37 5.3 Conditions to the Obligations of MedicaLogic and Merger Corp....37 5.3.1 Representations, Warranties and Covenants..............38 5.3.2 No Material Adverse Change.............................38 ARTICLE VI TERMINATION.......................................................38 6.1 Termination by Mutual Consent...................................38 6.2 Termination by Either Medscape or MedicaLogic...................38 6.3 Effect of Termination and Abandonment...........................40 6.4 Termination Fees and Expenses...................................40 ARTICLE VII MISCELLANEOUS AND GENERAL........................................41 7.1 Payment of Expenses.............................................41 7.2 Entire Agreement................................................42 7.3 Assignment......................................................42 7.4 Binding Effect; No Third Party Benefit..........................42 7.5 Amendment and Modification......................................42 7.6 Waiver of Conditions............................................42 7.7 Counterparts....................................................42 7.8 Captions........................................................42 7.9 Subsidiary......................................................42 7.10 Notices.........................................................43 7.11 Choice of Law...................................................44 7.12 Separability....................................................44 7.13 Extinguishment..................................................44 iv EXHIBITS Exhibit A-1 Certificate of Incorporation of the Surviving Corporation Exhibit A-2 Bylaws of the Surviving Corporation Exhibit A-3 Directors of the Surviving Corporation Exhibit B Form of Voting Agreement Exhibit C Medscape Fairness Opinion Exhibit D MedicaLogic Fairness Opinion v SCHEDULES Schedule 1.3.3 Vesting of Options Schedule 2.1 Individuals Executing Voting Agreements Schedule 3.1 Medscape Disclosure Schedule Schedule 3.1.2 Medscape Capitalization Schedule 3.1.4 Medscape Subsidiaries and Joint Ventures Schedule 3.1.11 Medscape Litigation Schedule 3.1.12.1 Medscape Employees Who Are Not US Citizens Schedule 3.1.12.2 Medscape Employee Benefits Schedule 3.1.12.3 Medscape Employment Agreements Schedule 3.1.18 Medscape Taxes Schedule 3.1.19 Medscape Related Party Interests Schedule 3.1.20 Medscape Powers of Attorney or Restrictions Schedule 3.1.25 No Other Agreements to Sell Medscape or its Assets Schedule 3.2 MedicaLogic Disclosure Schedule Schedule 3.2.2 MedicaLogic Capitalization Schedule 3.2.10 Absence of Certain Changes or Events Schedule 3.2.11 MedicaLogic Litigation Schedule 3.2.12.1 MedicaLogic Employees Who Are Not US Citizens Schedule 3.2.12.2 MedicaLogic Employee Benefits Schedule 3.2.12.3 MedicaLogic Employment Agreements Schedule 3.2.16 MedicaLogic Taxes Schedule 3.2.17 MedicaLogic Related Party Interests Schedule 3.2.21 No Other Agreements to Sell MedicaLogic or its Assets Schedule 4.2.1(g) Medscape Capital Expenditures vi INDEX OF TERMS Term Location of Definition Acquisition Transaction Section 4.2.2 Agreement Preamble CBS Agreement Section 1.9 Closing Section 1.6 Closing Date Section 1.6 Code Section 1.3.3 Condition Completion Date Section 1.6 Confidentiality Agreement Section 4.1.6 Conversion Ratio Section 1.3.1 DGCL Section 1.2 ERISA Section 3.1.12.2 ERISA Plans Section 3.1.12.2 Effective Time Section 1.1 Exchange Act Section 3.1.5 GAAP Section 3.1.5 Governmental Entity Section 3.1.7 HSR Filing Section 4.1.7 Information Section 4.1.6 Intellectual Property Section 3.1.13 Joint Proxy Statement Section 3.1.6 Lien Section 3.1.13 Material Adverse Change Section 3.1 Material Adverse Effect Section 3.1 MedicaLogic Preamble MedicaLogic Articles of Incorporation Section 3.2.1 MedicaLogic Bylaws Section 3.2.1 MedicaLogic Common Stock Section 1.1 MedicaLogic Contracts Section 3.2.14 MedicaLogic Disclosure Schedule Section 3.2 MedicaLogic ERISA Plans Section 3.2.12.2 MedicaLogic Financial Statements Section 3.2.5 MedicaLogic Representative Section 4.3.8 MedicaLogic Returns Section 3.2.16.1 MedicaLogic SEC Document Section 3.2.5 MedicaLogic Special Meeting Section 4.1.2.1 vii INDEX OF TERMS Term Location of Definition Medscape Preamble Medscape Bylaws Section 3.1.1 Medscape Certificate of Incorporation Section 3.1.1 Medscape Common Stock Section 1.1 Medscape Contracts Section 3.1.15 Medscape Disclosure Schedule Section 3.1 Medscape Financial Statements Section 3.1.5 Medscape Option Plan Section 3.1.2 Medscape SEC Document Section 3.1.5 Medscape Special Meeting Section 4.1.2.2 Merger Section 1.1 Merger Corp. Preamble Options Section 1.3.3 Permits Section 3.1.17 Registration Statement Section 3.1.6 Representative Section 4.2.2 Returns Section 3.1.18.1 SEC Section 3.1.5 Securities Act Section 1.3.3 Subsidiary Section 7.9 Surviving Corporation Section 1.2 Taxes Section 3.1.18.3 Total eMed Agreement Section 3.2.25 Total eMed Merger Section 1.9 Transfer Agent Section 1.4.1 Voting Agreement Section 2.1 Warrants Section 3.1.2 viii Agreement of Reorganization and Merger THIS AGREEMENT OF REORGANIZATION AND MERGER (this "Agreement") is entered into as of February 21, 2000 among MedicaLogic, Inc., an Oregon corporation ("MedicaLogic"), Medscape, Inc., a Delaware corporation ("Medscape"), and Moneypenny Merger Corp., a Delaware corporation ("Merger Corp."). AGREEMENT In consideration of the mutual representations, warranties, covenants, agreements and conditions contained herein, the parties agree as follows: ARTICLE I THE MERGER 1.1 The Merger. Pursuant to the laws of the State of Delaware, and subject to and in accordance with the terms and conditions of this Agreement, Merger Corp. shall be merged with and into Medscape, and the outstanding shares of common stock of Medscape (the "Medscape Common Stock") shall be converted into the right to receive shares of common stock of MedicaLogic (the "MedicaLogic Common Stock") in accordance with Section 1.3 of this Agreement. Medscape and Merger Corp. shall execute a Certificate of Merger, to be filed with the Secretary of State of Delaware, on the Closing Date, as defined in Section 1.6, or as soon thereafter as practicable. The merger of Merger Corp. with and into Medscape (the "Merger") shall take effect at the time when the Certificate of Merger is duly filed with the Secretary of State of Delaware, or at such other time as the parties may agree upon in writing pursuant to applicable law (the "Effective Time"). 1.2 Effect of Merger. At the Effective Time, Merger Corp. shall be merged with and into Medscape in the manner and with the effect provided by the Delaware General Corporation Law (the "DGCL"), the separate corporate existence of Merger Corp. shall cease and Medscape shall be the surviving corporation (the "Surviving Corporation"). The outstanding shares of Medscape Common Stock shall be converted into shares of MedicaLogic Common Stock, and the outstanding shares of capital stock of Merger Corp. shall be converted into shares of capital stock of the Surviving Corporation, all on the basis, terms and conditions described in Section 1.3. 1.3 Merger Consideration. --------------------- 1.3.1 Medscape Stock. Each share of Medscape Common Stock outstanding immediately before the Effective Time will cease to exist and will be converted into the right to receive .323 of a share of MedicaLogic Common Stock (the "Conversion Ratio"). 1.3.2 Merger Corp. Stock. Each share of common stock of Merger Corp. issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of the holder thereof, cease to exist and be converted into and become one share of common stock of the Surviving Corporation. After the Effective Time, MedicaLogic, the sole holder of shares of Merger Corp. common stock outstanding immediately prior to the Effective Time, shall, upon surrender for cancellation of a certificate representing such shares to the Surviving Corporation, be entitled to receive in exchange therefor a certificate representing the number of shares of common stock of the Surviving Corporation into which such shares of Merger Corp. common stock have been converted pursuant to this Section 1.3.2. Until so surrendered, the certificates which prior to the Merger represented shares of Merger Corp. common stock shall be deemed, for all corporate purposes, including voting entitlement, to evidence ownership of the shares of the Surviving Corporation common stock into which such shares of Merger Corp. common stock shall have been converted. 1.3.3 Options and Warrants. Except as otherwise provided in this Section 1.3.3, the terms and provisions of the stock options held by those Medscape option holders under the Medscape Option Plans (the "Options") and the terms and conditions of the Warrants (as defined in Section 3.1.2) will continue in full force and effect following the Merger. By virtue of the Merger and at the Effective Time, and without any further action on the part of any holder thereof, each Option and Warrant will be converted into an option or warrant, as applicable, to purchase the number of shares of MedicaLogic Common Stock equal to the product (rounded to the nearest whole number) of (x) the number of shares of Medscape Common Stock subject to such Option or Warrant immediately before the Effective Time multiplied by (y) the Conversion Ratio. The exercise price per share for each Option or Warrant after the Effective Time will be determined by dividing the per share exercise price for such Option or Warrant immediately before the Effective Time by the Conversion Ratio. The term, exercisability, status as an incentive stock option under Section 422 of the United States Internal Revenue Code of 1986, as amended (the "Code"), if applicable, and all other terms and conditions of each Option will to the extent permitted by law and otherwise reasonably practicable be unchanged; provided, however, that it is understood and agreed that the vesting of certain options as described in Schedule 1.3.3 will be accelerated by the transactions contemplated herein and that Medscape shall amend its outstanding Options which do not so accelerate to provide that vesting will accelerate (either in part or in whole as may be finally determined by Medscape's Board with the consent of MedicaLogic, which shall not be unreasonably withheld or delayed) on the date that is one year after the Closing Date for any option holder who is employed by MedicaLogic, 2 Medscape or any of their respective subsidiaries at such time. As promptly as practicable after the Effective Time, MedicaLogic shall issue to each holder of an Option a written instrument informing such holder of the assumption by MedicaLogic of such Option. Unless all Options are, as of the Effective Time, issuable pursuant to an effective registration statement on Form S-8 of MedicaLogic, or in the opinion of counsel of MedicaLogic freely tradable pursuant to Rule 701 under the Securities Act of 1933, as amended (the "Securities Act"), as soon as practicable after the Effective Time, MedicaLogic shall file a registration statement on Form S-8 (or any successor form) with respect to the Options and shall use its reasonable efforts to maintain such registration statement (or any successor form), including the current status of any related prospectus, for so long as the Options remain outstanding. MedicaLogic shall use its reasonable efforts to cause the MedicaLogic Common Stock subject to the Options and Warrants to be quoted on the Nasdaq National Market or such other system or exchange on which the MedicaLogic Common Stock is then quoted or listed. MedicaLogic shall take all corporate action necessary to reserve for issuance a sufficient number of shares of MedicaLogic Common Stock for delivery upon exercise of the Options and Warrants pursuant to this Section 1.3.3. 1.3.4 Stock Splits, Etc. If, between the date of this Agreement and the Effective Time, the outstanding shares of either Medscape Common Stock or MedicaLogic Common Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, combination, recapitalization, stock split, stock dividend, subdivision, exchange of shares, or other extraordinary transaction, the Conversion Ratio shall be adjusted proportionately. 1.4 Surrender and Cancellation of Certificates. ------------------------------------------ 1.4.1 Surrender of Certificates. Promptly after the Effective Time, MedicaLogic will cause its transfer agent (the "Transfer Agent") to send a letter to each holder of shares of Medscape Common Stock that have been converted into MedicaLogic Common Stock advising such holder that upon surrender to the Transfer Agent of a certificate or certificates representing such shares, along with a letter of transmittal in the form enclosed therein, the holder shall be entitled to receive a certificate representing the number of shares of MedicaLogic Common Stock into which such shares of Medscape Common Stock shall have been converted pursuant to the provisions of Section 1.3. If any certificate for shares of MedicaLogic Common Stock is to be issued in a name other than that in which the certificate for Medscape Common Stock surrendered in exchange therefor is registered, it shall be a condition of the issuance thereof that the certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer, and that the person requesting such exchange pay to MedicaLogic or its agent designated for such purpose any transfer or other taxes required, or establish to the satisfaction of MedicaLogic or its agent that such tax has been paid or is not payable. If any holder of Medscape Common Stock canceled and retired in accordance with this Agreement is unable to deliver a certificate or certificates representing such shares of the holder, MedicaLogic, in the absence of actual notice that any shares theretofore represented by 3 any such certificate have been acquired by a bona fide purchaser, shall deliver to such holder the number of shares of MedicaLogic Common Stock to which such holder is entitled in accordance with the provisions of this Agreement upon the presentation of the following: (i) evidence reasonably satisfactory to MedicaLogic (a) that such person is the owner of the shares theretofore represented by each certificate claimed by him, her or it to be lost, wrongfully taken or destroyed and (b) that he, she or it is the person who would be entitled to present each such certificate for conversion pursuant to this Agreement; and (ii) such security or indemnity as may be reasonably requested by MedicaLogic to indemnify and hold MedicaLogic and the Transfer Agent harmless. 1.4.2 No Fractional Shares. No certificates or scrip evidencing fractional shares of MedicaLogic Common Stock shall be issued in the Merger. In lieu of a fractional share, MedicaLogic will pay any holder of shares of Medscape Common Stock who would otherwise have been entitled to a fraction of a share of MedicaLogic Common Stock upon surrender of the certificates therefor an amount of cash (without interest) determined by multiplying (a) the closing price per share of MedicaLogic Common Stock on the last trading day immediately preceding the Effective Time by (b) the fractional share interest in MedicaLogic Common Stock to which such holder would otherwise be entitled. The provisions of this Section 1.4.2 will apply to the aggregate number of shares of Medscape Common Stock held by each holder thereof and each such holder will be required to simultaneously surrender all certificates relating to shares of Medscape Common Stock held by such holder in accordance with the provisions of Section 1.4 in order to surrender any such certificate. 1.4.3 Escheat. Neither MedicaLogic nor Merger Corp. shall be liable to any holder of shares of Medscape Common Stock for any such shares of MedicaLogic Common Stock (or dividends or distributions with respect thereto) or cash delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 1.4.4 Option and Warrant Agreements. After the Effective Time, each holder of an Option or Warrant outstanding immediately before the Effective Time will be deemed to hold an option or warrant exercisable for MedicaLogic Common Stock in accordance with the provisions of Section 1.3.3. 1.4.5 Treasury Shares. At the Effective Time, each share of Medscape Common Stock or other Medscape capital stock held in the treasury of Medscape immediately before the Effective Time will be canceled and extinguished without any conversion thereof and no payment will be made with respect thereto. 1.5 Stock Transfer Books. At the Effective Time, the stock transfer books of Medscape will be closed and there will be no further registration of transfers of Medscape capital stock or other securities thereafter on the records of Medscape. 4 1.6 Closing. The closing of the Merger (the "Closing") shall take place at the offices of Stoel Rives LLP, 900 SW Fifth Avenue, Portland, Oregon at 5:00 p.m. local time on the third business day following the Condition Completion Date (as hereinafter defined), or on such other date and/or at such other place and time as Medscape, MedicaLogic and Merger Corp. may agree (the "Closing Date"). The "Condition Completion Date" shall be the business day on which the last of the conditions set forth in Article V hereof shall have been fulfilled or waived (other than those conditions which, by their terms, are to occur at Closing). 1.7 Subsequent Actions. