EXHIBIT 7.7
-----------
SECURITIES PURCHASE AGREEMENT
among
UNIVERSAL AMERICAN FINANCIAL CORP.
and
THE SEVERAL INVESTORS PARTY HERETO
Dated as of May 7, 2007
TABLE OF CONTENTS
PAGE
ARTICLE 1 CERTAIN DEFINITIONS........................................3
Section 1.1 Certain Definitions..................................3
Section 1.2 Interpretive Provision..............................10
ARTICLE 2 ISSUANCE AND PURCHASE OF CONVERTIBLE SHARES...............10
Section 2.1 Issuance and Purchase of Convertible Shares.........10
Section 2.2 Deliveries..........................................11
Section 2.3 Closing.............................................11
ARTICLE 3 INVESTOR REPRESENTATIONS AND WARRANTIES...................12
Section 3.1 Organization, Good Standing, Qualification and Power12
Section 3.2 Authority; Execution and Delivery; Enforceability...12
Section 3.3 Non-contravention...................................12
Section 3.4 Consents............................................12
Section 3.5 Information Supplied................................13
Section 3.6 Brokers.............................................13
Section 3.7 Acquisition for Investment..........................13
Section 3.8 Disclosure of Information...........................13
Section 3.9 Restricted Securities...............................13
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT..................14
Section 4.1 Organization, Good Standing, Qualification and Power14
Section 4.2 Authority; Execution and Delivery; Enforceability...14
Section 4.3 Non-contravention...................................15
Section 4.4 Consents............................................15
Section 4.5 Capitalization of Parent; Parent Subsidiaries.......16
Section 4.6 Parent SEC Documents................................18
Section 4.7 No Undisclosed Liabilities..........................19
Section 4.8 Title to Tangible Personal Property.................19
Section 4.9 Absence of Certain Developments.....................19
Section 4.10 Governmental Authorizations; Licenses; Etc..........20
Section 4.11 Litigation..........................................20
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 4.12 Taxes...............................................20
Section 4.13 Employee Matters....................................21
Section 4.14 Employee Benefit Plans..............................22
Section 4.15 Intellectual Property Rights........................22
Section 4.16 Contracts...........................................22
Section 4.17 Insurance...........................................23
Section 4.18 Real Property.......................................23
Section 4.19 Transactions With Affiliates........................23
Section 4.20 Financing...........................................23
Section 4.21 Information Supplied................................24
Section 4.22 Required Parent Shareholder Approval................24
Section 4.23 Valid Issuance of Parent Shares.....................24
Section 4.24 Anti-Takeover Statutes..............................25
Section 4.25 Exemption from Registration.........................25
Section 4.26 Brokers.............................................25
Section 4.27 Fairness Opinion; Acknowledgement...................26
Section 4.28 Merger Agreement....................................26
ARTICLE 5 COVENANTS AND AGREEMENTS..................................26
Section 5.1 Access; Documents and Information...................26
Section 5.2 Charter Amendment...................................27
Section 5.3 Conduct of Business by Parent.......................27
Section 5.4 Closing Documents...................................29
Section 5.5 Commercially Reasonable Efforts; Further Assurances.30
Section 5.6 Public Announcements................................31
Section 5.7 Availability of Shares..............................31
Section 5.8 Certificates........................................32
Section 5.9 Certain Claims......................................32
Section 5.10 Certain Tax Matters.................................32
Section 5.11 Preparation of the Proxy Statement; Parent
Shareholder Meeting.................................32
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 5.12 Anti-Takeover Statutes..............................34
Section 5.13 Nasdaq National Market Listing......................34
Section 5.14 Legends.............................................34
Section 5.15 Use of Proceeds.....................................35
Section 5.16 Exchange of Series A Preferred Stock for Series B
Preferred Stock.....................................35
ARTICLE 6 CONDITIONS TO CLOSING.....................................37
Section 6.1 Mutual Conditions...................................37
Section 6.2 Conditions to the Obligations of Parent.............37
Section 6.3 Conditions to the Obligations of the Investors......38
Section 6.4 Frustration of Closing Conditions...................40
ARTICLE 7 TERMINATION...............................................40
Section 7.1 Termination.........................................40
Section 7.2 Effect of Termination...............................41
ARTICLE 8 MISCELLANEOUS.............................................41
Section 8.1 Survival............................................41
Section 8.2 Indemnification.....................................42
Section 8.3 Notices.............................................44
Section 8.4 Exhibits and Schedules..............................46
Section 8.5 Time of the Essence; Computation of Time............47
Section 8.6 Expenses and Fees...................................47
Section 8.7 Governing Law.......................................47
Section 8.8 Jurisdiction and Venue; Waiver of Jury Trial........47
Section 8.9 Assignment; Successors and Assigns; No Third Party
Rights..............................................47
Section 8.10 Counterparts........................................48
Section 8.11 Titles and Headings.................................48
Section 8.12 Entire Agreement....................................48
Section 8.13 Severability........................................48
Section 8.14 No Strict Construction..............................48
Section 8.15 Specific Performance................................49
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TABLE OF CONTENTS
(CONTINUED)
PAGE
Section 8.16 Failure or Indulgence not Waiver....................49
Section 8.17 Amendments..........................................49
Section 8.18 Nature of Investors' Obligations and Rights.........49
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
May 7, 2007, is entered into by and among Universal American Financial Corp., a
New York corporation ("Parent"), ▇▇▇-Universal Holdings, LLC ("▇▇▇"), Welsh,
Carson, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ X, L.P. ("WCAS"), Union Square Universal Partners,
L.P. ("Union Square"), Perry Partners, L.P., Perry Partners International,
Inc., Perry Commitment Fund, L.P. and Perry Commitment Master Fund, L.P. (the
afore-named Perry entities are referred to herein collectively as "Perry").
▇▇▇, WCAS, Union Square and Perry are herein sometimes referred to each as an
"Investor" and collectively as the "Investors".
