AMENDED AND RESTATED AGREEMENT
AND PLAN OF REORGANIZATION
AMONG
PACIFICARE HEALTH SYSTEMS, INC.
N-T HOLDINGS, INC.
NEPTUNE MERGER CORP.
TREE ACQUISITION CORP.
AND
FHP INTERNATIONAL CORPORATION
---------------------
AS OF NOVEMBER 11, 1996
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TABLE OF CONTENTS
PAGE
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ARTICLE 1 DESCRIPTION OF TRANSACTION............................................................. 1
1.1 Mergers................................................................................ 1
1.2 Effect of the Mergers.................................................................. 2
1.3 Closing; Effective Time................................................................ 2
1.4 Certificates of Incorporation and Bylaws; Directors and Officers....................... 2
1.5 Conversion of Shares................................................................... 3
1.6 Closing of the Transfer Books of the Company and PacifiCare............................ 6
1.7 Exchange of Certificates............................................................... 6
1.8 Appraisal Rights....................................................................... 8
1.9 Stock Subject to Conditions............................................................ 8
1.10 Tax Consequences....................................................................... 8
1.11 Accounting Consequences................................................................ 9
1.12 Further Action......................................................................... 9
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................... 9
2.1 Organization; Subsidiaries; Capitalization............................................. 9
2.2 SEC Filings; Financial Statements...................................................... 10
2.3 Absence of Certain Changes or Events................................................... 11
2.4 Tax Matters............................................................................ 11
2.5 Contracts.............................................................................. 12
2.6 Employees.............................................................................. 13
2.7 Litigation and Claims; Compliance with Law............................................. 15
2.8 Properties............................................................................. 15
2.9 Disclosure............................................................................. 15
2.10 Transactions with Affiliates........................................................... 16
2.11 Vote Required.......................................................................... 16
2.12 Takeover Provisions Inapplicable....................................................... 16
2.13 Company Action......................................................................... 16
2.14 Fairness Opinion....................................................................... 16
2.15 Financial Advisor...................................................................... 16
2.16 Enforceability......................................................................... 16
2.17 Governmental Consents; No Conflicts.................................................... 17
2.18 Reserves............................................................................... 17
2.19 Audits or Investigations by Governmental Entities...................................... 18
2.20 Environmental Provisions............................................................... 18
2.21 Intellectual Property.................................................................. 19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PACIFICARE AND HOLDING............................... 19
3.1 Organization; Subsidiaries; Capitalization............................................. 19
3.2 SEC Filings; Financial Statements...................................................... 21
3.3 Absence of Certain Changes or Events................................................... 21
3.4 Tax Matters............................................................................ 21
3.5 Contracts.............................................................................. 22
3.6 Employees.............................................................................. 23
3.7 Litigation and Claims; Compliance with Law............................................. 24
3.8 Properties............................................................................. 24
3.9 Disclosure............................................................................. 24
3.10 Transactions with Affiliates........................................................... 25
3.11 Vote Required.......................................................................... 25
3.12 Takeover Provisions Inapplicable....................................................... 25
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3.13 PacifiCare Action...................................................................... 25
3.14 Actions by Holding, Neptune Sub and Company Sub........................................ 25
3.15 Fairness Opinion....................................................................... 25
3.16 Financial Advisor...................................................................... 25
3.17 Enforceability......................................................................... 26
3.18 Governmental Consents; No Conflicts.................................................... 26
3.19 Common and Preferred Stock To Be Issued................................................ 26
3.20 Reserves............................................................................... 26
3.21 Audits or Investigations by Governmental Entities...................................... 27
3.22 Environmental Provisions............................................................... 27
3.23 Intellectual Property.................................................................. 28
3.24 Formation of Holding................................................................... 28
ARTICLE 4 CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME;
ADDITIONAL AGREEMENTS................................................................. 28
4.1 Information and Access................................................................. 28
4.2 Conduct of Business of the Company..................................................... 29
4.3 Conduct of Business of PacifiCare...................................................... 31
4.4 Negotiation With Others................................................................ 32
4.5 Registration Statement; Prospectus/Proxy Statement..................................... 32
4.6 Stockholders' Meetings................................................................. 33
4.7 Regulatory Approvals................................................................... 34
4.8 Employee Benefits Plans................................................................ 34
4.9 Indemnification........................................................................ 37
4.10 Additional Agreements.................................................................. 38
4.11 Disclosure............................................................................. 39
4.12 Affiliate Agreements................................................................... 39
4.13 Tax Qualification and Opinion Back-Up Certificates..................................... 39
4.14 Financing.............................................................................. 39
4.15 ▇▇▇▇▇▇▇................................................................................ 39
4.16 7% Senior Notes Due 2003............................................................... 40
4.17 Notices of Certain Events.............................................................. 40
4.18 Certain Corporate Matters with Respect to PacifiCare................................... 40
4.19 Compliance with Regulations............................................................ 40
4.20 Assumption by Successor................................................................ 41
4.21 No Activity by Holding................................................................. 41
ARTICLE 5 CONDITIONS PRECEDENT TO OBLIGATIONS OF PACIFICARE AND HOLDING.......................... 41
5.1 Representations and Warranties Accurate................................................ 41
5.2 Compliance With Covenants.............................................................. 41
5.3 No Material Adverse Effect............................................................. 41
5.4 Certificate............................................................................ 41
5.5 Effectiveness of Registration Statement................................................ 41
5.6 Stockholder Approval................................................................... 41
5.7 Affiliates Agreements.................................................................. 41
5.8 Legal Opinion.......................................................................... 42
5.9 Tax Opinion............................................................................ 42
5.10 Absence of Restraint................................................................... 42
5.11 No Governmental Litigation............................................................. 42
5.12 No Other Litigation.................................................................... 42
5.13 HSR Act................................................................................ 42
5.14 Quotation on Nasdaq National Market or New York Stock Exchange......................... 42
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5.15 Other Required Consents and Approvals.................................................. 42
5.16 TakeCare Board Representation.......................................................... 42
5.17 Restated Rights Plan................................................................... 43
5.18 ▇▇▇▇▇▇▇................................................................................ 43
ARTICLE 6 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS...................................... 43
6.1 Representations and Warranties Accurate................................................ 43
6.2 Compliance With Covenants.............................................................. 43
6.3 No Material Adverse Effect............................................................. 43
6.4 Certificate............................................................................ 43
6.5 Effectiveness of Registration Statement................................................ 43
6.6 Stockholder Approval................................................................... 43
6.7 Legal Opinion.......................................................................... 43
6.8 Tax Opinion............................................................................ 43
6.9 Absence of Restraint................................................................... 44
6.10 No Governmental Litigation............................................................. 44
6.11 HSR Act................................................................................ 44
6.12 Quotation on Nasdaq National Market or New York Stock Exchange......................... 44
ARTICLE 7 TERMINATION OF AGREEMENT............................................................... 44
7.1 Termination............................................................................ 44
7.2 Effect of Termination.................................................................. 45
7.3 Fees and Expenses...................................................................... 45
ARTICLE 8 MISCELLANEOUS.......................................................................... 46
8.1 Amendment.............................................................................. 46
8.2 Waiver................................................................................. 47
8.3 No Survival of Representations and Warranties.......................................... 47
8.4 Entire Agreement; Counterparts; Applicable Law......................................... 47
8.5 Attorneys' Fees........................................................................ 47
8.6 Assignability.......................................................................... 47
8.7 Notices................................................................................ 47
8.8 Cooperation............................................................................ 50
8.9 Certain Terms.......................................................................... 50
8.10 Titles................................................................................. 50
8.11 Articles, Sections and Exhibits........................................................ 50
8.12 Jurisdiction........................................................................... 50
8.13 Counterparts; Effectiveness............................................................ 50
8.14 Schedules.............................................................................. 50
EXHIBITS
Exhibit 1.4 Holding Restated Certificate of Incorporation
Exhibit 4.12 Affiliate Agreements*
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* Not included as part of this Appendix A.
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into as of November 11, 1996, by and among: N-T
HOLDINGS, INC., a Delaware corporation ("Holding"), PACIFICARE HEALTH SYSTEMS,
INC., a Delaware corporation ("PacifiCare"); NEPTUNE MERGER CORP., a Delaware
corporation and a wholly-owned subsidiary of Holding ("Neptune Sub"); FHP
INTERNATIONAL CORPORATION, a Delaware corporation (the "Company"), and TREE
ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of
Holding ("Company Sub") who hereby amend and entirely restate the Agreement and
Plan of Reorganization among the same parties dated as of August 4, 1996 (the
"Original Agreement") as amended and restated on September 17, 1996 (the "First
Amended Reorganization Agreement").
RECITALS
A. The parties intend concurrently to effect a merger of Neptune Sub into
PacifiCare (the "PacifiCare Merger") and a merger of Company Sub into Company
(the "Company Merger"), each such merger to be carried out in accordance with
this Agreement and the laws of the State of Delaware (the "Mergers"), such that
PacifiCare and Company become wholly-owned subsidiaries of Holding and the
shareholders of PacifiCare and Company become shareholders of Holding. After the
Closing, Holding will act as a holding company for PacifiCare and the Company.
B. This Agreement has been approved by the respective Boards of Directors
of Holding, PacifiCare, Neptune Sub, Company and Company Sub.
C. For United States federal income tax purposes, it is intended that the
transactions contemplated by this Agreement qualify as transfers subject to
Section 351(a) of the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder (the "Code") and that the shareholders of
the Company be treated as if they transferred their stock in Company to Holding
in exchange for the Company merger consideration and that the shareholders of
PacifiCare be treated as if they transferred their stock in PacifiCare to
Holding in exchange for the PacifiCare merger consideration.
D. On August 4, 1996 PacifiCare had issued and outstanding approximately
12,370,758 shares of Class A Common Stock, $0.01 par value ("PacifiCare Class A
Common Stock") and 18,812,799 shares of Class B Common Stock, $0.01 par value
("PacifiCare Class B Common Stock"). On August 4, 1996 the Company had issued
and outstanding approximately 40,806,165 shares of Common Stock, $0.05 par value
("Company Common Stock") and approximately 21,030,345 shares of Series A
Cumulative Convertible Preferred Stock, $0.05 par value ("Company Series A
Preferred Stock").
E. Contemporaneously with the execution and delivery of the Original
Agreement, certain stockholders of PacifiCare and of the Company executed Voting
and Non-Disposition Agreements.
AGREEMENT
Holding, PacifiCare, Neptune Sub, the Company, and Company Sub hereby agree
as follows:
ARTICLE 1
DESCRIPTION OF TRANSACTION
1.1 MERGERS. Upon the terms and subject to the conditions set forth in
this Agreement, at the Effective Time (as defined in Section 1.3), Company Sub
shall be merged into the Company and the separate existence of the Company Sub
shall cease. The Company will be the surviving corporation in the Company Merger
(the "Company Surviving Corporation") and its separate corporate existence, with
all its purposes, objects, rights, privileges, powers and franchises shall
continue unaffected by
1
such merger. Upon the terms and subject to the conditions set forth in this
Agreement, at the Effective Time, Neptune Sub shall be merged into PacifiCare
and the separate existence of Neptune Sub shall cease. PacifiCare shall be the
surviving corporation in PacifiCare Merger ("PacifiCare Surviving Corporation")
and its separate corporate existence, with all its purposes, objects, rights,
privileges, powers and franchises shall continue unaffected by such merger.
Company Sub and Neptune Sub have been formed solely for the purpose of effecting
the Company Merger and the PacifiCare Merger, respectively, and there will be no
other activity in Company Sub and Neptune Sub.
1.2 EFFECT OF THE MERGERS. The Mergers shall have the effects set forth in
this Agreement and in Section 259 of the Delaware General Corporation Law (the
"DGCL").
1.3 CLOSING; EFFECTIVE TIME. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of PacifiCare on the second business day following the date as of which each of
the conditions set forth in Articles 5 and 6 has been fulfilled or waived or on
such other date or at such other place as may be jointly designated by
PacifiCare and the Company (the "Closing Date"). As soon as practicable after
the Closing, properly executed certificates of merger for each Merger conforming
to the requirements of the DGCL and changing the name of Holding to "PacifiCare
Health Systems, Inc." and the name of PacifiCare to "PacifiCare Operations,
Inc." or some other name chosen by PacifiCare, shall be filed with the Delaware
Secretary of State. The Mergers shall become effective at the time said
certificates of merger are filed with the Delaware Secretary of State or at such
later time as may be specified in said certificates of merger (the "Effective
Time").
1.4 CERTIFICATES OF INCORPORATION AND BYLAWS; DIRECTORS AND OFFICERS.
(a) The Certificates of Incorporation of PacifiCare and Company shall be
the Certificates of Incorporation of PacifiCare Surviving Corporation and the
Company Surviving Corporation, respectively, as of the Effective Time.
(b) The Bylaws of PacifiCare and the Company, as in effect immediately
prior to the Effective Time, shall become the Bylaws of PacifiCare Surviving
Corporation and the Company Surviving Corporation, respectively, at the
Effective Time.
(c) The directors of the Company shall resign or be removed concurrently
with the Effective Time.
(d) PacifiCare shall cause Holding to take all necessary corporate action
to amend the Certificate of Incorporation and Bylaws of Holding prior to the
Effective Time to be in substantially the form of the Amended and Restated
Certificate of Incorporation attached hereto as Exhibit 1.4 (the "Holding
Restated Certificate of Incorporation") and the Bylaws of PacifiCare in effect
on the date hereof; PROVIDED, HOWEVER, that if the Series A Required Vote (as
defined in Section 2.11) is not received for the Series A Amendment (as defined
in Section 2.11), PacifiCare shall cause Holding to take all necessary corporate
action to file a Certificate of Designation creating a Series A-1 Preferred
Stock with rights, preferences, privileges and restrictions identical in all
substantial respects to those of the Company Series A Preferred Stock; and,
PROVIDED FURTHER, that the indemnification provisions of the Bylaws of Holding
may be amended to provide additional indemnification rights to the Directors
and/or Officers of Holding. PacifiCare shall cause the Board of Directors of
Holding after the Effective Time to consist of at least ten persons, of which
two individuals shall be designated by the Board of Directors of the Company and
be reasonably satisfactory to the Board of Directors of PacifiCare. The
designation of such new directors by the Board of Directors of the Company, and
the approval of such new directors by the Board of Directors of PacifiCare shall
each occur prior to the Effective Time. Such new directors shall be appointed to
different classes, and they shall commence to serve within 60 days of the
Effective Time and remain as directors until their successors have been duly
elected or until their earlier death, removal or resignation, provided that they
shall be renominated as required to be able to serve a minimum of three years.
If, prior to the end of such period, either of such directors becomes
2
unable to serve as director, or is no longer qualified to serve as a director,
the remaining director (or his successor) shall select a replacement nominee
(which nominee shall be satisfactory to the Board of Directors of Holding) to be
appointed to serve the remaining term.
1.5 CONVERSION OF SHARES.
(a) At the Effective Time, by virtue of the Company Merger (and without any
action on the part of any stockholder of the Company):
(i) any shares of Company Common Stock or Company Series A Preferred
Stock then held by the Company or any subsidiary of the Company (or held in
the Company's treasury) shall be canceled;
(ii) any shares of Company Common Stock or Company Series A Preferred
Stock then held by PacifiCare, Neptune Sub or any other subsidiary of
PacifiCare shall be canceled;
(iii) except as provided in clauses (i) and (ii) above or as provided in
Section 1.8 with respect to shares as to which appraisal rights have been
exercised and subject to Section 1.5(c) below, each share of Company Common
Stock outstanding immediately prior to the Effective Time shall be converted
into the right to receive:
(A) an amount of Cash equal to $17.50 (the "Common Cash
Consideration"), plus
(B) the Final Class A/Common Share Ratio (as defined in Section
1.5(a)(vi)(D) below) of a share of Holding's Class A Common Stock, $.01
par value, as provided in the Holding Restated Certificate of
Incorporation ("Holding Class A Common Stock"), plus
(C) the Final Class B/Common Share Ratio (as defined in Section
1.5(a)(vi)(E) below) of a share of Holding's Class B Common Stock, $.01
par value, as provided in the Holding Restated Certificate of
Incorporation ("Holding Class B Common Stock");
(D) ▇▇▇▇▇▇▇ Rights as specified in Section 1.5(a)(v) below.
(iv) except as provided in clauses (i) and (ii) above and subject to
Section 1.5(c), each share of Company Series A Preferred Stock outstanding
immediately prior to the Effective Time shall be converted into ▇▇▇▇▇▇▇
Rights as specified in Section 1.5(a)(v) below and the other consideration
specified in this clause (iv).
If the Series A Required Vote is received for the Series A Amendment, each
share of Series A Preferred Stock shall, in addition to the consideration
described in the first sentence of this Section 1.5(a)(iv), be converted
into (A) an amount of cash equal to $14.113 (the "Series A Cash
Consideration"); and (B) and one-half ( 1/2) share of Holding Series A (as
defined in Section 1.7(a)).
If the Series A Required Vote is not received for the Series A Amendment,
then, in accordance with the Company's Certificate of Incorporation, the
Company shall, on the date of the Effective Time (or as soon thereafter as
practicable and in any event within 5 days thereof), give notice (the
"Conversion Notice") in accordance with the Company's Certificate of
Designation with respect to the Company Series A Preferred Stock (the
"Certificate of Designation") to all holders of Company Series A Preferred
Stock (other than holders making an Irrevocable Election with respect to all
of their Company Series A Preferred Stock as described in the next
paragraph) that a "Change of Control" (as defined in the Certificate of
Designation) has occurred on the date of the Effective Time and that such
holders may exercise certain "Special Conversion Rights," as defined in the
Certificate of Designation, by delivery of written notice of exercise of
such rights, together with certificates representing the Company Series A
Preferred Stock with respect to which such rights are being exercised, duly
endorsed for transfer, until the expiration of 55 days from the date of the
Conversion Notice. Such Conversion Notice shall also include such other
information as may be required by the Certificate of Designation. In
accordance with the Certificate of Designation, each holder of Company
Series A Preferred Stock receiving the Conversion Notice shall be entitled,
upon exercise of such Special Conversion Rights, to convert each share of
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Company Series A Preferred Stock as to which an Irrevocable Election has not
validly been made into either (A) the consideration to be received by a
holder of a single share of Company Common Stock pursuant to Section
1.5(a)(iii) times a fraction, the numerator of which is $25.00 and the
denominator of which is equal to the closing price of the Company Common
Stock on the last business day prior to the date the Company gives the
Conversion Notice to the holders of the Company Series A Preferred Stock or
(B) $25.00 cash plus any accrued but unpaid dividends on such share;
PROVIDED, HOWEVER, that if any holder elects the option specified in clause
(A) above, Holding (directly or through the Company Surviving Corporation)
may, at its option, elect to pay such holder $25.00 cash plus any accrued
but unpaid dividends on such share instead of the consideration set forth in
said clause (A). The Conversion Notice shall also provide that the holders
of Company Series A Preferred Stock may elect to waive their Special
Conversion Rights and elect to receive the same consideration in the Company
Merger that such holder would have received if such holder had converted
such holder's shares of Company Series A Preferred Stock into Company Common
Stock pursuant to such holder's regular conversion rights immediately prior
to the Effective Time ("As-If-Converted Company Merger Consideration"). If
any holder of Company Series A Preferred Stock entitled to receive a
Conversion Notice fails to exercise such holder's Special Conversion Rights
or to waive such rights and elect to receive As-If-Converted Company Merger
Consideration within the time period specified in this Section 1.5(a)(iv)
and the Certificate of Designation, such holder shall thereafter with
respect to all shares of Company Series A Preferred Stock as to which a
valid Irrevocable Election has not been made have only the right to
surrender such shares in accordance with the provisions of Section 1.7 and
to receive for each share the As-If-Converted Company Merger Consideration.
Each holder of Company Series A Preferred Stock shall be given the right,
exercisable prior to the date of the Company Stockholder Meeting, to make an
irrevocable election (the "Irrevocable Election") to waive such holder's
Special Conversion Rights and such holder's right to receive As-If-Converted
Company Merger Consideration in accordance with the foregoing paragraph and
the Certificate of Designation and to instead receive, in lieu thereof, for
each share of Company Series A Preferred Stock as to which the Irrevocable
Election is made (A) the Series A Cash Consideration and (B) one-half ( 1/2)
share of Holding Series A (as defined in Section 1.7(a)). The Irrevocable
Election shall be effected by returning a Form of Irrevocable Election,
properly executed, together with stock certificates representing the Company
Series A Preferred held by the holder as to which the Irrevocable Election
is made (or a properly completed guarantee of delivery) to the Company's
transfer agent prior to the date of the Company Meeting. By making an
Irrevocable Election, the holder will irrevocably waive such holder's right
with respect to all shares as to which the Irrevocable Election is made to
(A) exercise Special Conversion Rights (as provided in the Certificate of
Designation); (B) exercise such holder's right to receive As-If-Converted
Company Merger Consideration; (C) exercise such holder's right to convert
such Company Series A Preferred Stock to Company Common Stock or; (D) gift,
sell, hypothecate or in any other manner transfer such Company Series A
Preferred Stock to any person who does not expressly accept such stock
subject to such Irrevocable Election and agree to be bound thereby; PROVIDED
that the restrictions imposed by such Irrevocable Election shall lapse if
this Agreement shall terminate in accordance with its terms prior to the
Effective Time.
If the Series A Required Vote is not received for the Series A Amendment,
then each share of Series A Preferred Stock as to which a valid Irrevocable
Election has been made shall, in addition to the consideration described in
the first sentence of this Section 1.5(a)(iv), be converted into the Series
A Cash Consideration and one-half ( 1/2) share of Holding Series A.
(v) Subject to Section 1.8 and subject to completion of the transactions
contemplated by Section 4.15, at the Effective Time, by virtue of the
Company Merger (and without any action on the part of any stockholder of the
Company) each share of Company Common Stock and Company Series A Preferred
Stock outstanding immediately prior to the Effective Time shall be converted
in part into rights to purchase directly or indirectly through one or more
other corporations
4
formed to facilitate such purchase, all of the Company's interest in ▇▇▇▇▇▇▇
Medical Management Corporation and ▇▇▇▇▇▇▇ Health Services Corporation
(collectively, "▇▇▇▇▇▇▇") pro rata based on the number of then outstanding
shares of Company Common Stock and the number of shares of Company Common
Stock into which outstanding shares of Company Series A Preferred Stock are
convertible immediately prior to the Effective Time.
(vi) for purposes of this Agreement:
(A) the "Average Pre-Vote Closing Share Price" for the PacifiCare
Class B Common Stock shall be the average closing price as quoted in the
Wall Street Journal of PacifiCare's Class B Common Stock ("PacifiCare
Class B Common Stock") during the twenty trading days ending on the
trading date immediately prior to the date of the stockholder meeting at
which the Company's stockholders vote on whether to approve the Company
Merger,
(B) the "Initial Exchange Ratio" shall be .258,
(C) the "Closing Price/Signing Price Ratio" shall be the Average
Pre-Vote Closing Share Price for PacifiCare Class B Common Stock divided
by $68.00,
(D) the "Final Class A/Common Share Ratio" shall be 2,350,000
divided by the Common Outstanding Number (as defined in Section
1.5(a)(vi)(G)), calculated to the nearest .001,
(E) the "Final Class B/Common Share Ratio" shall be the Final
Exchange Ratio minus the Final Class A/Common Share Ratio,
(F) the "Final Exchange Ratio" shall be the product of the Initial
Exchange Ratio times the following multiplier, calculated to the nearest
.001:
CLOSING PRICE/SIGNING PRICE
MULTIPLIER RATIO
------------------------------------------------- ------------------------------
0.8875 above 1.30
One minus ( 1/2 times (the Closing
Price/Signing Price Ratio less 1.075)) 1.075- 1.30
1 .925- 1.075
One plus ( 1/2 times (0.925 less the Closing
Price/Signing Price Ratio)) .70- .925
1.1125 less than .70
(G) The "Common Outstanding Number" shall be the number of shares of
Company Common Stock issued and outstanding immediately before the
Effective Time plus the number of shares of Company Common Stock subject
to Company Options (as defined below), if any, which at the Effective
Time have the right to receive, upon exercise, the consideration set
forth in Section 1.5(a)(iii) after the Effective Time; PROVIDED, HOWEVER,
that if the Series A Required Vote is not received for the Series A
Amendment, then the "Common Outstanding Number" shall also include the
number of shares of Company Common Stock into which the Company Series A
Preferred Stock outstanding immediately prior to the Effective Time could
be converted, excluding those shares as to which a valid Irrevocable
Election has been made.
(vii) each share of the Common Stock, par value $.01 per share, of
Company Sub outstanding shall be converted into an equal number of shares of
Company Common Stock.
(b) At the Effective Time, by virtue of the PacifiCare Merger (and without
any action on the part of any stockholder of PacifiCare):
(i) any shares of PacifiCare Class A Common Stock or PacifiCare Class B
Common Stock (PacifiCare Class A Common Stock and PacifiCare Class B Common
Stock being sometimes
5
collectively referred to herein as "PacifiCare Common Stock") then held by
PacifiCare or any subsidiary of PacifiCare (or held in PacifiCare's
treasury) shall be canceled and no payment shall be made with respect
thereto;
(ii) any shares of PacifiCare Common Stock then held by the Company,
Company Sub or any other subsidiary of the Company shall be canceled;
(iii) except as provided in clauses (i) and (ii) above and subject to
Section 1.5(c) below, each share of PacifiCare Class A Common Stock then
outstanding shall be converted into the right to receive one share of
Holding Class A Common Stock and each share of PacifiCare Class B Common
Stock then outstanding shall be converted into the right to receive one
share of Holding Class B Common Stock (Holding Class A Common Stock and
Holding Class B Common Stock being sometimes collectively referred to herein
as "Holding Common Stock");
(iv) each share of Common Stock, par value $.001 per share, of Neptune
Sub then outstanding shall be converted into one share of PacifiCare Class A
Common Stock; and
(v) each share of the capital stock of Holding existing immediately
prior to the Effective Time shall be canceled.
(c) If, between the date of this Agreement and the Effective Time, the
outstanding shares of Company Common Stock or Company Series A Preferred Stock
or PacifiCare Class A Common Stock or PacifiCare Class B Common Stock are
changed into a different number or class of shares by reason of any stock
dividend, subdivision, reclassification, recapitalization, split-up, combination
or similar transaction, the exchange ratio applicable thereto shall be
appropriately adjusted.
1.6 CLOSING OF THE TRANSFER BOOKS OF THE COMPANY AND PACIFICARE. At the
Effective Time, holders of certificates representing shares of Company Common
Stock, Company Series A Preferred Stock, PacifiCare Class A Common Stock and
PacifiCare Class B Common Stock shall cease to have any rights as stockholders
of the Company or PacifiCare, respectively, and the stock transfer books of the
Company and PacifiCare shall be closed with respect to all shares of Company
Common Stock, Company Series A Preferred Stock, PacifiCare Class A Common Stock
and PacifiCare Class B Common Stock outstanding immediately prior to the
Effective Time. No further transfer of any such shares of Company Common Stock,
Company Series A Preferred Stock, PacifiCare Class A Common Stock or PacifiCare
Class B Common Stock shall thereafter be made on such stock transfer books. If,
after the Effective Time, a valid certificate previously representing any of
such shares of Company Common Stock, Company Series A Preferred Stock,
PacifiCare Class A Common Stock or PacifiCare Class B Common Stock (an "Old
Stock Certificate") is presented to the Exchange Agent (as defined in Section
1.7) or to the Company or PacifiCare, as applicable, such Old Stock Certificate
shall be canceled and exchanged as provided in Section 1.7.
1.7 EXCHANGE OF CERTIFICATES.
(a) If the Series A Required Vote is received for the Series A Amendment or
if any holder makes an Irrevocable Election, the Holding Restated Certificate of
Incorporation shall establish the terms of Holding's preferred stock, including
the Series A Preferred Stock (the "Holding Series A"). Such Holding Restated
Certificate of Incorporation shall be substantially in the form of Exhibit 1.4
hereto and shall be filed with the Secretary of State of the State of Delaware
prior to the Effective Time. The Holding Series A shall be convertible into
Holding Class B Common Stock upon the terms and conditions, and shall have the
rights, preferences and privileges, set forth in Exhibit 1.4.
(b) Prior to the Closing Date, PacifiCare shall select a reputable bank or
trust company to act as exchange agent in the Merger (the "Exchange Agent").
Promptly after the Effective Time, (i) Holding shall deposit with the Exchange
Agent certificates representing the shares of Holding Class A Common Stock,
Holding Class B Common Stock and Holding Series A, if any, issuable pursuant to
Section 1.5 and (ii) Holding shall deposit cash sufficient to make the payments
called for in Section 1.5 and payments in lieu of fractional shares in
accordance with Section 1.7(e). The shares of Holding Class A
6
Common Stock, Holding Class B Common Stock and Holding Series A, if any, and
cash amounts so deposited with the Exchange Agent, together with any dividends
or distributions received by the Exchange Agent with respect to such shares, are
referred to collectively as the "Exchange Fund."