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to, or under any of the rights, properties or assets of Medscape or Merger Corp. acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers and directors of the Surviving Corporation are authorized to execute and deliver, in the name and on behalf of Medscape or Merger Corp., or otherwise, all such deeds, bills of sale, assignments and assurances, and to take and do, in the name and on behalf of Medscape or Merger Corp., or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement. 1.8 Certificate of Incorporation; Bylaws; Directors and Officers of the Surviving Corporation. ------------------------------------------------------------------- (a) At the Effective Time, Merger Corp.'s Certificate of Incorporation, a copy of which is attached to this Agreement as Exhibit A-1, shall be the certificate of incorporation of the Surviving Corporation at and after the Effective Time (until amended as provided by law and by that certificate of incorporation). (b) At the Effective Time, Merger Corp.'s bylaws, a copy of which is attached to this Agreement as Exhibit A-2, shall be the bylaws of the Surviving Corporation at and after the Effective Time (until amended as provided by law, the certificate of incorporation of the Surviving Corporation and the bylaws of the Surviving Corporation, as applicable). (c) The persons listed on Exhibit A-3 shall be the directors of the Surviving Corporation from and after the Effective Time, until their successors are elected or appointed and qualified or until their resignation or removal. (d) The officers of Medscape immediately prior to the Effective Date shall be the officers of the Surviving Corporation from and after the Effective Time, until their successors are elected or appointed and qualified or until their resignation or removal. 5 1.9 Shareholder Rights. Upon the Effective Date, any registration rights existing as of the date of this Agreement with respect to the Medscape Common Stock shall be converted into the same rights with respect to the MedicaLogic Common Stock received in exchange therefor pursuant to the Merger. Although the parties acknowledge that the Merger does not constitute an assignment of that certain Stockholders Agreement dated as of August 3, 1999 by and between Medscape and CBS Corporation (the "CBS Agreement"), MedicaLogic agrees to provide CBS Corporation (i) the right to designate one director to the Board of Directors of MedicaLogic so long as CBS Corporation beneficially owns 5% or more of the MedicaLogic Common Stock outstanding (without giving effect to any reduction in such percentage due to events other than the sale of shares by CBS Corporation) after the consummation of the Merger and the merger (the "Total eMed Merger") contemplated by the Total eMed Agreement (as defined in Section 3.2.25) and (ii) rights providing the economic equivalent of the rights of CBS Corporation under the CBS Agreement (other than director nomination rights). Each of MedicaLogic and Medscape covenants and agrees to execute such documents and take such further actions as may be necessary or desirable to effectuate the provisions of this Section 1.9. ARTICLE II FURTHER AGREEMENTS 2.1 Voting Agreements. Each of the shareholders of MedicaLogic and Medscape listed on Schedule 2.1 will execute and deliver, concurrently with the execution of this Agreement, a Voting Agreement in the form attached as Exhibit B (the "Voting Agreement"). Each Voting Agreement provides, among other things, that the signing holder will vote all of the shares of MedicaLogic Common Stock or Medscape Common Stock, as the case may be, that such holder is entitled to vote in favor of the Merger. ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of Medscape. For purposes of this Agreement, "Material Adverse Effect" or "Material Adverse Change" means any effect, change, event, circumstance or condition which when considered with all other effects, changes, events, circumstances or conditions would reasonably be expected to affect materially and adversely the business, results of operations, financial condition, or prospects of a party, in each case including its subsidiaries together with it taken as a whole. In no event shall any of the following constitute a Material Adverse Effect or a Material Adverse Change: (i) any change in the trading prices of either of MedicaLogic's or Medscape's equity securities between the date hereof and the Effective Time, in and of itself; (ii) effects, changes, events, circumstances or conditions generally affecting the industry in which either MedicaLogic or Medscape operates or arising from changes in 6 general business or economic conditions; (iii) any effects, changes, events, circumstances or conditions resulting from any change in law or generally accepted accounting principles, which affect generally entities such as MedicaLogic and Medscape; and (iv) any effect resulting from compliance by MedicaLogic or Medscape with the terms of this Agreement. Medscape hereby represents and warrant to MedicaLogic and Merger Corp. that, except as specifically set forth in Schedule 3.1 (the "Medscape Disclosure Schedule") in a numbered paragraph that corresponds to the section for which disclosure is made: 3.1.1 Organization and Status. Medscape and each of its subsidiaries is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or formation and is duly qualified and in good standing as a foreign corporation or limited liability company in each jurisdiction where its properties (whether owned, leased or operated) or its business conducted require such qualification, except where failure to be so qualified would not have a Material Adverse Effect on Medscape. Medscape and each of its subsidiaries has all requisite corporate or limited liability company power and authority to own, operate and lease its property and to carry on its businesses as they are now being conducted. Medscape has delivered to MedicaLogic complete and accurate copies of its Certificate of Incorporation ("Medscape Certificate of Incorporation") and Bylaws ("Medscape Bylaws"), and the charter or formation documents of each of Medscape's subsidiaries, each as amended to the date hereof. 3.1.2 Capitalization. Medscape has authorized capital stock consisting of 100,000,000 shares of Medscape Common Stock, $0.01 par value, of which 44, 797,321 shares were outstanding on February 21, 2000, and 5,000,000 shares of preferred stock, $0.01 par value, of which no shares were outstanding on February 21, 2000. As of February 21, 2000, options to purchase 5,839,457 shares of Medscape Common Stock were outstanding pursuant to grants made under Medscape's 1996 Stock Option Plan, (the "Medscape Option Plan") and four warrants to purchase up to 2,819,204 shares of Medscape Common Stock were outstanding (the "Warrants"), copies of which Warrants have been made available to MedicaLogic. All of the outstanding shares of capital stock of Medscape have been duly authorized and are validly issued, fully paid and nonassessable, and no shares were issued, and no options or warrants were granted, in violation of preemptive or similar rights of any shareholder or in violation of any applicable securities laws. Except as set forth above, or on Schedule 3.1.2, there are no shares of capital stock of Medscape authorized, issued or outstanding, and there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of Medscape of any character relating to the issued or unissued capital stock or other securities of Medscape. There are no outstanding obligations of Medscape or any of its subsidiaries to repurchase, redeem or otherwise acquire any of the outstanding shares of capital stock of Medscape or any of its subsidiaries. 7 3.1.3 Corporate Authority. Medscape has the corporate power and authority and, except for the approval of its stockholders, has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly authorized by the Board of Directors of Medscape, validly executed and delivered by Medscape and, as of the Closing Date, will have been duly and validly approved by the stockholders of Medscape. This Agreement constitutes the valid and binding obligation of Medscape, enforceable against Medscape in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. 3.1.4 Subsidiaries and Joint Ventures. Except as disclosed on Schedule 3.1.4 Medscape has no subsidiaries and owns no stock or other interest in any other corporation or in any partnership or limited liability company, or other venture or entity. Except as disclosed on Schedule 3.1.4 Medscape owns all of the issued and outstanding capital stock and other ownership interests of each of its subsidiaries, free and clear of all encumbrances, and there are no existing options, warrants, calls, subscriptions, convertible securities or other securities, commitments or obligations of any character relating to the securities of any such subsidiary. 3.1.5 SEC Reports and Financial Statements. Medscape has filed with the Securities and Exchange Commission (the "SEC"), and has made available to MedicaLogic true and complete copies of, all forms, reports, schedules, statements, and other documents required to be filed by it since September 26, 1999 under the Securities Exchange Act of 1934 (the "Exchange Act") or the Securities Act (each of such forms, reports, schedules, statements, and other documents, to the extent filed and publicly available before the date of this Agreement, other than preliminary filings, is referred to as a "Medscape SEC Document"). Each Medscape SEC Document, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements included in the Medscape SEC Documents (the "Medscape Financial Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) in all material respects the consolidated financial position of Medscape and its consolidated subsidiaries as at the 8 dates thereof and the consolidated results of their operations and cash flows for the periods then ended. 3.1.6 Information Supplied. None of the information supplied or to be supplied by Medscape specifically for inclusion or incorporation by reference in (i) the registration statement on Form S-4 to be filed with the SEC by MedicaLogic in connection with the registration of the MedicaLogic Common Stock to be issued in the Merger, or any of the amendments or supplements thereto (collectively, the "Registration Statement"), will, at the time the Registration Statement is filed with the SEC, at any time it is amended or supplemented and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading, or (ii) the proxy statement for use relating to obtaining approval of the shareholders of MedicaLogic and Medscape of the Merger (the "Joint Proxy Statement") will, at the time the Joint Proxy Statement is first mailed to Medscape's stockholders or MedicaLogic's shareholders or at the time of the MedicaLogic Special Meeting and Medscape Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by Medscape with respect to statements made or incorporated by reference therein based on (i) information supplied by MedicaLogic in writing specifically for inclusion or incorporation by reference therein or (ii) information relating to MedicaLogic which is reviewed by MedicaLogic without objection and with the knowledge it will be used in the Joint Proxy Statement. 3.1.7 Governmental Filings. Other than (a) the filing of the Certificate of Merger contemplated by Article I, (b) the Joint Proxy Statement described in Section 3.1.6 and (c) the HSR Filing to be made by Medscape and described in Section 4.1.7, no notices, reports or other filings are required to be made by Medscape or any of its subsidiaries with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by Medscape or any of its subsidiaries from, any domestic or foreign governmental or regulatory authority, agency, court, commission or other entity ("Governmental Entity") in connection with the execution and delivery of this Agreement by Medscape and the consummation by Medscape of the transactions contemplated hereby. 3.1.8 No Adverse Consequences. Except as set forth on Schedule 3.1.8, neither the execution and delivery of this Agreement by Medscape nor the consummation of the transactions contemplated by this Agreement will (a) result in the creation or imposition of any lien, charge, encumbrance or restriction on any of the assets or properties of Medscape or any of its subsidiaries, (b) violate any provision of the Certificate of Incorporation or Bylaws of Medscape or the comparable organizational documents of any of its subsidiaries, (c) to the knowledge of Medscape, violate any statute, judgment, order, injunction, decree, rule, regulation or ruling of any Governmental 9 Entity applicable to Medscape or any of its subsidiaries, or (d) either alone or with the giving of notice or the passage of time or both, conflict with, constitute grounds for termination of, accelerate the performance required by, accelerate the maturity of any indebtedness or obligation under, result in the breach of the terms, conditions or provisions of or constitute a default under any mortgage, deed of trust, indenture, note, bond, lease, license, permit or other agreement, instrument or obligation to which Medscape or any of its subsidiaries is a party or by which any of them is bound. 3.1.9 Undisclosed Liabilities. Except for liabilities or obligations which were incurred after the most recent audited balance sheet included in a Medscape SEC Document in the ordinary course of business and of a type and in an amount consistent with past practices, neither Medscape nor any of its subsidiaries has any material liability or obligation (whether absolute, accrued, contingent or otherwise, and whether due or to become due) which is not accrued, reserved against, or identified in the most recent Medscape Financial Statements. 3.1.10 Absence of Certain Changes or Events. Since the date of the most recent audited balance sheet included in a Medscape SEC Document, there has not been any Material Adverse Change in the business, results of operations, financial condition, properties, assets or prospects of Medscape. 3.1.11 Litigation. Except as listed on Schedule 3.1.11, no litigation, proceeding or governmental investigation is pending or, to Medscape's knowledge, threatened against or relating to Medscape or any of its subsidiaries, their respective officers or directors in their capacities as such, or any of their respective properties or businesses. 3.1.12 Employment Matters. ------------------ 3.1.12.1 Labor Matters. Neither Medscape nor any of its subsidiaries is a party or otherwise subject to any collective bargaining or other agreement governing the wages, hours or terms of employment of employees. Medscape and each of its subsidiaries is and has been in compliance in all material respects with all applicable laws regarding employment and employment practices, terms and conditions of employment, wages and hours with respect to Medscape's employees and is not and has not been engaged in any unfair labor practice. There is no (a) unfair labor practice complaint against Medscape or any of its subsidiaries pending before the National Labor Relations Board or any other Governmental Entity, (b) labor strike, slowdown or work stoppage actually occurring or, to the knowledge of Medscape, threatened against Medscape or any of its subsidiaries, (c) representation petition respecting the employees of Medscape or any of its subsidiaries pending before the National Labor Relations Board or similar agency, or (d) grievance or any arbitration proceeding pending arising out of or under collective bargaining agreements applicable to Medscape or any of its subsidiaries. Neither Medscape nor any of its subsidiaries has experienced any primary work stoppage or other organized work stoppage involving its employees in the past two years. 10 Medscape is not aware of any labor strike, slowdown, or work stoppage occurring or, to the knowledge of Medscape, threatened against any of the principal suppliers of Medscape or any of their subsidiaries that might reasonably be expected to have a Material Adverse Effect on Medscape. Except as set forth in Schedule 3.1.12.1, all of the employees of Medscape and its subsidiaries working in the United States are citizens or permanent residents of the United States. No employee of Medscape or any of its subsidiaries is the beneficiary under an employer-sponsored non-immigrant visa and no approvals, permits or consents of any governmental entity are required in order for Medscape or its subsidiaries to employ any current employee as a result of or in connection with such employee's immigration status in the United States. Medscape and its subsidiaries have fully completed and retained a Form I-9 for each of their employees in accordance with applicable law, and neither Medscape nor any of its subsidiaries is subject to examination in connection with such forms or to any fines or other penalties under laws relating to employees who are not authorized to work in the United States. 