RECITALS
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent has entered into the Agreement and Plan of Merger and
Reorganization, dated as of the date of this Agreement, among Parent, MHRx LLC,
a Delaware limited liability company, MemberHealth, Inc., an Ohio corporation
("MemberHealth"), and the other parties named therein, a copy of which is
attached as Exhibit A hereto (the "Merger Agreement");
WHEREAS, pursuant to the Merger Agreement, Parent has agreed to
acquire, through the merger transactions set forth therein, 100% of the issued
and outstanding shares of capital stock and other equity interests of and in
MemberHealth on the terms, for the consideration and subject to the conditions
set forth in the Merger Agreement (the "Merger");
WHEREAS, this Agreement is the Securities Purchase Agreement
referred to in Section 4.20 of the Merger Agreement;
WHEREAS, the Board of Directors of Parent has duly authorized and
approved, and created and provided for the issuance of, (i) Series A
Participating Convertible Preferred Stock, par value $1.00 per share, of Parent
("Series A Preferred Stock"), which Series A Preferred Stock shall have such
powers, preferences and rights as set forth in the Certificate of Amendment to
Parent's Certificate of Incorporation for the Series A Preferred Stock attached
hereto as Exhibit B-1 (the "Series A Preferred Stock Certificate of
Designations"), and (ii) Series B Participating Convertible Preferred Stock, par
value $1.00 per share, of Parent ("Series B Preferred Stock"), which Series B
Preferred Stock shall have such powers, preferences and rights as set forth in
the Certificate of Amendment to Parent's Certificate of Incorporation for the
Series B Preferred Stock attached hereto as Exhibit B-2 (the "Series B Preferred
Stock Certificate of Designations" and, together with the Series A Preferred
Stock Certificate of Designations, the "Certificates of Designations");
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent and the Investors are also entering into (i) another
Securities Purchase Agreement, dated as of the date of this Agreement, pursuant
to which Parent has agreed to issue and sell to the Investors, and the Investors
have agreed to purchase from Parent, shares of Series A Preferred Stock and
Series B Preferred Stock on the terms and subject to the conditions set forth
therein, a copy of which is attached as Exhibit C hereto (the "Stage 1 Purchase
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Agreement"), and (ii) a Registration Rights Agreement in the form attached
hereto as Exhibit D (the "Registration Rights Agreement");
WHEREAS, at or prior to the Closing under this Agreement, a
Shareholders Agreement substantially in the form attached hereto as Exhibit E
(the "Shareholders Agreement") will be executed and delivered by the parties
hereto and any other Persons contemplated therein to be initial parties thereto;
WHEREAS, the Board of Directors of Parent has (a) approved this
Agreement, the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the Registration Rights Agreement and
the Shareholders Agreement (collectively, the "Transaction Agreements"), and the
Merger Agreement, and all of the transactions contemplated hereby and thereby
(collectively, the "Transactions"), including, without limitation, (i) the
issuance to the Investors pursuant to this Agreement of an aggregate of 125,000
shares of Series B Preferred Stock (a portion of which may be issued to and
purchased by an Investor instead in the form of Series A Preferred Stock at the
request of such Investor) (collectively, the "Convertible Shares"), and all
shares of common stock, par value $.01 per share, of Parent ("Parent Common
Stock") issuable upon conversion of the Convertible Shares, (ii) the issuance to
the Investors pursuant to the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ of an aggregate of
30,473 shares of Series A Preferred Stock and 19,527 shares of Series B
Preferred Stock (collectively, the "Stage 1 Shares"), the shares of Series B
Preferred Stock for which shares of Series A Preferred Stock may be exchanged as
contemplated by the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and all shares of Parent Common
Stock issuable upon transfer or conversion, as the case may be, of the Stage 1
Shares and shares of Series B Preferred Stock for which shares of Series A
Preferred Stock may be exchanged as contemplated by the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, and (iii) the issuance of the shares of Common Stock contemplated to
be issued as merger consideration pursuant to the Merger Agreement as in effect
on the date of this Agreement ((i) and (iii) collectively, the "Share
Issuances"); and (b) determined that the Transaction Agreements, the Merger
Agreement, and all of the Transactions, are fair to and in the best interests of
Parent and its shareholders;
WHEREAS, as contemplated by Rule 4350(i) of The Nasdaq Stock Market,
Inc. ("Nasdaq") Marketplace Rules, Parent shall call a special meeting of its
shareholders (the "Parent Shareholder Meeting") and, at such meeting, seek the
affirmative vote of the holders of a majority of the shares of Parent Common
Stock voting in person or by proxy at such meeting in favor of the Share
Issuances (such vote, together with the Parent Charter Vote referred to below,
being hereinafter referred to as the "Required Parent Shareholder Approval");
WHEREAS, at the Parent Shareholder Meeting, Parent shall also seek
the affirmative vote of the holders of a majority of the shares of Parent Common
Stock then outstanding on a proposal to amend the Certificate of Incorporation
of Parent to authorize a new class of Parent non-voting common stock and
increase the number of authorized shares of Parent capital stock on terms
substantially in the form attached hereto as Exhibit F (the "Charter Amendment")
(the "Parent Charter Vote");
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WHEREAS, the Board of Directors of Parent has resolved to recommend
that the shareholders of Parent vote in favor of and approve the Share Issuances
and the Charter Amendment;
WHEREAS, each of the Investors, severally but not jointly, wishes to
purchase from Parent, and Parent wishes to sell to each Investor, upon the terms
and subject to the conditions set forth in this Agreement, the number of
Convertible Shares respectively set forth by the name of such Investor in
Section 2.1 below at a purchase price of $2,000 per Convertible Share;
WHEREAS, Parent will apply the proceeds from the sale of the
Convertible Shares to the Investors pursuant to this Agreement to payment of the
cash portion of the merger consideration under the Merger Agreement and payment
of fees and expenses incurred by Parent in connection with the consummation of
the Transactions, and the balance for general corporate purposes;
WHEREAS, Parent and the Investors are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Section 4(2) of the Securities Act, and Rule 506 of Regulation D promulgated
under the Securities Act; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, certain of the Investors are also entering into a Share Purchase
Agreement in the form attached hereto as Exhibit G pursuant to which they will
respectively acquire certain outstanding shares of Parent Common Stock (the
transactions contemplated thereby, collectively with the Transactions, the
"Collective Transactions");
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, and intending to be legally bound, the parties
hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Section 1.1. Certain Definitions. As used in this Agreement, the
following terms have the respective meanings set forth below.