(c) As soon as practicable after the Effective Time, the Exchange Agent
will mail to the holders of Old Stock Certificates (i) a letter of transmittal
in customary form and containing such provisions as Holding or PacifiCare may
reasonably specify and (ii) instructions for use in effecting the surrender of
Old Stock Certificates in exchange for the consideration set forth in Section
1.5. If the Series A Required Vote is not received for the Series A Amendment,
the Exchange Agent may (i) delay mailing the letter of transmittal for holders
of Company Series A Preferred Stock who have not made a valid Irrevocable
Election until after expiration of the period during which Special Conversion
Rights may be exercised or (ii) include the letter of transmittal with the
Conversion Notice. Upon surrender of an Old Stock Certificate to the Exchange
Agent for exchange, together with a duly executed letter of transmittal and such
other documents as may be reasonably required by the Exchange Agent, the holder
of such Old Stock Certificate shall be entitled to receive in exchange therefor
(i) in the case of holders of Company Common Stock, (A) a check in the amount
calculated pursuant to this Article 1 (subject to required tax withholding) and
(B) certificates representing the number of whole shares of Holding Class A
Common Stock and Holding Class B Common Stock that such holder has the right to
receive pursuant to the provisions of this Article 1; (ii) in the case of
holders of Company Series A Preferred Stock if the Series A Required Vote is
received for the Series A Amendment and as to holders who have made a valid
Irrevocable Election with respect to the shares represented by such Old Stock
Certificate. (A) a check in the amount calculated pursuant to this Article 1
(subject to required tax withholding), and (B) a certificate representing the
whole number of shares of Holding Series A that such holder has the right to
receive pursuant to the provisions of this Article 1; (iii) in the case of
holders of Company Series A Preferred Stock if the Series A Required Vote for
the Series A Amendment is not received and a valid Irrevocable Election has not
been made with respect to such Company Series A Preferred Stock, (A) if Special
Conversion Rights are exercised, the consideration which such holder is entitled
to receive upon exercise thereof (subject to required tax withholding) or (B)
the As-If-Converted Company Merger Consideration (subject to required tax
withholding); and (iv) in the case of holders of PacifiCare Class A Common Stock
and PacifiCare Class B Common Stock, certificates representing the number of
whole shares of Holding Series A and Holding Series B Common Stock that such
holder has the right to receive pursuant to the provisions of Section 1.5. In
each case, the Old Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 1.7 or by Section 1.5(a)(iv), each
Old Stock Certificate shall be deemed, from and after the Effective Time to
represent only the right to receive upon such surrender the consideration
contemplated by Section 1.5.
(d) No dividends or other distributions declared or made with respect to
Holding Class A Common Stock, Holding Class B Common Stock or, if applicable,
Holding Series A, with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Old Stock Certificate with respect to the shares
of Holding Class A Common Stock, Holding Class B Common Stock and Holding Series
A represented thereby, and no cash payment shall be paid to any such holder,
until such holder surrenders such Old Stock Certificate in accordance with this
Section 1.7 (at which time such holder shall be entitled to receive all such
dividends and distributions and such cash payment).
(e) No certificates or scrip for fractional shares of Holding Class A
Common Stock, Holding Class B Common Stock or, if applicable, Holding Series A
shall be issued, but in lieu thereof, each holder of shares of Company Common
Stock or Company Series A Preferred Stock who would otherwise be entitled to
receive a certificate or scrip for a fraction of a share of Holding Class A
Common Stock, Holding Class B Common Stock or Holding Series A shall receive
from Holding a cash amount equal to the market value of one share of Holding
Class A Common Stock, Holding Class B Common Stock or Holding Series A, as the
case may be, (based on the closing sales price of one share of Holding Class A
Common Stock, Holding Class B Common Stock or Holding Series A as quoted on the
Nasdaq National Market or the New York Stock Exchange ("NYSE"), as the case may
be, on the first
7
trading day after the Mergers become effective) multiplied by the fraction of a
share of Holding Class A Common Stock, Holding Class B Common Stock or Holding
Series A to which such holder would otherwise be entitled.
(f) Any portion of the Exchange Fund that remains undistributed to former
stockholders of the Company or PacifiCare as of the date 365 days after the date
on which the Mergers become effective shall be delivered to Holding upon demand,
and any former stockholders of the Company or PacifiCare who have not
theretofore surrendered their Old Stock Certificates in accordance with this
Section 1.7 shall thereafter look only to Holding for payment of their claims
for cash, Holding Class A Common Stock, Holding Class B Common Stock, Holding
Series A and any dividends or distributions with respect thereto.
(g) Neither PacifiCare nor the Company shall be liable to any holder or
former holder of shares of Company Common Stock, PacifiCare Common Stock or
Company Series A Preferred Stock with respect to any shares (or dividends or
distributions with respect thereto) or cash amounts from the Exchange Fund
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
1.8 APPRAISAL RIGHTS. Notwithstanding Section 1.5 above, shares of stock
of the Company or PacifiCare outstanding immediately prior to the Effective Time
and held by a holder who has not voted in favor of the Company Merger or the
PacifiCare Merger, as applicable, and who has exercised appraisal rights in
respect of such shares of the Company or PacifiCare in accordance with the DGCL,
shall not be converted into a right to receive shares or cash or other
consideration otherwise available to such holder (including without limitation
the ▇▇▇▇▇▇▇ Rights) unless such holder fails to perfect or withdraws or
otherwise loses his appraisal rights prior to the Effective Time. Shares of
Company's and PacifiCare's stock in respect of which appraisal rights have been
exercised shall be treated in accordance with Section 262 of the DGCL. If after
the Effective Time such holder fails to perfect or withdraws or otherwise loses
his right to demand payment of the fair value of his shares under the DGCL, such
shares shall be treated as if they had been converted as of the Effective Time
into a right to receive the shares and consideration such holder would have
received if such holder had not exercised his appraisal rights; provided,
however, that, such shares shall not be entitled to a distribution of any
▇▇▇▇▇▇▇ Rights as provided in Section 4.15, but shall be entitled to receive in
cash the amount equal to the average closing price at which such rights trade on
their first five trading days. The Company shall give PacifiCare prompt notice
of any demands received by the Company for the exercise of appraisal rights with
respect to shares of the Company's Common Stock or the Company's Series A
Preferred Stock and PacifiCare shall have the right to participate in all
negotiation and proceedings with respect to such demands. The Company shall not,
except with the prior written consent of PacifiCare, make any payment with
respect to, or settle or offer to settle, any such demands.
1.9 STOCK SUBJECT TO CONDITIONS. If any shares of Company Common Stock or
PacifiCare Common Stock outstanding immediately prior to the Effective Time are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable stock purchase agreement, restriction agreement
or other agreement with the Company or PacifiCare, then (unless such condition
terminates by virtue of the applicable Merger pursuant to the express terms of
such agreement) the shares of Holding Common Stock issued in exchange for such
shares of Company Common Stock or PacifiCare Common Stock, as the case may be,
will also be unvested or subject to the same repurchase option, risk of
forfeiture or other condition, and the certificates evidencing such shares of
Holding Common Stock may accordingly be marked with appropriate legends.
1.10 TAX CONSEQUENCES. For federal income tax purposes, the Mergers are
intended to constitute contributions of property in exchange for stock within
the meaning of Section 351(a) of the Code. Neither the Company nor PacifiCare
shall take a position inconsistent with this Section 1.10 on any tax return.
8
1.11 ACCOUNTING CONSEQUENCES. For accounting purposes, the Company Merger
is intended to be treated as a "purchase."
1.12 FURTHER ACTION. If at any time after the Effective Time any further
action is determined by Holding to be necessary or desirable to carry out the
purposes of this Agreement or to vest the Company Surviving Corporation or
PacifiCare Surviving Corporation with the full right, title and possession of
and to all assets, property, rights, privileges, immunities, powers and
franchises of Company Sub and the Company or of Neptune Sub and PacifiCare,
respectively, the officers and directors of the applicable Surviving Corporation
shall be fully authorized (in the name of Company Sub, in the name of the
Company, in the name of Neptune Sub, or in the name of PacifiCare and otherwise)
to take such action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule delivered to PacifiCare on
the date of the Original Agreement and signed by the President of the Company
(the "Company Disclosure Schedule"), the Company represents and warrants to
PacifiCare and Holding, as of the date of the Original Agreement (except to the
extent set forth in Section 5.1(b)) as follows:
2.1 ORGANIZATION; SUBSIDIARIES; CAPITALIZATION.
(a) The Company is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware. The Company has all necessary
power and authority under applicable corporate law and its organizational
documents to own or lease its properties and to carry on its business as
presently conducted. As of the date of the Original Agreement, the Company
Disclosure Schedule sets forth a list of all of the Company's subsidiaries. For
purposes of this Agreement, a company's "subsidiaries" shall include all
corporations, limited partnerships, joint ventures and other entities in which
such company, directly or indirectly, owns a majority interest.
(b) Each of the Company and its subsidiaries, to the extent conducting
business as a health maintenance organization ("HMO"), insurance company,
third-party administrator or otherwise requiring any form of governmental
licensure, qualification or authorization, is duly licensed, qualified or
authorized and in good standing under the applicable laws and regulations,
respectively, of each state or territory in which the conduct of such business
requires such licensure, qualification or authorization, except where failure
would not have a material adverse effect on the Company or its material
subsidiaries as set forth in Schedule 2.1(b) (the "Company's Material
Subsidiaries"). The conduct of the Company's and its subsidiaries' respective
business is in conformity with all applicable foreign, federal, state or
territorial, local and other governmental and regulatory requirements and the
forms, procedures and practices of the Company and its subsidiaries in the
conduct of their respective business are also in compliance with all such
requirements, to the extent applicable, except where nonconformity or
noncompliance would not constitute a Material Adverse Effect on the Company. For
purposes of this Agreement, "Material Adverse Effect," as it applies to the
Company, means a material adverse effect on the business, operations, financial
condition or assets of the Company and its subsidiaries, taken as a whole, other
than as a result of the performance by the Company of its obligations, or the
exercise by Holding, PacifiCare and Neptune Sub of their rights, under this
Agreement.
(c) As of the date of the Original Agreement, the authorized capital stock
of the Company consisted of: 100,000,000 shares of Company Common Stock, par
value $0.05 per share, of which, as of the date of the Original Agreement,
40,806,165 shares were issued and outstanding; and 40,000,000 shares of
preferred stock, par value $0.05 per share, of which, as of the date of the
Original Agreement, 21,030,345 shares of Company Series A Preferred Stock were
issued and outstanding. All the issued and outstanding shares of Company Common
Stock and Company Series A Preferred Stock are validly issued, fully paid and
nonassessable and free of preemptive rights. As of the date of the Original
Agreement, the Company had issued outstanding options to purchase a total of
3,917,259 shares of
9
Company Common Stock (the "Company Options") pursuant to Company's stock option
plans and agreements. The Company has provided PacifiCare a schedule (the
"Option and Restricted Stock Schedule") which sets forth (i) with respect to the
Company Options, the name of each optionee, the number of shares of Company
Common Stock subject to each Company Option, the date of grant and exercise
price and the vesting schedule of each Company Option, (ii) each option plan and
agreement under which the Company Options have been granted, and the Company has
delivered to PacifiCare complete and accurate copies of all such plans, and
(iii) the name of each holder of restricted stock, the date of sale and issuance
of such restricted stock to each such holder, and the applicable restrictions on
such restricted stock. The Company has an Amended and Restated Rights Agreement
dated as of March 28,1994 between Company and American Stock Transfer & Trust
Co., as agent (the "Restated Rights Agreement") under which certain shareholder
rights have been granted. The execution of Voting and Non-Disposition Agreements
by certain stockholders of the Company has not and will not give rise to any
rights or benefits under the Restated Rights Plan. Except as set forth above or
on the Company Disclosure Schedule, as of the date of the Original Agreement,
(i) there were no shares of capital stock of the Company authorized, issued or
outstanding, (ii) there were no outstanding subscriptions, options, warrants,
stock appreciation right plans, calls, rights, convertible securities,
stockholder rights plans (or similar plans commonly referred to as "poison
pills") or other agreements or commitments of any character relating to issued
or unissued capital stock or other securities of the Company or any of its
subsidiaries, or obligating the Company or any other party to issue, transfer or
sell any shares of the capital stock or other securities of the Company or any
of its subsidiaries, and (iii) there were no other outstanding securities
convertible into, exchangeable for or evidencing the right to subscribe for any
shares of the capital stock or other securities of the Company or any of its
subsidiaries or any successor corporation or controlling person of such
successor corporation. The Company is not under any obligation to register under
the Securities Act any of its presently outstanding securities or any securities
that may be subsequently issued.
(d) Each subsidiary of the Company is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all necessary power and authority under applicable
corporate law to own and lease its properties and to carry on its business as
presently conducted. All of the outstanding shares of capital stock of each
subsidiary of the Company are validly issued, fully paid and nonassessable and
are owned beneficially and of record by the Company or another subsidiary of the
Company, free and clear of any liens, claims or encumbrances.
(e) Complete and accurate copies of the Certificate of Incorporation and
Bylaws (or other or comparable charter documents), each as amended to date, of
the Company and each of its subsidiaries are filed as exhibits to the Company
SEC Reports or have been delivered to PacifiCare.
2.2 SEC FILINGS; FINANCIAL STATEMENTS.
(a) The Company has made available to PacifiCare a complete and accurate
copy of each report, schedule, registration statement and definitive proxy
statement filed by the Company with the Securities and Exchange Commission
("SEC") on or after July 1, 1995 (the "Company SEC Reports"), which are all the
forms, reports and documents required to be filed by the Company with the SEC
since July 1, 1995. The Company SEC Reports (i) complied in all material
respects with the requirements of the Securities Act or the Exchange Act (as
such terms are defined in Section 2.17), as the case may be, at and as of the
times they were filed (or, if amended or superseded by a filing prior to the
date of this Agreement, then on the date of such filing) and (ii) did not at and
as of the time they were filed (or, if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) 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.
(b) Each of the sets of financial statements (including, in each case, any
related notes thereto) contained in the Company SEC Reports and the Company's
estimated balance sheet as of May 31, 1996 (the "May 31, 1996 Balance Sheet"),
as well as the Company's preliminary interim income statement for the fiscal
year ended June 30, 1996 (the "June 30 Statement") that have been delivered
10
to PacifiCare (collectively, the "Past Financial Statements") were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes thereto) and fairly presents the consolidated financial position of
the Company and its subsidiaries as at the respective dates thereof and the
consolidated results of its operations and cash flows for the periods indicated,
except that the May 31, 1996 Balance Sheet and the June 30 Statement included in
the Past Financial Statements (i) were or are subject to normal year-end audit
adjustments which were not or are not expected to be material in amount and (ii)
do not contain footnotes.
(c) The Company and its subsidiaries have no Liabilities, except for (i)
any Liability which is accrued or fully reserved against in the May 31, 1996
Balance Sheet or disclosed in the notes included in the Past Financial
Statements, (ii) any Liability which was incurred after May 31, 1996 in the
ordinary course of business, (iii) other Liabilities which, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on the Company or (iv) any Liability under or disclosed
in this Agreement. As used herein, "Liabilities" shall mean any liability or
obligation of any kind or nature, secured or unsecured (whether absolute,
accrued, contingent or otherwise, and whether due or to become due).
2.3 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since March 31, 1996, there has
not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a Material
Adverse Effect on the Company, (b) any damage, destruction or loss, whether or
not covered by insurance, that has had or would reasonably be expected to have a
Material Adverse Effect on the Company or (c) except as permitted or required in
this Agreement, any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which would be prohibited by Section 4.2(b)(i), (ii), (v), (vi),
(vii), (ix), (xiv), and (xvi) if it were to occur or be effected between the
date of the Original Agreement and the Effective Time.
2.4 TAX MATTERS.
(a) The Company (or, if applicable, one of its subsidiaries) has filed,
within the time (including any extensions of applicable due dates) and in the
manner prescribed by law, all material returns, declaration, reports, estimates,
information returns and statements, including information returns and reports
("Returns"), required to be filed under federal, state or territorial, local or
any foreign laws regarding Taxes (as defined below) by the Company and its
subsidiaries, except for such Returns the failure of which to timely file would
not result in a liability of more than $5,000,000.
(b) The Company (or, if applicable, one of its subsidiaries) has, within
the time (including any extensions of applicable due dates) and in the manner
prescribed by law, paid all Taxes (as defined below) that are due and payable
except Taxes (i) for which adequate reserves have been established under the
Past Financial Statements, (ii) which are being contested in good faith or (iii)
which involve permanent differences in the aggregate less than $5,000,000 or
involve timing differences in the aggregate less than $10,000,000.
(c) The Company and its subsidiaries have not filed (and will not file
prior to the Closing Date) any consent agreement under Section 341(f) of the
Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of
any subsection (f) asset (as such term is defined in Section 341(f)(4) of the
Code) owned by the Company or such subsidiaries.
(d) No outstanding debt obligation of the Company is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
(e) There are no claims or assessments in excess of $5,000,000, pending or
threatened, by any taxing authority against the Company or any of its
subsidiaries. The Company Disclosure Schedule lists all pending tax audits by
the IRS, all agreements with the IRS to delay the applicable statute of
limitations and all settlements of any tax audits or claims by the IRS since
July 1, 1993.
11
(f) For purposes of this Article 2, "Taxes" shall mean all taxes, charges,
fees, levies, or other assessments of whatever kind or nature, including,
without limitation, all net income, gross income, gross receipts, sales, use,
value-added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, estimated, severance, stamp, net worth,
environmental, occupancy or property taxes, fees, assessments or charges of any
kind whatsoever (together with any interest and any penalties, additions to tax
or additional amounts) imposed by any taxing authority (domestic or foreign)
upon or payable by the Company or any of its subsidiaries.
2.5 CONTRACTS.
(a) COMPANY MATERIAL CONTRACTS. For purposes of this Agreement, "Company
Material Contracts" shall mean (i) each contract, agreement or other arrangement
of or involving the Company or any of its subsidiaries with respect to
indebtedness for money borrowed in excess of $3,000,000 (other than trade
payables in the ordinary and usual course of business), including, but not
limited to, letters of credit, guaranties and swap and similar agreements; (ii)
each contract, agreement or other arrangement which limits or restricts the
ability of the Company or any of its subsidiaries to compete or otherwise
conduct its business in any manner or place which materially affects the Company
or any material subsidiary; (iii) each mortgage, contract, license, lease,
indenture or other agreement of the Company or any of its subsidiaries (A) which
would be required by Rule 601(b)(10) of SEC Regulation S-K to be filed as an
exhibit to an Annual Report on Form 10-K (other than any employee benefit plan)
or (B) which constitutes any other liability (including, without limitation, any
guarantee, surety contract or similar instrument), obligation or transaction
and, in the case of any item referred to in this clause, is material to the
Company and its subsidiaries or their businesses or prospects taken as a whole;
and (iv) for each state in which the Company or its subsidiary conducts business
as an HMO, insurance company, third-party administrator or otherwise requiring
licensure as set forth in Section 2.1(b), (A) the material contracts (based on
gross revenues generated thereunder) with government agencies or employer or
other groups, (B) the material contracts (based on payments made thereunder)
with physician providers of health care services, (C) the material contracts
(based on payments made thereunder) with providers of hospital services, and (D)
the material contracts (based on payments made thereunder) with providers of
non-hospital, non-physician medical services, all as specified in the next
sentence. In California, material contracts are the twenty-five largest
government agency or employer or other group contracts, the twenty-five largest
physician provider contracts, the ten largest hospital contracts and the ten
largest non-physician, non-hospital contracts. In Colorado, material contracts
are the five largest hospital contracts and the ten largest physician provider
contracts. In Arizona, material contracts are the five largest hospital
contracts and five largest physician provider contracts. In Utah, material
contracts are the six largest hospital contracts and nine largest physician
provider contracts. In all other states or territories in which the Company or a
subsidiary conducts business, material contracts are the five largest government
agency or employer or other group contracts, the five largest physician provider
contracts and the five largest hospital contracts. The Company will use its best
efforts to provide a true and complete copy of each Company Material Contract to
PacifiCare within 30 days of the date of the Original Agreement.
All Company Material Contracts, are in full force and effect and are binding
upon Company or its subsidiary, as the case may be, and, to the Company's
knowledge, are binding on the other parties thereto, except as enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws, both state and federal, affecting the enforcement of
creditors' rights or remedies in general from time to time in effect and the
exercise by courts of equity powers. To the Company's knowledge, no material
default by the Company or any of its subsidiaries has occurred under any of the
Company Material Contracts and (A) no material default by any of the other
contracting parties has occurred under any of the Company Material Contracts,
(B) no event has occurred which with the giving of notice or the lapse of time,
or both, would constitute a material default by the Company or any of its
subsidiaries or any of the other contracting parties and (C) there is no other
reason, including without limitation any pending or threatened termination, that
any Company Material Contract will terminate (other than expiration in
accordance with its terms).
12
(b) The Company Disclosure Schedule sets forth a list of all claims other
than invoices in the ordinary course of business, or claims made under risk
programs in the ordinary course of business made or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries under each Company
Material Contract presently or heretofore in effect (including claims for back
charges, rebates, price reductions, breaches of product or service warranties or
for product or service liability for products manufactured or sold), to the
extent such claims have had or would reasonably be expected to have (i) for
provider contracts, a cost to the Company or its Material Subsidiaries in excess
of $5,000,000 or (ii) for other Company Material Contracts, a material adverse
effect on the Company or any of its Material Subsidiaries.
(c) Except as listed on the Company Disclosure Schedule, there are no
contracts, agreements or understandings, oral or written, between the Company or
any of its subsidiaries and ▇▇▇▇▇▇▇ that would interfere or conflict with the
transactions contemplated by Section 4.15 hereof.
2.6 EMPLOYEES.
(a) The Company has made available to PacifiCare a list of the top 100 paid
employees of the Company and its subsidiaries and, to the Company's knowledge,
the information relating to each person on such list is correct. The Company
Disclosure Schedule identifies each "employee benefit plan," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently or previously maintained, contributed to or entered into by
the Company or any ERISA Affiliate (as defined below) under which the Company or
any ERISA Affiliate thereof has any present or future obligation or liability
(collectively, the "Company Employee Plans"). For purposes of this Section 2.6,
"ERISA Affiliate" shall mean any entity which is a member of (A) a "controlled
group of corporations," as defined in Section 414(b) of the Code, (B) a group of
entities under "common control," as defined in Section 414(c) of the Code, or
(C) an "affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes Company. Copies of all Company Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and written interpretations
thereof (including summary plan descriptions) have been made available to
PacifiCare or its counsel, together with the most recent annual report (Form
5500, including, if applicable, Schedule B thereto) prepared in connection with
any such Company Employee Plan. All Company Employee Plans which individually or
collectively would constitute an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (collectively, the "Company Pension Plans"), are
identified as such in the Company Disclosure Schedule. All material
contributions due from the Company with respect to any of the Company Employee
Plans have been made as required under ERISA or have been accrued on the
Company's financial statements as of March 31, 1996. Each Company Employee Plan
has been maintained substantially in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code, which are applicable to such
Company Employee Plans, except as would not have a Material Adverse Effect on
the Company.
(b) No Company Pension Plan constitutes, or has since the enactment of
ERISA constituted, a "multiemployer plan," as defined in Section 3(37) of ERISA.
No Company Pension Plans are subject to Title IV of ERISA. No "prohibited
transaction," as defined in Section 406 of ERISA or Section 4975 of the Code,
has occurred with respect to any Company Employee Plan which is covered by Title
I of ERISA which would have a Material Adverse Effect on the Company, excluding
transactions effected pursuant to a statutory or administrative exemption.
Nothing done or omitted to be done by the Company and no transaction or holding
of any asset under or in connection with any Company Employee Plan has or will
make the Company or any officer or director of the Company subject to any
material liability under Title I of ERISA or liable for any material tax or
penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or Section 502
of ERISA.
(c) With respect to each Company Pension Plan that is intended to be
qualified under Section 401(a) of the Code (a "Company 401(a) Plan"), either (A)
a favorable determination letter has been received from the Internal Revenue
Service ("IRS") as to such qualification under the Code as in effect immediately
after the Tax Reform Act of 1986, (B) an application for a favorable
determination
13
letter is pending that was duly filed with the IRS prior to the expiration of
the time within which retroactive amendment relating back to the effective date
of such plan may be made under Section 401(b) of the Code and regulations or IRS
pronouncements thereunder, or (C) the time provided under Section 401(b) of the
Code and regulations or IRS pronouncements thereunder for making retroactive
amendments relating back to the effective date of such plan will not expire
before the date that is sixty (60) days after the date of the Original
Agreement, and there is no reason to believe that any favorable determination
letter will not be received.
(d) No Company Employee Plan provides or ever has provided death, medical
or health benefits (whether or not insured) with respect to current or former
employees after any such employee's retirement or other termination of service
(other than (A) benefit coverage mandated by applicable law, including, without
limitation, coverage provided pursuant to Section 4980B of the Code, (B) death
benefits or retirement benefits under any Company Pension Plan, (C) deferred
compensation benefits accrued as liabilities on the books of the Company, or (D)
benefits the full cost of which is borne by the current or former employee (or
the employee's beneficiary)).
(e) The Company Disclosure Schedule lists each material employment,
severance or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors which (A) is not a Company Employee
Plan, (B) is entered into, maintained or contributed to, as the case may be, by
the Company or any subsidiary and (C) covers any employee or former employee of
the Company. Such contracts, plans and arrangements as are described in this
Section 2.6(e) are herein referred to collectively as the "Company Benefit
Arrangements." Each Company Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Company Benefit Arrangement. The Company has delivered to PacifiCare or its
counsel a complete and correct copy or description of each contract, plan or
arrangement that constitutes a Company Benefit Arrangement.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by the Company relating to, or change in employee
participation or coverage under, any Company Employee Plan or Company Benefit
Arrangement that would increase materially the expense of maintaining such
Company Employee Plan or Company Benefit Arrangement above the level of the
expense incurred in respect thereof for the year ended June 30, 1996.
(g) The Company has provided, or will have provided prior to the Closing to
individuals entitled thereto all required notices and coverage pursuant to
Section 4980B of the Code and the Consolidated Omnibus Budget Reconciliation Act
of 1985, as amended ("COBRA"), with respect to any "qualifying event" (as
defined in Section 4980B(f)(3) of the Code) occurring prior to and including the
Closing, and no material tax payable on account of Section 4980B of the Code has
been incurred with respect to any current or former employees (or their
beneficiaries) of the Company.
(h) Neither the Company nor any of its subsidiaries is subject to any
collective bargaining agreement with respect to any of its employees, has any
material current labor problems or disputes, and, to its knowledge, has been
subject to any effort to organize any employees during the last 24 months. The
Company has good labor relations and has no knowledge of any facts indicating
that the consummation of the transactions contemplated hereby will have a
material adverse effect on labor relations.
14
2.7 LITIGATION AND CLAIMS; COMPLIANCE WITH LAW.
(a) Except as set forth in the Company Disclosure Schedule, there is, to
the Company's knowledge, no examination, audit, review, investigation,
arbitration, suit, litigation or other proceeding (a "Proceeding") pending or
threatened by or before any court or Governmental Authority (as defined in
Section 2.17) to which the Company or any of its subsidiaries is a party or
otherwise involved or to which any of the business or assets of the Company or
any of its subsidiaries is subject which has or would reasonably be expected to
have (i) a potential liability in excess of $5,000,000 or (ii) a material
adverse effect on Company, or any Company Material Subsidiary, whether or not
covered by insurance.
(b) Neither the Company nor any of its subsidiaries is a party to any
decree, order or arbitration award (or agreement entered into in any Proceeding)
with respect to its properties, assets, personnel or business activities which
has had or would reasonably be expected (i) to have a potential cost in excess
of $5,000,000, or (ii) to affect materially the operations of the Company or any
Company Material Subsidiary.
(c) Except as set forth on the Company Disclosure Schedule or in Company
SEC Reports or other public filings with the SEC, neither the Company nor any of
its subsidiaries is or has at any time since July 1, 1993 (July 1, 1990 in the
case of any violation involving any Governmental Authority) been in violation
of, or delinquent in respect to, any decree, order or arbitration award or law,
statute or regulation of, or agreement with, or any license or permit from, any
Governmental Authority to which any of its properties, assets, personnel or
business activities are subject or to which any of them is subject, including
laws, rules and regulations relating to the environment, insurance companies,
HMOs, third-party administrators or other businesses required to be licensed
under Section 2.1(b), occupational health and safety, employee benefits, wages,
workplace safety, equal employment opportunity and race, religious, sex and age
discrimination which has had or would reasonably be expected have a Material
Adverse Effect on the Company.
2.8 PROPERTIES.
(a) The Company and its subsidiaries have insurance policies, commercially
adequate to protect against the risks so insured. The Company has made available
copies of all such policies to PacifiCare or its counsel. Neither the Company
nor any of its subsidiaries has done anything by way of action or inaction which
might invalidate any of such policies in whole or in part, except in the
ordinary course of business.
(b) The Company and its subsidiaries own and hold title to all real and
other property reflected in the Company SEC Reports as owned by the Company or
any of its subsidiaries, as the case may be.
2.9 DISCLOSURE.
(a) The copies of all documents furnished by the Company pursuant to the
terms of this Agreement are complete and accurate copies of the originals.
(b) During the past 12 months, the Company has timely filed all required
forms, reports and documents required to be filed with the SEC and the National
Association of Securities Dealers (the "NASD").
(c) None of the information supplied or to be supplied by the Company for
inclusion or incorporation by reference in the registration statement on Form
S-4 to be filed with the SEC by Holding in connection with the issuance of the
Holding Class A Common Stock, Holding Class B Common Stock and Holding Series A
in the Mergers and the votes of the Company's and PacifiCare's stockholders (the
"S-4 Registration Statement") will, at the time the S-4 Registration Statement
is filed with the SEC or at the time the S-4 Registration Statement 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 in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in the
Prospectus/Proxy Statement filed as a part of the S-4
15
Registration Statement (the "Prospectus/Proxy Statement"), will, at the time
mailed to the stockholders of the Company, at the time of the Company
Stockholders' Meeting (as defined in Section 4.6) and as of the Effective Time,
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. The Prospectus/Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
2.10 TRANSACTIONS WITH AFFILIATES. Except for compensation of employees,
every transaction between Company and any of its "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the SEC)
which is currently in effect or was consummated since July 1, 1995, and for
which disclosure is required under Item 404 of Regulation S-K promulgated by the
SEC is set forth in the Company SEC Reports or in the Company Disclosure
Schedule.
2.11 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding Company Common Stock is necessary to adopt and approve this
Agreement and the Company Merger (the "Company Required Vote"). The affirmative
vote of the holders of a majority of the outstanding Common Stock and of 66 2/3%
of the outstanding Company Series A Preferred Stock (the "Series A Required
Vote") is necessary to adopt and approve an amendment (the "Series A Amendment")
to the Company's Restated and Amended Certificate of Incorporation (the "Company
Restated Certificate of Incorporation") providing for the payments in the first
sentence of Section 1.5(a)(iv) in lieu of those currently required by the
Certificate of Designation.