3.1.12.2 Employee Benefits. Schedule 3.1.12.2 lists all pension, retirement, profit sharing, deferred compensation, bonus, commission, incentive compensation (including cash, stock and option plans or arrangements), life insurance, health and disability insurance, hospitalization and all other employee benefit plans or arrangements (including, without limitation, any contracts or agreements with trustees or insurance companies relating to any such employee benefit plans or arrangements) established or maintained by Medscape or any of its subsidiaries, and complete and accurate copies of all those plans or arrangements have been made available to MedicaLogic. The employee pension benefit plans (within the meaning of Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) established and maintained by Medscape or any of its subsidiaries that are subject to ERISA (the "ERISA Plans") are listed separately as ERISA Plans on Schedule 3.1.12.2. The ERISA Plans comply in all material respects with the applicable requirements of ERISA and the Code. With respect to each ERISA Plan intended to constitute a tax-qualified plan under Section 401(a) of the Code, Medscape has received, or has requested or will timely request, from the Internal Revenue Service a favorable determination that such plan and its related trust is qualified under Section 401(a) of the Code and the related trust is tax-exempt under Section 501(a) of the Code. To the knowledge of Medscape, there has been no event subsequent to that determination that is reasonably likely to result in the revocation of the tax-qualified status of the ERISA Plans or the exemption of the related trusts. To the knowledge of Medscape, none of the ERISA Plans, their related trusts or any trustee, investment manager or administrator thereof has engaged in a nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code that is reasonably expected to have a Material Adverse Effect. Each ERISA Plan is and has been operated and administered in material conformity with the requirements of all applicable laws and regulations, whether or not the ERISA Plan documents have been amended to reflect such requirements. Medscape and its subsidiaries have no liability for, or commitment to provide, medical benefits to future or current retirees of Medscape or any of its subsidiaries. 11 3.1.12.3 Employment Agreements. Except as set forth on Schedule 3.1.12.3, each employee of Medscape or any of its subsidiaries is an "at-will" employee and there are no written employment agreements of any kind between Medscape or any of its subsidiaries and any employees. 3.1.13 Intellectual Property. Medscape or one of its subsidiaries owns, or has a valid license to use, all patents, trademarks, service marks, trade names, copyrights, trade secrets, technology, know-how and other intellectual property (the "Intellectual Property") necessary to or used in the conduct of the business of Medscape and its subsidiaries as now conducted and as proposed to be conducted. All Intellectual Property owned by Medscape or any of its subsidiaries is owned by them free and clear of all liens, mortgages, pledges, leases, restrictions and other claims and encumbrances of any nature whatsoever (each, a "Lien"). To the knowledge of Medscape, the conduct of the business of Medscape and its subsidiaries does not conflict with or infringe upon any Intellectual Property rights of any other person and no claims of conflict or infringement are pending or, threatened against Medscape or any of its subsidiaries which, in any event, would reasonably be expected to have a Material Adverse Effect. Medscape has made all necessary filings and recordations and has paid all required fees and Taxes (as defined in Section 3.1.18) to maintain ownership of the Intellectual Property. 3.1.14 [Reserved]. 3.1.15 Status of Contracts. There is no existing default or violation by Medscape or its subsidiaries under any contracts, agreements, commitments or instruments to which Medscape or any of its subsidiaries is a party or by which it or any of them is bound (collectively, the "Medscape Contracts") and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a default of Medscape or its subsidiaries under any Medscape Contract, except for such defaults or violations as would not in the aggregate have a Material Adverse Effect on Medscape. There is no pending or, to the knowledge of Medscape, threatened, proceeding which would interfere with the quiet enjoyment of any leasehold of which Medscape or any of its subsidiaries is lessee or sublessee. Medscape is not aware of any default by any other party to any Medscape Contract or of any event which (whether with or without notice, lapse of time or both) would constitute a material default by any other party with respect to obligations of that party under any Medscape Contract, and, to the knowledge of Medscape, there are no facts that exist indicating that any of the Medscape Contracts may be totally or partially terminated or suspended by the other parties. Neither Medscape nor any of its subsidiaries is a party to, or bound by, any Medscape Contract that Medscape can reasonably foresee will result in any material loss to Medscape or such subsidiary upon the performance thereof (including any liability for penalties or damages, whether liquidated, direct, indirect, incidental or consequential). 3.1.16 [Reserved]. 12 3.1.17 Permits and Licenses. Each of Medscape and its subsidiaries holds, and at all times has held, all material governmental licenses, permits, franchises, easements and authorizations (collectively, "Permits") necessary for the lawful conduct of its business pursuant to all applicable statutes, laws, ordinances, rules and regulations of all Governmental Entities having jurisdiction over it or any part of its operations. Each of Medscape and its subsidiaries is in compliance in all material respects with each of the terms of the applicable Permits, and there are no claims of violation by Medscape or any of its subsidiaries of any of such Permits. Complete and accurate copies of all Permits held by Medscape and its subsidiaries have been made available to MedicaLogic. All Governmental Entities that have issued any Permits to or with respect to Medscape, its business, or subsidiaries have consented or prior to the Closing will have consented (where such consent is necessary) to the consummation of the transactions contemplated by this Agreement without requiring modification of the rights or obligations of Medscape or its subsidiaries under any of such Permits. 3.1.18 Taxes. ----- 3.1.18.1 Returns. Medscape and each of its subsidiaries has filed on a timely basis all federal, state, local, foreign and other returns, reports, forms, declarations and information returns required to be filed by it with respect to Taxes (as defined below) which relate to its business, results of operations, financial condition, properties or assets for all periods (collectively, the "Returns") and has paid on a timely basis all Taxes shown to be due and payable on the Returns. All Returns filed are complete and accurate in all material respects and no additional Taxes are owed by Medscape or any of its subsidiaries with respect to the periods covered by the Returns or for any other period. Medscape has made available to MedicaLogic complete and accurate copies of all Returns. Neither Medscape nor any of its subsidiaries has been a member of an affiliated group filing consolidated returns or has any liability for Taxes of any person (other than itself), whether arising under federal, state, local or foreign law, as a transferee or successor, by contract, pursuant to Treas. Reg. ss. 1.1502-6 or otherwise. Except as set forth on Schedule 3.1.18, neither Medscape nor any of its subsidiaries is currently the beneficiary of any extension of time within which to file any Return. Except as set forth on Schedule 3.1.18, no Returns have been examined by the applicable taxing authorities for any period and, except as set forth on Schedule 3.1.18, Medscape has not received any notice of audit or review with respect to any Return or any fiscal year, has no knowledge of any planned audit or review, and there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes for any period. No claim has ever been made by an authority in a jurisdiction where Medscape and its subsidiaries do not file Returns that they are or may be subject to taxation by that jurisdiction. All Taxes that are or have been required to be withheld or collected by Medscape, its predecessors or its subsidiaries have been duly withheld and collected and, to the extent required, have been properly paid or deposited as required by applicable laws. Neither Medscape nor any of its predecessors or subsidiaries has made any payment, or is obligated to make any payment, or is a party to an agreement that in certain circumstances could obligate it to make a payment, that is not deductible under Section 280G of the 13 Code. Except as set forth in Schedule 3.1.18, neither Medscape nor any of its subsidiaries is an obligor on, and none of its assets have been financed directly or indirectly by, any tax exempt bonds. Neither Medscape nor any of its subsidiaries is now or during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code has ever been a United States real property holding corporation as defined in Section 897(c)(2) of the Code. Neither Medscape nor any of its subsidiaries has filed a consent pursuant to Section 341(f) of the Code nor has it agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by it. 3.1.18.2 Taxes Paid or Reserved. The unpaid Taxes of Medscape and its subsidiaries (a) did not as of the date of the most recent audited balance sheet included in a Medscape SEC Document exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of such balance sheet (rather than in any notes thereto) and (b) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of Medscape and its subsidiaries in filing their Returns. 3.1.18.3 Definitions. The term "Taxes" shall mean all federal, state, local or foreign taxes, charges, fees, levies or other assessments, however documented, including, without limitation, all net income, gross income, gross receipts, premium, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated severance, stamp, occupation, property, transfer, workers' compensation, Pension Benefit Guaranty Corporation premiums, or other taxes, fees, assessments or charges of any kind whatsoever that Medscape or any of its subsidiaries is required to pay or collect, together with any interest and any penalties (including penalties for failure to file in accordance with applicable information reporting requirements), and additions to tax imposed by a taxing authority. 3.1.19 Related Party Interests. Except as listed in Schedule 3.1.19, no officer or director of Medscape or any of its subsidiaries (or any entity owned or controlled by one or more of such parties) (a) has any interest in any property, real or personal, tangible or intangible, used in or pertaining to the business of Medscape or any of its subsidiaries, (b) is indebted to Medscape or any of its subsidiaries, or (c) has any material financial interest, direct or indirect, in any supplier or customer of, or other outside business which has significant transactions with Medscape or any of its subsidiaries. True and complete copies of all agreements listed on Schedule 3.1.19 have been provided to MedicaLogic. Neither Medscape nor any of its subsidiaries is indebted to any of its shareholders, directors or officers (or any entity owned or controlled by one or more of such parties) except for amounts due under normal salary arrangements and for reimbursement of ordinary business expenses. The consummation of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any act or event, or with the lapse of time, or both) result in any payment (severance or other) becoming due from Medscape or any of its subsidiaries to any of their respective 14 shareholders, officers, directors or employees (or any entity owned or controlled by one or more of such parties). 3.1.20 No Powers of Attorney or Restrictions. No power of attorney or similar authorization given by Medscape or any of its subsidiaries is presently in effect or outstanding. No contract or agreement to which Medscape or any of its subsidiaries is a party or is bound or to which any of its properties or assets is subject limits its freedom to compete in any line of business or with any person. To the knowledge of Medscape, none of the employees of Medscape or its subsidiaries is obligated under any contract (including licenses, covenants or commitments of any nature), or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of Medscape and its subsidiaries or that would conflict with the business of Medscape or any of its subsidiaries as now conducted or proposed to be conducted. 3.1.21 [Reserved]. 3.1.22 Consents and Approvals. Except as set forth in Section 3.1.7, no consent, approval, or authorization of, or filing or registration with, any court, regulatory authority, governmental body, or any other entity or person not a party to this Agreement is required to be obtained by Medscape or any of its subsidiaries for the consummation of the transactions described in this Agreement. 3.1.23 Brokers and Finders. Except for fees owing to Lazard Freres & Co. LLC and to Donaldson, Lufkin & Jenrette, neither Medscape nor any of its subsidiaries has incurred any liability for any brokerage or investment banking fees, commissions or finders' fees in connection with the Merger. 3.1.24 Opinion of Medscape Financial Advisor. Medscape has received from Lazard Freres & Co. LLC an opinion that the Conversion Ratio is fair, from a financial point of view, to the holders of Medscape Common Stock. A copy of such opinion is attached as Exhibit C. 3.1.25 No Other Agreements to Sell Medscape or its Assets. Except as set forth in Schedule 3.1.25, neither Medscape nor any of its subsidiaries has any legal obligation, absolute or contingent, to any other person to sell any material portion of its assets, to sell its capital stock or other ownership interests, or to effect any merger, consolidation or other reorganization or to enter into any agreement with respect thereto. As of the date hereof, Medscape is not engaged, directly or indirectly, in any discussions or negotiations with any other party with respect to an Acquisition Transaction, as defined in Section 4.2.2. 15 3.1.26 Vote Required. The approval by a majority of the voting power represented by the outstanding shares of Medscape Common Stock is the only votes of the holders of any class or series of Medscape capital stock necessary to approve the transactions contemplated by this Agreement. 3.1.27 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E). ----------------------------------------------------- 3.1.27.1 Immediately following the Merger, Surviving Corporation will hold at least 90% percent of the fair market value of Medscape's net assets and at least 70% of the fair market value of Medscape's gross assets held immediately prior to the Merger. For purposes of this representation, amounts paid by Medscape to its shareholders who receive cash or other property, Medscape assets used to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by Medscape prior to and in connection with the Merger, will be included as assets of Medscape held immediately prior to the Merger. 3.1.27.2 There is no intercorporate indebtedness existing between MedicaLogic and Medscape or between Merger Corp. and Medscape that was issued, acquired, or will be settled at a discount. 3.1.27.3 Medscape has no plan or intention to issue additional shares of its stock that would result in MedicaLogic losing control of Medscape within the meaning of Section 368(c) of the Code. At the time of the Merger, Medscape will not have outstanding any warrants, options, convertible securities, or any other type of right pursuant to which any person could acquire stock in Medscape that, if exercised or converted, would affect MedicaLogic's acquisition or retention or control of Surviving Corporation, as defined in Section 368(c) of the Code. As defined in Section 368(c) of the Code, "control" means the direct ownership of stock possessing at least 80% of the total combined voting power for the election of directors of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock. 3.1.27.4 Medscape is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 3.1.27.5 On the date of the Merger, the fair market value of the assets of Medscape will exceed the sum of its liabilities plus the amount of liabilities, if any, to which its assets are subject. 3.1.27.6 Medscape is not under the jurisdiction of a court in a title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 3.1.27.7 None of the compensation received by any 16 shareholder-employee of Medscape will be separate consideration for, or allocable to, any of his or her shares of Medscape stock; none of the shares of MedicaLogic stock received by any shareholder-employee will be separate consideration for, or allocable to, any employment agreement; and the compensation paid to any shareholder-employee will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's length for similar services. 3.1.27.8 Except as set forth in Schedule 3.1.27.8, during the past five years, neither Medscape nor any person related to Medscape (as defined in Treas. Reg. ss. 1.368-1(e)(3) has directly or through any transaction, agreement, or arrangement with any other person, (i) acquired stock of Medscape with consideration other than common stock of MedicaLogic or Medscape, or (ii) redeemed or made distributions with respect to Medscape stock. 3.1.27.9 Medscape has not paid dividends financed, directly or indirectly, with borrowed funds. 