"A/B Consents" has the meaning set forth in Section 5.16(b).
"A/B Preferred Exchange" has the meaning set forth in Section
5.16(a).
"Affiliate" means, with respect to any Person, any other Person who
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. The term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, and the terms
"controlled" and "controlling" have meanings correlative thereto. For purposes
hereof, (i) Parent shall not be considered an Affiliate of any Investor and (ii)
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the Affiliates of an Investor shall be deemed to include one or more funds under
common management with such Investor.
"Agreement" has the meaning set forth in the preamble.
"Antitrust Division" has the meaning set forth in Section 5.5(a).
"Business Day" means a day, other than a Saturday or Sunday, on
which commercial banks in New York City and Cleveland, Ohio are open for the
general transaction of business.
"Capitalization Date" has the meaning set forth in Section 4.5(a).
"Closing" has the meaning set forth in Section 2.3.
"Closing Date" has the meaning set forth in Section 2.3.
"CMS" means the Centers for Medicare & Medicaid Services.
"COBRA" means Part 6 of Subtitle B of Title I of ERISA, Section
4980B of the Code and any similar state law.
"Code" has the meaning set forth in the recitals.
"Consents" has the meaning set forth in Section 5.5(a).
"Contracts" means the Parent Contracts.
"Contractual Obligation" means, with respect to any Person, any
contract, obligation, agreement, deed, mortgage, lease, sublease, license or
legally binding commitment, promise, undertaking or instrument, whether written
or oral, to which or by which such Person is a party or otherwise bound or to
which or by which any property, business, operation or right of such Person is
bound.
"Conversion Shares" means the shares of Parent Common Stock issuable
upon conversion of (i) the Convertible Shares, (ii) the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇, (▇▇▇)
the shares of Series B Preferred Stock that may be issued in exchange for the
Stage 1 Shares and (iv) the shares of Parent non-voting common stock that may be
issued upon conversion or exchange of any of the shares referred to in clauses
(i)-(iii).
"Debt Commitment Letter" has the meaning set forth in Section 4.20.
"Disclosure Schedules" means the Investor Disclosure Schedules and
Parent Disclosure Schedules.
"Employee Benefit Plan" means any "employee benefit plan" (as such
term is defined in Section 3(3) of ERISA) and any other material employee
benefit plan, program or arrangement maintained, sponsored or contributed to by
a Person or any of its Subsidiaries.
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"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder).
"Financing" has the meaning set forth in Section 4.20.
"FTC" has the meaning set forth in Section 5.5(a).
"Funded Indebtedness" means, as of any date, without duplication,
the outstanding principal amount of, accrued and unpaid interest on and other
payment obligations (including any prepayment premiums payable as a result of
the consummation of the Collective Transactions) arising under any obligations
of a Person or any of its Subsidiaries consisting of (i) indebtedness for
borrowed money, (ii) indebtedness evidenced by any note, bond, debenture or
other debt security, or (iii) obligations under any interest rate, currency or
other hedging agreements, to the extent payable if terminated, in each case, as
of such date.
"GAAP" means generally accepted accounting principles as in effect
in the United States on the date of this Agreement, applied on a consistent
basis.
"Governing Documents" means the legal document(s) by which any
Person (other than an individual) establishes its legal existence or which
govern its internal affairs. For example, the "Governing Documents" of a
corporation are its certificate of incorporation and by-laws (or equivalent),
the "Governing Documents" of a limited partnership are its certificate of
formation and its limited partnership agreement and the "Governing Documents" of
a limited liability company are its certificate of formation and its operating
agreement.
"Government Order" means any order, writ, judgment, injunction,
decree, stipulation, ruling, determination or award entered by or with any
Governmental Authority.
"Governmental Authority" means any foreign government, or the
government of the United States of America and any state, commonwealth,
territory, possession, county, or municipality thereof, or the government of any
political subdivision of any of the foregoing, or any entity, authority, agency,
ministry, court or other similar body exercising executive, legislative,
judicial, regulatory or administrative authority or functions of or pertaining
to government, including any authority or other quasi-governmental entity
established to perform any of such functions and, in the case of Parent, Nasdaq.
"Governmental Authorization" means any or all licenses, permits,
waivers, accreditations, approvals, qualifications, certifications, and other
authorizations granted by any Governmental Authority, accreditation organization
or Payment Program relating to or affecting a Medicare prescription drug plan,
discount drug plan or other drug plan or product offered or administered by
Parent, the establishment, ownership, operation, maintenance, management,
regulation, development or expansion thereof.
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"HSR Act" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Insurance Laws" means the laws and regulations of any State of the
United States of America governing insurance companies that are applicable to
Parent or its Subsidiaries, including the respective insurance laws and
regulations of the States of Florida, Kansas, New York, Oklahoma, Pennsylvania
and Texas.
"Intellectual Property Rights" means all intellectual property,
whether owned or held for use under license, whether registered or unregistered,
including, without limitation, such rights in and to: (i) all patents and patent
applications (collectively, "Patents"); (ii) trademarks, trade dress, service
marks, certification marks, logos and trade names; (iii) copyrights, copyright
registrations and applications and works of authorship; (iv) Internet domain
names and uniform resource locators; (v) trade secrets (as defined in the
Uniform Trade Secrets Act and common law) ("Trade Secrets"); and (vi) software
and information technology systems including, without limitation, data files,
source code, object code, application programming interfaces, databases and
other software-related specifications and documentation (collectively,
"Software").
"Investor Disclosure Schedules" means the disclosure schedules to
this Agreement delivered by the Investors to Parent on or prior to the date
hereof in connection with this Agreement.