2.12 TAKEOVER PROVISIONS INAPPLICABLE. As of the date of the Original
Agreement and at all times on or prior to the Effective Date, Section 203 of the
DGCL was, and shall be, inapplicable to the Company Merger.
2.13 COMPANY ACTION. The Board of Directors of the Company (at a meeting
duly called and held) has (a) unanimously determined that the Company Merger and
the Series A Amendment are advisable and fair and in the best interests of the
Company and its stockholders, (b) unanimously approved this Agreement, the
Series A Amendment and the Company Merger in accordance with the provisions of
Sections 242 and 251 of the DGCL, (c) unanimously recommended the adoption and
approval of this Agreement and the Company Merger by the holders of Company
Common Stock and directed that the Company Merger be submitted for consideration
by the Company's stockholders at the Company Stockholders' Meeting, (d) taken
all necessary steps to render Section 203 of the DGCL inapplicable to the
Company Merger, (e) unanimously recommended the adoption and approval of the
Series A Amendment by the holders of Company Common Stock and of Company Series
A Preferred Stock and directed that the Series A Amendment be submitted for
consideration by the Company's stockholders at the Company Stockholders'
Meeting, and (f) taken all necessary steps to ensure that the Company Merger and
related transactions, including, without limitation, the execution of any of the
Voting and Non-Distribution Agreements, will not result in the distribution or
exercisability of any rights under the Restated Rights Agreement.
2.14 FAIRNESS OPINION. The Company has received the written opinion of
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., financial advisor to the Company, dated August 4, 1996, to
the effect that the consideration to be received by the holders of the Company's
Common Stock is fair to such holders from a financial point of view.
2.15 FINANCIAL ADVISOR. The Company represents and warrants that except
for ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., no broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission payable by the Company or its
subsidiaries in connection with the Company Merger, except a fee not to exceed
$400,000 payable with respect to the proposed ▇▇▇▇▇▇▇ separation described in
Section 4.15 below.
2.16 ENFORCEABILITY. The Company has full corporate power and authority to
execute, deliver and perform each of the Transactional Agreements to which it is
or will become a party. The execution
16
and delivery of said Transactional Agreements have been duly and validly
authorized by the Board of Directors of the Company, and no other corporate
proceedings on the part of the Company are necessary for the Company to
authorize any of the Transactional Agreements, and no such proceedings (other
than the approval of the Company's stockholders) are necessary to enable the
Company to perform or consummate any of the transactions contemplated by this
Agreement. Said Transactional Agreements (a) have been (or will be) duly
executed and delivered by duly authorized officers of the Company and (b)
constitute (or, when executed by the Company, will constitute) legal, valid and
binding obligations of the Company enforceable against it in accordance with
their terms (except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general
from time to time in effect and the exercise by courts of equity powers). For
purposes of this Article 2, "Transactional Agreements" means this Agreement and
the related Agreement of Merger for the Company Merger.
2.17 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as may be required by the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Securities
Act of 1933, as amended (the "Securities Act"), state securities or blue sky
laws, the DGCL, the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of ▇▇▇▇ (▇▇▇
"▇▇▇ ▇▇▇"), the NASD Bylaws (as they relate to the S-4 Registration Statement
and the Prospectus/Proxy Statement) and laws governing insurance companies,
HMOs, and third-party administrators or other businesses operated by the Company
or its subsidiaries requiring licensure, qualification or authorization, there
is no requirement applicable to the Company or any of its subsidiaries to make
any filing with, or to obtain any permit, authorization, consent or approval of,
any federal, state or territorial, local or foreign governmental or regulatory
agency, department, commission or other authority (a "Governmental Authority"),
except for such filings, permits, authorizations, consents or approvals which,
if not made or obtained, would not have a Material Adverse Effect on the
Company. Neither the execution and delivery of this Agreement by the Company nor
the consummation by the Company of any of the transactions contemplated by this
Agreement will (a) conflict with, violate or result in any breach of any
provision of the Certificate of Incorporation or Bylaws (or comparable charter
documents) of the Company or ▇▇▇▇▇▇▇, (b) result in a material default (or with
notice or lapse of time or both would result in a default) under, or materially
impair the rights of the Company or any of its subsidiaries or materially alter
the rights or obligations of any third party under, or require the Company or
any of its subsidiaries to make any material payment or become subject to any
material liability to any third party under, or give rise to any right of
termination, amendment, cancellation, acceleration, repurchase, put or call
under, any of the terms, conditions or provisions of any Company Material
Contract, (c) result in the creation of any material (individually or in the
aggregate) liens, charges or encumbrances on any of the material assets of the
Company or any of its subsidiaries or (d) conflict with or violate any law,
statute, rule, regulation, judgment, order, writ, injunction, decree or
arbitration award applicable to the Company or any of its subsidiaries or any of
their material assets, which conflict or violation has had or would reasonably
be expected to have a Material Adverse Effect on the Company.
2.18 RESERVES. The reserves established by the Company and its
subsidiaries in the Company SEC Reports, or in any financial statement or
balance sheet contained in any document filed with the SEC after the date of the
Original Agreement, for statutorily required reserves and for incurred but not
yet paid claims for, or relating to, medical treatment or similar claims (i) are
computed in accordance with presently accepted industry standards consistently
applied, (ii) meet the requirements of any law, rule or regulation applicable to
such reserves, (iii) are computed on the basis of assumptions consistent with
those used in computing the corresponding reserves in the prior fiscal year, and
(iv) include provision for all actuarial reserves and related items which ought
to be established in accordance with applicable laws or regulations and prudent
industry practices. As of the date of the Original Agreement, neither the
Company nor its senior management was aware of any fact or circumstance which
would necessitate, in the good faith application of prudent reserving practices
and policies, any material adverse change in statutorily required reserves or
reserves for such incurred but
17
not yet paid claims above that reflected in the most recent balance sheet
included in the Company SEC Reports (other than increases consistent with past
experience resulting from increases in enrollment with respect to the Company's
subsidiaries' services).
2.19 AUDITS OR INVESTIGATIONS BY GOVERNMENTAL ENTITIES. As of the date of
the Original Agreement, other than as disclosed in the Company Disclosure
Schedule, no audit or investigation of the Company or any of its subsidiaries
which may be expected to have a Material Adverse Effect on the Company was
pending before, or to the Company's knowledge had been threatened by, any
governmental or regulatory authority of the United States (other than the
Internal Revenue Service), the several States or territories (other than state
taxing authorities) or any foreign jurisdiction. There are no pending or
anticipated proceedings which may be expected to have a Material Adverse Effect
on the Company by or on behalf or in the name of the state or federal government
or any governmental agency relating to the imposition of civil monetary
penalties, exclusion or debarment from governmental programs or other
administrative sanctions.
2.20 ENVIRONMENTAL PROVISIONS.
(a) For the purposes of this Section 2.20, the following definitions apply.
"Environmental Claim" means any claim, action, cause of action, or written
notice by any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) resulting from (A) the presence, or release
into the environment, of any Material of Environmental Concern at any location,
whether or not owned or operated by the Company or any subsidiary, or (B) any
violation, or alleged violation, of any Environmental Law. "Environmental Laws"
means all applicable federal, state or territorial, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern. "Materials of
Environmental Concern" means chemicals, pollutants, contaminants, wastes, and
substances that are hazardous, toxic or otherwise a danger to health,
reproduction, or the environment or are regulated by Environmental Laws.
(b) The Company and its subsidiaries are in compliance in all material
respects with all applicable Environmental Laws, which compliance includes, but
is not limited to, the possession by them of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance in all material respects with the terms and conditions thereof,
except where the costs of any failure to comply will not exceed, in the
aggregate, $5,000,000. The Company and its subsidiaries have not received any
written communication, whether from a Governmental Authority, citizens group,
employee or otherwise, that alleges that they are not in such full compliance in
all material respects, and, to the knowledge of the Company, there are no
circumstances that may prevent or interfere with such full compliance in all
material respects in the future. To the knowledge of the Company, no current or
prior owner of any property owned or leased by the Company and its subsidiaries
has received any written communication, whether from a Governmental Authority,
citizens group, employee or otherwise, that alleges that the Company and its
subsidiaries is not in such compliance in all material respects.
(c) There is no material Environmental Claim pending or, to the knowledge
of the Company, threatened against the Company or a subsidiary or against any
person or entity whose liability for any Environmental Claim the Company and its
subsidiaries have or may have retained or assumed either contractually or by
operation of law, which Environmental Claim would reasonably be expected to have
a Material Adverse Effect on the Company.
18
(d) To the knowledge of the Company, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could reasonably form the basis for any
material Environmental Claim against the Company or its subsidiaries or, to the
knowledge of the Company, against any person or entity whose liability for any
Environmental Claim the Company or a subsidiary has or may have retained or
assumed either contractually or by operation of law, which Environmental Claim
would reasonably be expected to have a Material Adverse Effect on the Company.
2.21 INTELLECTUAL PROPERTY.
(a) To the knowledge of the Company, all patents, registered trademarks and
registered copyrights of the Company are valid and enforceable. There are no
interference, opposition or cancellation proceedings or infringement suits
pending or, to the knowledge of the Company or its subsidiaries, threatened,
with respect to any of the patents, registered trademarks or copyrights. The
Company or its subsidiaries have not been advised, nor has either any reason to
believe that the Company or a subsidiary is infringing a patent, trademark or
copyright held by another person.
(b) The Company and its subsidiaries own or have in their possession
certain information of the sort typically considered as trade secrets in the
healthcare industry (the "Trade Secrets"). The Company and its subsidiaries have
taken commercially reasonable precautions to maintain Trade Secrets in
confidence and to prevent their disclosure to unauthorized persons. To the
knowledge of the Company, the Company and its subsidiaries have good title and
an absolute (though not necessarily exclusive) right to use all Trade Secrets
and the use of the Trade Secrets does not infringe the rights of any third
party.
(c) Except as set forth in the Company Disclosure Schedule, to the
knowledge of the Company and its subsidiaries, no person is infringing upon any
patent, trademark or any copyright or is misappropriating any Trade Secret owned
by the Company or a subsidiary. To the best of the Company or its subsidiaries'
knowledge, none of the processes or know-how used by the Company or its
subsidiaries infringes any patent, trademark or copyright of any third party. To
the best of the Company or its subsidiaries' knowledge, there is no intellectual
property, in any form, necessary for the operation of the Company and its
subsidiaries' business as currently conducted which the Company or a subsidiary
does not currently own or license on commercially reasonable terms.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PACIFICARE AND HOLDING
Except as set forth in the disclosure schedule delivered to Company on the
date of the Original Agreement and signed by the Presidents of PacifiCare and
Holding, respectively (collectively, the "PacifiCare Disclosure Schedule"),
PacifiCare and Holding represent and warrant to the Company, as of the date of
the Original Agreement (except to the extent set forth in Section 6.1(b)) as
follows:
3.1 ORGANIZATION; SUBSIDIARIES; CAPITALIZATION.
(a) PacifiCare is a corporation duly organized, existing and in good
standing under the laws of the State of Delaware. Holding is a corporation duly
organized, existing and in good standing under the laws of the State of
Delaware. Neptune Sub and Company Sub are corporations duly organized, existing
and in good standing under the laws of the State of Delaware. Each of
PacifiCare, Holding, Neptune Sub and Company Sub has all necessary power and
authority under applicable corporate law and its organizational documents to own
or lease its properties and to carry on its business as presently conducted. As
of the date of the Original Agreement, the PacifiCare Disclosure Schedule set
forth a list of all of PacifiCare's subsidiaries. As of the date of the Original
Agreement, other than PacifiCare's subsidiaries, neither PacifiCare nor any of
its subsidiaries owned or held, directly or indirectly, any debt or equity
securities of, or had any other interest in, any corporation, partnership,
19
joint venture or other entity, except publicly traded debt or equity which in
any event represented less than 1% of such outstanding securities, and neither
PacifiCare nor any of its subsidiaries had entered into any agreement to acquire
any such interest.
(b) Each of PacifiCare and its subsidiaries, to the extent conducting
business as an HMO, insurance company, third-party administrator or other entity
requiring any form of governmental licensure, qualification or authorization is
duly licensed, qualified or authorized and in good standing under the applicable
laws and regulations, respectively, of each state or territory in which the
conduct of such business requires such licensure, qualification or
authorization, except where failure would not have a material adverse effect on
PacifiCare or on any of its material subsidiaries as set forth in the PacifiCare
Disclosure Schedule ("PacifiCare Material Subsidiaries"). The conduct of
PacifiCare's and its subsidiaries' respective business is in conformity with all
applicable foreign, federal, state or territorial, local and other governmental
and regulatory requirements and the forms, procedures and practices of
PacifiCare and its subsidiaries in the conduct of their respective businesses
are also in compliance with all such requirements, to the extent applicable,
except where nonconformity or noncompliance would not constitute a Material
Adverse Effect on PacifiCare. For purposes of this Agreement, "Material Adverse
Effect," as it applies to PacifiCare, means a material adverse effect on the
business, operations, financial condition or assets of PacifiCare and its
subsidiaries, taken as a whole, other than as a result of the performance by
PacifiCare or Holding of their obligations, or the exercise by the Company of
its rights, under this Agreement.
(c) As of the date of the Original Agreement, the authorized capital stock
of PacifiCare consisted of: 100,000,000 shares of PacifiCare Class A Common
Stock and 100,000,000 shares of PacifiCare Class B Common Stock of which, as of
the date of the Original Agreement, 12,370,758 shares of PacifiCare Class A
Common Stock and 18,812,799 of PacifiCare Class B Common Stock were issued and
outstanding; and 20,000,000 shares of preferred stock, par value $1.00 per
share, of which, as of the date of the Original Agreement, no shares of were
issued and outstanding. All the issued and outstanding shares of PacifiCare
Class A Common Stock and PacifiCare Class B Common Stock are validly issued,
fully paid and nonassessable and free of preemptive rights. As of the date of
the Original Agreement, PacifiCare had issued outstanding options to purchase a
total of 317,734 shares of PacifiCare Class A Common Stock and 1,742,939 shares
of PacifiCare Class B Common Stock (the "PacifiCare Options") pursuant to
PacifiCare's stock option plans and agreements. Except as set forth above, as of
the date of the Original Agreement, (i) there were no shares of capital stock of
PacifiCare authorized, issued or outstanding, (ii) there were no outstanding
subscriptions, options, warrants, stock appreciation right plans, calls, rights,
convertible securities, stockholder rights plans (or similar plans commonly
referred to as "poison pills") or other agreements or commitments of any
character relating to issued or unissued capital stock or other securities of
PacifiCare or any of its subsidiaries, or obligating PacifiCare or any other
party to issue, transfer or sell any shares of the capital stock or other
securities of PacifiCare or any of its subsidiaries, and (iii) there were no
other outstanding securities convertible into, exchangeable for or evidencing
the right to subscribe for any shares of the capital stock or other securities
of PacifiCare or any of its subsidiaries or any successor corporation or
controlling person of such successor corporation. The authorized capital of
Holding, Neptune Sub and Company Sub each consists of 1,000 shares of Common
Stock, par value $.001 per share, of which; in the case of Holding, 200 shares
are issued and outstanding and are held beneficially and of record by
PacifiCare, while in the case of Neptune Sub and Company Sub, 100 shares of
which are issued and outstanding are held beneficially and of record by Holding.
(d) Each subsidiary of PacifiCare is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all necessary power and authority under applicable
corporate law to own and lease its properties and to carry on its business as
presently conducted. All of the outstanding shares of capital stock of each
subsidiary of the Company are validly issued, fully paid and nonassessable and
are owned beneficially and of record by PacifiCare or another subsidiary of
PacifiCare, free and clear of any liens, claims or encumbrances.
20
(e) Complete and accurate copies of the Certificate of Incorporation and
Bylaws (or other or comparable charter documents), each as amended to date, of
PacifiCare and each of its subsidiaries are filed as exhibits to PacifiCare SEC
Reports or have been made available to the Company.
3.2 SEC FILINGS; FINANCIAL STATEMENTS.
(a) PacifiCare has made available to the Company a complete and accurate
copy of each report, schedule, registration statement and definitive proxy
statement filed by PacifiCare with the SEC on or after July 1, 1995 (the
"PacifiCare SEC Reports"), which are all the forms, reports and documents
required to be filed by PacifiCare with the SEC since July 1, 1995. The
PacifiCare SEC Reports (i) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, at
and as of the times they were filed (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing) and (ii)
did not at and as of the time they were filed (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such filing)
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.
(b) Each of the sets of financial statements (including, in each case, any
related notes thereto) contained in the PacifiCare SEC Reports and the set of
PacifiCare's unaudited interim financial statements as of and for the nine-month
period ended June 30, 1996 including PacifiCare's unaudited consolidated balance
sheet as of June 30, 1996 (the "PacifiCare June 30, 1996 Balance Sheet") that
are attached to the PacifiCare Disclosure Schedule (collectively, the
"PacifiCare Past Financial Statements") were prepared in accordance with GAAP
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of PacifiCare and its subsidiaries as at the respective dates thereof
and the consolidated results of its operations and cash flows for the periods
indicated, except that (i) the quarterly unaudited interim financial statements
included in the PacifiCare Past Financial Statements were or are subject to
normal year-end audit adjustments and (ii) the unaudited interim financial
statements as of and for the nine-month period ended June 30, 1996 included in
the PacifiCare Past Financial Statements are subject to normal year-end audit
adjustments and do not contain footnotes.
(c) PacifiCare and its subsidiaries have no Liabilities, except for (i) any
Liability which is accrued or fully reserved against in the PacifiCare June 30,
1996 Balance Sheet or disclosed in the notes included in the PacifiCare Past
Financial Statements, (ii) any Liability which was incurred after June 30, 1996
in the ordinary course of business, (iii) other Liabilities which, individually
or in the aggregate, have not had and would not reasonably be expected to have a
Material Adverse Effect on PacifiCare or (iv) any Liability under or disclosed
in this Agreement.
3.3 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1996, there has
not been (a) any change, or any development or combination of changes or
developments that has had or would reasonably be expected to have a Material
Adverse Effect on PacifiCare, (b) any damage, destruction or loss, whether or
not covered by insurance, that has had or would reasonably be expected to have a
Material Adverse Effect on PacifiCare or (c) except as permitted or required in
this Agreement, any transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in the ordinary course
of business) which would be prohibited by Section 4.3(a), 4.3(b), 4.3(c),
4.3(d), 4.3(e), 4.3(f), 4.3(g) or 4.3(h), if it were to occur or be effected
between the date of the Original Agreement and the Effective Time.
3.4 TAX MATTERS.
(a) PacifiCare (or, if applicable, one of its subsidiaries) has filed,
within the time (including any extensions of applicable due dates) and in the
manner prescribed by law, all Returns, required to be filed under federal,
state, local or any foreign laws regarding Taxes by PacifiCare and its
subsidiaries, except for such Returns the failure of which to timely file would
not result in a liability of more than $5,000,000.
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(b) PacifiCare (or, if applicable, one of its subsidiaries) has, within the
time (including any extensions of applicable due dates) and in the manner
prescribed by law, paid all Taxes (as defined below) that are due and payable,
except Taxes (i) for which adequate reserves have been established under the
Past Financial Statements, (ii) which are being contested in good faith or (iii)
which involve permanent differences in the aggregate less than $5,000,000 or
involve timing differences in the aggregate less than $10,000,000.
(c) PacifiCare and its subsidiaries have not filed (and will not file prior
to the Closing Date) any consent agreement under Section 341(f) of the Code or
agreed to have Section 341(f)(2) of the Code apply to any disposition of the
subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code)
owned by PacifiCare or any of its subsidiaries.
(d) No outstanding debt obligation of PacifiCare is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
(e) For purposes of this Article 3, "Taxes" shall mean all taxes, charges,
fees, levies, or other assessments of whatever kind or nature, including,
without limitation, all net income, gross income, gross receipts, sales, use,
value-added, ad valorem, transfer, franchise, profits, license, withholding,
payroll, employment, excise, estimated, severance, stamp, net worth,
environmental, occupancy or property taxes, fees, assessments or charges of any
kind whatsoever (together with any interest and any penalties, additions to tax
or additional amounts) imposed by any taxing authority (domestic or foreign)
upon or payable by PacifiCare or any of its subsidiaries.
3.5 CONTRACTS.
(a) PACIFICARE MATERIAL CONTRACTS. For purposes of this Agreement,
"PacifiCare Material Contracts" shall mean (i) each contract, agreement or other
arrangement of or involving PacifiCare or any of its subsidiaries with respect
to indebtedness for money borrowed in excess of $3,000,000 (other than trade
payables in the ordinary and usual course of business), including, but not
limited to, letters of credit, guaranties and swap and similar agreements; (ii)
each contract, agreement or other arrangement which limits or restricts the
ability of PacifiCare or any of its subsidiaries to compete or otherwise conduct
its business in any manner or place which materially affects PacifiCare or any
PacifiCare Material Subsidiary; (iii) each mortgage, contract, license, lease,
indenture or other agreement of PacifiCare or any of its subsidiaries (A) which
would be required by Rule 601(b)(10) of SEC Regulation S-K to be filed as an
exhibit to an Annual Report on Form 10-K (other than any employee benefit plan)
or (B) which constitutes any other liability (including, without limitation, any
guarantee, surety contract or similar instrument), obligation or transaction
and, in the case of any item referred to in this clause, is material to
PacifiCare and its subsidiaries or their businesses or prospects taken as a
whole; and (iv) for each state in which PacifiCare or its subsidiaries conducts
business as an HMO, insurance company, third-party administrator or otherwise
requiring licensure as set forth in Section 3.1(b), (A) the contracts with
employer or other groups or government agencies, (B) the contracts with
physician providers of health care services, (C) the contracts with providers of
hospital services and (D) the contracts with providers of non-hospital,
non-physician medical services, which are material to PacifiCare and its
subsidiaries or their businesses or prospects taken as a whole.
All PacifiCare Material Contracts are in full force and effect and are
binding upon PacifiCare and, to PacifiCare's knowledge, are binding on the other
parties thereto, except as enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws, both state and
federal, affecting the enforcement of creditors' rights or remedies in general
from time to time in effect and the exercise by courts of equity powers. To
PacifiCare's knowledge, no material default by PacifiCare or any of its
subsidiaries has occurred under any of the PacifiCare Material Contracts and (A)
no material default by any of the other contracting parties has occurred under
any of the PacifiCare Material Contracts and (B) no event has occurred which
with the giving of notice or the lapse of time, or both, would constitute a
material default by PacifiCare or any of its subsidiaries or any of the other
contracting parties.
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(b) The PacifiCare Disclosure Schedule sets forth a list of all claims,
other than invoices in the ordinary course of business, and claims made under
risk programs in the ordinary course of business made or, to PacifiCare's
knowledge, threatened against PacifiCare or any of its subsidiaries under each
PacifiCare Material Contract presently or heretofore in effect (including claims
for back charges, rebates, price reductions, breaches of product or service
warranties or for product or service liability for products manufactured or
sold), to the extent such claims have had or would reasonably be expected to
have a cost to PacifiCare or its subsidiaries in excess of $5,000,000 or have a
material adverse effect on PacifiCare or any PacifiCare Material Subsidiaries.
3.6 EMPLOYEES.
(a) "PacifiCare Employee Plan" means each "employee benefit plan," as
defined in Section 3(3) of ERISA, currently or previously maintained,
contributed to or entered into by PacifiCare or any ERISA Affiliate (as defined
below) under which PacifiCare or any ERISA Affiliate thereof has any present or
future obligation or liability. For purposes of this Section 3.6, "ERISA
Affiliate" shall mean any entity which is a member of (A) a "controlled group of
corporations," as defined in Section 414(b) of the Code, (B) a group of entities
under "common control," as defined in Section 414(c) of the Code, or (C) an
"affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes PacifiCare. All material contributions due from PacifiCare with respect
to any of the PacifiCare Employee Plans have been made as required under ERISA
or have been accrued on PacifiCare's financial statements as of June 30, 1996.
Each PacifiCare Employee Plan has been maintained substantially in compliance
with its terms and with the requirements prescribed by any and all statutes,
orders, rules and regulations, including, without limitation, ERISA and the
Code, which are applicable to such PacifiCare Employee Plans, except as would
not have a Material Adverse Effect on PacifiCare.
(b) No PacifiCare Pension Plan constitutes, or has since the enactment of
ERISA constituted, a "multiemployer plan," as defined in Section 3(37) of ERISA.
No PacifiCare Pension Plans are subject to Title IV of ERISA. No "prohibited
transaction," as defined in Section 406 of ERISA or Section 4975 of the Code,
has occurred with respect to any PacifiCare Employee Plan which is covered by
Title I of ERISA which would have a Material Adverse Effect on PacifiCare,
excluding transactions effected pursuant to a statutory or administrative
exemption. Nothing done or omitted to be done by PacifiCare and no transaction
or holding of any asset under or in connection with any PacifiCare Employee Plan
has or will make PacifiCare or any officer or director of PacifiCare subject to
any material liability under Title I of ERISA or liable for any material tax or
penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the Code or Section 502
of ERISA.
(c) With respect to each PacifiCare Pension Plan that is intended to be
qualified under Section 401(a) of the Code (a "PacifiCare 401(a) Plan"), either
(A) a favorable determination letter has been received from the IRS as to such
qualification under the Code as in effect immediately after the Tax Reform Act
of 1986, (B) an application for a favorable determination letter is pending that
was duly filed with the IRS prior to the expiration of the time within which
retroactive amendment relating back to the effective date of such plan may be
made under Section 401(b) of the Code and regulations or IRS pronouncements
thereunder, or (C) the time provided under Section 401(b) of the Code and
regulations or IRS pronouncements thereunder for making retroactive amendments
relating back to the effective date of such plan will not expire before the date
that is sixty (60) days after the date hereof, and there is no reason to believe
that any favorable determination letter will not be received.
(d) PacifiCare has provided, or will have provided prior to the Closing (as
defined in Section 1.3), to individuals entitled thereto all required notices
and coverage pursuant to Section 4980B of the Code and COBRA, with respect to
any "qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing, and no material tax payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of PacifiCare.
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3.7 LITIGATION AND CLAIMS; COMPLIANCE WITH LAW.
(a) Except as set forth in the PacifiCare Disclosure Schedule, there is, to
PacifiCare's knowledge, no Proceeding pending or threatened by or before any
court or Governmental Authority in which PacifiCare or any of its subsidiaries
is a party or otherwise involved or to which any of the business or assets of
PacifiCare or any of its subsidiaries is subject, which has or would reasonably
be expected to have (i) a potential liability in excess of $5,000,000 or (ii) a
material adverse effect on PacifiCare or any PacifiCare Material Subsidiary.
(b) Neither PacifiCare nor any of its subsidiaries is a party to any
decree, order or arbitration award (or agreement entered into in any Proceeding)
with respect to its properties, assets, personnel or business activities which
has had or would reasonably be expected (i) to have a potential cost to
PacifiCare or its subsidiaries in excess of $5,000,000 or (ii) to affect
materially the operations of PacifiCare or any PacifiCare Material Subsidiary.
(c) Except as set forth on the PacifiCare Disclosure Schedule or in
PacifiCare SEC Reports or other public filings with the SEC, neither PacifiCare
nor any of its subsidiaries is or has at any time since October 1, 1993, been in
violation of, or delinquent in respect to, any decree, order or arbitration
award or law, statute or regulation of, or agreement with, or any license or
permit from, any Governmental Authority to which any of its properties, assets,
personnel or business activities are subject or to which any of them is subject,
including laws, rules and regulations relating to the environment, insurance
companies, HMOs, third-party administrators or other businesses required to be
licensed under Section 3.1(b), occupational health and safety, employee
benefits, wages, workplace safety, equal employment opportunity and race,
religious, sex and age discrimination which has had or would reasonably be
expected (i) to have a potential cost to PacifiCare or its subsidiaries in
excess of $5,000,000 or (ii) to affect materially the operations of PacifiCare
or any PacifiCare Material Subsidiary.
3.8 PROPERTIES.
(a) PacifiCare and its subsidiaries have insurance policies adequate to
protect them against the risks so insured. Neither PacifiCare nor any of its
subsidiaries has done anything by way of action or inaction which might
invalidate any of such policies in whole or in part.
(b) PacifiCare and its subsidiaries own and hold title to all real and
other property reflected in the PacifiCare SEC Reports as owned by PacifiCare or
any of its subsidiaries, as the case may be.
3.9 DISCLOSURE.
(a) The copies of all documents furnished by PacifiCare pursuant to the
terms of this Agreement are complete and accurate copies of the originals.
(b) During the past 12 months, PacifiCare has timely filed all required
forms, reports and documents required to be filed with the SEC and the NASD.
(c) None of the information supplied or to be supplied by PacifiCare for
inclusion or incorporation by reference in the S-4 Registration Statement will,
at the time the S-4 Registration Statement is filed with the SEC or at the time
the S-4 Registration Statement 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 in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by PacifiCare for
inclusion or incorporation by reference in the Prospectus/Proxy Statement, will,
at the time mailed to the stockholders of PacifiCare, at the time of the
PacifiCare Stockholders' Meeting (as defined in Section 4.6) and as of the
Effective Time, 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. The Prospectus/Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder.
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3.10 TRANSACTIONS WITH AFFILIATES. Except for compensation of employees,
every transaction between PacifiCare and any of its "affiliates" or their
"associates" (as such terms are defined in the rules and regulations of the SEC)
which is currently in effect or was consummated since October 1, 1995, and for
which disclosure is required by Item 404 of Regulation S-K promulgated by the
SEC, is set forth in the PacifiCare SEC Reports or the PacifiCare Disclosure
Schedule.
3.11 VOTE REQUIRED. The affirmative vote of the holders of a majority of
the outstanding PacifiCare Class A Common Stock is the only vote of the holders
of any class or series of PacifiCare's capital stock necessary to adopt and
approve this Agreement and the PacifiCare Merger, while the affirmative vote of
the holders of a majority of the outstanding PacifiCare Class A Common Stock and
of the holders of a majority of the outstanding PacifiCare Class B Common Stock,
each voting as a separate class, is necessary to adopt and approve an amendment
to the Certificate of Incorporation of PacifiCare to exempt the PacifiCare
Merger from a requirement of PacifiCare's Certificate of Incorporation that, in
the event of a merger or consolidation of PacifiCare, the holders of PacifiCare
Class B Common Stock shall receive the same consideration per share as the per
share consideration for the PacifiCare Class A Common Stock in such merger or
consolidation (the "PacifiCare Amendment") (such votes together being referred
to herein as the "Required PacifiCare Vote").