3.1.27.10 No Medscape shareholder has guaranteed any debt of Medscape. 3.1.27.11 Except as otherwise provided in this Agreement, Medscape will pay its own expenses, if any, incurred in connection with the Merger and will not pay expenses of MedicaLogic or Merger Corp. 3.1.27.12 In the Merger, shares of Medscape stock representing control of Medscape, as defined in Section 368(c) of the Code, will be exchanged solely for voting stock of MedicaLogic. 3.2 Representations and Warranties of MedicaLogic. MedicaLogic hereby represents and warrants to Medscape that, except as specifically set forth in Schedule 3.2 (the "MedicaLogic Disclosure Schedule") in a numbered paragraph that corresponds to the section for which disclosure is made: 3.2.1 Organization and Status. MedicaLogic is a corporation duly organized and validly existing under the laws of its jurisdiction of incorporation and is duly qualified and in good standing as a foreign corporation in each jurisdiction where the properties owned, leased or operated, or the business conducted, by it require such qualification, except where the failure to so qualify or be in good standing, when taken together with all such failures, would not have a Material Adverse Effect on MedicaLogic. MedicaLogic and each of its subsidiaries has all requisite corporate power and authority to own, operate and lease its property and to carry on its businesses as they are now being conducted. MedicaLogic has delivered to Medscape complete and accurate copies of its Articles of Incorporation ("MedicaLogic Articles of Incorporation") and Bylaws ("MedicaLogic Bylaws"). 17 3.2.2 Capitalization. MedicaLogic has authorized capital stock consisting of 100,000,000 shares of MedicaLogic Common Stock, no par value, of which 32,417,478 shares were outstanding on February 21, 2000, and 50,000,000 shares of Preferred Stock, of which no shares were outstanding on February 21, 2000. As of February 21, 2000, options to purchase 3,164,792 shares of MedicaLogic Common Stock were outstanding pursuant to grants made under MedicaLogic's 1996 Stock Incentive Plan and MedicaLogic's 1993 Stock Incentive Plan. All of the outstanding shares of capital stock of MedicaLogic have been duly authorized and are validly issued, fully paid and nonassessable, and no shares were issued, and no options were granted, in violation of preemptive or similar rights of any shareholder or in violation of any applicable securities laws. Except as set forth above, or on Schedule 3.2.2, there are no shares of capital stock of MedicaLogic authorized, issued or outstanding, and there are no preemptive rights or any outstanding subscriptions, options, warrants, rights, convertible securities or other agreements or commitments of MedicaLogic of any character relating to the issued or unissued capital stock or other securities of MedicaLogic. There are no outstanding obligations of MedicaLogic to repurchase, redeem or otherwise acquire any of its outstanding shares of capital stock. 3.2.3 Corporate Authority. MedicaLogic has the corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and, upon receipt of the shareholder approval contemplated in Section 4.1.2, to consummate the transactions contemplated hereby. This Agreement has been duly and validly authorized by the Board of Directors of MedicaLogic and duly and validly executed and delivered by MedicaLogic and as of the Closing Date will be validly authorized by MedicaLogic shareholders. This Agreement constitutes the valid and binding obligation of MedicaLogic, enforceable against MedicaLogic in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. 3.2.4 Subsidiaries and Joint Ventures. As of the date of this Agreement, there are no subsidiaries or joint ventures of MedicaLogic that are material to MedicaLogic. 3.2.5 SEC Reports and Financial Statements. MedicaLogic has filed with the SEC, and has made available to Medscape true and complete copies of, all forms, reports, schedules, statements, and other documents required to be filed by it since December 8, 1999 under the Exchange Act or the Securities Act (each of such forms, reports, schedules, statements, and other documents, to the extent filed and publicly available before the date of this Agreement, other than preliminary filings, is referred to as a "MedicaLogic SEC Document"). Each MedicaLogic SEC Document, at the time filed, (a) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light 18 of the circumstances under which they were made, not misleading and (b) complied in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as the case may be, and the applicable rules and regulations of the SEC thereunder. The financial statements included in the MedicaLogic SEC Documents (the "MedicaLogic Financial Statements") comply as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present in all material respects (subject, in the case of the unaudited statements, to normal, recurring audit adjustments) the consolidated financial position of MedicaLogic and its consolidated subsidiaries as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended. 3.2.6 Information Supplied. None of the information supplied or to be supplied by MedicaLogic specifically for inclusion or incorporation by reference in the Joint Proxy Statement for use relating to obtaining approval of the shareholders of MedicaLogic and Medscape of the Merger will, at the time the Joint Proxy Statement is first mailed to Medscape's stockholders or MedicaLogic's shareholders or at the time of the MedicaLogic Special Meeting and Medscape Special Meeting, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading, except that no representation or warranty is made by MedicaLogic with respect to statements made or incorporated by reference therein based on (i) information supplied by Medscape in writing specifically for inclusion or incorporation by reference therein or (ii) information relating to Medscape which is reviewed by Medscape without objection and with knowledge that it will be used in the Joint Proxy Statement. 3.2.7 Governmental Filings. Other than (a) the filing of the Certificate of Merger contemplated by Article I, (b) the HSR Filing to be made by MedicaLogic and Medscape described in Section 4.1.7 and (c) the Registration Statement and Joint Proxy Statement described in Section 4.1.1, no notices, reports or other filings are required to be made by MedicaLogic with, nor are any consents, registrations, approvals, permits or authorizations required to be obtained by MedicaLogic from, any Governmental Entity in connection with the execution and delivery of this Agreement by MedicaLogic and the consummation by MedicaLogic of the transactions contemplated hereby. 3.2.8 No Adverse Consequences. Neither the execution and delivery of this Agreement by MedicaLogic nor the consummation of the transactions contemplated by this Agreement will (a) result in the creation or imposition of any Lien on any of the assets or properties of MedicaLogic or any of its subsidiaries, (b) violate any provision of the Articles of Incorporation or Bylaws of MedicaLogic or any of its subsidiaries, (c) to the knowledge of MedicaLogic, violate any statute, judgment, order, injunction, decree, rule, regulation or ruling of any governmental authority applicable to MedicaLogic or any 19 of its subsidiaries, or (d) either alone or with the giving of notice or the passage of time or both, conflict with, constitute grounds for termination of, accelerate the performance required by, accelerate the maturity of any indebtedness or obligation under, result in the breach of the terms, conditions or provisions of or constitute a default under any mortgage, deed of trust, indenture, note, bond, lease, license, permit or other agreement, instrument or obligation to which either MedicaLogic or any of its subsidiaries is a party or by which any of them is bound. 3.2.9 Undisclosed Liabilities. Except for liabilities or obligations which were incurred after September 30, 1999 in the ordinary course of business and of a type and in an amount consistent with past practices, MedicaLogic has no material liability or obligation (whether absolute, accrued, contingent or otherwise, and whether due or to become due) which is not accrued, reserved against, or identified in the most recent MedicaLogic Financial Statements. 3.2.10 Absence of Certain Changes or Events. Except as set forth on Schedule 3.2.10, since September 30, 1999 there has not been a Material Adverse Change in MedicaLogic. 3.2.11 Litigation. Except as listed on Schedule 3.2.11, no litigation, proceeding or governmental investigation is pending or, to MedicaLogic's knowledge, threatened against or relating to MedicaLogic, its officers or directors in their capacities as such, or any of MedicaLogic's properties, businesses or subsidiaries. 3.2.12 Employment Matters. ------------------ 3.2.12.1 Labor Matters. Neither MedicaLogic nor any of its subsidiaries is a party or otherwise subject to any collective bargaining or other agreement governing the wages, hours or terms of employment of employees. MedicaLogic and each of its subsidiaries is and has been in compliance in all material respects with all applicable laws regarding employment and employment practices, terms and conditions of employment, wages and hours with respect to MedicaLogic's employees and is not and has not been engaged in any unfair labor practice. There is no (a) unfair labor practice complaint against MedicaLogic or any of its subsidiaries pending before the National Labor Relations Board or any other Governmental Entity, (b) labor strike, slowdown or work stoppage actually occurring or, to the knowledge of MedicaLogic, threatened against MedicaLogic or any of its subsidiaries, (c) representation petition respecting the employees of MedicaLogic or any of its subsidiaries pending before the National Labor Relations Board or similar agency, or (d) grievance or any arbitration proceeding pending arising out of or under collective bargaining agreements applicable to MedicaLogic or any of its subsidiaries. Neither MedicaLogic nor any of its subsidiaries has experienced any primary work stoppage or other organized work stoppage involving its employees in the past two years. MedicaLogic is not aware of any labor strike, slowdown, or work stoppage occurring or, to the knowledge of MedicaLogic, threatened against any of the principal suppliers of MedicaLogic or any of their subsidiaries that might be expected to 20 have a Material Adverse Effect on MedicaLogic. Except as set forth in Schedule 3.2.12.1, all of the employees of MedicaLogic and its subsidiaries working in the United States are citizens or permanent residents of the United States. No employee of MedicaLogic or any of its subsidiaries is the beneficiary under an employer-sponsored non-immigrant visa and no approvals, permits or consents of any governmental entity are required in order for MedicaLogic or its subsidiaries to employ any current employee as a result of or in connection with such employee's immigration status in the United States. MedicaLogic and its subsidiaries have fully completed and retained a Form I-9 for each of their employees in accordance with applicable law, and neither MedicaLogic nor any of its subsidiaries is subject to examination in connection with such forms or to any fines or other penalties under laws relating to employees who are not authorized to work in the United States. 3.2.12.2 Employee Benefits. Schedule 3.2.12.2 lists all pension, retirement, profit sharing, deferred compensation, bonus, commission, incentive compensation (including cash, stock and option plans or arrangements), life insurance, health and disability insurance, hospitalization and all other employee benefit plans or arrangements (including, without limitation, any contracts or agreements with trustees or insurance companies relating to any such employee benefit plans or arrangements) established or maintained by MedicaLogic or any of its subsidiaries, and complete and accurate copies of all those plans or arrangements have been made available to Medscape. The employee pension benefit plans (within the meaning of Section 3(2) of ERISA) established and maintained by MedicaLogic or any of its subsidiaries that are subject to ERISA (the "MedicaLogic ERISA Plans") are listed separately as ERISA Plans on Schedule 3.2.12.2. The MedicaLogic ERISA Plans comply in all material respects with the applicable requirements of ERISA and the Code. With respect to each MedicaLogic ERISA Plan intended to constitute a tax-qualified plan under Section 401(a) of the Code, MedicaLogic has received, or has requested or will timely request, from the Internal Revenue Service a favorable determination that such plan and its related trust is qualified under Section 401(a) of the Code and the related trust is tax-exempt under Section 501(a) of the Code. To the knowledge of MedicaLogic, there has been no event subsequent to that determination that is reasonably likely to result in the revocation of the tax-qualified status of the MedicaLogic ERISA Plans or the exemption of the related trusts. To the knowledge of MedicaLogic, none of the MedicaLogic ERISA Plans, their related trusts or any trustee, investment manager or administrator thereof has engaged in a nonexempt "prohibited transaction," as such term is defined in Section 406 of ERISA and Section 4975 of the Code that is reasonably expected to have a Material Adverse Effect on MedicaLogic. Each MedicaLogic ERISA Plan is and has been operated and administered in material conformity with the requirements of all applicable laws and regulations, whether or not the MedicaLogic ERISA Plan documents have been amended to reflect such requirements. MedicaLogic and its subsidiaries have no liability for, or commitment to provide, medical benefits to future or current retirees of MedicaLogic or any of its subsidiaries. 21 3.2.12.3 Employment Agreements. Except as set forth on Schedule 3.2.12.3, each employee of MedicaLogic or any of its subsidiaries is an "at-will" employee and there are no written employment agreements of any kind between MedicaLogic or any of its subsidiaries and any employees. 3.2.13 Intellectual Property. MedicaLogic or one of its subsidiaries owns, or has a valid license to use, all Intellectual Property necessary to or used in the conduct of the business of MedicaLogic and its subsidiaries as now conducted and as proposed to be conducted. All Intellectual Property owned by MedicaLogic or any of its subsidiaries is owned by them free and clear of all Liens. To the knowledge of MedicaLogic, the conduct of the business of MedicaLogic and its subsidiaries does not conflict with or infringe upon any Intellectual Property rights of any other person and no claims of conflict or infringement are pending or threatened against MedicaLogic or any of its subsidiaries which, in any event, would reasonably be expected to have a Material Adverse Effect. MedicaLogic has made all necessary filings and recordations and has paid all required fees and Taxes to maintain ownership of the Intellectual Property. 3.2.14 Status of Contracts. There is no existing default or violation by MedicaLogic or its subsidiaries under any contracts, agreements, commitments or instruments to which MedicaLogic or any of its subsidiaries is a party or by which it or any of them is bound (collectively, the "MedicaLogic Contracts") and no event has occurred which (whether with or without notice, lapse of time or both) would constitute a default of MedicaLogic or its subsidiaries under any MedicaLogic Contract, except for such defaults or violations as would not in the aggregate have a Material Adverse Effect on MedicaLogic. There is no pending, or to the knowledge of MedicaLogic, threatened, proceeding which would interfere with the quiet enjoyment of any leasehold of which MedicaLogic or any of its subsidiaries is lessee or sublessee. MedicaLogic is not aware of any default by any other party to any MedicaLogic Contract or of any event which (whether with or without notice, lapse of time or both) would constitute a material default by any other party with respect to obligations of that party under any MedicaLogic Contract, and, to the knowledge of MedicaLogic, there are no facts that exist indicating that any of the MedicaLogic Contracts may be totally or partially terminated or suspended by the other parties. Neither MedicaLogic nor any of its subsidiaries is a party to, or bound by, any MedicaLogic Contract that MedicaLogic can reasonably foresee will result in any material loss to MedicaLogic or such subsidiary upon the performance thereof (including any liability for penalties or damages, whether liquidated, direct, indirect, incidental or consequential). 3.2.15 Permits and Licenses. Each of MedicaLogic and its subsidiaries holds, and at all times has held, all material Permits necessary for the lawful conduct of its business pursuant to all applicable statutes, laws, ordinances, rules and regulations of all Governmental Entities having jurisdiction over it or any part of its operations. Each of MedicaLogic and its subsidiaries is in compliance in all material respects with each of the terms of the applicable Permits, and there are no claims of violation by MedicaLogic or any of its subsidiaries of any of such Permits. Complete and accurate copies of all Permits 22 held by MedicaLogic and its subsidiaries have been made available to Medscape. All Governmental Entities that have issued any Permits to or with respect to MedicaLogic, its business, or subsidiaries have consented or prior to the Closing will have consented (where such consent is necessary) to the consummation of the transactions contemplated by this Agreement without requiring modification of the rights or obligations of MedicaLogic or its subsidiaries under any of such Permits. 