"Investor Material Adverse Effect" means, with respect to a
particular Investor, any fact, event, circumstance, change, occurrence, effect
or condition which has had or would reasonably be expected to have, individually
or in the aggregate with all other facts, events, circumstances, changes,
occurrences, effects or conditions, a material adverse effect on the ability of
such Investor to consummate the transactions contemplated by this Agreement.
"Knowledge" means, with respect to any Person, the actual knowledge
of such Person (and shall in no event encompass constructive, imputed or similar
concepts of knowledge); provided that in the case of Parent, such actual
knowledge shall be limited to the Knowledge of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ Israel, ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇
▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇, none of whom shall have any personal liability
regarding such Knowledge.
"Latest Parent Balance Sheet" has the meaning set forth in Section
4.7.
"Legal Requirement" means any United States federal, state or local
or foreign law, statute, standard, ordinance, code, rule, regulation, binding
directive, resolution or promulgation, or any Government Order, or any license,
franchise, permit or similar right granted under any of the foregoing, or any
similar provision having the force or effect of law and, with respect to Parent,
the Nasdaq Marketplace Rules.
"Lender" has the meaning set forth in Section 4.20.
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"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind. For avoidance of doubt, "Lien" shall not include any
license of Intellectual Property Rights.
"Losses" has the meaning set forth in Section 8.2(a).
"Medicare Part D" means the Outpatient Prescription Drug Program
established by the Medicare Modernization of Act of 2003.
"Merger" has the meaning set forth in the recitals.
"Multiemployer Plan" has the meaning set forth in Section 3(37) of
ERISA.
"Nasdaq" has the meaning set forth in the recitals.
"Outstanding Parent Stock Awards" has the meaning set forth in
Section 4.5(a).
"Parent" has the meaning set forth in the preamble.
"Parent Board Recommendation" has the meaning set forth in Section
5.11(d).
"Parent Charter Vote" has the meaning set forth in the recitals.
"Parent Common Stock" has the meaning set forth in the recitals.
"Parent Confidentiality Agreement" means the confidentiality
agreements by and between the several Investors and Parent.
"Parent Contracts" has the meaning set forth in Section 4.16.
"Parent Disclosure Schedules" means the disclosure schedules to this
Agreement delivered by Parent and the Investors on or prior to the date hereof
in connection with this Agreement.
"Parent Employee Benefit Plan" means any Employee Benefit Plan of
Parent or any of its Subsidiaries.
"Parent ERISA Affiliate" means any entity that is considered a
single employer with Parent under Section 414 of the Code.
"Parent Intellectual Property Rights" has the meaning set forth in
Section 4.15.
"Parent Material Adverse Effect" means any fact, event,
circumstance, change, occurrence, effect or condition individually or in the
aggregate which has had or would reasonably be expected to have a material
adverse effect on (A) the combined financial condition, business or results of
operations of Parent and its Subsidiaries and MemberHealth and its Subsidiaries,
taken as a whole, assuming completion of the Merger, or (B) the ability of
Parent to consummate the Transactions; provided, that any change, event or
effect arising from or related to, or in the case of matters covered by clauses
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(ix) and (x) below, directly and solely resulting from: (i) conditions generally
affecting the industries in which Parent and its Subsidiaries operate or the
United States economy generally; (ii) acts of terrorism, acts of war or the
escalation of hostilities; (iii) any disruption of the financial, banking or
securities markets (including any decline in the price of any security or any
market index); (iv) changes in GAAP; (v) changes in any Legal Requirements,
except for changes in Legal Requirements or CMS written interpretations and
guidance related to Medicare Part D or related to the business of providing
health and life insurance or managed care products and services; (vi) any action
taken or omission by Parent in accordance with this Agreement or at the written
request of, or with the prior written consent of, all of the Investors; (vii)
any change in or effect on the business of Parent or its Subsidiaries that is
cured prior to the Closing; (viii) the announcement of the Transactions; (ix)
any failure, in and of itself, by Parent or any of its Subsidiaries to meet any
projections, forecasts or revenue or earnings predictions for any period ending
on or after the date of this Agreement; or (x) any change, in and of itself, in
the market price or trading volume of shares of Parent Common Stock, shall not
be taken into account in determining whether a "Parent Material Adverse Effect"
has occurred, or would reasonably be expected to occur, except in the case of
clauses (i) and (iii), to the extent that such change, event or effect referred
to therein has had a materially disproportionate impact on the financial
condition, business or results of operations of Parent and its Subsidiaries,
taken as a whole, relative to other industry participants and, except in the
case of clauses (ix) and (x), any fact, event, circumstance, change, occurrence,
effect or condition underlying any failure to meet any projections, forecasts or
revenue or earnings predictions or affecting such market price or trading volume
shall be taken into account in determining whether a Parent Material Adverse
Effect has occurred or would reasonably be expected to occur, and except that
clause (viii) shall not apply with respect to Sections 4.3 and 4.4 hereof.
"Parent Preferred Stock" has the meaning set forth in Section
4.5(a).
"Parent SEC Documents" has the meaning set forth in Section 4.6.
"Parent Shareholder Meeting" has the meaning set forth in the
recitals.
"Parent Shareholder Meeting Date" has the meaning set forth in
Section 3.5.
"Parent Significant Subsidiaries" means, the "significant
subsidiaries" of the Parent as defined by Regulation S-X under the Exchange Act.
"Parent Stock Plans" has the meaning set forth in Section 4.5(a).
"Payment Program" means Medicare, Medicaid, commercial and private
insurers, employer group health plans (including, without limitation a "Welfare
Plan" described in Section 3(1) of ERISA), and any other governmental,
commercial, or other organization which maintains a health care reimbursement
program or policy.