3.12 TAKEOVER PROVISIONS INAPPLICABLE. As of the date of the Original
Agreement and at all times on or prior to the Effective Date, Section 203 of the
DGCL was, and shall be, inapplicable to the PacifiCare Merger.
3.13 PACIFICARE ACTION. The Board of Directors of PacifiCare (at a meeting
duly called and held) has (a) determined that the PacifiCare Merger is advisable
and fair and in the best interests of PacifiCare and its stockholders, (b)
approved this Agreement, the PacifiCare Amendment and the PacifiCare Merger in
accordance with the provisions of Sections 242 and 251 of the DGCL, (c)
recommended the adoption and approval of this Agreement and the PacifiCare
Merger by the holders of PacifiCare Class A Common Stock and directed that the
PacifiCare Merger be submitted for consideration by PacifiCare's stockholders at
the PacifiCare Stockholders' Meeting, (d) recommended the adoption and approval
of the PacifiCare Amendment by the holders of PacifiCare Class A Common Stock
and PacifiCare Class B Common Stock and directed that the PacifiCare Amendment
be submitted for consideration by PacifiCare's stockholders at the PacifiCare
Stockholders' meeting, (e) taken all necessary steps to render Section 203 of
the DGCL inapplicable to the PacifiCare Merger and (f) as sole stockholder of
Holding, Neptune Sub and Company Sub, approved this Agreement and the Merger in
accordance with Section 251 of the DGCL.
3.14 ACTIONS BY HOLDING, NEPTUNE SUB AND COMPANY SUB. The Boards of
Directors of Holding, Neptune Sub and Company Sub (at meetings duly called and
held or by unanimous written consents) have respectively (a) determined that the
Mergers are advisable and fair and in the best interests of Holding, Neptune Sub
and Company Sub, (b) unanimously approved this Agreement and the Mergers in
accordance with the provisions of Section 251 of the DGCL, (c) taken all
necessary steps to render Section 203 of the DGCL inapplicable to the Mergers
and the other transaction contemplated herein. Holding, as the sole stockholder
of Neptune Sub and Company Sub, has also approved or will also approve this
Agreement and the Mergers.
3.15 FAIRNESS OPINION. PacifiCare and its Board of Directors has received
from ▇▇▇▇▇▇, Read & Co., financial advisors to PacifiCare, an opinion dated
August 4, 1996, to the effect that the consideration to be paid to the
stockholders of PacifiCare in the PacifiCare Merger is fair, from a financial
point of view, to PacifiCare and its stockholders.
3.16 FINANCIAL ADVISOR. PacifiCare represents and warrants that except for
▇▇▇▇▇▇, Read & Co., no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the PacifiCare
Merger or any of the other transactions contemplated in this Agreement based
upon arrangements made by or on behalf of PacifiCare or any of its subsidiaries.
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3.17 ENFORCEABILITY. Each of PacifiCare and Holding has full corporate
power and authority to execute, deliver and perform each of the Transactional
Agreements to which it is or will become a party. The execution and delivery of
said Transactional Agreements have been duly and validly authorized by the
Boards of Directors of PacifiCare and Holding, and no other corporate
proceedings on the part of PacifiCare and Holding are necessary for PacifiCare
and Holding to authorize any of the Transactional Agreements, and no such
proceedings (other than the approval of PacifiCare's and Holding stockholders)
are necessary to enable PacifiCare and Holding to perform or consummate any of
the transactions contemplated by this Agreement. Said Transactional Agreements
(a) have been (or will be) duly executed and delivered by duly authorized
officers of PacifiCare and Holding and (b) constitute (or, when executed by
PacifiCare and Holding, will constitute) legal, valid and binding obligations of
PacifiCare and Holding enforceable against it in accordance with their terms
(except as enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws, both state and federal,
affecting the enforcement of creditors' rights or remedies in general from time
to time in effect and the exercise by courts of equity powers). For purposes of
this Article 3, "Transactional Agreements" means this Agreement and the related
Agreement of Merger for the PacifiCare Merger.
3.18 GOVERNMENTAL CONSENTS; NO CONFLICTS. Except as may be required by the
Exchange Act, the Securities Act, state securities or blue sky laws, the DGCL,
the HSR Act, the NASD Bylaws (as they relate to the S-4 Registration Statement
and the Prospectus/Proxy Statement) and laws governing insurance companies,
HMOs, third-party administrators or other businesses operated by PacifiCare or
its subsidiaries requiring licensure, qualification or authorization, there is
no requirement applicable to PacifiCare or any of its subsidiaries to make any
filing with, or to obtain any permit, authorization, consent or approval of any
Governmental Authority as a condition to the lawful consummation of any of the
transactions contemplated by this Agreement, except for such filings, permits,
authorizations, consents or approvals which, if not made or obtained, would not
have a Material Adverse Effect on PacifiCare. Except as set forth in the
PacifiCare Disclosure Schedule, neither the execution and delivery of this
Agreement by PacifiCare nor the consummation by PacifiCare will (a) conflict
with, violate or result in any breach of any provision of the Certificate of
Incorporation or Bylaws (or comparable charter documents) of PacifiCare or any
of its subsidiaries, (b) result in a material default (or with notice or lapse
of time or both would result in a default) under, or materially impair the
rights of PacifiCare or any of its subsidiaries or materially alter the rights
or obligations of any third party under, or require PacifiCare or any of its
subsidiaries to make any material payment or become subject to any material
liability to any third party under, or give rise to any right of termination,
amendment, cancellation, acceleration, repurchase, put or call under, any of the
terms, conditions or provisions of any PacifiCare Material Contract, (c) result
in the creation of any material (individually or in the aggregate) liens,
charges or encumbrances on any of the material assets of PacifiCare or any of
its subsidiaries or (d) conflict with or violate any law, statute, rule,
regulation, judgment, order, writ, injunction, decree or arbitration award
applicable to PacifiCare or any of its subsidiaries or any of their material
assets, which violation has had or would reasonably be expected to have a
Material Adverse Effect on PacifiCare.
3.19 COMMON AND PREFERRED STOCK TO BE ISSUED. The Holding Class A Common
Stock, Holding Class B Common Stock and Holding Series A to be issued to the
Company's stockholders in the Company Merger, when issued by Holding pursuant to
the terms of this Agreement, will be duly authorized, validly issued, fully paid
and non-assessable, will be issued in compliance with applicable federal and
state securities laws and will be clear of all liens, encumbrances and adverse
claims and may be resold by Company Affiliates (as defined in Section 4.12) in
accordance with paragraph (d) of Rule 145 of the Securities Act.
3.20 RESERVES. The reserves established by PacifiCare and its subsidiaries
in the PacifiCare SEC Reports, or in any financial statement or balance sheet
contained in any document filed with the SEC after the date of the Original
Agreement, for statutorily required reserves and for incurred but not yet paid
claims for, or relating to, medical treatment or similar claims (i) are computed
in
26
accordance with presently accepted industry standards consistently applied, (ii)
meet the requirements of any law, rule or regulation applicable to such
reserves, (iii) are computed on the basis of assumptions consistent with those
used in computing the corresponding reserve in the prior fiscal year, and (iv)
include provision for all actuarial reserves and related items which ought to be
established in accordance with applicable laws or regulations and prudent
industry practices. As of the date of the Original Agreement, neither PacifiCare
nor its senior management was aware of any fact or circumstance which would
necessitate, in the good faith application of prudent reserving practices and
policies, any material adverse change in statutorily required reserves or
reserves for such incurred but not yet paid claims above that reflected in the
most recent balance sheet included in the PacifiCare SEC Reports (other than
increases consistent with past experience resulting from increases in enrollment
with respect to PacifiCare's subsidiaries' services).
3.21 AUDITS OR INVESTIGATIONS BY GOVERNMENTAL ENTITIES. As of the date of
the Original Agreement, other than as disclosed in the PacifiCare Disclosure
Schedule, no audit or investigation of PacifiCare or any of its subsidiaries
which may be expected to have a Material Adverse Effect on PacifiCare was
pending before, or to PacifiCare's knowledge had been threatened by, any
governmental or regulatory authority of the United States (other than the IRS),
the several States or territories (other than state taxing authorities) or any
foreign jurisdiction. There are no pending or anticipated proceedings which may
be expected to have a Material Adverse Effect on PacifiCare by or on behalf or
in the name of the state or federal government or any governmental agency
relating to the imposition of civil monetary penalties, exclusion or debarment
from governmental programs or other administrative sanctions.
3.22 ENVIRONMENTAL PROVISIONS.
(a) For the purposes of this Section 3.22, the following definitions apply.
"Environmental Claim" means any claim, action, cause of action, or written
notice by any person or entity alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries, or penalties) resulting from (A) the presence, or release
into the environment, of any Material of Environmental Concern at any location,
whether or not owned or operated by PacifiCare or any subsidiary, or (B) any
violation, or alleged violation, of any Environmental Law. "Environmental Laws"
means all applicable federal, state or territorial, local and foreign laws and
regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern. "Materials of
Environmental Concern" means chemicals, pollutants, contaminants, wastes, and
substances that are hazardous, toxic or otherwise a danger to health,
reproduction, or the environment or are regulated by Environmental Laws.
(b) PacifiCare and each subsidiary is in compliance in all material
respects with all applicable Environmental Laws, which compliance includes, but
is not limited to, the possession by them of all material permits and other
governmental authorizations required under applicable Environmental Laws, and
compliance in all material respects with the terms and conditions thereof except
where the costs of any failure to comply will not exceed $5,000,000. PacifiCare
and its subsidiaries have not received any written communication, whether from a
Governmental Authority, citizens group, employee or otherwise, that alleges that
they are not in such full compliance in all material respects, and, to the
knowledge of PacifiCare, there are no circumstances that may prevent or
interfere with such full compliance in all material respects in the future. To
the knowledge of PacifiCare, no current or prior owner of any property owned or
leased by PacifiCare or any subsidiary has received any written communication,
whether from a Governmental Authority, citizens group, employee or otherwise,
that alleges that any of them is not in such compliance.
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(c) There is no material Environmental Claim pending or, to the knowledge
of PacifiCare, threatened against PacifiCare or any subsidiary or against any
person or entity whose liability for any Environmental Claim PacifiCare has or
may have retained or assumed either contractually or by operation of law.
(d) To the knowledge of PacifiCare, there are no past or present actions,
activities, circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of any
Material of Environmental Concern, that could reasonably form the basis for any
Environmental Claim against PacifiCare, any subsidiary or, to the knowledge of
PacifiCare, against any person or entity whose liability for any material
Environmental Claim PacifiCare or any subsidiary has or may have retained or
assumed either contractually or by operation of law, which Environmental Claim
would reasonably be expected to have a Material Adverse Effect on PacifiCare.
3.23 INTELLECTUAL PROPERTY.
(a) To the knowledge of PacifiCare, PacifiCare and its subsidiaries own or
have in their possession certain information of the sort typically considered as
trade secrets in the healthcare industry (the "Trade Secrets"). PacifiCare and
its subsidiaries have good title and an absolute (though not necessarily
exclusive) right to use all Trade Secrets, and, to the knowledge of PacifiCare,
the use of the Trade Secrets does not infringe the rights of any third party.
(b) To the knowledge of PacifiCare, none of the processes or know-how used
by PacifiCare infringes any patent, trademark or copyright of any third party.
To the best of PacifiCare's knowledge, there is no intellectual property, in any
form, necessary for the operation of PacifiCare's or its subsidiaries' business
as currently conducted which PacifiCare or its subsidiaries do not currently own
or license on commercially reasonable terms.
3.24 FORMATION OF HOLDING. PacifiCare has caused Holding, Neptune Sub and
Company Sub to be formed and organized in anticipation of execution of this
Agreement and solely for the purposes of carrying out the Mergers and the
transactions contemplated hereby, and solely for such purposes (i) Holding has
issued 200 shares of Common Stock to PacifiCare in exchange for $1.00 per share;
(ii) Neptune Sub has issued 100 shares of Common Stock to Holding in exchange
for $1.00 per share, and (iii) Company Sub has issued 100 shares of Common Stock
to Holding in exchange for $1.00 per share. No other shares of stock or
securities have been issued by Holding, Neptune Sub or Company Sub. The
directors and officers of Holding, Neptune Sub and Company Sub consist solely of
officers of PacifiCare and no other persons. Neither Holding, Neptune Sub nor
Company Sub has acquired any property, incurred any liabilities, or engaged in
any business or activity whatsoever other than (i) its organization as described
above, (ii) the adoption of stockholder and director resolutions in connection
therewith and to authorize execution and delivery of this Agreement, adoption of
the Holding Restated Certificate of Incorporation, consummation of the Mergers
and the transactions contemplated hereby, and performance of its obligations
hereunder, and (iii) the execution and delivery of this Agreement.
ARTICLE 4
CONDUCT AND TRANSACTIONS PRIOR TO
EFFECTIVE TIME; ADDITIONAL AGREEMENTS
4.1 INFORMATION AND ACCESS.
(a) During the period from the date of this Agreement through the Effective
Time, the Company shall afford, and shall cause the independent auditors,
counsel, financial and other advisors and representatives (collectively,
"Representatives") of the Company and its subsidiaries to afford, to PacifiCare
and to PacifiCare's Representatives, reasonable access to the properties, books,
records, financial and operating data (including audit work papers and other
such information) and other
28
information and personnel of the Company and its subsidiaries in order that
PacifiCare and PacifiCare's Representatives may have a full opportunity to make
such investigation as PacifiCare reasonably desires to make of the Company and
its subsidiaries.
(b) Without limiting the generality of Section 4.1(a), during the period
from the date of this Agreement through the Effective Time, the Company shall
promptly provide PacifiCare with copies of any notice, report or other document
filed with or sent to any Governmental Authority in connection with any of the
transactions contemplated by this Agreement.
(c) No investigation by PacifiCare or any of its Representatives pursuant
to this Section 4.1 shall limit or otherwise affect any representations or
warranties of the Company or any condition to any obligation of PacifiCare.
(d) During the period from the date of this Agreement through the Effective
Time, the Company shall promptly advise PacifiCare in writing of (A) any
Material Adverse Effect on the Company and (B) the occurrence of any event which
causes the representations and warranties made by the Company in this Agreement
or the information included in the Company Disclosure Schedule to be incomplete
or inaccurate in any material respect.
(e) The rights and obligations of PacifiCare and the Company in this
Section 4.1 shall apply, MUTATIS MUTANDIS, to the Company and PacifiCare.
4.2 CONDUCT OF BUSINESS OF THE COMPANY.
(a) Except as provided in Section 4.2(b), during the period from the date
of this Agreement through the Effective Time, (i) the Company shall conduct its
business, and shall cause each of its subsidiaries to conduct its business, in
the ordinary and usual course consistent with past practice and (ii) the Company
shall use, and shall cause each of its subsidiaries to use, all commercially
reasonable efforts to maintain and preserve intact its business organization, to
keep available the services of its officers and employees and to maintain
satisfactory relations with lessors, suppliers, contractors, distributors,
customers and others having business relationships with the Company or any of
its subsidiaries (it being recognized, however, that nothing in this Agreement
shall be construed to hold the Company liable for any adverse effect that the
announcement of the transactions contemplated by this Agreement may have on such
business organizations and relationships, including on decisions of officers and
employees whether to continue to provide services to the Company or its
subsidiaries).
(b) Except as expressly contemplated by this Agreement, during the period
from the date of this Agreement through the Effective Time, the Company shall
not do, and shall not permit any of its subsidiaries to do, any of the
following, without PacifiCare's prior written consent:
(i) declare, set aside or pay any dividend or make any other
distribution in respect of any capital stock, except (A) regular dividends
on the Company Series A Preferred Stock and (B) dividends from the
subsidiaries of the Company to the Company sufficient to allow the Company
to make the dividends referred to in clause (A);
(ii) split, combine or reclassify any capital stock of the Company or
repurchase, redeem or otherwise acquire any capital stock of the Company or
any of its subsidiaries, except pursuant to contractual rights in existence
on the date of the Original Agreement;
(iii) except for (x) the issuance of up to 900,000 ▇▇▇▇▇▇▇ stock options
to be granted to ▇▇▇▇▇▇▇ employed or managed physicians in connection with
the separation of ▇▇▇▇▇▇▇ from the Company, (y) the issuance of up to 10,000
Company Options per individual and the issuance of up to 75,000 Company
Options in the aggregate to be granted in connection with the Company's new
hires, outstanding performances or promotions, or (z) previously authorized
automatic grants of Company Options to the Company's or its subsidiaries'
directors, issue, deliver, pledge, encumber, sell or transfer, or authorize
or propose the issuance, delivery, pledge, encumbrance, sale or transfer of,
any shares of capital stock of the Company or any of its subsidiaries or any
securities convertible into, or rights, warrants or options to acquire, any
such shares of capital stock or other
29
convertible securities (except that the Company may issue Company Common
Stock upon the exercise of Company Options issued and outstanding or upon
the conversion of Company Series A Preferred Stock into Company Common
Stock), or, except as expressly contemplated herein, make any change in its
equity capitalization or to the terms of any option, warrant or other equity
security of the Company or any of its subsidiaries that is currently
outstanding;
(iv) except as expressly contemplated herein, amend the Certificate of
Incorporation, Bylaws or other organizational or charter documents of the
Company or any of its subsidiaries, or amend its Restated Rights Plan;
(v) acquire (by merging or consolidating with, by purchasing any
material portion of the capital stock or assets of or by any other means)
any business or any corporation, partnership, association or other business
organization or division thereof;
(vi) sell, lease, pledge or otherwise dispose of or encumber any of its
material assets, except in the ordinary course of business consistent with
past practice or consistent with written disclosure made to PacifiCare prior
to the date of the Original Agreement;
(vii) except pursuant to lines of credit and subject to credit limits in
effect prior to the date of the Original Agreement, incur any indebtedness
for borrowed money, or issue or sell any debt securities or guarantee,
endorse or otherwise become responsible for any obligation of any other
person, provided that this Section 4.2(b)(vii) shall not apply to
indebtedness for borrowed money, debt securities or guaranties that
aggregate up to $20,000,000 or the proceeds of which are used to capitalize
▇▇▇▇▇▇▇ in accordance with Section 4.15;
(viii) except as specifically contemplated by Section 4.8, adopt or amend
in any material respect any collective bargaining agreement or Company
Employee Plan, or enter into or amend any employment agreement, severance
agreement, special pay arrangement with respect to termination of employment
or other similar arrangement or agreement with any director or officer, or
enter into or amend any severance or termination arrangement with any
director or officer;
(ix) change in any material respect the accounting methods or practices
followed by the Company (including any material change in any assumption
underlying, or any method of calculating, any bad debt, contingency or other
reserve), except as may be required by changes in GAAP;
(x) except in the ordinary course of business consistent with past
practice or as permitted in Section 4.4(a), enter into any material contract
or agreement involving payments in excess of market rates;
(xi) except as specifically contemplated by Section 4.8, change any
compensation payable or to become payable to any of its officers or
employees (other than any adjustment to the salary of any employee that is
made in the ordinary course of business consistent with past practice and
that does not exceed the higher of 6% of such employee's previous salary or
$10,000 or that is made in accordance with a budget approved in writing by
PacifiCare);
(xii) make any capital expenditures in excess of $2,500,000 in the
aggregate, except those set forth in a budget to be reviewed and approved by
PacifiCare and the Company within two weeks following the date of the
Original Agreement;
(xiii) make any loan to or engage in any transaction with any director or
officer;
(xiv) settle or compromise any lawsuit or other Proceeding against the
Company or any of its subsidiaries for an amount in excess of $5,000,000;
provided, however, that in no event shall the Company or its subsidiaries
settle or compromise any matter in a manner which would have a material
non-financial adverse impact on the Company or its Material Subsidiaries;
30
(xv) cause or permit any material amendment, modification or premature
termination to any Company Material Contract as defined Section 2.5(a)
without the prior approval of PacifiCare, such approval not to be
unreasonably withheld and to be given or not given on a timely basis;
(xvi) cause or agree to the termination or material modification of any
material licensure, qualification, or authorization of the Company or any
Material Subsidiary;
(xvii) enter into any new contract or amend or modify any existing
contract between the Company or any subsidiary and ▇▇▇▇▇▇▇ or to cause any
capital transfer to or from the Company or any subsidiary and from or to
▇▇▇▇▇▇▇, except as contemplated by Section 4.15; or
(xviii) enter into any contract, agreement, commitment or arrangement
contemplating any of the foregoing.
4.3 CONDUCT OF BUSINESS OF PACIFICARE. Except as expressly contemplated by
this Agreement, during the period from the date of this Agreement through the
Effective Time, PacifiCare shall not, without the Company's prior written
consent:
(a) declare, set aside or pay any dividend or make any other distribution
in respect of any capital stock;
(b) split, combine or reclassify any capital stock of PacifiCare or
repurchase, redeem or otherwise acquire any capital stock of PacifiCare, except
pursuant to contractual rights presently in existence;
(c) issue, deliver, pledge, encumber, sell or transfer, or authorize or
propose the issuance, delivery, pledge, encumbrance, sale or transfer of, any
shares of capital stock of PacifiCare or any of its subsidiaries or any
securities convertible into, or rights, warrants or options to acquire, any such
shares of capital stock or other convertible securities (except that PacifiCare
may issue PacifiCare Class A Common Stock or PacifiCare Class B Common Stock
upon the exercise of PacifiCare Options issued and outstanding on the date of
the Original Agreement in accordance with their present terms), or, except as
expressly contemplated herein, make any change in its equity capitalization or
to the terms of any option, warrant or other equity security of the Company or
any of its subsidiaries that is currently outstanding;
(d) except as expressly contemplated herein, amend the Certificate of
Incorporation, Bylaws or other organizational or charter documents of PacifiCare
or any of its subsidiaries;
(e) acquire (by merging or consolidating with, by purchasing any material
portion of the capital stock or assets of or by any other means) any business or
any corporation, partnership, association or other business organization or
division thereof;
(f) sell, lease, pledge or otherwise dispose of or encumber any of its
material assets, except in the ordinary course of business consistent with past
practice or consistent with written disclosure made to Company prior to the date
of the Original Agreement;
(g) except pursuant to lines of credit and subject to credit limits in
effect prior to the date of the Original Agreement, incur any indebtedness for
borrowed money, or issue or sell any debt securities or guarantee, endorse or
otherwise become responsible for any obligation of any other person, provided
that this Section 4.2(g) shall not apply to indebtedness for borrowed money,
debt securities or guaranties that aggregate up to $20,000,000 or to financing
the purpose of which is to consummate the Mergers;
(h) change in any material respect the accounting methods or practices
followed by PacifiCare (including any material change in any assumption
underlying, or any method of calculating, any bad debt, contingency or other
reserve), except as may be required by changes in GAAP;
(i) or enter into any contract, agreement, commitment or arrangement
contemplating any of the foregoing.
31
4.4 NEGOTIATION WITH OTHERS.
(a) The Company shall not, and it shall not authorize or permit any of its
subsidiaries, officers, directors or employees or any of its or its
subsidiaries' Representatives, directly or indirectly, to (i) solicit, initiate
or knowingly encourage or induce the making of any Acquisition Proposal (as
defined in Section 7.1), (ii) furnish non-public information regarding the
Company or any of its subsidiaries in connection with an Acquisition Proposal or
potential Acquisition Proposal, (iii) negotiate or engage in discussions with
any third party with respect to any Acquisition Proposal, (iv) approve, endorse
or recommend any Acquisition Proposal or (v) enter into any letter of intent,
contract or other instrument related directly or indirectly to any Acquisition
Proposal (other than a nondisclosure agreement entered into in accordance with
Section 4.4(c) or contracts with advisors or consultants). Notwithstanding the
foregoing, nothing in this Section 4.4 shall be construed to prohibit the
Company or its Board of Directors from taking any actions or permitting any
actions described above (other than any action described in clause (i) above)
with respect to any Acquisition Proposal to the extent that the Board of
Directors of the Company shall conclude in good faith, based upon the advice of
its outside counsel, that such action is required in order for the Board of
Directors of the Company to act in a manner that is consistent with its
fiduciary obligations under applicable law (PROVIDED that, in the event any
letter of intent, contract or other instrument of the type described in clause
(v) of the preceding sentence is entered into, the consummation of any
transaction contemplated by the Acquisition Proposal to which such instrument
relates must be expressly conditioned upon the prior and valid termination of
this Agreement and the payment of any fee due under Article 7 hereof).
(b) The Company shall immediately advise PacifiCare orally and in writing
of the receipt of any Acquisition Proposal or any inquiry relating to an
Acquisition Proposal prior to the Effective Time, including a full description
of the terms of such Acquisition Proposal.
(c) Notwithstanding anything to the contrary contained herein, the Company
shall not furnish any information to any third party pursuant to clause (ii) of
the first sentence of Section 4.4(a) unless such third party has executed and
delivered to the Company a nondisclosure agreement that is not substantially
less restrictive than the nondisclosure agreement then in effect between the
Company and PacifiCare.
(d) The Company shall immediately cease and cause to be terminated any
discussions or negotiations with any parties existing as of the date of this
Agreement and that relate to any Acquisition Proposal and shall request the
return or destruction of all information previously disclosed to such parties in
accordance with the terms of any confidentiality agreements with such parties,
and shall use commercially reasonable efforts to ensure that such information is
returned or destroyed.
4.5 REGISTRATION STATEMENT; PROSPECTUS/PROXY STATEMENT.
(a) As promptly as practicable after the date of this Agreement, Holding
and PacifiCare shall prepare, with the assistance of the Company, and cause to
be filed with the SEC the S-4 Registration Statement, together with the
Prospectus/Proxy Statement and any other documents required by the Securities
Act or the Exchange Act in connection with the Mergers. Each of Holding,
PacifiCare and the Company shall use all commercially reasonable efforts to
cause the S-4 Registration Statement to comply with the rules and regulations
promulgated by the SEC, to respond promptly to any comments of the SEC or its
staff and to have the S-4 Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing. The Company shall
promptly furnish to Holding and PacifiCare all information concerning the
Company, its subsidiaries and its stockholders as may be required or reasonably
requested in connection with any action contemplated by this Section 4.5. Each
of Holding, PacifiCare and the Company shall (i) notify the other promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the S-4 Registration Statement
or the Prospectus/Proxy Statement or for additional information and (ii) shall
supply the other with copies of all correspondence with the SEC or its staff
with respect to the S-4 Registration Statement or the Prospectus/Proxy
Statement.
32
Neither Holding, PacifiCare nor the Company shall file any amendment or
supplement to the S-4 Registration Statement or the Prospectus/Proxy Statement
to which the other shall have reasonably objected. Whenever any event occurs
that should be set forth in an amendment or supplement to the S-4 Registration
Statement or the Prospectus/Proxy Statement, Holding, PacifiCare or the Company,
as the case may be, shall promptly inform the other of such occurrence and shall
cooperate in filing with the SEC or its staff, and, if appropriate, mailing to
stockholders of the Company and PacifiCare, such amendment or supplement.
(b) Prior to the Effective Time, Holding shall make all required filings
with state regulatory authorities and the NASD and shall use all commercially
reasonable efforts to obtain all regulatory approvals needed to ensure that the
Holding Class A Common Stock, Holding Class B Common Stock and Holding Series A
to be issued in the Mergers (i) will be qualified under the securities or "blue
sky" law of every jurisdiction of the United States in which any registered
stockholder of the Company or PacifiCare has an address of record on the record
date for determining the stockholders entitled to notice of and to vote on the
Mergers and (ii) will be approved for quotation at the Effective Time on the
Nasdaq National Market or the NYSE.
(c) Prior to the Effective Time, Holding shall file either the Holding
Restated Certificate of Incorporation or the Holding Restated Certificate of
Incorporation without Series A, as the case may be, with the Secretary of State
of the State of Delaware.
4.6 STOCKHOLDERS' MEETINGS.
(a) The Company shall take all action necessary in accordance with
applicable law to call and convene a meeting of the holders of Company Common
Stock and Company Series A Preferred Stock (the "Company Stockholders' Meeting")
to consider, act upon and vote upon the adoption and approval of this Agreement,
the Company Merger and the Series A Amendment. The Company Stockholders' Meeting
will be held within 60 days after the S-4 Registration Statement is declared
effective by the SEC. The Company shall ensure that the Company Stockholders'
Meeting is called, held and conducted, and that all proxies solicited in
connection with the Company Stockholders' Meeting are solicited, in compliance
with applicable law.
(b) The Board of Directors of the Company has unanimously recommended (and
the Prospectus/ Proxy Statement shall include a statement to the effect that the
Board of Directors of the Company has unanimously recommended) that the holders
of Company Common Stock and Company Series A Preferred vote in favor of and
adopt and approve this Agreement, the Company Merger and the Series A Amendment
at the Company Stockholders' Meeting and any related amendment to the Company's
Certificate of Incorporation, which unanimous recommendation shall not be
withdrawn, amended or modified in a manner adverse to PacifiCare. For purposes
of this Agreement, it shall constitute a modification adverse to PacifiCare if
such recommendation shall no longer be unanimous.
(c) PacifiCare shall take all action necessary in accordance with
applicable law to call or convene a meeting of the holders of PacifiCare Class A
Common Stock and the PacifiCare Class B Common Stock (the "PacifiCare
Stockholders' Meeting") to consider, act upon and vote upon the approval of this
Agreement, the PacifiCare Merger, the PacifiCare Amendment and any related
matters. The PacifiCare Stockholders' Meeting will be held as close to the date
of the Company Stockholders' meeting as is practicable. PacifiCare shall ensure
that the PacifiCare Stockholder's Meeting is called, held and conducted, and
that all proxies solicited in connection with such meeting are solicited, in
compliance with applicable law.