3.2.16 Taxes. ----- 3.2.16.1 Returns. MedicaLogic has filed on a timely basis all federal, state, local, foreign and other returns, reports, forms, declarations and information returns required to be filed by it with respect to Taxes which relate to the business, results of operations, financial condition, properties or assets of MedicaLogic for all periods (collectively, the "MedicaLogic Returns") and has paid on a timely basis all Taxes shown to be due and payable on the MedicaLogic Returns. All MedicaLogic Returns filed are complete and accurate in all material respects and no additional Taxes are owed by MedicaLogic or its subsidiaries with respect to the periods covered by the MedicaLogic Returns or for any other period. MedicaLogic has made available to Medscape complete and accurate copies of all MedicaLogic Returns. MedicaLogic has no liability for Taxes of any person (other than itself), whether arising under federal, state, local or foreign law, as a transferee or successor, by contract, pursuant to Treas. Reg. ss. 1.1502-6 or otherwise. Except as set forth on Schedule 3.2.16, MedicaLogic is not currently the beneficiary of any extension of time within which to file any MedicaLogic Return. Except as set forth on Schedule 3.2.16, no MedicaLogic Returns have been examined by the applicable taxing authorities and, except as set forth on Schedule 3.2.16, MedicaLogic has not received any notice of audit or review with respect to any MedicaLogic Return or any fiscal year, has no knowledge of any planned audit or review, and there are no outstanding agreements or waivers extending the applicable statutory periods of limitation for Taxes for any period. No claim has ever been made by an authority in a jurisdiction where MedicaLogic does not file MedicaLogic Returns that they are or may be subject to taxation by that jurisdiction. All Taxes that are or have been required to be withheld or collected by MedicaLogic or its predecessors have been duly withheld and collected and, to the extent required, have been properly paid or deposited as required by applicable laws. Neither MedicaLogic nor any of its predecessors has made any payment, or is obligated to make any payment, or is a party to an agreement that in certain circumstances could obligate it to make a payment, that is not deductible under Section 280G of the Code. Except as set forth in Schedule 3.2.16, MedicaLogic is not an obligor on, and none of its assets have been financed directly or indirectly by, any tax exempt bonds. MedicaLogic is not now nor during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code has ever been a United States real property holding corporation as defined in Section 897(c)(2) of the Code. MedicaLogic has not filed a consent pursuant to Section 341(f) of the Code nor has MedicaLogic agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by MedicaLogic. 23 3.2.16.2 Taxes Paid or Reserved. The unpaid Taxes of MedicaLogic (A) did not as of the date of the most recent audited balance sheet included in a MedicaLogic SEC Document exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect timing differences between book and Tax income) set forth on the face of such balance sheet (rather than in any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of MedicaLogic in filing its MedicaLogic Returns. 3.2.17 Related Party Interests. Except as listed in Schedule 3.2.17, no officer or director of MedicaLogic (or any entity owned or controlled by one or more of such parties) (a) has any interest in any property, real or personal, tangible or intangible, used in or pertaining to MedicaLogic's business, (b) is indebted to MedicaLogic or its subsidiaries, or (c) has any material financial interest, direct or indirect, in any supplier or customer of, or other outside business which has significant transactions with MedicaLogic. True and complete copies of all agreements listed on Schedule 3.2.17 have been provided to Medscape. MedicaLogic is not indebted to any of its shareholders, directors or officers (or any entity owned or controlled by one or more of such parties) except for amounts due under normal salary arrangements and for reimbursement of ordinary business expenses. The consummation of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any act or event, or with the lapse of time, or both) result in any payment (severance or other) becoming due from MedicaLogic to any of its shareholders, officers, directors or employees (or any entity owned or controlled by one or more of such parties). 3.2.18 No Powers of Attorney or Restrictions. No power of attorney or similar authorization given by MedicaLogic or any of its subsidiaries is presently in effect or outstanding. No contract or agreement to which MedicaLogic or any of its subsidiaries is a party or is bound or to which any of its properties or assets is subject limits the freedom of MedicaLogic to compete in any line of business or with any person. To the knowledge of MedicaLogic, none of the employees of MedicaLogic or its subsidiaries is obligated under any contract (including licenses, covenants or commitments of any nature), or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of MedicaLogic or any of its subsidiaries or that would conflict with the business of MedicaLogic or its subsidiaries as now conducted or proposed to be conducted. 3.2.19 Consents and Approvals. Except as set forth in Section 3.2.3, no consent, approval, or authorization of, or filing or registration with, any court, regulatory authority, governmental body, or any other entity or person not a party to this Agreement is required to be obtained by MedicaLogic or its subsidiaries for the consummation of the transactions described in this Agreement. 24 3.2.20 Brokers and Finders. Except for fees to be paid by MedicaLogic to Donaldson, Lufkin and Jenrette in connection with a fairness opinion, neither MedicaLogic nor any of its subsidiaries has incurred any liability for any brokerage or investment banking fees, commissions or finders' fees in connection with the Merger. 3.2.21 No Other Agreements to Sell MedicaLogic or its Assets. As of the date hereof, MedicaLogic is not engaged, directly or indirectly, in any discussions or negotiations with any other party with respect to a transaction that would result in a Change of Control (as defined in Section 4.3.8). 3.2.22 Opinion of MedicaLogic Financial Advisor. MedicaLogic has received from Donaldson, Lufkin and Jenrette an opinion that the Conversion Ratio is fair, from a financial point of view, to MedicaLogic. A copy of such opinion is attached hereto as Exhibit D. 3.2.23 Vote Required. The approval by a majority of the voting power represented by the outstanding shares of MedicaLogic Common Stock is the only vote of the holders of any class or series of MedicaLogic capital stock necessary to approve the issuance of MedicaLogic Common Stock in the Merger. 3.2.24 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E). ----------------------------------------------------- 3.2.24.1 Immediately following the Merger, Surviving Corporation will hold at least 90% of the fair market value of Merger Corp.'s net assets and at least 70% of the fair market value of Merger Corp.'s gross assets held immediately prior to the Merger. For purposes of this representation, amounts paid by Merger Corp. to Medscape shareholders who receive cash or other property and Merger Corp. assets used to pay reorganization expenses will be included as assets of Merger Corp. held immediately prior to the Merger. 3.2.24.2 Prior to the Merger, MedicaLogic will be in control of Merger Corp. within the meaning of Section 368(c) of the Code. 3.2.24.3 MedicaLogic has no plan or intention to cause or allow Surviving Corporation to issue additional shares of its stock that would result in MedicaLogic losing control of Surviving Corporation within the meaning of Section 368(c) of the Code. 3.2.24.4 Prior to or in the Merger, neither MedicaLogic nor any person related to MedicaLogic (as defined in Treas. Reg.ss.1.368(e)(3)) will have acquired directly or through any transaction, agreement or arrangement with any other person, stock of Medscape with consideration other than common stock of MedicaLogic. There is no plan or intention by MedicaLogic or any person related to MedicaLogic (as defined in Treas. Reg.ss.1.368-1(e)(3)) to acquire or redeem any of the stock of MedicaLogic 25 issued in the Merger either directly or through any transaction, agreement, or arrangement with any other person. 3.2.24.5 MedicaLogic has no plan or intention to liquidate Surviving Corporation; to merge Surviving Corporation with and into another corporation; to sell or otherwise dispose of the stock of Surviving Corporation; or to cause Surviving Corporation to sell or otherwise dispose of any of the assets of Medscape or Merger Corp., except for dispositions made in the ordinary course of business or transfers of assets to a corporation controlled by Surviving Corporation. 3.2.24.6 Merger Corp. will have no liabilities assumed by Surviving Corporation and will not transfer to Surviving Corporation in the Merger any assets subject to liabilities. 3.2.24.7 Following the Merger, MedicaLogic will cause Surviving Corporation to continue the historic business of Medscape or to use a significant portion of Medscape's business assets in a business, in each case within the meaning of Treas. Reg.ss.1.368-1(d). 3.2.24.8 MedicaLogic does not own, nor has it owned during the past five years, any shares of the stock of Medscape. 3.2.24.9 MedicaLogic is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 3.2.24.10 The payment of cash in lieu of fractional shares of MedicaLogic stock is solely for the purpose of avoiding the expense and inconvenience to MedicaLogic of issuing fractional shares and does not represent separately bargained-for consideration. The total cash consideration that will be paid in the Merger to the Medscape shareholders instead of issuing fractional shares of MedicaLogic stock will not exceed one percent of the total consideration that will be issued in the Merger to the Medscape shareholders in exchange for their shares of Medscape stock. The fractional share interests of each Medscape shareholder will be aggregated, and no Medscape shareholder will receive cash in an amount equal to or greater than the value of one full share of MedicaLogic stock. 3.2.24.11 Following and in connection with the Merger, MedicaLogic will not transfer any shares of Medscape Common Stock to (a) a corporation that is not a member of MedicaLogic's "qualified group" as defined in Treas. Reg.ss. 1.368-1(d)(4)(ii) or (b) a partnership. 3.2.24.12 MedicaLogic will not redeem any of the MedicaLogic Common Stock exchanged for Medscape Common Stock in connection with the Merger, other than pursuant to an ongoing stock repurchase program not created or modified in connection with the Merger. 26 3.2.24.13 No person related to MedicaLogic, as defined in Treas. Reg.ss.1.368-1(e)(3) will acquire, with consideration other than a proprietary interest in MedicaLogic, Medscape Common Stock exchanged for MedicaLogic Common Stock in the Merger. 3.2.24.14 Except as otherwise provided in this Agreement, MedicaLogic will pay its own expenses, if any, incurred in connection with the Merger and will not pay expenses of Medscape or Merger Corp. 3.2.24.15 In the Merger, shares of Medscape stock representing control of Medscape, as defined in Section 368(c) of the Code, will be exchanged solely for voting stock of MedicaLogic. 3.2.25 Total eMed. A true, complete and correct copy of the Reorganization and Merger Agreement, dated as of the date hereof, between MedicaLogic and Total eMed (the "Total eMed Agreement") has been delivered to Medscape. 3.3 Representations and Warranties Relating to Merger Corp. MedicaLogic and Merger Corp. hereby represent and warrant to Medscape that: 3.3.1 Organization and Status. Merger Corp. is a corporation duly organized and validly existing under the laws of the State of Delaware. Merger Corp. does not own any properties (other than the initial cash subscription for shares) nor has it commenced any business or operations. 3.3.2 Capitalization. Merger Corp. has an authorized capital stock consisting of 100 shares of Common Stock. All of the issued and outstanding shares of capital stock of Merger Corp. are owned by MedicaLogic. 3.3.3 Corporate Authority. Merger Corp. has the corporate power and authority and has taken all corporate action necessary to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The Agreement has been duly and validly authorized by the Board of Directors and sole shareholder of Merger Corp., duly and validly executed and delivered by Merger Corp. and constitutes the valid and binding obligation of Merger Corp., enforceable against Merger Corp. in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought. 3.3.4 Governmental Filings. Other than the filing of the Certificate of Merger contemplated by Article I, no notices, reports or other filings are required to be made by Merger Corp. with, nor are any consents, registrations, approvals, permits or 27 authorizations required to be obtained by Merger Corp. from, any Governmental Entity in connection with the execution and delivery of this Agreement by Merger Corp. and the consummation by Merger Corp. of the transactions contemplated hereby. 3.3.5 Certain Representations and Warranties Regarding Code Section 368(a)(2)(E). ----------------------------------------------------- 3.3.5.1 Merger Corp. is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. 3.3.5.2 Except as otherwise provided in this Agreement, Merger Corp. will pay its own expenses, if any, incurred in connection with the Merger and will not pay expenses of MedicaLogic or Medscape. 3.3.5.3 Merger Corp. has been formed solely in order to consummate the Merger, and Merger Corp. has not conducted and will not conduct any business activities or other operations of any kind other than the issuance of its stock to MedicaLogic, prior to the Effective Date. ARTICLE IV COVENANTS 4.1 Mutual Covenants. Medscape and MedicaLogic mutually covenant and agree as follows: 4.1.1 Preparation of Registration Statement and the Joint Proxy Statement. Promptly following the date of this Agreement, Medscape and MedicaLogic shall prepare and file with the SEC the Joint Proxy Statement, and MedicaLogic shall prepare and file with the SEC the Registration Statement, in which the Joint Proxy Statement will be included as a prospectus. Each of Medscape and MedicaLogic shall use its reasonable best efforts to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. Each of Medscape and MedicaLogic will use its reasonable best efforts to cause the Joint Proxy Statement to be mailed to its respective shareholders as promptly as practicable after the Registration Statement is declared effective under the Securities Act. MedicaLogic shall also take any action (other than qualifying to do business in any jurisdiction in which it is not now so qualified) required to be taken under any applicable state securities law in connection with the issuance of MedicaLogic Common Stock in the Merger, and Medscape shall furnish all information concerning Medscape and the holders of Medscape Common Stock and rights to acquire Medscape Common Stock as may be reasonably required in connection with any such action. Each of MedicaLogic and Medscape shall furnish all information concerning itself to the other as may be reasonably requested in connection with any such action and the preparation, filing and distribution of the Registration Statement and the preparation, filing and distribution of the Joint Proxy Statement. Medscape and 28 MedicaLogic each agree to correct any information provided by it for use in the Registration Statement or the Joint Proxy Statement which shall have become false or misleading. 