"Permitted Liens" means (a) mechanics, materialmen's, carrier's,
repairer's and other Liens arising or incurred in the ordinary course of
business or that are not yet delinquent or are being contested in good faith;
(b) Liens for Taxes, assessments or other governmental charges not yet
delinquent or which are being contested in good faith, provided an appropriate
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reserve is established therefor to the extent required by GAAP; (c) Liens
(including encumbrances and restrictions on real property such as easements,
covenants, rights of way and similar matters affecting title) that do not,
individually or in the aggregate, materially interfere with the present uses or
value of the property subject to such Liens; (d) Liens granted to any lender at
the Closing in connection with the Debt Financing of the transactions
contemplated by the Merger Agreement; (e) with respect to the Parent Common
Stock, restrictions on transfer imposed under applicable securities laws; and
(f) with respect to Parent and its Subsidiaries, Liens described on Schedule
1.1(b).
"Person" means an individual, partnership, corporation, limited
liability company, joint stock company, unincorporated organization or
association, trust, joint venture, association or other organization, whether or
not a legal entity, or a Governmental Authority.
"Proxy Statement" has the meaning set forth in Section 4.4.
"Registration Statement" has the meaning set forth in Section 4.4.
"Regulatory Clearance" means, with respect to any Person,
requirements pursuant to Insurance Laws or the HSR Act to make a filing, await
expiration or termination of a regulatory clearance waiting period, or obtain a
clearance, approval or waiver, under Insurance Laws or the HSR Act, before such
Person may lawfully acquire shares of Parent Common Stock or other securities of
Parent that are entitled to vote in the election of directors of Parent
generally.
"Required Parent Shareholder Approval" has the meaning set forth in
the recitals.
"▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act" means the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder).
"Subsidiary" of a Person means any and all corporations,
partnerships, limited liability companies and other entities, whether
incorporated or unincorporated, with respect to which such Person, directly or
indirectly, owns securities having the power to elect a majority of the board of
directors or similar body governing the affairs of such entity.
"Tax" means (A) any and all federal, state, local or foreign income,
gross receipts, franchise, estimated, alternative minimum, add-on minimum,
sales, use, transfer, real property gains, registration, value added, excise,
natural resources, severance, stamp, occupation, windfall profits, environmental
(under Section 59A of the Code), customs, duties, real property, personal
property, capital stock, social security (or similar), unemployment, disability,
payroll, license, employee or other withholding, or other tax assessment, duty,
fee, levy, or other governmental charge, of any kind whatsoever, including any
interest, penalties or additions to tax or similar items in respect of the
foregoing (whether disputed or not) and including any obligations to indemnify
9
or otherwise assume or succeed to the tax liability of any other Person and (B)
any liability for the payment of any amount of the type described in the
immediately preceding clause (A) as a result of (1) being a "transferee" of
another person, (2) being a member of an affiliated, combined, consolidated or
unitary group, or (3) any contractual liability.
"Tax Return" means any return, report, declaration, claim for
refund, information return or other document (including any related or
supporting schedule, statement or information) filed or required to be filed in
connection with the determination, assessment or collection of any Tax of any
party or the administration of any Legal Requirements relating to any Tax
(including any amendment thereof).
"Termination Date" has the meaning set forth in Section 7.1(b).
"Third Party Claim" has the meaning set forth in Section 8.2(d).
"Transactions" has the meaning set forth in the recitals.
Section 1.2. Interpretive Provision. Unless otherwise indicated to
the contrary herein by the context or use thereof: (i) the words, "herein,"
"hereto," "hereof" and words of similar import refer to this Agreement as a
whole and not to any particular Section or paragraph hereof; (ii) the word
"including" means "including, but not limited to"; (iii) masculine gender shall
also include the feminine and neutral genders, and vice versa; and (iv) words
importing the singular shall also include the plural, and vice versa.
ARTICLE 2
ISSUANCE AND PURCHASE OF CONVERTIBLE SHARES
Section 2.1. Issuance and Purchase of Convertible Shares. Subject to
the satisfaction (or waiver) of the conditions set forth in Article 6, at the
Closing:
(a) Parent shall issue and sell to ▇▇▇, and ▇▇▇ shall purchase
from Parent, 27,632 Convertible Shares in exchange for the payment by ▇▇▇ to
Parent of an aggregate purchase price for such shares equal to $55,264,000 (such
dollar amount, the "▇▇▇ Aggregate Purchase Price");
(b) Parent shall issue and sell to WCAS, and WCAS shall purchase
from Parent, 36,841 Convertible Shares in exchange for the payment by WCAS to
Parent of an aggregate purchase price for such shares equal to $73,682,000 (such
dollar amount, the "WCAS Aggregate Purchase Price");
(c) Parent shall issue and sell to Union Square, and Union Square
shall purchase from Parent, 32,895 Convertible Shares in exchange for the
payment by Union Square to Parent of an aggregate purchase price for such shares
equal to $65,790,000 (such dollar amount, the "Union Square Aggregate Purchase
Price"); and
10
(d) Parent shall issue and sell to Perry, and Perry shall purchase
from Parent, 27,632 Convertible Shares in exchange for the payment by Perry to
Parent of an aggregate purchase price for such shares equal to $55,264,000 (such
dollar amount, the "Perry Aggregate Purchase Price") (the Convertible Shares
referred to in this clause (d) shall be allocated among the entities comprising
Perry in such percentages as shall be determined by Perry prior to Closing).
For the avoidance of doubt, at the option of an Investor, all or a
portion of the shares of Series B Preferred Stock to be issued to and purchased
by such Investor hereunder may instead be issued and purchased in the form of
Series A Preferred Stock.
Parent shall issue and sell all such Convertible Shares as aforesaid
free and clear of any and all Liens (other than transfer restrictions of general
applicability under the Securities Act).
Section 2.2. Deliveries. At the Closing (and in addition to the other
closing deliveries specified in Article 6):
(a) ▇▇▇ shall pay to Parent the ▇▇▇ Aggregate Purchase Price;
(b) WCAS shall pay to Parent the WCAS Aggregate Purchase Price;
(c) Perry shall pay to Parent the Perry Aggregate Purchase Price;
(d) Union Square shall pay to Parent the Union Square Aggregate
Purchase Price; and
(e) Parent shall deliver to each Investor a certificate or
certificates (in definitive form) duly executed on behalf of Parent and
registered in the name of such Investor (or its designee) representing the
number of Convertible Shares purchased by such Investor from Parent pursuant to
this Agreement.