(d) The Board of Directors of PacifiCare has recommended, with no
dissenting votes (and the Prospectus/Proxy Statement shall include a statement
to the effect that the Board of Directors has so recommended) that the holders
of PacifiCare Class A Common Stock vote in favor of this Agreement, the
PacifiCare Merger, and related matters and that the holders of PacifiCare Class
A Common Stock and PacifiCare Class B Common Stock vote in favor of the
PacifiCare Amendment.
33
(e) Notwithstanding the foregoing, nothing in Section 4.5 or in this
Section 4.6 shall prevent the Board of Directors of the Company or PacifiCare
from withdrawing, amending or modifying its recommendation in favor of the
respective Mergers and approval and adoption of this Agreement and related
matters (and the Prospectus/Proxy Statement may reflect such withdrawal,
amendment or modification) to the extent that such Board of Directors of the
Company or PacifiCare shall conclude in good faith, based upon the advice of its
outside counsel, that such withdrawal, amendment or modification is required in
order for such Board of Directors to act in a manner that is consistent with its
fiduciary obligations under applicable law. Nothing contained in this Section
4.6(e) shall limit the Company's or PacifiCare's obligation to convene the
Company Stockholders' Meeting and the PacifiCare Stockholders' Meeting
(regardless of whether the recommendation of the Board of Directors of the
Company or PacifiCare, as the case may be, shall have been withdrawn, amended or
modified).
4.7 REGULATORY APPROVALS.
(a) Holding, the Company and PacifiCare shall use all reasonable efforts to
file and to cause any stockholders of the Company or PacifiCare, as the case may
be, to file as soon as practicable after the date of this Agreement all notices,
reports and other documents required by law to be filed with any Governmental
Authority with respect to the Mergers and the other transactions contemplated by
this Agreement and to submit promptly any additional information requested by
any such Governmental Authority. Without limiting the generality of the
foregoing, Holding, the Company and PacifiCare shall within fifteen (15)
business days from the date of the Original Agreement prepare and file the
notifications required under the HSR Act in connection with the Mergers.
Holding, the Company and PacifiCare shall respond as promptly as practicable to
(i) any inquiries or requests received from the Federal Trade Commission or the
Antitrust Division of the Department of Justice for additional information or
documentation and (ii) any inquiries or requests received from any state
attorney general or other Governmental Authority in connection with antitrust or
related matters.
(b) Holding, the Company and PacifiCare shall (i) give each other prompt
notice of the commencement of any Proceeding by or before any court or
Governmental Authority with respect to the Mergers or any of the other
transactions contemplated by this Agreement, (ii) keep each other informed as to
the status of any such Proceeding and (iii) except as may be prohibited by any
Governmental Authority or by any law or court order or decree, permit the other
party to be present at each meeting or conference relating to any such
Proceeding and to have access to and be consulted in advance in connection with
any document filed or provided to any Governmental Authority in connection with
any such Proceeding.
4.8 EMPLOYEE BENEFITS PLANS.
(a) At least twenty (20) days before the date of the Company Stockholders'
Meeting, PacifiCare shall notify the Company if it wishes to provide a mechanism
to cash out either vested or all outstanding Company Options. If PacifiCare
wishes to provide such a mechanism, PacifiCare shall offer (in a form reasonably
acceptable to the Company) to each holder of applicable Company Options, the
right to receive on the Effective Date, in return for the cancellation of such
option, an amount equal to (i) the product of the value of the consideration to
be received for each share of Company Common Stock covered by the cash out (with
stock values of Holding Common Stock measured by the average closing price as
quoted in the Wall Street Journal of PacifiCare's Class A Common Stock during
the twenty trading days ending the date immediately prior to the date of the
Company's Stockholder Meeting for Holding Class A Common Stock and by the
Average Pre-Vote Closing Share Price for Holding Class B Common Stock) times the
number of shares of Company Common Stock with respect to which such option is
exercisable, less (ii) the aggregate exercise price of such shares. The amount
paid to any holder of Company Options following such payment and cancellation
shall be net of applicable withholding taxes.
(b) On the Closing Date, and subject to any required approval of the
holders of Company Options, which the Company hereby covenants to exercise its
best efforts to obtain, Holding and PacifiCare will cause each Company Option to
be replaced effective as of the Effective Time, by a
34
substitute option of Holding (an "Exchange Option") issued under a Holding stock
option plan that complies in all respects with the applicable requirements of
Rule 16b-3 promulgated under the Exchange Act. The per share exercise price of
an Exchange Option shall equal the quotient, rounding up to the nearest cent, of
(i) the per share exercise price of the corresponding Company Option, less the
average closing price at which the rights to acquire ▇▇▇▇▇▇▇ stock trade on
their first five trading days after issuance, as quoted in the Wall Street
Journal ("rights to acquire ▇▇▇▇▇▇▇ stock" for this purpose means the portion of
such a right into which one share of Company Common Stock is converted in part),
divided by (ii) the fraction of a share of Holding Class B Common Stock that the
holder of such Company Option is entitled to purchase for each share of Company
Common Stock subject to such Company Option, as determined in the next sentence.
For each share of Company Common Stock subject to such Company Option, the
Exchange Option shall entitle the holder thereof to purchase a fraction of a
share of Holding Class B Common Stock equal to the sum of (i) the fraction of a
share of Holding Class B Common Stock into which one (1) share of Company Common
Stock actually outstanding at the Effective Time is converted pursuant to
Article 1, plus (ii) the fraction of a share of Holding Class B Common Stock
that could be purchased at the Average Pre-Vote Closing Share Price for the
value of the PacifiCare Class A Common Stock into which one (1) share of Company
Common Stock actually outstanding at the Effective Time is converted pursuant to
Article 1, which value shall be the average closing price as quoted in the Wall
Street Journal of the PacifiCare Class A Common Stock during the same trading
days that the Average Pre-Vote Closing Share Price is determined, plus (iii) the
fraction of a share of Holding Class B Common Stock that could be purchased at
the Average Pre-Vote Closing Share Price for $17.50. Any restriction on the
exercise of any Company Option shall apply to the Exchange Option and the term,
exercisability, vesting schedule and other provisions of such Company Option
shall similarly apply to the Exchange Option; provided, however, that each such
Exchange Option shall, in accordance with its terms, be subject to further
adjustment as appropriate to reflect any stock split, stock dividend,
recapitalization or other similar transaction subsequent to the Effective Time;
provided, further, that in the case of an Exchange Option of a person who is an
employee of the Company or one of its subsidiaries, such Exchange Option shall
provide that (i) any unvested shares, the vesting of which depends on
achievement by the Company of earnings or financial performance of the Company
for a fiscal year beginning on or after July 1, 1996, shall instead vest no
later than 25% per year over a four year period, with the first 25% vesting on
July 1, 1997 and (ii) if the holder of such Exchange Option is terminated
without cause after the Closing Date and before the date as of which, determined
as of execution of this Agreement and assuming no termination of any employee
and the application of the vesting schedule set forth in clause (i) above, there
would remain no more than 100,000 of such Exchange Options in the aggregate that
are not vested, such option shall thereupon become fully vested; provided
further that in the case of an Exchange Option of a person who is an employee of
▇▇▇▇▇▇▇, if the rights offering described in Section 4.15(c) is consummated in
such a manner that ▇▇▇▇▇▇▇ would no longer be considered a subsidiary of FHP for
purposes of such Exchange Option, the employment of such person by FHP or one of
its subsidiaries shall be deemed terminated for the convenience of the Company
and the accelerated vesting rights set forth in the foregoing proviso shall not
apply; further provided, that, in the case of a holder of an Exchange Option who
is a director of the Company or one of its subsidiaries and who is not an
employee of the Company or any of its subsidiaries, the Exchange Option shall
vest immediately when such holder no longer is serving as a director of Holding
or Company or one of their subsidiaries. The Company, Holding and PacifiCare
shall take such reasonable actions, and cooperate with each other in all action,
that may be necessary and permissible to effectuate the provisions of this
Section 4.8(b), including without limitation, timely sending notice of the
Company's Board of Director's determination to suspend acceleration of vesting
of Company Options issues under the Company's Executive Incentive Plan. The
provisions of this Section 4.8(b) shall not limit in any manner PacifiCare's
right to cash out the vested portion of outstanding Company options under
Section 4.8(a). To the extent required under applicable law, the terms of the
applicable Company Option plans or under any agreement thereunder, the Company
shall obtain stockholder approval of the transactions contemplated by this
Section 4.8(b) and shall use its best efforts to obtain the consent of any
optionee whose consent may be required. As soon as practicable
35
after the Effective Time, Holding shall file with the SEC a registration
statement on Form S-8 with respect to the shares of Holding Class B Common Stock
underlying the Exchange Options and use its reasonable best efforts to have such
registration statement declared effective under the Securities Act. The Company
may amend the employment agreements described in Schedule 2.6 of the Company
Disclosure Schedule to adjust the terms and conditions for vesting of Company
Options held by employees party to such agreements, provided the adjusted
vesting is no more favorable than acceleration upon a "Change of Control" as
defined in such agreements and does not render nondeductible to the Company any
amounts under Section 280G of the Code, and further provided any such adjustment
shall neither increase other benefits or amounts payable by the Company nor
increase the number of shares or decrease the exercise price under any Company
Option now outstanding.
(c) Either (i) the Company shall cause the Company's Employee Stock
Purchase Plan to be terminated immediately prior to the Effective Time, and such
termination shall have the effects set forth in such Plan, or (ii) prior to the
Effective Time, Holding, Company and PacifiCare shall cause each right to
purchase Company Common Stock to be replaced, effective as of the Effective
Time, by a substitute right to purchase shares of Holding Class B Common Stock
("Exchange Purchase Right") issued under a Holding Employee Stock Purchase Plan
("Holding Purchase Plan") that is intended to comply with Section 423 of the
Code. The purchase price of shares of Holding Class B Common Stock under an
Exchange Purchase Right shall be equal to 85% of the fair market value of
Holding Class B Common Stock on the first date on which shares of Holding Class
B Common Stock are purchased under the terms of the Holding Purchase Plan. The
terms and conditions of each Exchange Purchase Right shall satisfy the
requirements of Section 424(a) of the Code.
(d) As of the Effective Time and for a period of not less than one year
thereafter, except to the extent required to satisfy applicable, governing law,
Holding shall, or shall cause the Company Surviving Corporation and its
subsidiaries, to provide employee benefits other than those addressed in Section
4.8(a), 4.8(b) or 4.8(c) which are either (i) no less favorable on an aggregate
basis to the benefits provided by the Company or its subsidiaries prior to the
Effective Time or (ii) as provided to similarly situated employees of PacifiCare
and its subsidiaries. Thereafter, to the extent that employees of the Company
Surviving Corporation or its subsidiaries participate in benefit plans of
Holding, for purposes of eligibility of such employees for such employee
benefits, Holding agrees to credit such employee's service with the Company or
its subsidiaries for such purposes as vesting, calculation of benefits, and
eligibility to participate and, if applicable, to waive any pre-existing
condition limitations related thereto to the extent permitted by such plans as
currently in effect and applicable law. Holding and PacifiCare shall cause the
Company's and its subsidiaries' employees to be offered the right to participate
in Holding's and its subsidiaries' stock option plans and arrangements upon
substantially consistent terms.
(e) STOCK OPTIONS OF PACIFICARE. At the Effective Time, each outstanding
option to purchase shares of PacifiCare Class B Common Stock (a "PacifiCare
Class B Option") under any of PacifiCare's stock options plans, shall be
canceled and Holding shall issue in substitution therefor an option to purchase
Holding Class B Common Stock (a "Holding Class B Substitute Option") issued
under a Holding stock option plan to be adopted by Holding prior to the
Effective Time. The exercise price and the number of shares of Holding Class B
Common Stock subject to each Holding Class B Substitute Option shall be
identical to the exercise price and the number of shares of PacifiCare Class B
Common Stock subject to the PacifiCare Class B Option that such Holding Class B
Substitute Option replaces. In compliance with Section 424(a) of the Code, each
such Holding Class B Substitute Option shall be subject to substantially all of
the other terms and conditions of PacifiCare stock option it replaces. At the
Effective Time, each outstanding option to purchase shares of PacifiCare Class A
Common Stock (a "PacifiCare Class A Option") shall be converted into an option
to purchase shares of Holding Class A Common Stock (a "Holding Class A
Substitute Option") MUTATIS MUTANDIS. The exercise price and the number of
shares of Holding Class A Common Stock subject to each Holding Class A
Substitute Option shall be identical to the exercise price and the number of
shares of PacifiCare Class A Common Stock subject to the PacifiCare Class A
Option that such Holding Class A Substitute
36
Option replaces. In compliance with Section 424(a) of the Code, each such
Holding Class A Substitute Option shall be subject to substantially all of the
other terms and conditions of the PacifiCare stock option it replaces.
4.9 INDEMNIFICATION.
(a) With respect to actions, omissions and events occurring through the
Effective Time, all rights to indemnification existing in favor of the current
directors and officers of the Company and PacifiCare as provided in their
respective Certificates of Incorporation and indemnification agreements, each as
in effect as of the date of the Original Agreement, shall survive the Mergers
and shall be observed by Holding, PacifiCare Surviving Corporation and Company
Surviving Corporation.
(b) In addition to and without limiting Section 4.9(a), Holding shall, from
and after the Closing, to the fullest extent permitted under applicable laws,
indemnify, defend and hold harmless the current officers and directors of
PacifiCare and the Company (collectively, the "Indemnified Parties") against all
losses, expenses, claims, damages, liabilities or amounts that are paid in
settlement of (subject to Section 4.9(c)), or otherwise incurred in connection
with, any claim, action, suit, proceeding or investigation by reason of the fact
that such Indemnified Party was a director or officer of PacifiCare or the
Company prior to the Effective Time and arising out of actions, omissions and
events occurring at or prior to the Effective Time or in connection with the
Mergers and the actions taken in connection therewith (a "Claim") and shall pay
expenses in advance of the final disposition of any such Claim to each
Indemnified Party upon receipt from the Indemnified Party to whom expenses are
advanced of an undertaking reasonably satisfactory to Holding to repay such
advances if legally required to do so PROVIDED, HOWEVER, that Holding will not
be liable under this Section 4.9(b) to any Indemnified Party for any action
found by a court of competent jurisdiction to constitute a violation of law, a
breach of fiduciary duty to the Company (or any subsidiary) or wilful
misconduct.
(c) For purposes of Section 4.9(b), in the event any Claim is brought
against any Indemnified Party, Holding will be entitled to participate therein
at its own expense. In such event, the Indemnified Parties shall cooperate with
and provide all information reasonably requested by Holding. Except as otherwise
provided below, Holding may, at its option, assume the defense of any Claim,
with counsel reasonably satisfactory to the Indemnified Party. After notice from
Holding to the Indemnified Party of the election by PacifiCare to assume the
defense thereof, Holding will not be liable to the Indemnified Party under
Section 4.9(b) for any legal or other expenses subsequently incurred by the
Indemnified Party in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. The Indemnified Party
shall have the right to employ separate counsel in connection with such Claim,
but the fees and expenses of such counsel incurred after notice from Holding of
its assumption of the defense thereof shall be at the expense of the Indemnified
Party unless (i) the employment of counsel by the Indemnified Party has been
authorized by Holding, (ii) the Indemnified Party shall have reasonably
concluded that there is, under applicable standards of professional conduct, an
actual conflict between the interests of Holding and the Indemnified Party in
the conduct of the defense of such action or (iii) Holding shall not have
employed counsel to assume the defense of such action, in each of which cases
the reasonable fees and expenses of the Indemnified Party's separate counsel
shall be at the expense of Holding. In any case where the expense of defending a
Claim is to be borne by Holding, the Indemnified Parties as a group shall be
entitled to no more than one law firm (in addition to local counsel) to
represent them with respect to such Claim unless there is, under applicable
standards of professional conduct (as reasonably determined by counsel to the
Indemnified Parties), an actual conflict between the interests of any two or
more Indemnified Parties, in which event such additional counsel as may be
required by reason of such conflict may be retained by the Indemnified Parties.
Holding shall not be liable to indemnify the Indemnified Party under Section
4.9(b) for any amounts paid in any settlement of any Claim if such settlement is
effected without Holding's written consent. Holding shall be permitted to settle
any Claim, except that Holding shall not settle any Claim
37
in any manner which would impose any non-monetary penalty or material limitation
(or any monetary penalty with respect to which the Indemnified Party is not
entitled to indemnification pursuant to Section 4.9(b)) on the Indemnified Party
without the Indemnified Party's consent.
Any Indemnified Party wishing to claim indemnification under Section 4.9
upon learning of any such Claim shall promptly notify Holding (although the
failure so to notify Holding shall not relieve Holding from any liability that
Holding may have under Section 4.9, except to the extent such failure materially
prejudices Holding's position with respect to such Claim), and shall deliver to
Holding the undertaking specified in Section 4.9(b) above.
(d) Holding shall maintain in effect for a period of not less than five
years from the Effective Time the current policy of directors' and officers'
liability insurance maintained by PacifiCare and the Company, as the case may
be, with respect to matters occurring prior to the Effective Time; PROVIDED,
HOWEVER, that (i) Holding may substitute therefor policies of comparable
coverage (with carriers comparable to PacifiCare's and the Company's existing
carriers) and (ii) Holding shall not be required to pay an annual premium for
such insurance in excess of two hundred percent (200%) of the last annual
premium paid by PacifiCare or the Company, as the case may be, for such
insurance prior to the date of this Agreement (the "200% Amount"). In the event
the annual premium for such insurance exceeds the 200% Amount, Holding shall be
entitled to reduce the amount of coverage of such insurance to the amount of
coverage that can be obtained for a premium equal to the 200% Amount.
(e) In the event Holding or any of its successors or assigns (i)
consolidates with or merges into any other Person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any Person, then, and in each such case, to the extent necessary to
effectuate the purposes of this Section 4.9, proper provision shall be made so
that the successors and assigns of Holding assume the obligations set forth in
this Section 4.9 and none of the actions described in clause (i) or (ii) shall
be taken until such provision is made.
4.10 ADDITIONAL AGREEMENTS.
(a) Subject to Section 4.10(b), Holding, PacifiCare and the Company agree
to use all commercially reasonable efforts to take, or cause to be taken, all
actions necessary to consummate the Mergers and make effective the other
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, but subject to Section 4.10(b), Holding, PacifiCare and the
Company shall use all commercially reasonable efforts to (i) obtain the consent
and approval of each Governmental Authority, lessor or other person whose
consent or approval is required (by virtue of any contractual provision or legal
requirement or otherwise) in order to permit the consummation of the Merger or
any of the other transactions contemplated by this Agreement or in order to
enable Holding, PacifiCare Surviving Corporation and Company Surviving
Corporation to conduct their respective businesses in the manner in which such
business is currently being conducted or is proposed to be conducted, (ii)
effect all registrations and filings necessary to consummate the Mergers and
(iii) lift any restraint, injunction or other legal bar to the Mergers.
(b) Notwithstanding anything to the contrary contained in Section 4.10(a)
or elsewhere in this Agreement, (i) Holding shall not have any obligation under
this Agreement to dispose or cause any of its subsidiaries to dispose of any
material assets, (ii) Holding shall not have any obligation to make any changes
to its operations or proposed operations or to the operations or proposed
operations of any of its subsidiaries and (iii) Holding shall not have any
obligation to make any commitment (to any Governmental Authority or otherwise)
regarding its future operations, or the future operations of any of its
subsidiaries, or the future operations of PacifiCare Surviving Corporation or
the Company Surviving Corporation or any of their respective Material
Subsidiaries which would, in each of case (ii) and (iii) above, have a material
adverse effect thereon (even though the disposition of such assets or the making
of such change or commitment might facilitate the obtaining of a required
approval from a Governmental Authority or might otherwise facilitate the
consummation of the Mergers).
38
4.11 DISCLOSURE. PacifiCare and the Company will (i) mutually agree on the
text of any press release and (ii) consult with each other before making any
other public statement with respect to this Agreement and the transactions
contemplated by this Agreement, except, in each such case, as may be required by
applicable law (including disclosure requirements) or any listing or similar
agreement with any national securities exchange or the Nasdaq National Market.
4.12 AFFILIATE AGREEMENTS. The Company shall deliver to PacifiCare, within
ten days after the date of this Agreement, a letter from the Company identifying
all persons who may be "affiliates" of the Company as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act ("Company
Affiliates"). The Company shall use all commercially reasonable efforts to cause
each person who is or becomes a Company Affiliate to execute and deliver to
PacifiCare, on or prior to the date of the mailing of the Prospectus/Proxy
Statement, an Affiliate Agreement in the form attached hereto as Exhibit 4.12.
PacifiCare shall use all commercially reasonable efforts to cause each person
who is or becomes an affiliate of PacifiCare to execute and deliver a similar
agreement on or prior to such date.
4.13 TAX QUALIFICATION AND OPINION BACK-UP CERTIFICATES. Each of Holding,
the Company and PacifiCare will use its reasonable best efforts to cause the
transactions contemplated by this Agreement, other than the transactions with
respect to ▇▇▇▇▇▇▇ contemplated by Section 4.15 hereof, to qualify as transfers
subject to the provisions of Section 351(a) of the Code and to deliver, in
connection with the tax opinions referred to in Sections 5.9 and 6.8,
certificates of representation reasonable under the circumstances ("Tax
Certificates").
4.14 FINANCING. PacifiCare has received from Bank of America NT&SA a
commitment letter dated August 2, 1996 (the "Commitment Letter") containing its
commitment, subject to the terms and conditions thereof, to provide sufficient
financing to permit PacifiCare and Holding to consummate the transactions
contemplated hereby. A true and accurate copy of the Commitment Letter has been
provided to the Company. PacifiCare and Holding shall enter into the definitive
credit agreements contemplated by the Commitment Letter (or any revised
commitment letter more favorable to PacifiCare and Holding) prior to the date on
which the Proxy/Prospectus is mailed to the Company's Stockholders.
4.15 ▇▇▇▇▇▇▇.
(a) The Company shall negotiate a written agreement with ▇▇▇▇▇▇▇ under
which all ▇▇▇▇▇▇▇ contracted medical providers or sites agree to provide
professional services to members of HMOs and enrollees in insurance products of
the Company and Company Surviving Corporation and their subsidiaries in exchange
for a current market rate capitation payment ("Capitated Contract"). The
Capitated Contract shall be subject to the review and approval of PacifiCare
prior to execution. In addition to the Capitated Contract, the Company and
▇▇▇▇▇▇▇ shall enter into an agreement for the Company to render administrative
services (information systems, payroll, accounts payable, employee benefits
administration and the like) for a period not to exceed one year following the
Effective Date at a rate and on other terms approved by PacifiCare. PacifiCare
shall negotiate in good faith with the Company and ▇▇▇▇▇▇▇ in determining
whether to give its approval.
(b) Following execution of the Capitated Contract, the Company shall
capitalize ▇▇▇▇▇▇▇ to increase its net worth to approximately $60,000,000
("Capital Contribution"); provided, however, that in all events the net worth of
▇▇▇▇▇▇▇ shall be equal to the proceeds of the rights offering referred to in
Section 4.15(c) below, assuming all such rights are exercised.
(c) Following the Capital Contribution, simultaneous with consummation of
the Mergers or as soon thereafter as legally permissible, Holding shall cause
the issuance of rights to all holders of Company Common Stock and Company Series
A Preferred Stock outstanding immediately prior to the Effective Time (other
than holders who have perfected appraisal rights in accordance with Section 1.8)
and allocated among them on a Company common share equivalent basis, exercisable
until the first business day on or after the thirtieth day after the date of the
Effective Time and expiring thereafter, to purchase, directly or indirectly
through one or more other corporations formed to
39
facilitate such purchase all of Company's interest in ▇▇▇▇▇▇▇. In connection
with the purchase, Holding, PacifiCare, the Company and ▇▇▇▇▇▇▇ shall discuss
the possibility of a Code section 338(h)(10) election in connection with such
purchase; provided however, that no such election shall be made without the
prior written consent of PacifiCare, which consent shall not be withheld unless
there is an adverse impact to PacifiCare.
(d) Before the Effective Time and with the prior consent of PacifiCare as
to significant actions, the Company and ▇▇▇▇▇▇▇ shall take such steps as are
reasonably required to consummate the separation of ▇▇▇▇▇▇▇ from the Company.
The Company and ▇▇▇▇▇▇▇ shall have the right to continue to prosecute the
application now pending before the California Department of Corporations for the
issuance of stock options to employees of ▇▇▇▇▇▇▇ and to carry out transactions
consistent with such application as permitted by Section 4.2(b) if and when a
permit is granted pursuant thereto.
(e) The Company will not assign any of its rights under that certain Stock
Purchase Agreement dated as of March 15, 1996 by and between the Company,
▇▇▇▇▇▇▇ Medical Management Corporation, ▇▇▇▇▇▇▇ Health Services Corporation and
certain management investors, as amended (the "▇▇▇▇▇▇▇ Stock Purchase
Agreement"). From and after the Effective Time, Holding will cause the committee
of the Company that makes the determinations required by Section 5.3 of the
▇▇▇▇▇▇▇ Stock Purchase Agreement to consist of the members of the Compensation
Committee of Holding and one member of the Board of Directors of ▇▇▇▇▇▇▇,
designated by the Board of Directors of ▇▇▇▇▇▇▇ and reasonably acceptable to the
Board of Directors of Holding.
4.16 7% SENIOR NOTES DUE 2003. Holding shall, if required by applicable
law or the terms of the Company's 7% Senior Notes Due 2003 (the "Senior Notes"),
assume the Senior Notes.
4.17 NOTICES OF CERTAIN EVENTS. Each of Holding, the Company and
PacifiCare shall promptly notify the other of:
(a) any notice or other communication from any Person alleging that the
consent of such Person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any governmental body, agency,
official or authority in connection with the transactions contemplated by this
Agreement that indicates such body, agency, official or authority intends to
take action that would prevent or materially interfere with the transactions
contemplated by this Agreement; and
(c) any actions, suits, claims, investigations, proceedings or health or
insurance related proceedings or market conduct examinations or audits commenced
or, to the best of Company's or PacifiCare's knowledge (as the case may be)
threatened against, relating to or involving or otherwise affecting the Company
or PacifiCare or any of their subsidiaries which, if pending on the date of this
Agreement, would have been required to have been disclosed pursuant to Section
2.7 or 3.7 or which relate to the consummation of the transactions contemplated
by this Agreement.
4.18 CERTAIN CORPORATE MATTERS WITH RESPECT TO PACIFICARE.
(a) PacifiCare shall cause Holding to take all necessary corporate action
for the establishment of the Holding stock option plans contemplated by Section
4.8 hereof and agrees to vote the shares of capital stock of Holding owned by it
in favor of the adoption of such plans as required under the laws of the State
of Delaware.
(b) From the date hereof until the Effective Time, PacifiCare shall cause
Holding (x) not to take any action inconsistent with the provisions of this
Agreement and (y) not to conduct business or activity other than in connection
with this Agreement.
4.19 COMPLIANCE WITH REGULATIONS. PacifiCare and the Company will each use
reasonable commercial efforts, and will cause their subsidiaries to use
reasonable commercial efforts, to comply with applicable rules and regulations
of the Health Care Financing Administration relating to so-called physician
incentive plans.
40
4.20 ASSUMPTION BY SUCCESSOR. Holding, effective as of the Effective Time,
assumes expressly and agrees to perform the employment agreements described in
Schedule 2.6 of the Company Disclosure Schedule in the same manner and to the
same extent that the Company would be required to perform them.
4.21 NO ACTIVITY BY HOLDING. From the date of the Original Agreement until
the Effective Time, PacifiCare shall not cause or permit Holding, Neptune Sub or
Company Sub to (i) issue any stock or securities or (ii) acquire any property,
incur any liabilities or engage in any business or activity whatsoever, other
than to consummate the Mergers and transactions contemplated hereby (including
the financing thereof) and to carry out its obligations hereunder.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS OF PACIFICARE AND HOLDING
The obligations of PacifiCare and Holding to effect the Mergers and
otherwise consummate the transactions contemplated by this Agreement are subject
to the fulfillment, at or prior to the Closing, of each of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES ACCURATE.
(a) The representations and warranties of the Company contained in this
Agreement shall have been accurate in all material respects as of the date of
the Original Agreement.
(b) The representations and warranties of the Company contained in this
Agreement shall be accurate in all respects as of the date of the Closing as if
made on and as of the date of the Closing, except that any inaccuracies in such
representations and warranties will be disregarded if the circumstances giving
rise to such inaccuracies (considered individually and collectively) do not
constitute, and would not reasonably be expected to result in, a Material
Adverse Effect on the Company (it being understood that, for purposes of
determining the accuracy of such representations and warranties, (i) all
Material Adverse Effect qualifications shall be disregarded and (ii) any update
of or modification to the Company Disclosure Schedule made or purported to have
been made after the date of the Original Agreement shall be disregarded).
5.2 COMPLIANCE WITH COVENANTS. The Company shall have complied with and
performed in all material respects each covenant contained in this Agreement
that is required to be performed by the Company on or prior to the date of the
Closing.
5.3 NO MATERIAL ADVERSE EFFECT. Since the date of the Original Agreement,
there shall not have been any Material Adverse Effect on the Company and there
shall not have occurred any change or development, or any combination of changes
or developments, that would reasonably be expected to have a Material Adverse
Effect on the Company.
5.4 CERTIFICATE. The Company shall have delivered to PacifiCare a
certificate of the Chief Executive Officer of the Company evidencing compliance
with the conditions set forth in Sections 5.1, 5.2 and 5.3.
5.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
5.6 STOCKHOLDER APPROVAL. This Agreement, the Mergers and the PacifiCare
Amendment shall have been adopted and approved by the Required Company Vote and
the Required PacifiCare Vote, as applicable.
5.7 AFFILIATES AGREEMENTS. The Affiliates Agreements described in Section
4.12 shall have been executed by each party therein described and delivered to
PacifiCare.
41
5.8 LEGAL OPINION. PacifiCare shall have received an opinion of Sheppard,
Mullin, ▇▇▇▇▇▇▇ & Hampton LLP, counsel to the Company, dated as of the date of
the Closing, in such form as shall be reasonably acceptable to PacifiCare and
its counsel.