4.1.2 Shareholder Meetings. -------------------- 4.1.2.1 MedicaLogic shall (i) promptly and duly call, give notice of, convene and hold as soon as practicable following the date upon which the Registration Statement becomes effective a meeting of the holders of MedicaLogic Common Stock for the purpose of voting to approve the issuance of the MedicaLogic Common Stock in the Merger (the "MedicaLogic Special Meeting"), and (ii) take all reasonable and lawful action to solicit and obtain such approval. Unless the MedicaLogic Board of Directors determines in good faith after receipt of a written opinion from outside legal counsel experienced in such matters that such action would be a breach of their respective fiduciary duties under applicable law, the MedicaLogic Board of Directors shall unanimously recommend that the shareholders of MedicaLogic approve the issuance of MedicaLogic Common Stock in the Merger and shall not withdraw or modify such recommendation, and MedicaLogic shall include in the Joint Proxy Statement the recommendation of the MedicaLogic Board of Directors in favor of issuance of MedicaLogic Common Stock in the Merger. At the MedicaLogic Special Meeting, MedicaLogic shall propose and recommend that its Articles of Incorporation be amended at the Effective Time to change its name to MedicaLogic/Medscape, Inc. 4.1.2.2 Medscape shall (i) promptly and duly call, give notice of, convene and hold a meeting of the holders of Medscape Common Stock for the purpose of voting to approve the Merger (the "Medscape Special Meeting"), and (ii) take all reasonable and lawful action to solicit and obtain such approval. Unless the Medscape Board of Directors determines in good faith after receipt of a written opinion from outside legal counsel experienced in such matters that such action would be a breach of their respective fiduciary duties under applicable law, the Medscape Board of Directors shall unanimously recommend that the stockholders of Medscape approve this Agreement and the transactions contemplated herein and shall not withdraw or modify such recommendation, and Medscape shall include in the Joint Proxy Statement the recommendation of the Medscape Board of Directors in favor of the Merger. 4.1.3 Consents and Approvals. Medscape and MedicaLogic each will use reasonable best efforts to secure, and MedicaLogic will cause Merger Corp. to use its reasonable best efforts to secure, all consents, approvals, licenses or permits which may be required in connection with the Merger, and each will cooperate with the other to secure all such consents, approvals, licenses or permits in a form mutually satisfactory to Medscape and MedicaLogic. 4.1.4 Best Efforts. Subject to the terms of this Agreement, Medscape and MedicaLogic each will use reasonable best efforts, and MedicaLogic will cause Merger Corp. to use its reasonable best efforts, to effectuate the transactions 29 contemplated hereby and to fulfill the conditions of their respective obligations under this Agreement. 4.1.5 Publicity. Except as required by law, no party will issue any press releases or otherwise make any public statements with respect to the transactions contemplated hereby without the prior written consent of MedicaLogic and Medscape, in each case not to be unreasonably withheld. 4.1.6 Confidentiality. The provisions of the Nondisclosure Agreement (the "Confidentiality Agreement") between MedicaLogic and Medscape, effective as of January 4, 2000, shall apply to all "Information" (as defined in the Confidentiality Agreement) obtained by any party pursuant to this Agreement. 4.1.7 Antitrust Improvements Act. Each of MedicaLogic and Medscape will timely and promptly make the filing required to be made by it under the Antitrust Improvements Act of 1976, as amended (each such filing an "HSR Filing"). MedicaLogic and Medscape will furnish to one another such information and assistance as the other party may reasonably request in connection with the other party's preparation of filings or submissions to any governmental agency, including, without limitation, any HSR Filing. As reasonably requested by the other party, MedicaLogic and Medscape will supply one another with copies of all correspondence, filings or communications (or memoranda setting forth the substance thereof) between MedicaLogic and Medscape or their respective representatives, on the one hand, and the Federal Trade Commission, the Antitrust Division of the United States Department of Justice or any other governmental agency or authority or members of their respective staffs, on the other hand, with respect to this Agreement or the transaction contemplated hereby. 4.2 Covenants of Medscape. Medscape covenants and agrees as follows: 4.2.1 Conduct of Business. Prior to the Effective Time, Medscape and each of its subsidiaries will carry on its business in the ordinary and usual manner and maintain its existing relationships with suppliers, customers, employees and business associates, and will not, without the prior written consent of MedicaLogic, which consent will not be unreasonably delayed or withheld: (a) enter into any new agreements or modify existing agreements respecting an increase in compensation or benefits payable to its officers or employees except for normal year-to-year adjustments consistent with past practices (it being agreed that the current employee compensation proposals of Medscape for year 2000 previously disclosed by Medscape to MedicaLogic will not require prior MedicaLogic approval); (b) split, combine, reclassify any of the outstanding shares of its capital stock or otherwise change its authorized capitalization; 30 (c) declare, set aside or pay any dividends payable in cash, stock or property with respect to shares of its capital stock; (d) issue, sell, pledge, dispose of or encumber any additional shares of, or securities convertible into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of its capital stock of any class (other than pursuant to the Options issued in the ordinary course and consistent with past practice or the Warrants) or release any holder of Medscape Common Stock from any provision restricting the sale or other transfer of Medscape Common Stock; (e) redeem, purchase or otherwise acquire any shares of its capital stock, merge into or consolidate with any other entity or permit any other entity to merge into or consolidate with it, liquidate or sell or dispose of any of its assets, or close any plant or business operation; (f) except for short-term indebtedness and indebtedness incurred pursuant to Medscape's revolving credit agreement and renewals, replacements and amendments thereof not in excess of the current maximum under such credit agreement incurred in the ordinary course of business, incur, assume or guarantee any indebtedness, or modify or prepay any existing indebtedness; (g) except as set forth in the capital budget provided to MedicaLogic or as set forth on Exhibit 4.2.1(g), authorize capital expenditures other than in the ordinary course of business, form any subsidiary, or make any acquisition of, or investment in, assets or stock of any other person or entity; (h) change its method of accounting as in effect at the date of the most recent Medscape SEC Document, except as required by changes in generally accepted accounting principles as concurred with by Medscape's independent auditors, or change its fiscal year; or (i) authorize or enter into an agreement to do any of the actions referred to in paragraphs (a) through (h) above. 4.2.2 Acquisition Proposals. Unless and until this Agreement shall have been terminated pursuant to Section 6.1 or Section 6.2, neither Medscape, nor any of its subsidiaries or other affiliates, shall, directly or indirectly, and it shall use its reasonable best efforts to cause their respective agents or representatives (each, a "Representative") not to, (i) encourage, initiate or solicit, on or after the date hereof, any inquiries or the submission of any proposals or offers from any person relating to any merger, consolidation, sale of a material amount of its assets or similar business transaction involving Medscape or any of its subsidiaries (each, an "Acquisition Transaction"); (ii) participate in any negotiations regarding, furnish to any other person any information with respect to, or otherwise assist or participate in, any attempt by any third party to propose or offer any Acquisition Transaction; (iii) enter into or execute any agreement 31 relating to an Acquisition Transaction; or (iv) make or authorize any public statement, recommendation or solicitation in support of any Acquisition Transaction or any proposal or offer relating to an Acquisition Transaction, in each case other than with respect to the Merger. Notwithstanding the foregoing, nothing contained herein shall prohibit Medscape from: (a) complying with Rule 14e-2(a) promulgated under the Exchange Act with regard to an Acquisition Transaction proposal; (b) providing information in response to a request therefor by a person who has made an unsolicited bona fide written Acquisition Transaction proposal if the Medscape Board of Directors receives from the person so requesting such information an executed confidentiality agreement on terms substantially equivalent to those contained in the Confidentiality Agreement; (c) engaging in any negotiations or discussions with any person who has made an unsolicited bona fide written Acquisition Transaction proposal; or (d) withdrawing or modifying the approval or recommendation by the Medscape Board of Directors of this Agreement or the Merger in connection with recommending an unsolicited bona fide written Acquisition Transaction proposal to the stockholders of Medscape; if and only to the extent that, both (i) in each case referred to in clause (c) or (d) above, the Medscape Board of Directors determines in good faith after receipt of a written opinion from outside legal counsel experienced in such matters that such action is necessary in order for its directors to comply with their respective fiduciary duties under applicable law and (ii) in each case referred to in clause (c) or (d) above, the Medscape Board of Directors determines in good faith (after consultation with its financial advisors) that such Acquisition Transaction, if accepted, is reasonably likely to be completed, taking into account all legal, financial and regulatory aspects of the proposal and the person making the proposal and would, if completed, result in a transaction superior to the transaction contemplated by this Agreement, taking into account, among other things, the long term prospects and interests of Medscape and its stockholders. Medscape will immediately cease and cause to be terminated any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing. Medscape agrees it will take the necessary steps to inform promptly its Representatives of the obligations undertaken in this Section 4.2.2 and in the Confidentiality Agreement. Medscape will promptly notify MedicaLogic if any such inquiries, proposals or offers are received by, and such information is requested from, or any such discussions or negotiations are sought to be initiated or continued with, Medscape or any of its Representatives relating to an Acquisition Transaction proposal, indicating, in connection with such notice, the name of such person and the material terms and conditions of any proposals or offers and thereafter shall keep MedicaLogic informed, 32 on a current basis, of the status and terms of any such proposals or offers and the status of any such negotiations or discussions. Prior to providing any such information or commencing any such discussions or negotiations, Medscape shall give MedicaLogic not less than five business days' notice. Medscape also will promptly request each person that has heretofore executed a confidentiality agreement in connection with its consideration of any Acquisition Transaction proposal to return all confidential information heretofore furnished to such person by or on behalf of it or any of its subsidiaries. 4.2.3 Investigations. Medscape agrees to give MedicaLogic and its representatives and agents reasonable access to all its officers, key employees, premises, books and records and agreements and files and to cause its officers of Medscape to furnish MedicaLogic with such financial and operating data and other information with respect to its business and properties as MedicaLogic shall from time to time reasonably request. Any such investigations (a) shall be conducted in such manner as not to interfere unreasonably with the operation of Medscape's business; and (b) shall not diminish any of the representations and warranties hereunder. 4.2.4 [Reserved]. 4.2.5 Notice and Cure. Medscape will notify MedicaLogic in writing of, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practical after it becomes known to Medscape, that causes or will cause any covenant or agreement of Medscape under this Agreement to be breached or that renders or will render untrue in any material respect any representation or warranty of Medscape contained in this Agreement. Medscape also will notify MedicaLogic in writing of, and will use all commercially reasonable efforts to cure, before the Closing, any violation or breach, as soon as practical after it becomes known to Medscape, of any representation, warranty, covenant or agreement made by Medscape. No notice given pursuant to this Section 4.2.5 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein. 4.3 Covenants of MedicaLogic. MedicaLogic covenants and agrees as follows: 4.3.1 Conduct of Business. Prior to the Effective Time, MedicaLogic and each of its subsidiaries will carry on its business in the ordinary and usual manner and maintain its existing relationships with suppliers, customers, employees and business associates, and will not, without the prior written consent of Medscape, which consent will not be unreasonably delayed or withheld: (a) split, combine, reclassify any of the outstanding shares of its capital stock or otherwise change its authorized capitalization; (b) declare, set aside or pay any dividends payable in cash, stock or property with respect to shares of its capital stock; 33 (c) except as to the Total eMed Merger, merge into or consolidate with any other entity or permit any other entity to merge into or consolidate with it, or acquire any other entity, if any such transaction would prevent the Merger from occurring on or prior to August 31, 2000 or if such transaction is with an entity outside of the healthcare industry; (d) change its method of accounting as in effect at the date of the most recent MedicaLogic SEC Document, except as required by changes in generally accepted accounting principles as concurred with by MedicaLogic's independent auditors, or change its fiscal year; or (e) authorize or enter into an agreement to do any of the actions referred to in paragraphs (a) through (d) above. 4.3.2 Investigations. MedicaLogic agrees to give Medscape and its representatives and agents reasonable access to all its officers, key employees, premises, books and records and agreements and files and to cause its officers of MedicaLogic to furnish Medscape with such financial operating data and other information with respect to its business and properties as Medscape shall from time to time reasonably request. Any such investigations (a) shall be conducted in such manner as not to interfere unreasonably with the operation of MedicaLogic's business; and (b) shall not diminish any of the representations and warranties hereunder. 4.3.3 Notification to Optionees. Promptly after the Effective Date, MedicaLogic will notify in writing each holder of an Option of the exchange of the Option for an option to purchase MedicaLogic Common Stock in accordance with Section 1.3.3 of this Agreement. 4.3.4 Officer and Director Indemnification. For a period of six years from the Closing Date, MedicaLogic agrees to indemnify the officers and directors of Medscape for all actions taken prior to Closing to the extent authorized in Medscape's Certificate of Incorporation and Bylaws prior to Closing. For a period of three years from the Closing Date, MedicaLogic agrees to maintain officer and director liability coverage, with respect to claims arising from facts or events that occurred prior to Closing, for the benefit of the present or former officers and directors of Medscape as of the Closing Date in such amounts and on such terms that are no less beneficial to officers and directors than the coverage maintained by Medscape prior to the Effective Time; provided that in no event shall MedicaLogic be obligated to expend in order to maintain or procure insurance coverage pursuant to this Section 4.3.4 any amount per annum in excess of 150% of the aggregate premiums payable by Medscape and its subsidiaries in 1999 (on an annualized basis) for such purpose. 34 4.3.5 MedicaLogic Board. Effective on the Closing, MedicaLogic will cause three nominees of Medscape to be elected or appointed to the MedicaLogic Board and shall fix its Board at not more than eleven members. 4.3.6 Editor-in-Chief. Effective on the Closing, MedicaLogic will appoint George D. Lundberg, M.D., as the Editor-in-Chief of MedicaLogic. 4.3.7 Notice and Cure. MedicaLogic will notify Medscape in writing of, and will use all commercially reasonable efforts to cure before the Closing, any event, transaction or circumstance, as soon as practical after it becomes known to MedicaLogic, that causes or will cause any covenant or agreement of MedicaLogic under this Agreement to be breached or that renders or will render untrue in any material respect any representation or warranty of MedicaLogic contained in this Agreement. MedicaLogic also will notify Medscape in writing of, and will use all commercially reasonable efforts to cure, before the Closing, any violation or breach, as soon as practical after it becomes known to MedicaLogic, of any representation, warranty, covenant or agreement made by MedicaLogic. No notice given pursuant to this Section 4.3.7 shall have any effect on the representations, warranties, covenants or agreements contained in this Agreement for purposes of determining satisfaction of any condition contained herein. 