All payments pursuant to clauses (a) through (d) of this paragraph
shall be made by wire transfer of immediately available funds to an account
designated by Parent pursuant to wire instructions to be provided by Parent no
later than at least three Business Days prior to the anticipated Closing Date.
Section 2.3. Closing. Subject to the satisfaction (or waiver) of the
conditions set forth in Article 6, the closing of the transactions contemplated
hereby (the "Closing") shall take place at the offices of Ropes & ▇▇▇▇ LLP, 1211
Avenue of the Americas, New York, New York, at 10:00 A.M. (New York City time)
on the fifth Business Day following the satisfaction or waiver of the conditions
set forth in Article 6 (other than those conditions that by their terms cannot
be satisfied until the Closing, but subject to satisfaction of such conditions
at the Closing), or on such other date and time as Parent and the Investors
shall mutually agree; provided that, subject to the satisfaction (or waiver) of
the conditions set forth in Article 6, it is the intention of the parties that
the Closing occur contemporaneously with the consummation of the Merger. The
date of the Closing is herein called the "Closing Date".
11
ARTICLE 3
INVESTOR REPRESENTATIONS AND WARRANTIES
Except as set forth in the Investor Disclosure Schedules, each Investor,
severally as to itself only, but not jointly with any other Investor, represents
and warrants to Parent as follows:
Section 3.1. Organization, Good Standing, Qualification and Power.
Such Investor is a corporation, limited liability company or other entity duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, formation or organization, as the case
may be, and has the requisite corporate, limited liability company or
partnership power and authority to own or lease its properties and assets and to
carry on its business as presently conducted.
Section 3.2. Authority; Execution and Delivery; Enforceability. Such
Investor has the requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, all of which have been duly
authorized by all requisite corporate, limited liability company or partnership,
as applicable, action on its part. Such Investor has duly executed and delivered
this Agreement and (assuming this Agreement has been duly and validly
authorized, executed and delivered by each other party hereto), this Agreement
is a valid and binding agreement of such Investor, enforceable against such
Investor in accordance with its terms, except as the enforceability hereof or
thereof may be limited by (i) applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Legal Requirements affecting the enforcement of
creditors' rights generally or (ii) applicable equitable principles (whether
considered in a proceeding at law or in equity).
Section 3.3. Non-contravention. Neither the execution and delivery of
this Agreement by such Investor nor the fulfillment of and the performance by
such Investor of its obligations hereunder will (i) contravene any provision
contained in the Governing Documents of such Investor, or (ii) conflict with,
violate or result in a breach (with or without the lapse of time, the giving of
notice or both) of, permit any Person to terminate, or constitute a default
(with or without the lapse of time, the giving of notice or both) under (A)
except as set forth on Schedule 3.3, any contract, agreement, commitment,
indenture, mortgage, lease, pledge, note, bond, license, permit, or other
instrument or obligation to which such Investor is a party or (B) assuming the
completion of the actions described in Section 3.4 and on Schedule 3.4, any
Legal Requirement to which such Investor is bound or subject, which in the case
of any of clause (ii) above, would reasonably be expected to have an Investor
Material Adverse Effect.
Section 3.4. Consents. No notice to, filing with, or authorization,
registration, consent or approval of any Governmental Authority or other Person
is necessary for the execution, delivery or performance of this Agreement by
such Investor or the consummation of the transactions contemplated hereby by
such Investor, except for (i) compliance with and filings under the HSR Act,
(ii) compliance with and filings under the Exchange Act, (iii) filings and
approvals required by state insurance departments, departments of health, and/or
other Governmental Authorities having jurisdiction over the Governmental
Authorizations or any part of Parent's business, or such other filings,
12
authorizations, registrations, consents or approvals that may be required be
reason of Parent's or MemberHealth's involvement in the transactions, (iv) other
notices, filings, authorizations, registrations, consents or approvals set forth
on Schedule 3.4, and (v) any other notices, filings, authorizations,
registrations, consents or approvals the failure of which to obtain or make
would not reasonably be expected to have an Investor Material Adverse Effect.
Section 3.5. Information Supplied. The information supplied or to be
supplied by such Investor in writing and designated specifically for inclusion
in the Proxy Statement shall not, on the date the Proxy Statement is mailed to
the shareholders of Parent or on the date of the Parent Shareholder Meeting (the
"Parent Shareholder Meeting Date") 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. Notwithstanding the foregoing, such
Investor makes no representation, warranty or covenant with respect to any
information contained in any of the foregoing documents other than information
supplied by such Investor in writing and designated specifically for inclusion
therein.
Section 3.6. Brokers. No Person is or will be entitled to a broker's,
finder's, investment banker's, financial advisor's or similar fee from Parent in
connection with this Agreement or any of the transactions contemplated hereby
based on any commitments made by such Investor.
Section 3.7. Acquisition for Investment. Such Investor is acquiring
the shares issuable to it under this Agreement for investment purposes and not
with a view towards any distribution thereof in violation of applicable
securities laws; provided, however, that by making such representation and
warranty, such Investor does not agree to hold any securities for any minimum or
other specific term. Such Investor is an "accredited investor" (as that term is
defined in Rule 501(a) of Regulation D under the Securities Act). Such Investor
acknowledges that the shares to be purchased by such Investor under this
Agreement may not be resold absent registration under the Securities Act or the
availability of an applicable exemption from Securities Act registration
requirements. By executing this Agreement, such Investor further represents
that, except as set forth on Schedule 3.7, such Investor does not presently have
any contract, undertaking, agreement or arrangement with any Person, other than
a Permitted Transferee (as defined in the Shareholders Agreement) of such
Investor, or any direct or indirect shareholders, partners or members of such
Investor, to sell, transfer or grant participations to such Person or to any
third Person, with respect to any of the Convertible Shares.