5.9 TAX OPINION. Subject to receipt by PacifiCare's counsel of the Tax
Certificates, PacifiCare shall have received a written opinion from PacifiCare's
counsel, dated as of the date of the Closing (reasonably satisfactory in form
and substance to PacifiCare), to the effect that neither PacifiCare nor any of
its stockholders will recognize gain or loss for United States federal income
tax purposes as a result of the PacifiCare merger. For purposes of rendering
such opinion, PacifiCare's counsel shall be entitled to rely upon the Tax
Certificates.
5.10 ABSENCE OF RESTRAINT. No order to restrain, enjoin or otherwise
prevent the consummation of either of the Mergers shall have been entered by any
court or Governmental Authority.
5.11 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Proceeding in which a Governmental Authority is or is threatened to become a
party: (a) challenging or seeking to restrain or prohibit the consummation of
either of the Mergers; (b) relating to either of the Mergers and seeking to
obtain from Holding or PacifiCare or any of their subsidiaries any damages that
may be material to Holding or PacifiCare; (c) seeking to prohibit or limit in
any material respect Holding's ability to vote, receive dividends with respect
to or otherwise exercise ownership rights with respect to the stock of
PacifiCare Surviving Corporation or Company Surviving Corporation (PacifiCare
Surviving Corporation and Company Surviving Corporation being sometimes referred
to below as "Surviving Corporations"); or (d) which would materially and
adversely affect the right of Holding, the Surviving Corporations or any
subsidiary thereof to own the assets or operate the business of PacifiCare, the
Company or any of their subsidiaries.
5.12 NO OTHER LITIGATION. There shall not be pending any Proceeding in
which there is a reasonable possibility of an outcome that would have a Material
Adverse Effect on Holding, PacifiCare or the Company: (a) challenging or seeking
to restrain or prohibit the consummation of either of the Mergers; (b) relating
to either of the Mergers and seeking to obtain from Holding or PacifiCare or any
of its subsidiaries any damages that may be material to Holding or PacifiCare;
(c) seeking to prohibit or limit in any material respect Holding's ability to
vote, receive dividends with respect to or otherwise exercise ownership rights
with respect to the stock of the Surviving Corporations; or (d) which would
affect adversely the right of Holding, the Surviving Corporations or any of
their subsidiaries to own the assets or operate the business of PacifiCare, the
Company or any of their subsidiaries.
5.13 HSR ACT. The waiting periods applicable to the consummation of the
Mergers, and the acquisitions of voting securities of Holding by the
stockholders of Company and PacifiCare, if any, under the HSR Act shall have
expired or been terminated.
5.14 QUOTATION ON NASDAQ NATIONAL MARKET OR NEW YORK STOCK EXCHANGE. The
Holding Class A Common Stock, Holding Class B Common Stock and, if applicable,
Holding Series A issuable in the Mergers shall have been approved for quotation
on the Nasdaq National Market or listing on the NYSE upon official notice of
issuance thereof.
5.15 OTHER REQUIRED CONSENTS AND APPROVALS. Holding, PacifiCare and the
Company shall have received all material approvals, licenses, consents,
assignments and authorizations of Governmental Authorities and other persons,
including those set forth on the Company Disclosure Schedule, as may be required
(a) to permit the performance by Holding, PacifiCare and the Company of their
respective obligations under this Agreement and the consummation of the Mergers
and (b) to permit Holding and the Surviving Corporations and their respective
subsidiaries to conduct their business and operations in the manner currently
conducted.
5.16 TAKECARE BOARD REPRESENTATION. The rights of certain former
stockholders of TakeCare to board representation on the Board of Directors of
the Company shall have been terminated.
42
5.17 RESTATED RIGHTS PLAN. The Restated Rights Plan shall have been
amended to provide that the transactions contemplated by this Agreement do not
give rise to any rights or benefits under the Restated Rights Plan.
5.18 ▇▇▇▇▇▇▇. The net worth of ▇▇▇▇▇▇▇ shall not exceed $60,000,000.
ARTICLE 6
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The obligations of the Company to effect the Company Merger and otherwise
consummate the transactions contemplated by this Agreement are subject to the
fulfillment, at or prior to the Closing, of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES ACCURATE.
(a) The representations and warranties of PacifiCare contained in this
Agreement shall have been accurate in all material respects as of the date of
the Original Agreement.
(b) The representations and warranties of PacifiCare contained in this
Agreement shall be accurate in all respects as of the date of the Closing as if
made on and as of the date of the Closing, except that any inaccuracies in such
representations and warranties will be disregarded if the circumstances giving
rise to such inaccuracies (considered individually and collectively) do not
constitute, and would not reasonably be expected to result in, a Material
Adverse Effect on PacifiCare (it being understood that, for purposes of
determining the accuracy of such representations and warranties as of the date
of the Closing, (i) all Material Adverse Effect qualifications shall be
disregarded and (ii) any update of or modification to the PacifiCare Disclosure
Schedule made or purported to have been made after the date of this Agreement
shall be disregarded).
6.2 COMPLIANCE WITH COVENANTS. PacifiCare shall have complied with and
performed in all material respects each covenant contained in this Agreement
that is required to be performed by PacifiCare on or prior to the date of the
Closing.
6.3 NO MATERIAL ADVERSE EFFECT. Since the date of the Original Agreement,
there shall not have been any Material Adverse Effect on PacifiCare, and there
shall not have occurred any change or development, or any combination of changes
or developments, that would reasonably be expected to have a Material Adverse
Effect on PacifiCare.
6.4 CERTIFICATE. PacifiCare shall have delivered to the Company a
certificate of an executive officer of PacifiCare evidencing compliance with the
conditions set forth in Sections 6.1, 6.2 and 6.3.
6.5 EFFECTIVENESS OF REGISTRATION STATEMENT. The S-4 Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order shall have been issued by the SEC with respect
to the S-4 Registration Statement.
6.6 STOCKHOLDER APPROVAL. This Agreement, the Mergers and the PacifiCare
Amendment shall have been adopted and approved by the Required Company Vote and
the Required PacifiCare Vote, as applicable.
6.7 LEGAL OPINION. The Company shall have received an opinion of ▇▇▇▇▇▇
Godward ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, counsel to PacifiCare, dated as of the date of
the Closing, in such form as shall be reasonably acceptable to the Company and
its counsel.
6.8 TAX OPINION. Subject to receipt by the Company's counsel of the Tax
Certificates, the Company shall have received a written opinion from the
Company's counsel dated as of the date of the Closing to the effect that the
Company Merger will constitute a contribution of Company Common Stock and
Company Series A Preferred Stock to Holding in exchange for Holding capital
stock as part of a transaction governed by Section 351 of the Code. For purposes
of rendering such opinion, the Company's counsel shall be entitled to rely upon
the Tax Certificates.
43
6.9 ABSENCE OF RESTRAINT. No order to restrain, enjoin or otherwise
prevent the consummation of either of the Mergers shall have been entered by any
court or Governmental Authority.
6.10 NO GOVERNMENTAL LITIGATION. There shall not be pending or threatened
any Proceeding in which a Governmental Authority is or is threatened to become a
party: (a) challenging or seeking to restrain or prohibit the consummation of
either of the Mergers; (b) relating to either of the Mergers and seeking to
obtain from the Company or any of its subsidiaries any damages that may be
material to the Company (c) seeking to prohibit or limit in any material respect
Holding's ability to vote, receive dividends with respect to or otherwise
exercise ownership rights with respect to the stock of the Surviving
Corporations; or (d) which would materially and adversely affect the right of
Holding, the Surviving Corporations or any subsidiary thereof to own the assets
or operate the business of PacifiCare or the Company or any of their
subsidiaries.
6.11 HSR ACT. The waiting period applicable to the consummation of the
Mergers under the HSR Act shall have expired or been terminated.
6.12 QUOTATION ON NASDAQ NATIONAL MARKET OR NEW YORK STOCK EXCHANGE. The
Holding Class A Common Stock, Holding Class B Common Stock and, if applicable,
Holding Series A issuable in the Mergers shall have been approved for quotation
on the Nasdaq National Market or listing on the NYSE upon official notice of
issuance thereof.
ARTICLE 7
TERMINATION OF AGREEMENT
7.1 TERMINATION. This Agreement may be terminated prior to the Closing
Date, whether before or after approval of the Mergers by the stockholders of the
Company and PacifiCare:
(a) by mutual written consent of the respective Boards of Directors of
PacifiCare and the Company;
(b) by either PacifiCare or the Company if either of the Mergers shall not
have been consummated by April 30, 1997 (unless the failure to consummate such
Merger is attributable to a failure on the part of the party seeking to
terminate this Agreement to perform any material obligation required to be
performed by such party at or prior to the Effective Time);
(c) by either PacifiCare or the Company if a court of competent
jurisdiction or Governmental Authority shall have issued a final and
nonappealable order, decree or ruling, or shall have taken any other action,
having the effect of permanently restraining, enjoining or otherwise prohibiting
either of the Mergers;
(d) by either PacifiCare or the Company if (i) the Company Stockholders'
Meeting shall have been held and (ii) this Agreement and the Company Merger
shall not have been adopted and approved at such meeting by the Company Required
Vote;
(e) by PacifiCare (at any time prior to the adoption and approval of this
Agreement and the Company Merger by stockholders of the Company by the Company
Required Vote) if a Triggering Event (as defined below) shall have occurred;
(f) by either PacifiCare or the Company if (i) the PacifiCare Stockholders'
Meeting shall have been held and (ii) this Agreement, the PacifiCare Merger and
any related matters shall not have been adopted and approved at such meeting by
the Required PacifiCare Vote;
(g) by PacifiCare if any of the Company's representations and warranties
contained in this Agreement shall be or shall have become materially inaccurate
as of the date of the Original Agreement, or if any of the Company's covenants
contained in this Agreement shall have been breached in any material respect;
PROVIDED, HOWEVER, that if an inaccuracy in the Company's representations and
warranties or a breach of a covenant by the Company is curable by the Company
and the Company is
44
continuing to exercise all commercially reasonable efforts to cure such
inaccuracy or breach, then PacifiCare may not terminate this Agreement under
this Section 7.1(g) on account of such inaccuracy or breach; or
(h) by the Company if any of PacifiCare's or Holding's representations and
warranties contained in this Agreement shall be or shall have become materially
inaccurate as of the date of the Original Agreement, or if any of PacifiCare's
or Holding's covenants contained in this Agreement shall have been breached in
any material respect; PROVIDED, HOWEVER, that if an inaccuracy in PacifiCare's
or Holding's representations and warranties or a breach of a covenant by
PacifiCare or Holding is curable by PacifiCare or Holding and PacifiCare or
Holding is continuing to exercise all commercially reasonable efforts to cure
such inaccuracy or breach, then the Company may not terminate this Agreement
under this Section 7.1(h) on account of such inaccuracy or breach.
A "Triggering Event" shall be deemed to have occurred if (i) the Board of
Directors of the Company shall have failed to recommend, shall for any reason
have withdrawn or shall have amended or modified in a manner adverse to
PacifiCare its unanimous recommendation in favor of the Company Merger or
approval or adoption of this Agreement, or the Company shall have failed to
include in the Prospectus/Proxy Statement the unanimous recommendation of the
Board of Directors of the Company in favor of the Company Merger and approval
and adoption of this Agreement and related matters; (ii) the Board of Directors
of the Company shall have approved, endorsed or recommended any Acquisition
Proposal; (iii) the Company shall have entered into any letter of intent,
contract or other instrument related directly or indirectly to any Acquisition
Proposal (other than a nondisclosure agreement entered into in accordance with
Section 4.4(c) or contracts with advisors or consultants); or (iv) the Company
shall have failed to hold the Company Stockholders' Meeting within 60 days after
the S-4 Registration Statement is declared effective and any Acquisition
Proposal shall have been made during such 60-day period.
"Acquisition Proposal" shall mean any proposal (other than any proposal by
PacifiCare or Neptune Sub or in connection with the transactions contemplated in
Section 4.15 regarding ▇▇▇▇▇▇▇) regarding (i) any merger, consolidation, share
exchange, business combination or other similar transaction or series of related
transactions involving the Company; (ii) any sale, lease, exchange, transfer or
other disposition of the assets of the Company or any subsidiary of the Company
constituting more than 50% of the consolidated assets of the Company or
accounting for more than 50% of the consolidated revenues of the Company in any
one transaction or in a series of related transactions; and (iii) any offer to
purchase, tender offer, exchange offer or any similar transaction or series of
related transactions made by any Person involving more than 50% of the
outstanding shares of the capital stock of the Company or the filing of any
Statement on Schedule 14D-1 with the SEC in connection therewith.
7.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement as provided in Section 7.1, this Agreement shall be of no further
force or effect; PROVIDED, HOWEVER, that (i) this Section 7.2, Section 7.3 and
Article 8 shall survive the termination of this Agreement and shall remain in
full force and effect, (ii) such termination shall have no effect on the
Confidentiality Agreement dated July 22, 1996 between PacifiCare and the Company
which shall remain in full force and effect and, (iii) subject to Section 7.3(b)
and 7.3(c) below, the termination of this Agreement shall not relieve any party
from any liability for any breach of this Agreement.
7.3 FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring such expenses, whether or not the
Mergers are consummated.
(b) In consideration of the substantial time, expense and forgoing of other
opportunities that PacifiCare and Holding have invested in the transactions
contemplated hereby:
45
(i) If this Agreement is terminated pursuant to Section 7.1(d) at any
time after the occurrence of a Triggering Event or if this Agreement is
terminated by PacifiCare pursuant to Section 7.1(e), then the Company shall
pay to PacifiCare a fee, in immediately available funds, of $50,000,000 (the
"Termination Amount"). In the case of termination of this Agreement by the
Company pursuant to Section 7.1(d), the Termination Amount shall be paid
prior to such termination, and in the case of termination of this Agreement
pursuant to Section 7.1(e) or by PacifiCare pursuant to Section 7.1(d), the
Termination Amount shall be paid within one business day of such
termination. If the Company fails to pay such fee by the date provided
herein, in addition to any other remedies that may be available to
PacifiCare for such breach by the Company, said fee shall bear interest at
the lower of 10% per annum and the maximum rate allowable by law from the
date such payment was due until the date such fee is actually paid.
(ii) If this Agreement is terminated pursuant to Section 7.1(d) (and
Section 7.3(b)(i) is not applicable) and within 12 months of the date of the
Company Stockholders' Meeting the Company enters into an agreement relating
to an Acquisition Proposal, the Company shall pay to PacifiCare, within one
business day of entering into such agreement, a fee in immediately available
funds, of the Termination Amount. If the Company fails to pay such fee by
the date provided herein, in addition to any other remedies that may be
available to PacifiCare for such breach by the Company, said fee shall bear
interest at the lower of 10% per annum and the maximum rate allowable by law
from the date such payment was due until the date such fee is actually paid.
(c) In consideration of the substantial time, expense and forgoing of other
opportunities that the Company has invested in the transactions contemplated
hereby if this Agreement is terminated pursuant to Section 7.1(f) or if the
Mergers are not consummated solely by reason of a breach by PacifiCare caused by
its failure to enter into definitive agreements related to the financing
contemplated by the Commitment Letter, or the termination of such agreements or
the failure of PacifiCare to receive the funding contemplated by the Commitment
Letter, and after diligent efforts to find commercially reasonable alternative
financing (a "Financing Breach"), then PacifiCare shall pay the Company a fee,
in immediately available funds, of $50,000,000, in the case of a termination
pursuant to Section 7.1(f) or $100,000,000 in the case of a Financing Breach. In
the case of a termination by PacifiCare pursuant to Section 7.1(f), the
Termination Amount shall be paid upon termination. In the case of a termination
by the Company pursuant to Section 7.1(f) or the failure to consummate the
transactions contemplated hereby solely because of a Financing Breach,
PacifiCare shall pay the Termination Amount promptly following such event.
If PacifiCare fails to pay such fee by the date provided, in addition to
such other remedies as may be available to the Company for such breach by
PacifiCare, said fee shall bear interest on such fee at the lower of 10% per
annum and the maximum rate allowable by law from the date such fee was due until
the date it was actually paid.
(d) Each of PacifiCare and the Company acknowledge that the fees payable
pursuant to Sections 7.3(b) and 7.3(c) (and, if applicable, any interest thereon
and attorneys' fees and costs related to any suit to enforce such provisions)
are the sole remedies of such parties for termination or failure to consummate
the Mergers under the circumstances described in such sections (other than any
willful breach of any agreement or covenant set forth in this Agreement).
ARTICLE 8
MISCELLANEOUS
8.1 AMENDMENT. This Agreement may be amended with the approval of the
respective Boards of Directors of Holding, the Company and PacifiCare at any
time before or after approval of this Agreement by the stockholders of the
Company and the stockholders of PacifiCare; PROVIDED, HOWEVER, that after any
such stockholder approval, no amendment shall be made which would have a
material
46
adverse effect on the stockholders of the Company or the stockholders of
PacifiCare without the further approval of such stockholders. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
8.2 WAIVER.
(a) No failure on the part of any party to exercise any power, right,
privilege or remedy under this Agreement, and no delay on the part of any party
in exercising any power, right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy; and no single or
partial exercise of any such power, right, privilege or remedy shall preclude
any other or further exercise thereof or of any other power, right, privilege or
remedy.
(b) No party shall be deemed to have waived any claim arising out of this
Agreement, or any power, right, privilege or remedy under this Agreement, unless
the waiver of such claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered on behalf of such
party; and any such waiver shall not be applicable or have any effect except in
the specific instance in which it is given.
8.3 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties contained in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Mergers.
8.4 ENTIRE AGREEMENT; COUNTERPARTS; APPLICABLE LAW. This Agreement and the
other agreements referred to herein and the Confidentiality Agreement dated as
of July 22, 1996 between PacifiCare and the Company constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, among or between any of the parties with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each of which
shall be deemed an original and all of which shall constitute one and the same
instrument, and shall be governed in all respects by the laws of the State of
Delaware without regard to its conflicts of laws principles.
8.5 ATTORNEYS' FEES. In any action at law or suit in equity to enforce
this Agreement or the rights of any of the parties hereunder, the prevailing
party in such action or suit shall be entitled to receive a reasonable sum for
its attorneys' fees and all other reasonable costs and expenses incurred in such
action or suit.
8.6 ASSIGNABILITY. This Agreement shall be binding upon, and shall be
enforceable by and inure solely to the benefit of, the parties hereto and their
respective successors; PROVIDED, HOWEVER, that this Agreement may not be
assigned by any party without the prior written consent of the other parties,
and any attempted assignment without such consent shall be void and of no
effect. Nothing in this Agreement, express or implied, is intended to or shall
confer upon any person except the parties hereto and their respective successors
any right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
8.7 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized, overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
To PacifiCare:
PacifiCare Health Systems, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
47
with a copy to:
Konowiecki & Rank
First Interstate World Center
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and:
▇▇▇▇▇▇ Godward LLP
Five Palo Alto Square
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To Holding:
N-T Holdings, Inc.
c/o PacifiCare Health Systems, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and:
Konowiecki & Rank
First Interstate World Center
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
48
To the Company:
FHP International Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (714)
with a copy to:
Sheppard, Mullin, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
To the Company Sub or Neptune Sub:
Tree Acquisition Corp. or Neptune Merger Corp. (as the case may be)
c/o PacifiCare Health Systems, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: President
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Konowiecki & Rank
First Interstate World Center
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
▇▇▇▇▇▇ Godward LLP
Five Palo Alto Square
▇▇▇▇ ▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of a telecopy, when the party receiving such telecopy shall have confirmed
receipt of the communication, (c) in the case of delivery by
nationally-recognized, overnight courier, on the business day following dispatch
and (d) in the case of mailing, on the fifth business day following such
mailing.
49
8.8 COOPERATION. Each of the Company and PacifiCare agrees to cooperate
fully with the other and to execute and deliver such further documents,
certificates, agreements and instruments and to take such other actions as may
be reasonably requested by the other to evidence or reflect the Mergers and to
carry out the intent and purposes of this Agreement.
8.9 CERTAIN TERMS. As used in this Agreement:
(a) the word "person" refers to any (i) individual, (ii) corporation,
partnership, limited liability company or other entity, or (iii) Governmental
Authority; and
(b) the words "include" and "including," and variations thereof, shall not
be deemed to be terms of limitation, but rather shall be deemed to be followed
by the words "without limitation."
(c) representations or warranties made to the "knowledge of" or to the
"knowledge of the Company" or "knowledge of PacifiCare" shall include only
matters that are known or should have been known by the officers of those
corporations.
8.10 TITLES. The titles and captions of the Articles and Sections of this
Agreement are included for convenience of reference only and shall have no
effect on the construction or meaning of this Agreement.
8.11 ARTICLES, SECTIONS AND EXHIBITS. Except as otherwise indicated, all
references in this Agreement to "Articles," "Sections" and "Exhibits" are
intended to refer to Articles and Sections of this Agreement and Exhibits to
this Agreement.
8.12 JURISDICTION. Any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated by this Agreement may be brought
against any of the parties in the United States District Court for the Central
District of California or any state court sitting in Orange County, California,
and each of the parties hereto hereby consents to the exclusive jurisdiction of
such courts (and of the appropriate appellate courts) in any such suit, action
or proceeding and waives any objection to venue laid therein. Process in any
suit, action or proceeding may be served on any party anywhere in the world,
whether within or without the State of California. Without limiting the
generality of the foregoing, each party hereto agrees that service of process
upon such party at the address referred to in Section 8.7, together with written
notice of such service to such party, shall be deemed effective service of
process upon such party.
8.13 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which shall be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
8.14 SCHEDULES. Any disclosure on a PacifiCare Disclosure Schedule or
Company Disclosure Schedule made with respect to an identified Section shall be
deemed to be a disclosure for the purpose of other sections of the applicable
Disclosure Schedule to which such disclosure is applicable on its face.
50
IN WITNESS WHEREOF, the parties hereby have executed this Amended and
Restated Agreement and Plan of Reorganization as of the date first above
written.
PACIFICARE HEALTH SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Its: President
N-T HOLDINGS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Its: President
NEPTUNE MERGER CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Its: President
TREE ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Its: President
FHP INTERNATIONAL CORPORATION
By: /s/ ▇▇▇▇▇▇▇▇ W. Price III
--------------------------------------
Its: President
51
EXHIBIT 1.4
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
N-T HOLDINGS, INC.
I
The name of this Corporation is: N-T Holdings, Inc.
II
The address of its registered office in the State of Delaware is ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇. The name of its registered agent at such address is
The ▇▇▇▇▇▇▇▇-▇▇▇▇ Corporation System, Inc.
III
The nature of business or purposes to be conducted or promoted is to engage
in any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
IV
A. N-T Holdings, Inc. ("Corporation") is authorized to issue three classes
of shares of stock to be designated, respectively, "Class A Common Shares,"
"Class B Common Shares," and "Preferred Shares." The total number of shares of
stock which the Corporation shall have authority to issue is two hundred forty
million (240,000,000). The total number of Class A Common Shares which the
Corporation shall have authority to issue is one hundred million (100,000,000),
and the par value of each such Class A Common Share shall be one cent ($0.01).
The total number of Class B Common Shares which the Corporation shall have
authority to issue is one hundred million (100,000,000), and the par value of
each such Class B Common Share shall be one cent ($0.01). The total number of
Preferred Shares which the Corporation shall have the authority to issue is
forty million (40,000,000), and the par value of each such Preferred Share shall
be one cent ($0.01).
B. The powers, preferences and rights of the holders of Class A Common
Shares and Class B Common Shares (collectively, the "Common Shares"), and the
qualifications, limitations or restrictions thereof, shall be in all respects
identical, except as otherwise required by law or expressly provided in this
Certificate of Incorporation, as amended, and subject to the powers, preferences
and rights of the holders of Preferred Shares, as provided in or as otherwise
determined by the Board of Directors pursuant to paragraph C of this Article IV.
1. DIVIDENDS. Dividends may be declared and paid to the holders of the
Class A Common Shares and the Class B Common Shares in cash, property, or other
securities of the Corporation out of any funds legally available therefore. If
and when dividends on the Class A Common Shares and the Class B Common Shares
are declared payable from time to time by the Board of Directors, whether
payable in cash, in property or in securities of the Corporation, the holders of
the Class A Common Shares and the holders of the Class B Common Shares shall be
entitled to share equally, on a per share basis, in such dividends, except that,
dividends or other distributions payable on the Common Shares in Common Shares
shall be made to all holders of Common Shares and may be made (i) in Class B
Common Shares to the record holders of Class A Common Shares and to the record
holders of Class B Common Shares, (ii) in Class A Common Shares to the record
holders of Class A Common Shares and in Class B Common Shares to the record
holders of Class B Common Shares, or (iii) in any other authorized class or
series of capital stock to the holders of both classes of Common Shares.
1
2. DISTRIBUTION ON DISSOLUTION, ETC. Upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the remaining
net assets of the Corporation shall, after payment in full of the liquidation
preference, if any, of any outstanding Preferred Shares, be distributed pro rata
to the holders of the Class A Common Shares and the Class B Common Shares in
accordance with their respective rights and interests.
3. VOTING RIGHTS.
(a) At each annual or special meeting of the shareholders, each holder of
Class A Common Shares shall be entitled to one (1) vote in person or by proxy
for each Class A Common Share standing in his name on the stock transfer records
of the corporation in connection with the election of directors and all other
actions submitted to a vote of shareholders; holders of Class B Common Shares
shall not vote on any matters except as otherwise provided by this Certificate
of Incorporation, as amended, and the Delaware General Corporation Law.
(b) The holders of Class B Common Shares shall be entitled to vote
separately as a group only with respect to (i) proposals to change the par value
of the Class B Common Shares, (ii) amendments to this Certificate of
Incorporation that alter or change the powers, preference or special rights of
the holders of Class B Common Shares so as to affect them adversely, and (iii)
such other matters as may require separate group voting under this Certificate
of Incorporation, as amended, and the Delaware General Corporation Law.
(c) The number of authorized Class B Common Shares may be increased or
decreased (but not below the number of shares then outstanding) by the
affirmative vote of the holders of a majority of the Class A Common Shares.
4. CONVERSION.
(a) All outstanding Class B Common Shares may be converted into Class A
Common Shares on a share-for-share basis by the Board of Directors if, as a
result of the existence of the Class B Common Shares, either the Class A Common
Shares or Class B Common Shares is or both are excluded from trading on the New
York Stock Exchange, the American Stock Exchange and all other principal
national securities exchanges then in use and also is excluded from quotation on
the National Association of Securities Dealers Automated Quotation ("Nasdaq")
National Market and other comparable national quotation systems then in use. In
making such determination, the Board of Directors may conclusively rely on any
information or documentation available to it, including filings made with the
Securities and Exchange Commission, any stock exchange, the National Association
of Securities Dealers, Inc. or any other governmental or regulatory agency or
any written instrument purporting to be authentic.
(b) All outstanding Class B Common Shares shall be converted into Class A
Common Shares on a share-for-share basis if at any time the number of
outstanding Class A Common Shares, as reflected on the stock transfer records of
the Corporation, falls below ten percent (10%) of the aggregate number of
outstanding Class A Common Shares and of Class B Common Shares. For purposes of
the immediately preceding sentence, any Common Shares repurchased and held as
treasury shares or canceled by the Corporation shall no longer be deemed
"outstanding" from and after the date of repurchase.
(c) In the event of any conversion of the Class B Common Shares pursuant to
subparagraph 4(a) or 4(b), certificates which formerly represented outstanding
shares of Class B Common Shares will thereafter be deemed to represent a like
number of shares of Class A Common shares and all authorized Common Shares shall
consist of only Class A Common Shares.
5. CLASS B COMMON SHARE PROTECTION PROVISION.
(a) If, after the effective time (the "Effective Time") of the PacifiCare
Merger (the "PacifiCare Merger"), as that term is defined in the Amended and
Restated Agreement and Plan of Reorganization dated as of November 11, 1996,
among PacifiCare Health Systems, Inc., N-T Holdings, Inc., Neptune Merger Corp.,
Tree Acquisition Corp. and FHP International Corporation, as amended (the
2
"Reorganization Agreement"), any person or group acting in concert acquires
beneficial ownership of shares representing 10% or more of the then issued and
outstanding Class A Common Shares (excluding the number of shares beneficially
owned by such person or group at or before the Effective Time and other than
upon the issuance or sale by the Corporation, by operation of law, including a
merger, consolidation or reorganization of a beneficial owner, by will or the
laws of descent and distribution, by gift or by foreclosure of a bona fide
loan), and such person or group (a "Significant Shareholder") does not own an
equal or greater percentage of the Class B Common Shares acquired after the
Effective Time, such Significant Shareholder must, within a ninety (90) day
period beginning the day after becoming a Significant Shareholder, make a public
cash tender offer in compliance with all applicable laws and regulations to
acquire additional Class B Common Shares as provided in this subparagraph B (5)
of Article IV (a "Class B Protection Transaction").
(b) In each Class B Protection Transaction, the Significant Shareholder must
make a public tender offer to acquire that number of Class B Common Shares
determined by (i) multiplying the percentage of outstanding Class A Common
Shares beneficially owned by such Significant Shareholder and acquired after the
Effective Time by such Significant Shareholder by the total number of shares of
Class B Common Shares outstanding on the date such person or group became a
Significant Shareholder, and (ii) subtracting therefrom the total number of
shares of Class B Common Shares beneficially owned on such date and acquired
after the Effective Time by such Significant Shareholder (including shares
acquired on such date at or prior to the time such person or group became a
Significant Shareholder). The Significant Shareholder must acquire all of such
shares validly tendered; provided, however, that if the number of Class B Common
Shares tendered to the Significant Shareholder exceeds the number of shares
required to be acquired pursuant to the formula set forth in this subparagraph
5(b), the number of Class B Common Shares acquired from each tendering holder
shall be pro rata in proportion to the total number of Class B Common Shares
tendered by all tendering holders.