4.3.8 Change of Control. MedicaLogic agrees that (a) neither it nor any of its subsidiaries or other affiliates shall, and it shall use its reasonable best efforts to cause their respective agents or representatives (each, a "MedicaLogic Representative") not to, directly or indirectly, initiate, solicit or encourage, directly or indirectly, any inquiries or the making of any proposal or offer (including, without limitation, any proposal or offer to its shareholders) with respect to any transaction that would constitute a Change of Control (as defined below), (b) it will notify Medscape promptly if any such inquiries, proposals or offers are received by MedicaLogic and (c) will keep Medscape appropriately informed of the status of any such inquiries, proposals or offers. Nothing contained herein shall prohibit MedicaLogic from providing information in response to such proposal or offer, engaging in negotiations or discussions with any person who has made such proposal or offer, or entering into or consummating any such transaction. A "Change of Control" shall occur if any of the following applies: (A) any "Person", as such term is used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of MedicaLogic representing 50% or more of the combined voting power of MedicaLogic's outstanding capital stock; (B) the shareholders of MedicaLogic approve a merger or other consolidation of MedicaLogic with any other company where the former shareholders of MedicaLogic do not own at least 50% of combined voting power of the surviving or resulting corporation; or (C) MedicaLogic sells 50% or more of its assets to a buyer that is not a subsidiary of MedicaLogic. 4.3.9 No Amendment to Total eMed Agreement. Without the prior written consent of Medscape, MedicaLogic shall not consent to any amendment of the Total eMed Agreement or the waiver of any provision thereof that would be materially 35 adverse to Medscape or its stockholders. Nothing herein shall be construed to require MedicaLogic to consummate the Total eMed Merger. 4.4 Covenants of Merger Corp. Merger Corp. covenants and agrees that, except as is contemplated by this Agreement, prior to the Effective Time, Merger Corp., will not engage in any business activities or liquidate, merge into or consolidate with any other corporation or permit any other corporation to merge into or consolidate with it; or increase its authorized capital stock; or issue options, rights or warrants to purchase any of its capital stock. ARTICLE V CONDITIONS 5.1 Conditions to the Obligations of All Parties. The obligations of Medscape, MedicaLogic and Merger Corp. to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions: 5.1.1 Regulatory Approvals. The parties shall have made all filings and received all approvals of any Governmental Entity of competent jurisdiction necessary in order to consummate the Merger, and each of such approvals shall be in full force and effect at the Closing and not subject to any condition which requires the taking or refraining from taking of any action which would have a Material Adverse Effect on Medscape or on MedicaLogic. 5.1.2 Litigation. There shall not be in effect any order, decree or injunction of a federal or state court of competent jurisdiction restraining, enjoining or prohibiting the consummation of the transactions contemplated by this Agreement (each party agreeing to use its reasonable best efforts, including appeals to higher courts, to have any such non-final, appealable order, decree or injunction set aside or lifted), and no action shall have been taken, and no statute, rule or regulation shall have been enacted, by any state or federal government or governmental agency in the United States which would prevent the consummation of the Merger. 5.1.3 Shareholder Approval. This Merger shall have been approved by the affirmative vote of the holders of a majority of the outstanding shares of Medscape Common Stock. The issuance of MedicaLogic Common Stock in the Merger shall have been approved by the affirmative vote of the holders of a majority of the shares of MedicaLogic Common Stock. 5.1.4 Registration of Securities; Listing. The shares of MedicaLogic Common Stock to be issued pursuant to this Agreement shall have been registered under the Securities Act, and under the securities laws of such states registrations or 36 qualification as counsel for MedicaLogic or Medscape, as the case may be, deems necessary or exemptions from such state registration or qualification will have been determined by such counsel to be available, and shall have been listed on the Nasdaq National Market. 5.2 Conditions to the Obligations of Medscape. The obligations of Medscape to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions: 5.2.1 Representations, Warranties and Covenants. The representations and warranties of MedicaLogic and Merger Corp. contained in this Agreement qualified by "Material Adverse Effect" or other materiality qualifiers shall be true and correct in all respects, and all other representations and warranties of MedicaLogic and Merger Corp. contained in this Agreement shall be true and correct in all respects (except where the failure to be true and correct would not have a Material Adverse Effect on MedicaLogic), except for representations and warranties made as of a specific date, which representations and warranties need only be true and correct as of such date, and for changes specifically contemplated by this Agreement, and MedicaLogic and Merger Corp. shall have performed in all material respects all of their respective covenants and obligations hereunder to be performed as of the Closing. Medscape shall have received at the Closing certificates to the foregoing effect, dated the Closing Date, and executed on behalf of MedicaLogic by an executive officer of MedicaLogic and on behalf of Merger Corp. by an executive officer of Merger Corp. 5.2.2 No Material Adverse Change. Since September 30, 1999, there shall have been no Material Adverse Change in MedicaLogic, or discovery of a condition or occurrence of an event which has resulted or reasonably can be expected to result in a Material Adverse Change in MedicaLogic. 5.3 Conditions to the Obligations of MedicaLogic and Merger Corp. The obligations of MedicaLogic and Merger Corp. to consummate the transactions contemplated by this Agreement are subject to the fulfillment at or before the Closing of each of the following conditions: 5.3.1 Representations, Warranties and Covenants. The representations and warranties of Medscape contained in this Agreement qualified by "Material Adverse Effect" or other materiality qualifiers shall be true and correct in all respects, and all other representations and warranties of Medscape contained in this Agreement shall be true and correct in all respects (except where the failure to be true and correct would not have a Material Adverse Effect on Medscape), except for representations and warranties made as of a specific date, which representations and warranties need only be true and correct as of such date, and for changes specifically contemplated by this Agreement, and Medscape shall have performed in all material respects all of its covenants and obligations hereunder to be performed as of the Closing. MedicaLogic shall have received at the Closing 37 certificates to the foregoing effect, dated the Closing Date, and executed on behalf of Medscape by an executive officer of Medscape. 5.3.2 No Material Adverse Change. Since the date of the most recent audited balance sheet in a Medscape SEC Document, there shall have been no Material Adverse Change in Medscape, or discovery of a condition or occurrence of an event which has resulted or reasonably can be expected to result in a Material Adverse Change in Medscape. ARTICLE VI TERMINATION 6.1 Termination by Mutual Consent. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time by the mutual consent of Medscape and MedicaLogic. 6.2 Termination by Either Medscape or MedicaLogic. This Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Time: (a) by MedicaLogic or Medscape if the Merger shall not have become effective on or prior to August 31, 2000, provided, however, that the right to terminate this Agreement pursuant to this Section 6.2(a) shall not be available to any party whose breach of any covenant of this Agreement has been the cause of, or resulted in, the failure of the Merger to occur on or before such date; (b) by MedicaLogic or Medscape if: (1) any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree (other than a temporary restraining order) restraining, enjoining or otherwise prohibiting the Merger, and such order, judgment or decree shall have become final and nonappealable; (2) any required approval of the stockholders of Medscape for this Agreement or the Merger shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at a duly held meeting of stockholders or at any adjournment thereof; or (3) the required approval of the shareholders of MedicaLogic for the issuance of MedicaLogic Common Stock pursuant to this Agreement shall not have been obtained by reason of the failure to obtain the required vote upon a vote held at a duly held meeting of shareholders or at any adjournment there; 38 (c) by MedicaLogic if the Board of Directors of Medscape (or any committee thereof) (i) shall have withdrawn, amended or modified in a manner adverse to MedicaLogic its approval or recommendation of the Merger, this Agreement or the transactions contemplated hereby, (ii) shall fail to reaffirm such approval or recommendation upon MedicaLogic's request, (iii) shall have recommended or taken no position with respect to an Acquisition Transaction in any communication to the stockholders of Medscape, or (iv) shall resolve to take any of the foregoing actions; (d) by MedicaLogic if Medscape or its Representatives shall have taken any of the actions that would be proscribed by Section 4.2.2, other than actions taken in the exercise of the fiduciary duties of Medscape's Board of Directors and satisfying all the conditions of Section 4.2.2; (e) by MedicaLogic if Medscape fails to include in the Joint Proxy Statement the recommendation of the Board of Directors of Medscape in favor of the Merger; (f) by MedicaLogic if a tender offer or exchange offer relating to Medscape Common Stock shall have been commenced by a third party and Medscape shall not have promptly thereafter sent its stockholders a statement recommending rejection of such tender offer or exchange offer; (g) by MedicaLogic if there has been a material breach by Medscape of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within a reasonable time (but in no event more than 30 days) after written notice of such breach is given by MedicaLogic to Medscape; (h) by Medscape if MedicaLogic or the MedicaLogic Representatives shall have taken any of the actions that would be proscribed by Section 4.3.8 other than actions satisfying all the conditions of Section 4.3.8; or (i) by Medscape if there has been a material breach by MedicaLogic of any representation, warranty, covenant or agreement contained in this Agreement that is not curable or, if curable, is not cured within a reasonable time (but in no event more than 30 days) after written notice of such breach is given by Medscape to MedicaLogic; (j) by Medscape if the Board of Directors of MedicaLogic (or any committee thereof) (i) shall have withdrawn, amended or modified in a manner adverse to Medscape its approval or recommendation of the issuance of the MedicaLogic Common Stock in the Merger, (ii) shall fail to reaffirm such approval or recommendation upon Medscape's request, or (iii) shall resolve to take any of the foregoing actions; or (k) by Medscape if MedicaLogic fails to include in the Joint Proxy Statement the recommendation of the Board of Directors of MedicaLogic in favor of the issuance of the MedicaLogic Common Stock in the Merger. 39 6.3 Effect of Termination and Abandonment. In the event of termination of this Agreement and abandonment of the Merger pursuant to this Article VI, (i) this Agreement immediately will become void and of no effect, except that Sections 4.1.6, 6.3, 6.4 and 7.1 will survive the event of termination; and (ii) no party hereto (or any of its directors of officers) shall have any liability or further obligation to any other party to this Agreement, except that nothing herein shall relieve any party for any willful breach of this Agreement. 6.4 Termination Fees and Expenses. ----------------------------- 6.4.1 Medscape agrees to pay MedicaLogic (provided that MedicaLogic is not then in material breach of any representation, warranty, covenant or agreement contained in this Agreement) within two business days after the termination of this Agreement (or, in the case of (ii) and (iii) below, as provided therein) by wire transfer, the sum of $30,000,000 in immediately available funds in the event that any of the following shall have occurred: (i) this Agreement shall have been terminated pursuant to Section 6.2(c), Section 6.2(d), Section 6.2(e), Section 6.2(f) or Section 6.2(g) or because of a breach of Section 4.2.2 by Medscape, provided that if this Agreement is terminated pursuant to Section 6.2(g) as a result of a non-intentional breach by Medscape, Medscape shall pay to MedicaLogic MedicaLogic's actual out-of-pocket expenses rather than the aforesaid $30,000,000 sum; (ii) prior to the meeting of Medscape stockholders duly convened and held to vote in respect to this Agreement and the Merger, an Acquisition Transaction shall have been made to Medscape and made known to its stockholders generally or shall have been made directly to its stockholders generally or any person shall have publicly announced an intention (whether or not conditional) to make an Acquisition Transaction, and thereafter this Agreement shall have been terminated pursuant to Section 6.2(b)(2) (in which circumstances the amounts payable under this Section 6.4.1 shall be payable on the first business day after the date of such stockholder vote); or (iii) this Agreement shall have been terminated pursuant to Section 6.2(b)(2) and, within twelve months of such termination Medscape enters into an agreement with any person with respect to an Acquisition Transaction or an Acquisition Transaction is consummated (in which circumstances the amounts payable under this Section 6.4.1 shall be payable upon the signing of such agreement or, if no agreement is signed, then at the closing (and as a condition to the closing, which condition may not be waived without the express written consent of MedicaLogic) of such Acquisition Transaction; 40 6.4.2 MedicaLogic agrees to pay Medscape (provided that Medscape is not then in material breach of any representation, warranty, covenant or agreement contained in this Agreement) by wire transfer, the sum of $30,000,000 in immediately available funds in the event that the following shall have occurred: (i) this Agreement shall have been terminated pursuant to Section 6.2(b)(3), 6.2(h), 6.2(i), 6.2(j) or 6.2(k), provided that if this Agreement is terminated pursuant to Section 6.2(i) as a result of a non-intentional breach by MedicaLogic, MedicaLogic shall pay to Medscape Medscape's actual out-of-pocket expenses rather than the aforesaid $30,000,000 sum. 6.4.3 Each of Medscape and MedicaLogic acknowledge that the agreements contained in Section 6.4 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, the respective parties would not enter into this Agreement; accordingly, if either party fails to promptly pay the amount due pursuant to this Section 6.4 and, in order to obtain such payment, the other party commences a suit which results in a judgment for the fee set forth therein, the losing party shall pay to the other its reasonable costs and expenses (including attorneys' fees) in connection with such suit, together with interest from the date of termination of this Agreement on the amounts owed at the prime rate as announced by Key Bank of Oregon in effect from time to time during such period plus two percent. ARTICLE VII MISCELLANEOUS AND GENERAL 7.1 Payment of Expenses. Subject to Section 6.4, if the Merger is not consummated, each party shall pay its own out-of-pocket legal, accounting, investment banking and other expenses incidental to this Agreement and the transactions contemplated by this Agreement, except for the HSR Filing fees, which shall be shared equally by Medscape and MedicaLogic. Nothing in this Agreement is meant to limit the right of a non-breaching party to obtain reimbursement of expenses and other damages, including attorneys' fees, incurred as a result of a breach of this Agreement by the other party. 7.2 Entire Agreement. This Agreement, including the schedules and the exhibits hereto, constitutes the entire agreement between the parties hereto and supersedes all prior agreements and understandings, oral and written, among the parties hereto with respect to the subject matter hereof. 7.3 Assignment. This Agreement shall not be assignable by any of the parties to this Agreement without the prior written consent of each of MedicaLogic and Medscape. 41 7.4 Binding Effect; No Third Party Benefit. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, subject to the restrictions on assignment contained in Section 7.3. Except as provided in Section 4.3.4 of this Agreement, nothing express or implied in this Agreement is intended or shall be construed to confer upon or give to a person, firm or corporation other than the parties hereto any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. 