Section 3.8. Disclosure of Information. Such Investor has had an
opportunity to discuss Parent's business, management, financial affairs and the
terms and conditions of the offering of the Convertible Shares with Parent's
management. The foregoing, however, does not limit or modify the representations
and warranties of Parent in Article 4 of this Agreement or the right of the
Investors to rely thereon.
Section 3.9. Restricted Securities. Such Investor understands that
the issuance and sale of the Convertible Shares have not been registered under
the Securities Act by reason of a specific exemption from the registration
13
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent and the accuracy of the Investor's
representations as expressed in Section 3.7. Such Investor understands that the
Convertible Shares are "restricted securities" under applicable U.S. federal and
state securities laws and that, pursuant to these laws, the Investor must hold
the Convertible Shares indefinitely unless they are registered with the
Securities and Exchange Commission and qualified by state authorities, or an
exemption from such registration and qualification requirements is available.
Such Investor acknowledges that Parent has no obligation to register or qualify
the Convertible Shares, or the Parent Common Stock into which it may be
converted, for resale except as set forth in the Registration Rights Agreement.
Such Investor further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the holding period
for the Convertible Shares, and on requirements relating to Parent which are
outside of the Investor's control.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the Parent Disclosure Schedules, Parent hereby
represents and warrants to each Investor as follows:
Section 4.1. Organization, Good Standing, Qualification and Power.
Parent is a corporation duly organized, validly existing and in good standing
under the laws of the State of New York and has the requisite corporate power
and authority to own or lease its properties and assets and to carry on its
business as presently conducted. Except as has not had and would not reasonably
be expected to have a Parent Material Adverse Effect, each of the Subsidiaries
of Parent is a corporation, limited liability company or other entity duly
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation, formation or organization, as the case
may be, specified on Schedule 4.1 and has the requisite corporate, limited
liability company or partnership power and authority to own or lease its
properties and assets and to carry on its business as presently conducted.
Parent and each of Parent's Subsidiaries is duly qualified to transact business
and is in good standing in each jurisdiction wherein the nature of its business
or the ownership of its assets makes such qualification necessary, except where
the failure to be so qualified and in good standing has not had and would not
reasonably be expected to have a Parent Material Adverse Effect. Parent has
delivered to the Investors true and complete copies of the Governing Documents
of Parent. Parent is not in material violation of or material default under the
provisions of any such Governing Documents. None of the Parent's Subsidiaries is
in material violation or material default under its governing documents, except
as would not cause a Parent Material Adverse Effect.
Section 4.2. Authority; Execution and Delivery; Enforceability.
Parent has the requisite power and authority to execute and deliver this
Agreement, the other Transaction Agreements and the Merger Agreement and to
perform its obligations hereunder, and thereunder (subject, with respect to
consummation of the transactions contemplated by this Agreement and the Merger
Agreement, to obtaining the Required Parent Shareholder Approval), all of which
have been duly authorized (subject, with respect to consummation of the
transactions contemplated by this Agreement and the Merger Agreement, to
obtaining the Required Parent Shareholder Approval) by all requisite corporate
14
action on its part. Parent has duly executed and delivered this Agreement, the
▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the Registration Rights Agreement and the Merger
Agreement, and each of this Agreement, the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and the
Registration Rights Agreement, and (assuming that they have been duly and
validly authorized, executed and delivered by the other parties thereto,
respectively) this Agreement, and the Registration Rights Agreement are, and
each other Transaction Agreement will from and after the Closing be, a valid and
binding agreement of Parent, enforceable against Parent in accordance with their
respective terms, except as the enforceability hereof or thereof may be limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other
similar Legal Requirements affecting the enforcement of creditors' rights
generally or (ii) applicable equitable principles (whether considered in a
proceeding at law or in equity).
Section 4.3. Non-contravention. Neither the execution and delivery of
this Agreement, the other Transaction Agreements and the Merger Agreement nor
the fulfillment of and the performance by Parent of its obligations hereunder or
thereunder, nor consummation of the Collective Transactions, will (i) contravene
any provision contained in the Governing Documents of Parent, (ii) conflict
with, violate or result in a breach (with or without the lapse of time, the
giving of notice or both) of, permit any Person to terminate, or constitute a
default (with or without the lapse of time, the giving of notice or both) under
(A) except as set forth on Schedule 4.3, any contract, agreement, commitment,
indenture, mortgage, lease, pledge, note, bond, license, permit or other
instrument or obligation to which Parent or any of Parent's Subsidiaries is a
party or is bound or to which any of their respective properties or assets are
subject or (B) assuming the completion of the actions described in Section 4.4
and on Schedule 4.4, any Legal Requirement to which Parent or any of Parent's
Subsidiaries is bound or subject or to which any of their respective assets or
properties are subject, (iii) except as set forth on Schedule 4.3, result in the
creation or imposition of any Lien on any of the assets or properties of Parent
or any of Parent's Subsidiaries, or (iv) except as set forth on Schedule 4.3,
result in the acceleration of, or permit any Person to terminate, modify,
cancel, accelerate or declare due and payable prior to its stated maturity, any
obligation of Parent or any of Parent's Subsidiaries, which in the case of any
of clauses (ii) through (iv) above, would reasonably be expected to have a
Parent Material Adverse Effect.