(c) The offer price for any Class B Common Shares required to be purchased
by the Significant Shareholder pursuant to this subparagraph B(5) shall be the
greater of (i) the highest price per share paid by the Significant Shareholder
for any Class A Common Share in the six month period ending on the date such
person or group became a Significant Shareholder or (ii) the highest bid price
of a Class A Common Share or Class B Common Share on the Nasdaq National Market
(or such other exchange or quotation system as is then the principal trading
market for such shares) on the date such person or group became a Significant
Shareholder or (iii) the highest bid price of a Class A Common Share or Class B
Common Share on the Nasdaq National Market (or such other exchange or quotation
system as is then the principal trading market for such shares) on the date
preceding the date the Significant Shareholder makes the tender offer required
by this subparagraph B(5). For purposes of subparagraph B(5)(d) below, the
applicable date for the calculations required by clauses (i) and (ii) of the
preceding sentence shall be the date on which the Significant Shareholder
becomes required to engage in a Class B Protection Transaction. In the event
that the Significant Shareholder has acquired Class A Common Shares in the six
month period ending on the date such person or group becomes a Significant
Shareholder for consideration other than cash, the value of such consideration
per Class A Common Share shall be as determined in good faith by the Board of
Directors.
(d) A Class B Protection Transaction shall also be required to be effected
by any Significant Shareholder each time that the Significant Shareholder
acquires beneficial ownership of the next higher integral multiple of 5% (e.g.,
15%, 20%, 25%, etc.) of the outstanding Class A Common Shares after the
Effective Time (other than upon the issuance or sale by the Corporation, by
operation of law, including a merger, consolidation or reorganization of a
beneficial owner, by will or the laws of descent and distribution, by gift, or
by foreclosure of a bona fide loan) if such Significant Shareholder does not
then own an equal or greater percentage of the Class B Common Shares acquired
after the Effective Time. Such Significant Shareholder shall be required to make
a public tender offer to acquire that
3
number of Class B Common Shares prescribed by the formula set forth in
subparagraph B(5)(b) above, and must acquire all shares validly tendered or a
pro rata portion thereof, as specified in subparagraph B(5)(b), at the price
determined pursuant to subparagraph B(5)(c) above.
(e) If any Significant Shareholder fails to make an offer required by this
subparagraph B(5) of Article IV, or to purchase shares validly tendered and not
withdrawn (after proration, if any), such Significant Shareholder shall not be
entitled to vote any Class A Common Shares beneficially owned by such
Significant Shareholder unless and until such requirements are complied with or
unless and until all Class A Common Shares causing such offer requirement to be
effective are no longer beneficially owned by such Significant Shareholder.
(f) The Class B Protection Transaction requirement shall not apply to any
increase in percentage ownership of Class A Common Shares resulting solely from
a change in the total amount of Class A Common Shares outstanding, provided that
any acquisition after such change which resulted in any person or group owning
10% or more of the Class A Common Shares (excluding in the case of the numerator
but not the denominator of the calculation of such percentage, Class A Common
Shares held by such Significant Shareholder immediately after the Effective
Time) shall be subject to any Class B Protection Transaction requirement that
would be imposed with respect to a Significant Shareholder pursuant to this
subparagraph B(5) of Article IV.
(g) All calculations with respect to percentage ownership of issued and
outstanding shares of either class of Common Shares will be based upon the
numbers of issued and outstanding shares reported by the Corporation on the last
to be filed of (i) the Corporation's most recent annual report on Form 10-K,
(ii) its most recent Quarterly Report on Form 10-Q, or (iii) its most recent
Current Report on Form 8-K.
(h) For purposes of this subparagraph B(5) of this Article IV, the term
"person means a natural person, corporation, partnership, trust, association,
government, or political subdivision, agency or instrumentality of a government,
or other entity. "Beneficial ownership" shall be determined pursuant to Rule
13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), or any successor regulation. The formation or existence of a
"group" shall be determined pursuant to Rule 13d-5(b) under the 1934 Act or any
successor regulation.
6. MERGER OR CONSOLIDATION. In the event of a merger or consolidation of
the Corporation with or into another entity (whether or not the Corporation is
the surviving entity), the holders of Class B Common Shares shall be entitled to
receive the same per share consideration as the per share consideration, if any,
received by any holder of the Class A Common Shares in such merger or
consolidation; provided, however, that this restriction shall not apply to the
PacifiCare Merger.
7. SPLITS, SUBDIVISIONS, ETC. If the Corporation shall in any manner
split, subdivide or combine the outstanding Class A Common Shares or Class B
Common Shares, the outstanding shares of the other such class of Common Shares
shall be proportionally subdivided or combined in the same manner and on the
same basis as the outstanding shares of the other class of Common Shares have
been split, subdivided or combined.
8. NO PREEMPTIVE RIGHTS. No holder of Class A Common Shares or Class B
Common Shares shall, by reason of such holding, have any preemptive right to
subscribe to any additional issue of stock of any class or series of the
Corporation or to any security of the Corporation convertible into such stock.
9. CONSIDERATION FOR SALE FOR SHARES. The Board of Directors shall have
the power to issue and sell all or any part of any class of stock herein or
hereafter authorized to such persons, firms, associations or corporations, and
for such consideration as the Board of Directors shall from time to time, in its
discretion, determine, whether or not greater consideration could be received
upon the issue or sale of the same number of shares of another class, and as
otherwise permitted by law.
4
10. CONSIDERATION FOR PURCHASE OF SHARES. The Board of Directors shall
have the power to purchase any class of stock herein or hereafter authorized
from such persons, firms, associations or corporations, and for such
consideration as the Board of Directors shall from time to time, in its
discretion, determine, whether or not less consideration could be paid upon the
purchase of the same number of shares of another class, and as otherwise
permitted by law.
C. The Preferred Shares may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Shares Designation") pursuant to the Delaware General Corporation
Law, to fix or alter from time to time the designation, powers, preferences and
rights of the shares of each such series and the qualifications, limitations or
restriction of any wholly unissued series of Preferred Shares, and to establish
from time to time the number of shares constituting any such series or any of
them; and to increase or decrease the number of shares of any series subsequent
to the issuance of shares of that series, but not below the number of shares of
such series then outstanding. The Board of Directors shall designate each series
to distinguish it from other series and classes of stock of the Corporation,
shall specify the number of shares to be included in the series, and shall fix
the terms, rights, restrictions and qualifications of the shares of the series,
including any preferences, voting powers, dividend rights and redemption,
sinking fund and conversion rights. Subject to the express terms of any other
series of Preferred Shares outstanding at the time, the Board of Directors may
increase or decrease the number of shares or alter the designation or classify
or reclassify any unissued shares of a particular series of Preferred Stock by
fixing or altering in any one or more respects from time to time before issuing
the shares, any terms, rights, restrictions and qualifications of the shares. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series. The Board of Directors shall have the power
to purchase any of the Preferred Shares herein or hereafter authorized from such
persons, firms, or corporations, and for such consideration as the Board of
Directors shall from time to time, in its discretion, determine, whether or not
less consideration could be paid upon the purchase of the same number of shares
of another class, and as otherwise permitted by law.
There shall be a series of Preferred Stock designated "Series A Cumulative
Convertible Preferred Shares" (the "Convertible Preferred Shares") which shall
have the powers, preferences and rights as follows:
1. RANK. The Convertible Preferred Shares shall have a par value of $1.00
per share. The Convertible Preferred Shares will rank, with respect to dividend
rights and rights on liquidation, winding-up and dissolution, (i) senior to all
classes of common stock of the Corporation, as they exist on the date hereof or
as such stock may be constituted from time to time, and each other class or
series of capital stock or preferred stock established by the Board of Directors
to the extent the terms of such stock do not expressly provide that it ranks
senior to or on a parity with the Convertible Preferred Shares as to dividend
rights and rights on liquidation, winding-up and dissolution (collectively,
together with the Common Shares, the "Junior Securities"), (ii) on a parity with
each other class or series of capital stock or of preferred stock issued by the
Corporation established by the Board of Directors to the extent the terms of
such stock expressly provide that it will rank on a parity with the Convertible
Preferred Shares as to dividend rights and rights on liquidation, winding-up and
dissolution (collectively, the "Parity Securities"), and (iii) junior to each
other class of capital stock or series of preferred stock established by the
Board to the extent the terms of such stock expressly provide that it will rank
senior to the Convertible Preferred Shares as to dividend rights and rights on
liquidation, winding-up and dissolution (collectively, the "Senior Securities").
Each share of the Convertible Preferred Shares shall rank equally in all respect
with each other share of the Convertible Preferred Shares.
2. AUTHORIZED NUMBER. The authorized number of shares constituting the
Convertible Preferred Shares shall be 11,000,000 shares.
5
3. DIVIDENDS. Holders of Convertible Preferred Shares will be entitled to
receive, when, as and if declared by the Board of Directors out of funds of the
Corporation legally available therefor, cash dividends at an annual rate of 4%
of the Stated Value per share of Convertible Preferred Shares, payable quarterly
in arrears on March 15, June 15, September 15, and December 15, of each year,
commencing , 199 [first dividend date following the Mergers], provided that the
dividend payable on , 199 [first dividend date following the Mergers]
shall be in an amount determined by assuming that the Convertible Preferred
Shares (a) had been outstanding on , 199 [the date immediately following
the last dividend payment date on the FHP Series A Cumulative Convertible
Preferred Stock] (the "Transition Period Commencement Date"), and (b) had been
entitled to receive, when, as and if declared by the Board of Directors out of
funds of the Corporation legally available therefor, cash dividends at an annual
rate of (i) 5% of an amount equal to twice the Stated Value per share from such
date through , 199 [the date of the Merger] (the "Effective Date") and
(ii) 4% of the Stated Value per share from , 199 [the date immediately
following the date of the Merger] through , 199 [the first dividend date
following the Merger]. Each dividend will be payable to holders of record as
they appear on the books of the Corporation at the close of business on a record
date, not more than 60 nor less than 15 days before the payment date, fixed by
the Board of Directors. Dividends will be cumulative from the date of original
issuance of the Convertible Preferred Shares, which will be the Effective Date,
provided that, for purposes of dividends payable on , 199 [the first
dividend payment date following the Mergers] in respect of the period from the
Transition Period Commencement Date through the Effective Date (the "Transition
Period"), the Transition Period Commencement Date will be treated as the
issuance date for the Convertible Preferred Shares. Except as otherwise provided
in this subparagraph 3, dividends for each full dividend period will be computed
by dividing the annual dividend rate by four and dividends payable for any
period less than a full dividend period, which may include, without limitation,
dividends payable with respect to the Transition Period, will be computed on the
basis of a 360-day year consisting of twelve 30-day months. The Convertible
Preferred Shares will not be entitled to any dividends, whether payable in cash,
property or stock, in excess of full cumulative dividends. No interest, or sum
of money in lieu of interest, will be payable in respect of any accrued and
unpaid dividends. No full dividends may be declared or paid or funds set apart
for the payment of dividends on any Parity Securities (except dividends on
Parity Securities paid in shares of Junior Securities) for any period unless
full cumulative dividends to be paid hereunder prior to the date thereof shall
have been paid, or contemporaneously are declared and paid, or declared and a
sum sufficient for payment thereof is set apart for such payment on the
Convertible Preferred Shares in accordance with the terms hereof. If full
dividends are not so paid, the Convertible Preferred Shares shall share
dividends PRO RATA with the Parity Securities according to the amount of
dividends due and payable with respect to each. No dividends may be paid or set
apart for such payment, or other distributions made on Junior Securities (except
dividends on Junior Securities paid in additional shares of Junior Securities),
and no Convertible Preferred Shares, Parity Securities or Junior Securities may
be repurchased, redeemed or otherwise retired nor may funds be set apart for
payment with respect thereto, nor shall the Corporation permit any corporation
or entity directly or indirectly controlled by the Corporation to purchase any
Convertible Preferred Shares, Parity Securities or Junior Securities, if full
cumulative dividends to be paid hereunder prior to the date thereof have not
been paid on the Convertible Preferred Shares. Notwithstanding the foregoing,
the Corporation may (i) make redemptions, purchases or other acquisitions of
Convertible Preferred Shares, Parity Securities or Junior Securities payable in
Junior Securities or repurchases of Convertible Preferred Shares, Parity
Securities or Junior Securities in the ordinary course of business pursuant to
the terms of any current or future employee stock incentive plan or similar plan
adopted by the Board and (ii) make redemptions of Rights (as defined in Section
6 below) distributed pursuant to a Rights Agreement (as defined in Section 6
below).
4. LIQUIDATION RIGHTS. The Stated Value of each share of Convertible
Preferred Shares shall be $25.00. In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation, after satisfaction of
the claims of creditors and any holders of Senior Securities and
6
before any payment or distribution of assets is made on any Junior Securities,
including, without limitation, the Common Shares, (i) the holders of Convertible
Preferred Shares shall receive a liquidation preference equal to the Stated
Value of their shares, and shall be entitled to receive an amount equal to all
accrued and unpaid dividends through the date of distribution (whether or not
declared), and (ii) the holders of any Parity Securities shall be entitled to
receive an amount equal to the full respective liquidation preferences
(including any premium) to which they are entitled and shall receive an amount
equal to all accrued and unpaid dividends with respect to their respective
shares through and including the date of distribution (whether or not declared).
If, upon such a voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation, the assets of the Corporation are insufficient to pay in
full the amounts described above as payable with respect to the Convertible
Preferred Shares and any Parity Securities, the holders of the Convertible
Preferred Shares and such Parity Securities will share ratably in any
distribution of assets of the Corporation, first in proportion to their
respective liquidation preferences until such preferences are paid in full, and
then in proportion to their respective amounts of accrued but unpaid dividends.
After payment of any such liquidation preference and accrued but unpaid
dividends, the Convertible Preferred Shares will not be entitled to any further
participation in any distribution of assets by the Corporation. Neither the sale
or transfer of all or any part of the assets of the Corporation for cash,
securities or other property, nor the merger or consolidation of the Corporation
into or with any other corporation or a merger of any other corporation with or
into the Corporation, will be deemed to be a liquidation, dissolution or
winding-up of the Corporation.
5. VOTING RIGHTS.
(a) Except as provided below or as may be required by Delaware law or
provided by the resolution creating any other series of Preferred Shares, the
holders of Convertible Preferred Shares will not be entitled to vote. So long as
any shares of Convertible Preferred Shares are outstanding, the vote or consent
of the holders of 66 2/3% of the outstanding shares of Convertible Preferred
Shares, voting together as a single class, shall be necessary to (i) increase or
decrease the par value of the shares of Convertible Preferred Shares or (ii)
alter or change the powers, preferences, or special rights of the shares of
Convertible Preferred Shares so as to affect them adversely or (iii) authorize
or issue any additional class or series of Parity Securities or Senior
Securities, or any security convertible into Parity Securities or Senior
Securities.
(b) (i) In the event that any accrued dividends (whether or not declared)
on the Convertible Preferred Shares shall not have been paid in an aggregate
amount equal to or greater than six quarterly dividends, the maximum authorized
number of directors of the Corporation will be automatically increased by two,
and holders of Convertible Preferred Shares shall be entitled to vote their
shares of Convertible Preferred Shares, together with the holders of any Parity
Securities upon which like voting rights have been conferred and are exercisable
(the "Voting Parity Securities"), in accordance with the procedures set forth
below, to elect, as a class, an additional two directors. So long as any shares
of Convertible Preferred Shares shall be outstanding, the holders of shares of
Convertible Preferred Shares shall retain the right to vote and elect, with the
holders of such Voting Parity Securities, as a class, two directors until all
accrued but unpaid dividends on the Convertible Preferred Shares are paid in
full or declared and set aside for payment. The period during which holders of
Convertible Preferred Shares retain such right is referred to as a "Default
Period".
(ii) So long as any shares of Convertible Preferred Shares shall be
outstanding, during any Default Period, the voting right described in
subsection (i) above may be exercised initially at a special meeting called
pursuant to subsection (iii) below or at any annual meeting of stockholders.
The absence of a quorum of holders of Common Shares (or any class thereof)
shall not affect the exercise of such voting rights by the holders of
Convertible Preferred Shares and Voting Parity Securities. Holders of
Convertible Preferred Shares and Voting Parity Securities shall be entitled,
as among the class of holders of Convertible Preferred Shares and Voting
Parity Securities, to one vote for each $25.00 of liquidation preference
represented by the shares so held.
7
(iii) Unless the holders of Convertible Preferred Shares and Voting
Parity Securities, if any are then outstanding, have, during an existing
Default Period, previously exercised their right to elect directors, the
Board may, and upon the request of the holders of record of not less than
10% of the aggregate liquidation preference of Convertible Preferred Shares
and Voting Parity Securities, the Board shall, order the calling of a
special meeting of holders of Convertible Preferred Shares and Voting Parity
Securities, if any are then outstanding, which meeting shall thereupon be
called by the Chairman of the Board, the President, a Vice President or the
Secretary of the Corporation. Notice of such meeting and of any annual
meeting at which holders of Convertible Preferred Shares and Voting Parity
Securities are entitled to vote pursuant to this subsection (iii) shall be
given to each holder of record of Convertible Preferred Shares by mailing a
copy of such notice to such holder at such holder's last address as it
appears on the books of the Corporation. Such meeting shall be called for a
date not later than 90 days after such order or request, or, in default of
the calling of such meeting within 90 days after such order or request, such
meeting may be called on similar notice by any stockholder or stockholders
owning in the aggregate not less than 10% of the aggregate liquidation
preference of the Convertible Preferred Shares and Voting Parity Securities.
Notwithstanding the provisions of this subsection (iii), the Corporation
shall not be required to call such a special meeting if such request is
received less then 120 days before the date fixed for the next ensuing
annual meeting of stockholders of the Corporation, at which meeting such
newly created directorships shall be filled by vote of the holders of
Convertible Preferred Shares and Voting Parity Securities.
(iv) During any Default Period, the holders of Class A Common Shares, and
other classes of stock of the Corporation, if applicable, shall continue to
be entitled to elect all of the Directors unless and until the holders of
Convertible Preferred Shares and Voting Parity Securities shall have
exercised their right to elect two Directors voting as a class. After the
exercise of this right (x) the Directors so elected by the holders of
Convertible Preferred Shares and Voting Parity Securities shall continue in
office until the earlier of (A) such time as their successors shall have
been elected by such holders and (B) the expiration of the Default Period,
and (y) any vacancy in the Board of Directors with respect to a Directorship
to be elected pursuant to this subparagraph (b) by the holders of
Convertible Preferred Shares and Voting Parity Securities may be filled by
vote of the remaining Director previously elected by such holders.
References in this subsection (b) to Directors elected by the holders of a
particular class of stock shall include Directors elected by such Directors
to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a Default Period, (x) the right
of the holders of Convertible Preferred Shares to elect Directors pursuant
to this subparagraph (b) shall cease, subject to continuing application of
subparagraph (b)(i) upon each and every subsequent reoccurrence of the event
described therein, (y) the term of any Directors elected by the holders of
Convertible Preferred Shares and Voting Parity Securities pursuant to this
subparagraph (b) shall terminate, and (z) the number of Directors shall be
such number as may be provided for in the Certificate of Incorporation or
bylaws irrespective of any increase made pursuant to subsection (i) of this
subparagraph (b) (such number being subject, however, to subsequent change
in any manner provided by law or in the Certificate of Incorporation or
bylaws).
6. CONVERSION.
(a) RIGHT TO CONVERT. Each share of Convertible Preferred Shares will be
convertible (the rights to convert described in this subsection (a) are referred
to as the "Conversion Rights") at the option of the holder thereof, into such
number of fully paid and non-assessable shares of Class B Common Shares
(together with any Rights (as defined in subsection (b)(iii) below) associated
therewith) as is equal to (A) the sum of (i) twice the Stated Value of the
Convertible Preferred Shares plus (ii) accrued but unpaid dividends in arrears
thereon to which the holder converting such shares is entitled, divided
8
by (B) the Conversion Price then in effect. The initial "Conversion Price" for
the Convertible Preferred Shares shall be $[ (1)] and shall be subject to
adjustment as described below. The holders of Convertible Preferred Shares at
the close of business on a dividend payment record date shall be entitled to
receive the dividend payable on such shares on the corresponding dividend
payment date notwithstanding the conversion of such Convertible Preferred Shares
or the Corporation's default on payment of the dividend due on such dividend
payment date. However, shares of Convertible Preferred Shares surrendered for
conversion during the period from the close of business on any record date for
the payment of dividends on such shares to the opening of business on the
corresponding dividend payment date (except shares called for redemption to
occur during the period from the record date to the close of business on the
payment date pursuant to Section 7 below) must be accompanied by payment of an
amount equal to the dividend payable on such shares on such dividend payment
date. A holder of Convertible Preferred Shares on a dividend payment record date
who (or whose transferee) tenders shares of Convertible Preferred Shares on a
dividend payment date will be entitled to receive the dividend payable on such
shares by the Corporation on such date, and such converting holder need not
include payment in the amount of such dividend upon surrender of shares of
Convertible Preferred Shares for conversion. Except as provided above, no
payment or adjustment will be made on account of accrued or unpaid dividends
upon the conversion of shares of Convertible Preferred Shares. Shares of
Convertible Preferred Shares called for redemption will not be convertible after
the close of business on the day preceding the date fixed for redemption, unless
the Corporation defaults in payment of the redemption price.
(b) ANTI-DILUTION PROVISIONS. The Conversion Price is subject to
adjustment after the issuance of the Convertible Preferred Shares from time to
time as follows:
(i) In case the Corporation shall (1) pay a dividend or make a
distribution on Common Shares in shares of Common Shares, (2) subdivide its
outstanding shares of Common Shares into a greater number of shares or (3)
combine its outstanding shares of any class of Common Shares into a smaller
number of shares, the Conversion Price in effect immediately prior to such
action shall be adjusted (and any other appropriate action taken by the
Corporation) so that the holder of any Convertible Preferred Shares
thereafter surrendered for conversion shall be entitled to receive the
number of shares of Common Shares which such holder would have been entitled
to receive immediately following such action had the holder's Convertible
Preferred Shares been converted immediately prior thereto. An adjustment
made pursuant to this subsection (i) shall become effective immediately
(except as provided in subsection (vi) below) after the record date in the
case of a dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
(ii) In case the Corporation shall issue rights, options or warrants to
all holders of its outstanding shares of Common Shares, or of its
outstanding shares of any class or series of Common Shares, entitling them,
for a period expiring within 45 days after the record date mentioned below,
to subscribe for or purchase shares of Common Shares at a price per share
less than the Current Market Price per share (as defined in subsection (v)
below) of such offered Common Shares on the record date mentioned below,
then the Conversion Price in effect immediately prior thereto shall be
adjusted so that it shall equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of issuance of such
rights, options or warrants by a fraction of which
(1) the numerator shall be the sum of (A) the number of shares of
Common Shares outstanding on the date of issuance of such rights, options
or warrants immediately prior to such issuance plus (B) the number of
shares of such offered Common Shares which the aggregate offering price
of the total number of shares so offered would purchase at such
------------------------
(1) A price equal to the FHP existing conversion price of $31 per share times a
fraction, the numerator of which is $1.00 and the denominator of which is
the Final Exchange Ratio as defined in the Reorganization Agreement.
9
Current Market Price (determined by multiplying such total number of
shares offered for subscription or purchase by the sum of the exercise
price of such rights, options or warrants plus the value of any
consideration per share paid to the Corporation for such rights, options
or warrants and dividing the product so obtained by such Current Market
Price), and
(2) the denominator shall be the sum of (A) the number of shares of
Common Shares outstanding on the date of issuance of such rights, options
or warrants immediately prior to such issuance plus (B) the number of
additional shares of Common Shares which are so offered for subscription
or purchase.
Such adjustment shall be made successively whenever any rights, options
or warrants are issued, and shall become effective immediately (except as
provided in subsection (vi) below) after the record date for the
determination of stockholders entitled to receive such rights, options or
warrants; provided, however, in the event that all the shares of Common
Shares offered for subscription or purchase are not delivered upon the
exercise of such rights, options or warrants, upon the expiration of such
rights, options or warrants the Conversion Price shall be readjusted to the
Conversion Price which would have been in effect had the numerator and the
denominator of the foregoing fraction and the resulting adjustment been made
based upon the number of shares of Common Shares actually delivered upon the
exercise of such rights, options or warrants rather than upon the number of
shares of Common Shares offered for subscription or purchase. In determining
the value of any consideration received by the Corporation for such rights,
options or warrants, the determination of the Board of Directors in good
faith shall be conclusive and shall be described in a Board resolution.
(iii) Notwithstanding subsection (ii) above, any adjustments to the
Conversion Price to account for the issuance of rights ("Rights") under a
shareholder rights plan or agreement, "poison pill" or similar arrangement
(a "Rights Agreement") adopted subsequent to the date hereof shall be made
when such Rights become exercisable or exchangeable by the holder thereof
for Common Shares (Common Shares issued pursuant to the exercise of, or
exchange by the Corporation for, such Rights are referred to as "Rights
Stock") pursuant to a Rights Agreement at a price per share less than the
Current Market Price per share of such Common Shares on the date of such
exercise or exchange. The Conversion Price in effect immediately prior to
such exercise or exchange shall be adjusted so that it shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to the date of such exercise or exchange by a fraction of which
(1) the numerator shall be the sum of (A) the number of shares of
Common Shares of the type issued pursuant to the exercise of, or exchange
by the Corporation for, such Rights outstanding on the date of issuance
of such Rights Stock immediately prior to such issuance plus (B) the
number of shares of Common Shares of the type issued pursuant to the
exercise of, or exchange by the Corporation for, such Rights which the
aggregate consideration received for the total number of shares of Rights
Stock so issued would purchase at such Current Market Price (determined
by multiplying such total number of shares of Rights Stock by the
consideration received per share of such Rights Stock and dividing the
product so obtained by such Current Market Price), and
(2) the denominator shall be the sum of (A) the number of shares of
Common Shares of the type issued pursuant to the exercise of, or exchange
by the Corporation for, such Rights outstanding on the date of issuance
of such Rights Stock immediately prior to such issuance plus (B) the
number of additional shares of Rights Stock which are so issued.
Such adjustment shall be made successively whenever any Rights Stock is
issued, and shall become effective immediately (except as provided in
subsection (vi) below) after the issuance of Rights Stock. If after the
applicable "Distribution Date" or a similar date (as defined in a Rights
Agreement) holders converting shares of Convertible Preferred Shares are,
for any reason, not entitled to receive the Rights or similar rights,
options or warrants which would otherwise be attributable (but for the date
of conversion) to the shares of Common Shares received upon such
10
conversion), then a reducing adjustment shall be made in the Conversion
Price to reflect the fair market value of the Rights or similar rights,
options or warrants. If such an adjustment is made and the Rights or similar
rights, options or warrants are later exchanged, redeemed, invalidated or
terminated, then a corresponding reversing adjustment shall be made to the
Conversion Price, on an equitable basis, to take account of such event.
However, the Corporation may elect to provide that such shares of Common
Shares issuable upon conversion of the Convertible Preferred Shares, whether
or not issued after the Distribution Date or such similar date for such
Rights, will be accompanied by the Rights which would otherwise be
attributable (but for the date of conversion to such shares of Common
Shares, in which event the preceding two sentences shall not apply).
(iv) In case the Corporation shall distribute to substantially all
holders of Common Shares, or to substantially all holders of its outstanding
shares of any class or series of Common Shares, evidences of indebtedness,
equity securities (including equity interests in the Corporation's
subsidiaries) other than Common Shares or other assets (other than cash
dividends paid out of earned surplus of the Corporation or, if there shall
be no earned surplus, out of net profits for the fiscal year in which the
dividend is made and/or the preceding fiscal year), or shall distribute to
substantially all holders of Common Shares or to substantially all holders
of any class or series of Common Shares, rights, options or warrants to
subscribe to securities (other than any rights, options or warrants referred
to in subsection (ii) above or Rights referred to in subparagraph (iii)
above), then in each such case the Conversion Price shall be adjusted so
that it shall equal the price determined by multiplying the Conversion Price
in effect immediately prior to the date of such distribution by a fraction
of which the numerator shall be the Current Market Price per share of the
Common Shares (as determined below) on the record date mentioned below less
the quotient of the then fair market value of the assets, evidences of
indebtedness and equity securities so distributed, or of such subscription
rights, warrants or options, divided by the number of shares of Common
Shares outstanding on such record date, and of which the denominator shall
be such Current Market Price of the Common Shares. For the purposes of this
subsection (iv), in the event of a distribution of shares of capital stock
or other securities of any subsidiary of the Corporation as a dividend on
shares of Common Shares, the "then fair market value" of the shares or other
securities so distributed shall be the value of such shares or other
securities on the record date mentioned below as determined by the Board of
Directors, whose good faith determination shall be conclusive evidence of
such value, and shall be described in a Board resolution. Such adjustment
shall become effective immediately (except as provided in subsection (vi)
below) after the record date for the determination of stockholders entitled
to receive such distribution.
(v) For the purpose of any computation under subsection (ii), (iii) or
(iv) above, the "Current Market Price" per share of stock on any date shall
be (A) deemed to be the average of the last sale prices of a share of such
shares for the fifteen consecutive trading days commencing 20 trading days
before the earliest of the date in question and the date before the "ex
date" with respect to the issuance or distribution requiring such
computation, or (B) in each case where the Current Market Price per share is
to be determined with respect to the two classes or series of Common Shares
considered together, deemed to equal the quotient of (i) the sum of (a) AvgA
multiplied by Na and (b) AvgB multiplied by Nb, divided by (ii) Nt, where
AvgA = the average of the last sale prices of a share of Class A Common
Shares for the fifteen consecutive trading days commencing 20
trading days before the earliest of the date in question and the
date before the "ex date" with respect to the issuance or
distribution requiring such computation,
AvgB = the average of the last sale prices of a share of Class B Common
Shares for the fifteen consecutive trading days commencing 20
trading days before the earliest of the date in question and the
date before the "ex date" with respect to the issuance or
distribution requiring such computation,
11
Na = the average number of shares of Class A Common Shares outstanding
during the fifteen consecutive trading days commencing 20 trading
days before the earliest of the date in question and the date before
the "ex date" with respect to the issuance or distribution requiring
such computation,
Nb = the average number of shares of Class B Common Shares outstanding
during the fifteen consecutive trading days commencing 20 trading
days before the earliest of the date in question and the date before
the "ex date" with respect to the issuance or distribution requiring
such computation, and
Nt = the sum of Na and Nb.