7.5 Amendment and Modification. Subject to applicable law, this Agreement may be amended, modified and supplemented at any time prior to or at the Closing, whether before or after the votes of shareholders of Medscape or MedicaLogic, by written agreement executed and delivered by the duly authorized officers of Medscape and MedicaLogic. 7.6 Waiver of Conditions. The conditions to each of the parties' obligations to consummate the Merger are for the sole benefit of such party and may be waived by such party in whole or in part to the extent permitted by applicable law; provided, however, that any waiver by a party must be in writing. 7.7 Counterparts. For the convenience of the parties hereto, this Agreement may be executed in any number of counterparts, each such counterpart being deemed to be an original instrument, and all such counterparts shall together constitute the same agreement. 7.8 Captions. The article, section and paragraph captions herein are for convenience of reference only, do not constitute a part of this Agreement and shall not be deemed to limit or otherwise affect any of the provisions hereof. 7.9 Subsidiary. When a reference is made in this Agreement to a subsidiary of a party, the term "subsidiary" means any corporation or other organization, whether incorporated or unincorporated, of which at least a majority of the securities or interests having by the terms thereof ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party or by any one or more of its subsidiaries, or by such party and one or more of its subsidiaries. 7.10 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if delivered personally or mailed, certified or registered mail with postage prepaid, or sent by telex, telegram or facsimile (in each case with evidence of confirmed transmission) as follows: 42 If to Medscape, to it at: Medscape, Inc. 134 West 29th Street New York, NY 10001 Telephone: (212) 760-3100 Facsimile: (212) 760-3140 Attention: Paul T. Sheils with copies to: Patterson, Belknap, Webb & Tyler LLP 1133 Avenue of the Americas New York, New York 10036 Telephone: (212) 336-2000 Facsimile: (212) 336-2222 Attention: John P. Schmitt, Esq. If to MedicaLogic or Merger Corp., to it at: MedicaLogic, Inc. 101 Green Street at Battery San Francisco, California 94111 Telephone: (415) 678-3205 Facsimile: (415) 678-3300 Attention: Harvey J. Anderson with copies to: Stoel Rives LLP 900 S.W. Fifth Avenue Suite 2600 Portland, Oregon 97204 Telephone: (503) 224-3380 Facsimile: (503) 220-2480 Attention: Stephen E. Babson, Esq. or to such other person or address as any party shall specify by notice in writing. All such notices, requests, demands, waivers and communications shall be deemed to have been received on the date of delivery or on the third business day after the mailing thereof. 43 7.11 Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Oregon, exclusive of choice of law or conflicts of law rules, provisions, or principles, except that the provisions of this Agreement relating to the Merger shall also be governed by the merger provisions of the DGCL. 7.12 Separability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. 7.13 Extinguishment. This Agreement, including all representations, warranties and covenants, shall be extinguished and be of no further force or effect after the Effective Time, except for Section 4.3.4, which will continue in accordance with its terms. [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] 44 IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized officers of the parties hereto as of the date first herein above written. MEDICALOGIC, INC. By: MARK K. LEAVITT ----------------------------------- Name: Mark K. Leavitt, M.D. Title: CEO MEDSCAPE, INC. By: PAUL T. SHEILS ----------------------------------- Name: Paul T. Sheils Title: CEO MONEYPENNY MERGER CORP. By: DAVID C. MOFFENBEIER ----------------------------------- Name: David C. Moffenbeier Title: President EX-99.1 4 PRESS RELEASE February 22, 2000 FOR IMMEDIATE RELEASE MEDICALOGIC AND MEDSCAPE AGREE TO MERGE; MEDICALOGIC ALSO TO ACQUIRE TOTAL eMED Combination will Create the Premier Online Health Record, News and Information Standard For Medical Professionals and Consumers HILLSBORO, Ore. -- MedicaLogic Inc. (NASDAQ: MDLI) today announced it has agreed to merge with Medscape, Inc. (NASDAQ: MSCP) and to acquire privately held Total eMed, Inc. The new company, to be known initially as MedicaLogic/Medscape, is expected to take healthcare efficiency and the doctor-patient experience to new and unprecedented levels. The transactions bring together MedicaLogic, the nation's leading provider of online health records; Medscape, the premier source of authoritative health, news and medical information on the Internet; and Total eMed, the first provider of Web-based transcription services designed for ambulatory care physicians. MedicaLogic/Medscape will have a first-to-market position with key technology for creating online health records, enabling physicians to create and retrieve information in ways that fit their workflow and personal preferences - including desktop and laptop computers, personal digital assistants, and even telephones - from any location, at any time. Medscape's professional and consumer sites, medscape.com and CBSHealthWatch by Medscape, respectively, will be able to introduce new levels of connectivity to registered members, including access to physician-generated medical records, appointment scheduling, filling of prescriptions, the ability to engage in two-way communication with the physician and his/her office, and other services not available on competing sites. -more- 2 Medscape shareholders will receive 0.323 shares of MedicaLogic common stock for each share of Medscape. Total eMed is to receive 8 million shares of MedicaLogic common stock for all of its outstanding shares and options. The transactions will become effective upon approval by the shareholders of the three companies and the satisfaction of other customary conditions. When approved, the merger and acquisition would give MedicaLogic/Medscape an employee workforce of over 1,000 healthcare and Internet experts in Portland, New York, Nashville, San Francisco, Houston and other locations. The combined company will operate as three business units focusing on their areas of expertise, while delivering coordinated services in the online environment. "Our new company has the potential to significantly improve the healthcare experience for patients and physicians - advancing our shared vision while creating value for partners and shareholders, " said Mark Leavitt, MD, PhD, who will retain the title of CEO as well as becoming chairman of the board of the combined company. "With our complementary products and services, individual strategic partnerships and new financial strength, we will focus our energies at the point of care where patient and physician come together to drive the major decisions in healthcare today." "This merger will allow us to leverage Medscape's vast audience of healthcare professionals and consumers and our extraordinary breadth and scope of content and features," said Paul Sheils, Medscape's CEO, who will become vice chairman of the new company and remain president of Medscape. "We have always believed quality content is a key to success in eHealthcare. With the integration of products and services from MedicaLogic and Total eMed, we will set out to prove our point, to the benefit of physicians, patients, and others in the healthcare community." David Moffenbeier will remain president of the MedicaLogic business division. Richard Rehm, MD, currently the CEO of Total eMed, will take the position of president of the Total eMed division located in Nashville. "With this combination, we will enable the 65% of U.S. physicians using transcription services to connect with MedicaLogic's clinical tools to create online health records," said Rehm. "By serving physicians where they work today, MedicaLogic/Medscape will become the online health record and information standard." -more- 3 Leavitt said that Total eMed adds value to the new company on a number of fronts. It offers the first pure-play, premium, Web-based medical transcription and complementary healthcare information services utilizing digital voice capture, dedicated circuits and the Internet to connect physicians and professional medical transcriptionists through a national data center. Moreover, the transcribed data can be tagged using a structured vocabulary that can be interfaced to the MedicaLogic technology. "Once integrated, the transcribed health record will also be enriched by Medscape data," Leavitt said. "Total eMed provides caregivers the option of dictating their health notes and creating the health records without typing the data themselves." Making the Patient-Physician Relationship Stronger and Safer The new company could also improve medical care by helping to reduce medical errors, according to Medscape editor in chief George D. Lundberg, MD, former editor of JAMA, who will continue his role in the new company. "We know that large numbers of patients die annually in hospitals due to medical errors in the United States," he said. "This loss of life is said to be the equivalent of a jumbo jet crashing each day this year. The combination of MedicaLogic's online health records and Medscape's authoritative content can help to reduce medical errors and make the patient-physician relationship stronger, safer and more efficient." A Number of Strategic Opportunities Leavitt and Sheils cited the following examples among many strategic opportunities for MedicaLogic/Medscape: o The new company will focus on providing products and services in places like the examining room, at the "point of care." By creating the online health record in this setting, communication between patient and physician improves, and errors are reduced. This contrasts with the approach of other companies that focus on the "back-office" reduction of paperwork between the physician's clerical staff and payer. -more- 4 o Medscape's deep penetration of the medical community complements a customer base of nearly 8,000 clinicians now using MedicaLogic products to maintain 8.1 million health records. Medscape's authoritative content and useful features have attracted more than 1.7 million members registered as physicians, allied health professionals and consumers. Medscape also offers specialty sites addressing the needs of office managers, nurses, pharmacists, medical students and others. o The individual Web sites that Medscape creates for physician practices - nearly 9,000 to date - could also gain a significant competitive advantage by incorporating the connectivity features available through MedicaLogic's products and services. MedicaLogic/Medscape can now offer the creation of such web sites to MedicaLogic's 40 major integrated delivery network customers. o MedicaLogic and Medscape also plan to use Medscape's audience and assets to gain exposure among the managed care community, and to invite Medscape's strong base of pharmaceutical advertisers and sponsors to support the series of new online health record products being developed that deliver content specific to a practitioner's specialty or a patient's health interest. Combination Will Allow Companies to Leverage Services and Partnerships Beyond the internal strength of the combined companies, the merger would allow them to leverage their existing strategic partnerships for greater revenue opportunities. Medscape's partnership with CBS Corporation (NYSE:CBS), for example, brings $150 million in advertising and promotion on CBS media properties over seven years, as well as exposure on CBS News through an exchange of editorial content. Medscape also has partnerships with National Data Corporation (NYSE: NDC), America Online (NYSE: AOL) and Women.com (NASDAQ: WOMN), while MedicaLogic has agreements with leading prescription drug, content and delivery providers, including CVS.com (NYSE: CVS), PlanetRx (NASDAQ: PLRX), MD Consult, Dell Computers (NASDAQ: DELL), Lernout & Hauspie (NASDAQ:LHSP) and Envoy, to name a few. -more- 5 MedicaLogic was advised on both transactions by Donaldson Lufkin & Jenrette. Medscape was advised by Lazard Freres. Total eMed was advised by Credit Suisse First Boston. About MedicaLogic MedicaLogic Inc. (NASDAQ: MDLI), the online health record company(TM), brings the Internet to the point of care with e-healthcare products and services for physicians and their patients. These products and services connect patients and physicians in ways that enhance the quality, delivery and cost-effectiveness of healthcare. Building upon physician acceptance of Logician(R) software, the leading EMR at integrated delivery networks nationwide, MedicaLogic delivers Internet services and communications tools enabling physicians to manage their health records and their practice.. Based in Hillsboro Ore, the company also maintains product development offices in San Francisco and Houston. For additional information about MedicaLogic, go to http://www.medicalogic.com. MedicaLogic and Logician are registered trademarks of MedicaLogic, Inc. in the United States. Other MedicaLogic logos, product names, and service names are also trademarks of MedicaLogic, Inc., which may be registered in other countries. Other product and brand names are trademarks of their respective owners. This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on management's current expectations or beliefs as well as on a number of assumptions about future events, and are subject to factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The reader is cautioned not to put undue reliance on forward-looking statements, which are not a guarantee of future performance and are subject to a number of uncertainties and other factors, many outside MedicaLogic's control. About Medscape Medscape, Inc. (NASDAQ: MSCP), the leading provider of authoritative health and medical information on the Internet since 1995, currently operates two primary healthcare Web sites. Medscape.com, www.medscape.com, provides comprehensive, authoritative and timely medical information and interactive programs to physicians, allied healthcare professionals and consumers, and includes the following specialty sites and pages: Medscape Japan, http://www.medscape.com/Home/MedscapeJapan/MedscapeJapan.html, Medscape General Medicine, or MedGenMed, www.medscape.com/journal/MedGenMed, believed to be the first and only peer-reviewed online general medical journal; Medical Office Management, http://MedOffice.medscape.com, Medscape Nursing, http://nursing.medscape.com; Medscape Pharmacology, http://pharmacotherapy.medscape.com, for pharmacists; Medscape Med Students, http://www.medscape.com/medstudent; and Today on Medscape, http://www.medscape.com/today, featuring the latest health and medical news. As of December 31, 1999, Medscape.com had more than 1.7 million registered members worldwide, including over 280,000 registered as physicians, 860,000 registered as allied healthcare professionals and 630,000 registered as consumers. The Company also operates CBSHealthWatch by Medscape, http://cbs.healthwatch.com, the recently launched consumer site designed to help families and individuals make better informed healthcare decisions and to simplify management of their healthcare needs. Developed jointly with CBS Corporation, the site provides personalized, authoritative medical content written for the consumer, access to professional content on Medscape.com and interactive personal health management tools, such as health diaries. CBS and the CBS eye device are registered trademarks of CBS Broadcasting Inc. -more- 6 The statements made in this press release contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve a number of risks and uncertainties. Actual events or results may differ from Medscape's expectations. About Total eMed Total eMed is a privately held Nashville-based medical information management company offering a new approach to physician-driven medical transcription. Total eMed provides premium web-based medical transcription services to over 1000 ambulatory physicians in seven states utilizing digital voice capture, dedicated circuits, and the Internet to connect physicians and professional medical transcriptionists through a national data center. The company's unique clinical application improves medical transcription efficiency and accuracy while capturing the record of the patient-physician encounter in digital format. MedicaLogic and Medscape have scheduled a conference call about this announcement on Tuesday, February 22, 2000 at 8:30 a.m. EST. To access the call, please dial 1-800-720-5830 and use access code 5668830. If you plan to dial in, please call at least 5 minutes before the start. A live Webcast of the call is available through Vcall at www.vcall.com and through Medscape's investor relations site, investor.medscape.com. A recording of the call will be available later in the day and may be accessed by telephone at 1-800-252-6030, access code 5668830, or via the Internet at Medscape's investor site. Media Contacts: Krista Foxwell David Fluhrer Randy Hurlow MedicaLogic Medscape Publicis Dialog 503-531-7180 212-760-3138 206-270-4642 krista.foxwell@medicalogic.com david_fluhrer@mail.medscape.com rhurlow@publicis-usa.com - ------------------------------ ------------------------------- ------------------------
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