For purposes of this subsection (v), the term "ex date," when used with
respect to any issuance or distribution, means the first date on which the
stock trades regular way on the principal national securities exchange on
which the stock is listed or admitted to trading (or if not so listed or
admitted, on Nasdaq, or a similar organization if Nasdaq is no longer
reporting trading information) without the right to receive such issuance or
distribution.
(vi) In any case in which this Section shall require that an adjustment
be made immediately following a record date or immediately following the
exercise of, or exchange of a right, option or warrant, the Corporation may
elect to defer the effectiveness of such adjustment (but in no event until a
date later then the later of the "ex date" as defined above and the
effective date of the event giving rise to such adjustment), in which case
the Corporation shall, with respect to any Convertible Preferred Shares
converted after the date of such exercise or exchange or such record date,
as the case may be, and before such adjustment shall have become effective
(1) defer making any cash payment or issuing to the holder of such
Convertible Preferred Shares the number of shares of Common Shares and other
capital stock of the Corporation issuable upon such conversion in excess of
the number of shares of Common Shares and other capital stock of the
Corporation issuable thereupon only on the basis of the Conversion Price
prior to adjustment, and (2) not later than five business days after such
adjustment shall have become effective, pay to such holder the appropriate
cash payment and issue to such holder the additional shares of Common Shares
and other capital stock of the Corporation issuable on such conversion.
(vii) No adjustment in the Conversion Price shall be required if the
holders of Convertible Preferred Shares are to participate in the
transaction on a basis and with notice that the Board of Directors
determines in good faith to be fair and appropriate in light of the basis
and notice on which holders of Common Shares participate in the transaction.
In addition, no adjustment in the Conversion Price shall be required unless
such adjustment (plus any adjustments not previously made by reason of this
subsection (vii)) would require an increase or decrease of at least 1% in
the Conversion Price; provided, that any adjustments which by reason of this
subsection (vii) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under this
Section shall be made to the nearest cent or to the nearest one-hundredth of
a share, as the case may be.
(viii) Whenever the Conversion Price is adjusted as provided above:
(1) the Corporation shall compute the adjusted Conversion Price and
shall promptly file with the stock transfer or conversion agent, as
appropriate, for the Convertible Preferred Shares, a certificate signed
by a principal financial officer of the Corporation setting forth the
adjusted Conversion Price and showing in reasonable detail the facts upon
which such adjustment is based and the computation thereof; and
(2) a notice stating that the Conversion Price has been adjusted and
setting forth the adjusted Conversion Price shall, as soon as
practicable, be sent by first-class mail to the holders of record of the
Convertible Preferred Shares.
12
In case:
(A) the Corporation shall take any action which would require an
adjustment to the Conversion Price pursuant to subsection (iv) above;
(B) the Corporation shall authorize the granting to the holders
of its Common Shares of rights, options or warrants entitling them to
subscribe for or purchase any shares of capital stock of any class or
of any other rights;
(C) of any reorganization or reclassification of the Common
Shares or any class or series of Common Shares (other than a
subdivision or combination of its outstanding Common Shares), or of
any consolidation or merger to which the Corporation is a party and
for which approval of any stockholders of the Corporation is
required, or of the sale, lease or transfer of all or substantially
all the assets of the Corporation; or
(D) of the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation;
then the Corporation shall cause to be mailed to the stock transfer or
conversion agent, as appropriate, for the Convertible Preferred Shares
and to the holders of record of Convertible Preferred Shares, at least 20
days (for 10 days in any case described in subsections (A) or (B) above)
prior to the applicable record date or effective date specified below, a
notice stating (x) the date as of which the holders of record of Common
Shares to be entitled in such dividend, distribution, rights, options or
warrants are to be determined, or (y) the date on which such
reorganization, reclassification, consolidation, merger, sale, lease,
transfer, liquidation, dissolution or winding-up is expected to become
effective, and the date or dates as of which it is expected that holders
of record of Common Shares shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger, sale, lease,
transfer, liquidation, dissolution or winding-up. Neither the failure to
give the notice required by this subsection (viii), nor any defect
therein, to any particular holder shall affect the sufficiency of the
notice or the legality or validity of any such dividend, distribution,
right, option, warrant, reorganization, reclassification, consolidation,
merger, sale, lease, transfer, liquidation, dissolution or winding-up, or
the vote authorizing any such action with respect to the other holders.
(ix) To the extent permitted by law, the Corporation from time to time
may reduce the Conversion Price by any amount for any period of at least 20
days (or such other period as may then be required by applicable law) if the
Board of Directors has made a determination in good faith that such
reduction would be in the best interests of the Corporation, which
determination shall be conclusive. No reduction in the Conversion Price
pursuant to this subsection (ix) shall become effective unless the
Corporation shall have mailed a notice, at least 15 days prior to the date
on which such reduction is scheduled to become effective, to each holder of
Convertible Preferred Shares. Such notice shall be given by first-class
mail, postage prepaid, at such holder's address as it appears on the books
of the Corporation. Such notice shall state the amount per share by which
the Conversion Price will be reduced and the period for which such reduction
will be in effect.
(x) At its option, the Corporation may make such reduction in the
Conversion Price, in addition to those otherwise required by this Section 6,
as the Board deems advisable to avoid or diminish any income tax to holders
of Common Shares resulting from any dividend or distribution of stock (or
rights to acquire stock) or from any event treated as such for income tax
purposes; provided that any such reduction shall not be effective until
written evidence of the action of the Board of Directors authorizing such
reduction shall be filed with the Secretary of the Corporation and notice
thereof shall have been given by first-class mail, postage prepaid, to each
holder of Convertible Preferred Shares at such holder's address as it
appears on the books of the Corporation.
13
(c) CONSOLIDATION, MERGER OR SALE OF ASSETS. If any transaction shall
occur, including without limitation (i) any recapitalization or reclassification
of shares of Common Shares or any class or series of Common Shares (other than a
change in par value, or from par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination of the Common Shares),
(ii) any consolidation or merger of the Corporation with or into another person
or any merger of another person into the Corporation (other than a merger in
which the Corporation is the surviving corporation and that does not result in a
reclassification, conversion, exchange or cancellation of Common Shares, or any
class or series of Common Shares), (iii) any sale, lease or transfer of all or
substantially all of the assets of the Corporation, (iv) any compulsory share
exchange, or (v) any conversion of all of the outstanding Class B Common Shares
into Class A Common Shares, pursuant to any of which holders of Class B Common
Shares shall be entitled to receive other securities, cash or other property,
then appropriate provision shall be made so that the holder of each share of
Convertible Preferred Shares then outstanding shall have the right thereafter to
receive on account of such share only the kind and amount of the securities,
cash or other property that would have been receivable upon such
recapitalization, reclassification, consolidation, merger, sale, lease,
transfer, share exchange or conversion by a holder of the number of shares of
Class B Common Shares issuable upon conversion of such share of Convertible
Preferred Shares immediately prior to such recapitalization, reclassification,
consolidation, merger, sale, lease, transfer or share exchange, and the
Corporation shall not enter into any such merger, consolidation, sale, lease,
transfer or share exchange unless the company formed by such consolidation or
resulting from such merger or that acquires such assets or that acquires the
Corporation's shares, as the case may be, shall make provisions in its
certificate or articles of incorporation or other constituent document or
certificate of merger or other document effecting any such merger,
consolidation, sale, lease, transfer or share exchange to establish such right.
Upon the occurrence of any transaction described in the preceding sentence
(except clause (i) thereof), the Convertible Preferred Shares then outstanding
shall be deemed converted, subject nevertheless to the provisions of Section 8
to the extent applicable.
(d) ACCRUED DIVIDENDS AND FRACTIONAL SHARES. Dividends shall cease to
accrue on shares of the Convertible Preferred Shares surrendered for conversion
into Class B Common Shares pursuant to this Section or Section 8 below. No
fractional shares of Class B Common Shares shall be issued upon conversion of
the Convertible Preferred Shares, and any portion of Convertible Preferred
Shares surrendered for conversion which would otherwise result in a fractional
share of Class B Common Shares shall be redeemed for cash in an amount equal to
the product of such fraction multiplied by the closing price of the Class B
Common Shares on the last business day prior to conversion.
(e) MECHANICS OF CONVERSION. Before any holder of Convertible Preferred
Shares shall be entitled to convert such stock into shares of Class B Common
Shares and to receive certificates therefor, such holder shall surrender the
certificate or certificates for the Convertible Preferred Shares to be
converted, duly endorsed, at the office of the Corporation or of any transfer
agent for the Convertible Preferred Shares, and shall give written notice to the
Corporation at such office that such holder elects to convert the same. The
Corporation shall, within 10 days after such delivery, issue and deliver at such
office to such holder of the Convertible Preferred Shares (or to any other
person specified in the notice delivered by such holder) a certificate or
certificates for the number of shares of Class B Common Shares to which such
holder shall be entitled as aforesaid and a check payable to the holder for any
cash amounts payable as the result of a conversion into fractional shares of
Class B Common Shares. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Convertible Preferred Shares to be converted, and the Person or
persons entitled to receive the shares of Class B Common Shares issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Class B Common Shares on such date. In case any
certificate for shares of the Convertible Preferred Shares shall be surrendered
for conversion of only a part of the shares represented thereby, the Corporation
shall deliver within 10 days at such office to or upon the written order of the
holder thereof, a certificate or certificates for the number of shares of
Convertible Preferred Shares represented by such surrendered certificate which
are not being converted. Notwithstanding the foregoing, the
14
Corporation shall not be obligated to issue certificates evidencing the shares
of Class B Common Shares issuable upon such conversion unless the certificates
evidencing the Convertible Preferred Shares are either delivered to the
Corporation or its transfer agent or the Corporation or its transfer agent shall
have received evidence satisfactory to it evidencing that such certificates have
been lost, stolen or destroyed and the holder of such Convertible Preferred
Shares executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The issuance of certificates of shares of Class B Common Shares issuable upon
conversion of shares of Convertible Preferred Shares shall be made without
charge to the converting holder for any tax imposed in respect of the issuance
thereof; provided that the Corporation shall not be required to pay any tax
which may be payable with respect to any transfer involved in the issue and
delivery of any certificate in a name other than that of the holder of the
shares of Convertible Preferred Shares being converted.
(f) ADOPTION OF RIGHTS AGREEMENT. The Corporation shall not adopt a Rights
Agreement unless such Rights Agreement shall provide that (i) each holder of a
share of Convertible Preferred Shares shall be entitled to receive thereunder,
upon conversion of such share of Convertible Preferred Shares (in accordance
with the terms hereof), prior to the earlier to occur of the date of redemption
of Rights issued under such Rights Agreement, the date of expiration of the
Rights issued under such Rights Agreement, or the date the Conversion Price of
the Convertible Preferred Shares is adjusted pursuant to subsection 6(b)(iii)
above rights for each share of Common Shares issued upon conversion of such
share of Convertible Preferred Shares in an amount equal to the amount of Rights
issued with respect to each outstanding share of Common Shares issued rights
pursuant to such Rights Agreement and (ii) if such Rights are redeemed prior to
the conversion of any share of Convertible Preferred Shares into Common Shares,
then, upon conversion of such share of Convertible Preferred Shares, the holder
thereof shall receive an amount in cash equal to the amount in cash that such
holder would have received had he converted such share of Convertible Preferred
Shares prior to such redemption.
7. OPTIONAL REDEMPTION. On or after June 17, 1998, the Corporation may, at
its option, redeem all or from time to time any part of the shares of
Convertible Preferred Shares, out of funds legally available therefor, upon
giving a notice of redemption as set forth below, at the following redemption
prices per share (expressed as percentages of the Stated Value thereof), plus an
amount equal to accrued and unpaid dividends, if any (whether or not declared),
up to but excluding the date fixed for redemption, if redeemed during the
twelve-month period commencing on June 17, 1998 of the years indicated below:
REDEMPTION
YEAR PRICE
----------------------------------------------------------------------- -------------
1998................................................................... 103.0%
1999................................................................... 102.5%
2000................................................................... 102.0%
2001................................................................... 101.5%
2002................................................................... 101.0%
2003................................................................... 100.5%
2004................................................................... 100.0%
If fewer than all of the outstanding shares of the Convertible Preferred
Shares are to be redeemed, the number of shares to be redeemed shall be
determined by the Board of Directors in good faith and the shares to be redeemed
will be determined pro rata as nearly as practicable, or by such other method as
the Board of Directors may determine to be fair and appropriate. Convertible
Preferred Shares may not be redeemed unless full cumulative dividends have been
paid on the Convertible Preferred Shares for all past dividend periods.
Notice of redemption of Convertible Preferred Shares will be given by (i)
first-class mail, not less than 30 nor more than 60 days prior to the date fixed
for redemption thereof, to each record holder of shares of Convertible Preferred
Shares to be redeemed at the address of such holder in the books of the
Corporation and (ii) publication in THE WALL STREET JOURNAL. On the date such
notices are
15
mailed, the Corporation shall issue a press release announcing the redemption.
The mailed and published notice shall state, as appropriate: (1) the redemption
date and record date for purposes of such redemption; (2) the number of shares
of Convertible Preferred Shares to be redeemed and, if fewer than all
outstanding shares of Convertible Preferred Shares held by any holder are to be
redeemed, the number of shares to be redeemed from such holder; (3) the place or
places at which certificates for such shares are to be surrendered; (4) the then
current redemption price; and (5) that dividends on the Convertible Preferred
Shares to be redeemed shall cease to accrue on such Redemption Date, except as
otherwise provided herein. If such notice of redemption has been given, from and
after the specified redemption date (unless the Corporation defaults in making
payment of the redemption price), dividends on the Convertible Preferred Shares
so called for redemption will cease to accrue, such shares will no longer be
deemed to be outstanding, and all rights of the holders thereof as stockholders
of the Corporation (except the right to receive the redemption price and any
dividends due on a dividend payment date after the redemption date relating to a
dividend record date prior to such redemption date) will cease.
8. CHANGE IN CONTROL. If there occurs a Change in Control (as defined
below) with respect to the Corporation, then each share of Convertible Preferred
Shares may be converted (the rights to convert described in this Section
referred to as the "Special Conversion Rights"), at the option of the holder
thereof at any time from the date of such Change in Control until the expiration
of 60 days after the date of the Conversion Notice (as defined below) by the
Corporation to all holders of the Convertible Preferred Shares, into, at its
option, either (A) such number of fully paid and non-assessable shares of Class
B Common Shares as is equal to the Stated Value of the Convertible Preferred
Shares divided by the Special Conversion Price (as defined below) or (B) an
amount in cash equal to the Stated Value of the Convertible Preferred Shares
plus an amount equal to any accrued but unpaid dividends thereon. The "Special
Conversion Price" shall be the closing price of the Class B Common Shares on the
last trading day prior to the date the Corporation gives the Conversion Notice
(as defined below) to the holders of Convertible Preferred Shares.
Within five days after the occurrence of a Change in Control, the
Corporation shall give notice of the occurrence of the Change in Control and of
the Special Conversion Rights set forth herein in accordance with the procedures
set forth below to each holder of Convertible Preferred Shares (the "Conversion
Notice").
Each Conversion Notice shall state:
(a) that a Change in Control has occurred (and shall specify the date of
occurrence), and that the holder's Special Conversion Rights may be exercised in
accordance with this Section;
(b) the expiration date of the Special Conversion Rights;
(c) that a holder of Convertible Preferred Shares, in order to exercise
Special Conversion Rights, must deliver on or before the fifth day prior to the
expiration date of the Special Conversion Rights written notice to the
Corporation of the holder's exercise of those rights, together with the
certificate evidencing such holder's shares with respect to which the rights are
being exercised, duly endorsed for transfer;
(d) the Special Conversion Price and the Conversion Price which would
otherwise be applicable;
(e) a description of the procedure which a holder must follow to exercise
its Special Conversion Rights; and
(f) that holders of Convertible Preferred Shares electing to have such
shares converted will be required to surrender the certificates evidencing such
shares for delivery of shares of Class B Common Shares.
The Conversion Notice shall be given by first-class mail, postage paid, to
the holders of record of Convertible Preferred Shares at their respective
addresses as they appear on the books of the Corporation.
16
No failure of the Corporation to give the Conversion Notice shall limit any
holder's right to exercise its Special Conversion Rights.
Exercise of the Special Conversion Rights by a holder of Convertible
Preferred Shares will be irrevocable. The Corporation shall not enter into any
consolidation, merger or sale of assets, unless in connection therewith the
holders of Convertible Preferred Shares exercising Special Conversion Rights
will be entitled to receive the same consideration as received for the number of
shares of Class B Common Shares into which their shares of Convertible Preferred
Shares would have been converted pursuant to the Special Conversion Rights. The
Special Conversion Rights are in addition to the regular Conversion Rights that
apply to the Convertible Preferred Shares.
The Corporation may, at its option, elect to pay holders of Convertible
Preferred Shares exercising Special Conversion Rights an amount in cash equal to
the Stated Value of the Convertible Preferred Shares plus an amount equal to any
accrued but unpaid dividends thereon.
"Change in Control" means any of the following: (i) the sale, lease,
conveyance or other disposition of all or substantially all of the Corporation's
assets as an entirety or substantially as an entirety to any person or "group"
(within the meaning of Section 13(d)(3) of the ▇▇▇▇ ▇▇▇) in one or a series of
transactions, provided that a transaction where the holders of Common Shares
immediately prior to such transaction own, directly or indirectly, 50% or more
of the common stock of such person or group immediately after such transactions
shall not be a Change in Control; (ii) the acquisition by the Corporation and/or
any of its subsidiaries of 50% or more of the aggregate voting power of the
Common Shares in one transaction or a series of related transactions; (iii) the
liquidation or dissolution of the Corporation, provided that a liquidation or
dissolution of the Corporation which is part of a transaction or series of
related transactions that does not constitute a Change in Control under the
"provided" clause of clause (i) above shall not constitute a Change in Control
under this clause (iii); or (iv) any transaction or series of transactions (as a
result of a tender offer, merger, consolidation or otherwise) that results in,
or that is in connection with, (a) any person, including a "group" (within the
meaning of Section 13(d)(3) of the ▇▇▇▇ ▇▇▇) that includes such person,
acquiring "beneficial ownership" (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of 50% or more of the aggregate voting power of the
Common Shares of the Corporation or any person that possesses "beneficial
ownership" (as defined in Rule 13d-3 under the 1934 Act), directly, of 50% or
more of the aggregate voting Power of the Common Shares, or (b) less than 50%
(measured by the aggregate voting power of all classes) of the Corporation's
Common Shares being registered under Section 12(b) or 12(g) of the 1934 Act.
9. STATUS OF REACQUIRED SHARES. If shares of Convertible Preferred Shares
are converted pursuant to Section 6 hereof or redeemed pursuant to Section 7
hereof, the shares so converted or redeemed shall, upon compliance with any
statutory requirements, assume the status of authorized but unissued shares of
preferred stock of the Corporation, but may not be reissued as Convertible
Preferred Shares.
10. RESERVED SHARES. So long as any shares of Convertible Preferred Shares
remain outstanding, the Corporation agrees to keep reserved for issuance in
connection with the conversion of the Convertible Preferred Shares at all times
a number of authorized but unissued shares of Class B Common Shares at least
equal to 150% of the number of shares of Class B Common Shares issuable upon
conversion at the Conversion Price of all of the Convertible Preferred Shares
outstanding at such time. The Corporation shall take all action necessary so
that Class B Common Shares so issued will be validly issued, fully paid and
non-assessable. The Corporation shall use its best efforts to list the Class B
Common Shares required to be delivered upon conversion of the shares of
Convertible Preferred Shares, prior to such conversion, upon each national
securities exchange, if any, upon which the outstanding Common Shares are listed
at the time of such delivery.
11. PREEMPTIVE RIGHTS. The Convertible Preferred Shares are not entitled
to any preemptive or subscription rights in respect of any securities of the
Corporation.
17
12. NOTICES. Except as otherwise provided herein, all notices, requests,
demands, and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by and when sent by telex or
telecopier (with receipt confirmed), provided a copy is also sent by express
(overnight, if possible) courier, addressed (i) in the case of a holder of
Convertible Preferred Shares, to such holder's address as it appears on the
books of the Corporation, and (ii) in the case of the Corporation, to the
Corporation's principal executive offices to the attention of the Corporation's
President,
13. SEVERABILITY OF PROVISIONS. Whenever possible, each provision of this
paragraph C shall be interpreted in a manner as to be effective and valid under
applicable law, but if any provision hereof is held to be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating or otherwise
adversely affecting the remaining provisions hereof. If a court of competent
jurisdiction should determine that a provision hereof would be valid or
enforceable if a period of time were extended or shortened or a particular
percentage were increased or decreased, then such court may make such change as
shall be necessary to render the provision in question effective and valid under
applicable law.
V
The number of Directors of the Corporation shall be twelve. The number of
Directors may hereafter be fixed from time to time by bylaw or amendment duly
adopted by the Board of Directors, provided, however, that the number of
Directors shall not be more than twelve nor less than five, except as otherwise
may be required to implement the provisions of paragraph C.5(b) of Article IV
hereof.
VI
A. The Board of Directors shall be and is divided in to three classes,
Class I, Class II and Class III. The number of Directors in each class shall be
the whole number contained in the quotient arrived at by dividing the authorized
number of Directors by three, and if a fraction is also contained in such
quotient then if such fraction is one-third (1/3) the extra Director shall be a
member of Class I and if the fraction is two-thirds (2/3) one of the extra
Directors shall be a member of Class I and the other shall be a member of Class
II. Each Director shall serve for a term ending on the date of the third annual
meeting following the annual meeting at which such Director was elected,
provided, however, that the Directors initially appointed to Class I shall serve
for a term ending on the date of the third annual meeting next following the
date hereof, the Directors initially appointed to Class II shall serve for a
term ending on the date of the second annual meeting next following the date
hereof, and the Directors initially appointed to Class III shall serve for a
term ending on the date of the first annual meeting next following the date
hereof.
B. In the event of any increase or decrease in the authorized number of
Directors, (1) each Director then serving as such shall nevertheless continue as
a Director of the class of which he is a member until the expiration of his
current term, or his prior death, resignation or removal, and (2) the newly
created or eliminated Directorships resulting from such increase shall be
apportioned by the Board of Directors to such class or classes as shall, so far
as possible, bring the number of Directors in the respective classes into
conformity with the formula in this Article, as applied to the new authorized
number of Directors.
C. Notwithstanding any of the foregoing provisions of this Article, each
Director shall serve until his successor is elected and qualified or until his
death, resignation or removal. A Director shall not be removed from office prior
to the expiration of his term except by the affirmative vote or written consent
of not less than sixty-six and two-thirds percent (66 2/3%) of the total votes
entitled to be cast in an election of Directors. Should a vacancy occur or be
created, the remaining Directors (even though less than a quorum) may fill the
vacancy for the full term of the class in which the vacancy occurs or is
created.
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VII
A. In addition to requirements of any applicable statute, the affirmative
vote or written consent of not less than 66 2/3% of the total votes entitled to
be cast in an election of Directors, considered for purposes of this Article as
one class, shall be required for approval or authorization of any Business
Transaction (as hereinafter defined) between the Corporation and any Control
Person (as hereinafter defined); provided, however, that such additional voting
requirement shall not be applicable if:
(1) The Business Transaction was approved by a two-thirds vote of the
Board of Directors of the Corporation prior to the acquisition by the
Control Person, together with its Affiliates and Associates (as hereinafter
defined), of stock of the Corporation, which, in the aggregate, bears the
rights to 10% or more of the total votes entitled to be cast in an election
of Directors; or
(2) The Business Transaction was approved by a two-thirds vote of the
Board of Directors of the Corporation after the acquisition by the Control
Person, together with its Affiliates and Associates, of stock of the
Corporation, which, in the aggregate, bears the rights to 10% or more of the
total votes entitled to be cast in an election of Directors, and such
acquisition by such Control Person and its Affiliates and Associates was
unanimously approved by the Board of Directors of the Corporation; or
(3) The Business Transaction is solely between the Corporation and
another corporation, 50% or more of the voting stock of which is owned by
the Corporation and none of which is owned by a Control Person, and each
holder of stock of the Corporation receives the same type of consideration
in proportion to his holdings; or
(4) Both of the following are satisfied:
(a) the cash or fair market value of the property, securities or
other consideration to be received per share in the Business Transaction
by holders of the stock of the Corporation is not less than the higher of
(i) the highest price per share (including brokerage commissions,
soliciting dealers' fees, dealer-management compensation, and other
expenses, including, but not limited to, newspaper advertisements,
printing and attorney's fees) paid by such Control Person in acquiring
any of its holdings of the Corporation's stock, or (ii) the highest per
share market price of the stock of the Corporation during the 3-month
period immediately preceding the date of the proxy statement described in
(c) below; and
(b) a proxy statement responsive to the requirements of the 1934 Act
shall be mailed to public stockholders of the Corporation for the purpose
of soliciting stockholder approval of such Business Transaction and shall
contain at the front thereof, in a prominent place, any recommendations
as to the advisability (or inadvisability) of the Business Transaction
which the Continuing Directors, or any of them, may choose to state, and,
if deemed advisable by a majority of the Continuing Directors, an opinion
of a reputable investment banking firm as to the fairness (or unfairness)
of the terms of such Business Transaction, from the point of view of the
remaining public stockholders of the Corporation (such investment banking
firm to be selected by a majority of the Continuing Directors and to be
paid a reasonable fee for their services by the Corporation upon receipt
of such opinion).
B. For the purposes of this Article:
(1) The term "Control Person" shall mean and include any individual,
corporation, partnership or other person or entity which, together with its
Affiliates and Associates, "beneficially owns" (as this term is defined on
the date on which this Article becomes effective in Rule 13d-3 of the
General Rules and Regulations under the ▇▇▇▇ ▇▇▇) in the aggregate, stock of
the Corporation, which bears the rights to 10% or more of the total votes
entitled to be cast in an election of Directors, and any Affiliate or
Associate (as those terms are defined on the date of which this Article is
adopted in Rule 12b-2 of the General Rules and Regulations under the ▇▇▇▇
▇▇▇) of any such individual, corporation, partnership or other person or
entity;
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(2) The term "Business Transaction" shall mean (a) any merger or
consolidation of the Corporation with or into a Control Person, (b) any
sale, lease, exchange, transfer or other disposition, including without
limitation a mortgage or any other security device, of all or any
Substantial Part (as hereinafter defined) of the assets of the Corporation
(including, without limitation, any voting securities of a subsidiary) or of
a subsidiary, to a Control Person, (c) any merger of consolidation of a
Control Person with or into the Corporation or a subsidiary of the
Corporation, (d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part (as hereinafter defined) of the assets of a
Control Person to the Corporation or a subsidiary of the Corporation, (e)
the issuance of any securities of the Corporation or a subsidiary of the
Corporation to a Control Person, (f) the acquisition by the Corporation or a
subsidiary of the Corporation of any securities of a Control Person, (g) any
reclassification or recapitalization (including any reverse stock split)
involving stock of the Corporation, consummated within five (5) years after
a Control Person becomes a Control Person, (h) any plan or proposal by a
Control Person for the dissolution or liquidation of the Corporation, and
(i) any agreement, contract or other arrangement providing for any of the
transactions described in this definition of Business Transaction;
(3) The term "Continuing Director" shall mean any Director who was
elected by the public stockholders of the Corporation prior to the
acquisition by the Control Person, together with its Affiliates and
Associates, in the aggregate, of stock of the Corporation, which bears the
rights to 10% or more of the total votes entitled to be cast in an election
of Directors, or a person recommended by succeed a Continuing Director by a
majority of Continuing Directors;
(4) The term "Substantial Part" shall mean more than 10% of the total
assets of the Corporation in question as of the end of its most recent
fiscal year ending prior to the time that the termination is being made;
(5) Without limitation, any stock of the Corporation which any Control
Person has the right to acquire at any time pursuant to any agreement, or
upon exercise of conversion rights, warrants or options, or otherwise, shall
be deemed outstanding and beneficially owned by such Control Person for
purposes of this Article only;
(6) For the purpose of subparagraph 4 of paragraph A of this Article,
the phrase, "other consideration to be received" shall include, without
limitation, stock of the Corporation retained by its existing public
stockholders in the event of a Business Transaction with such Control Person
in which the Corporation is the surviving corporation.
C. The provisions set forth in this Article shall not be repealed or
amended in any respect or in any manner, including any merger of consolidation
of the Corporation with any corporation, unless the surviving corporation's
Certificate of Incorporation contains an Article to the same effect as this
Article, except by the affirmative vote or written consent of not less than
66 2/3% of the total votes entitled to be cast in an election of Directors
attributable to stock owned by persons other than a Control Person.
D. A majority of the Continuing Directors shall have the power and duty to
determine for purposes of this Article on the basis of information known to
them:
(1) Whether any proposed transaction is a Business Transaction and
within the scope of this Article;
(2) Whether a stockholder is a Control Person; and
(3) For the purposes of subparagraph 4 of paragraph A, the per share
market value to be paid to stockholders in the Business Transaction and the
highest per share price paid by the Control Person in acquiring any of its
holdings of the Corporation's stock.
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VIII
In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized to make, alter or repeal the By-Laws
of the Corporation.
IX
No Director shall be personally liable to the corporation or any stockholder
for monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director shall be liable under Section 174 of
Title 8 of the Delaware Code (relating to the Delaware General Corporation Law)
or any amendment thereto or successor provision thereto or shall be liable by
reason that, in addition to any and all other requirements for such liability,
he (i) shall have breached his duty of loyalty to the corporation or its
stockholders, (ii) shall not have acted in good faith, (iii) shall have acted in
a matter involving intentional misconduct or a knowing violation of law or, in
failing to act, shall have acted in a manner involving intentional misconduct or
a knowing violation of law or, (iv) shall have derived an improper personal
benefit. Neither the amendment nor repeal of this Article Nine, nor the adoption
of any provision of the Certificate of Incorporation inconsistent with this
Article Nine, shall eliminate or reduce the effect of this Article Nine in
respect of any matter occurring or any cause of action, suit or claim that, but
for this Article Nine would accrue or arise, prior to such amendment, repeal or
adoption of an inconsistent provision.
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