Section 4.4. Consents. No notice to, filing with, or authorization,
registration, consent or approval of any Governmental Authority or other Person
is necessary for the execution, delivery or performance of this Agreement, the
other Transaction Agreements and the Merger Agreement or the consummation of the
transactions contemplated hereby and thereby by Parent or consummation of the
Collective Transactions, except for (i) compliance with and filings under the
HSR Act with respect to consummation of the transactions contemplated by this
Agreement and the Merger Agreement, (ii) compliance with the notice and approval
requirements of CMS applicable to the Transactions, (iii) with respect to
consummation of the transactions contemplated by this Agreement, the filing of
the Charter Amendment with the Secretary of State of the State of New York, and
with respect to consummation of the transactions contemplated by the Merger
Agreement, the filing of appropriate Certificates of Merger and any related
documents with the Secretaries of State of the States of Ohio and Delaware
15
pursuant to the Merger Agreement, (iv) filings and approvals required by state
insurance departments and/or departments of health, each as set forth on
Schedule 4.4, (v) with respect to consummation of the transactions contemplated
by this Agreement and the Merger Agreement, the filing with the SEC of (A) a
joint proxy statement/prospectus for distribution to the shareholders of
MemberHealth in connection with the Merger and the shareholders of Parent in
connection with the Parent Shareholder Meeting in accordance with Regulation 14A
promulgated under the Exchange Act (such proxy statement as amended or
supplemented from time to time being hereinafter referred to as the "Proxy
Statement"), (B) a registration statement on Form S-4 relating to the offer and
sale of shares of Parent Common Stock in connection with the Merger pursuant to
the Merger Agreement (such registration statement as amended or supplemented
from time to time being hereinafter referred to as the "Registration
Statement"), and (C) such reports under and such other compliance with the
Exchange Act and the Securities Act as may be required in connection with this
Agreement and the Merger, (vi) compliance with any applicable Legal Requirements
relating to state blue sky laws, securities laws or Nasdaq filing requirements
in connection with the issuance of the Convertible Shares or the shares of
Parent Common Stock issuable in the Merger, and (vii) other notices, filings,
authorizations, registrations, consents or approvals set forth on Schedule 4.4.
Section 4.5. Capitalization of Parent; Parent Subsidiaries.
(a) As of the date hereof, the authorized capital stock of Parent
consists of (i) 100,000,000 shares of Parent Common Stock and (ii) 2,000,000
shares of Preferred Stock, par value $0.01 per share (the "Parent Preferred
Stock"), of which 300,000 shares of Parent Preferred Stock will be designated as
Series A Preferred Stock and 300,000 shares of Parent Preferred Stock will be
designated as Series B Preferred Stock (each having the rights, preferences and
privileges set forth in the Certificates of Designations attached as Exhibits
B-1 and B-2, respectively). Upon effectiveness of the Charter Amendment, the
authorized capital stock of Parent will consist of at least (i) 125,000,000
shares of Parent Common Stock, (ii) 30,000,000 shares of Parent non-voting
common stock and (iii) 2,000,000 shares of Parent Preferred Stock, of which
300,000 shares of Parent Preferred Stock will have been designated as Series A
Preferred Stock and 300,000 shares of Parent Preferred Stock will have been
designated as Series B Preferred Stock (each having the rights, preferences and
privileges set forth in the Certificates of Designations attached as Exhibits
B-1 and B-2, respectively). As of the close of business on May 7, 2007 (the
"Capitalization Date"), 59,442,873 shares of Parent Common Stock were issued and
outstanding; no shares of Parent Preferred Stock were issued and outstanding;
626,045 shares of Parent Common Stock were held in Parent's treasury; and
5,227,403 shares of Parent Common Stock were reserved for issuance pursuant to
the Outstanding Parent Stock Awards. Schedule 4.5(a) contains a list of each
stock option plan, program or arrangement of Parent (the "Parent Stock Plans")
and information with respect to all of the outstanding stock options, restricted
stock awards and other stock-based awards issued under the Parent Stock Plans
("Outstanding Parent Stock Awards"), including the name of Parent Stock Plan
under which such options or awards were issued, the holders thereof, the number
of shares subject thereto, the exercise prices and other material terms thereof
and a description of the vesting provisions thereof. Except as set forth above
or on Schedule 4.5(a), there are no outstanding shares of capital stock of
Parent or securities, directly or indirectly, convertible into, or exchangeable
or exercisable for, shares of capital stock of Parent or any outstanding
16
"phantom" stock, stock appreciation right or other stock-based awards. Except as
set forth on Schedule 4.5(a), there are no puts, calls, rights (including
preemptive rights), commitments or agreements to which Parent is a party or by
which it is bound, in any case obligating Parent to issue, deliver, sell,
purchase, redeem or acquire, any equity securities of Parent or securities
convertible into, or exercisable or exchangeable for equity securities of
Parent, or obligating Parent to grant, extend or enter into any such option,
put, warrant, call, right, commitment or agreement. All outstanding shares of
Parent Common Stock are validly issued, fully paid and nonassessable and are not
subject to, and have not been issued in violation of, preemptive or other
similar rights. No bonds, debentures, notes or other indebtedness of Parent
having any right to vote with the stockholders of Parent on matters submitted to
the stockholders of Parent (or any such indebtedness or other securities that
are convertible into or exercisable or exchangeable for securities having such
voting rights) are issued or outstanding. No shares of capital stock of Parent
and no other securities directly or indirectly convertible into, or exchangeable
or exercisable for, capital stock of Parent have been issued since the
Capitalization Date and on or prior to the date of this Agreement, other than
shares of Parent Common Stock issued in respect of Outstanding Parent Stock
Awards.
(b) Agreements Relating to Capital Stock. Except as set forth on
Schedule 4.5(b), there are not any stockholder agreements, voting trusts or
other agreements or understandings to which Parent is a party or by which it is
bound relating to the voting or transfer of any shares of Parent Common Stock.
All registration rights agreements, stockholders' agreements and voting
agreements to which Parent or any of its Subsidiaries is a party are identified
on Schedule 4.5(b).
(c) Set forth on Schedule 4.5(c) is the number of authorized,
issued and outstanding shares of capital stock (or other ownership interests) of
each Parent Significant Subsidiary. All of the issued and outstanding shares of
capital stock (or other ownership interests) of each Parent Significant
Subsidiary are owned beneficially and of record by Parent or another Subsidiary
of Parent as set forth on Schedule 4.5(c), have been validly issued, and are
fully paid and nonassessable and, except as set forth on Schedule 4.5(c), are
held free and clear of any preemptive rights (other than such rights as may be
held by Parent or a Subsidiary of Parent) or Liens (other than Permitted Liens).
Except as set forth on Schedule 4.5(c), (a) there are no other issued or
outstanding equity securities of any Parent Significant Subsidiary and (b) there
are no other issued and outstanding securities of any Parent Significant
Subsidiary convertible into or exchangeable for, at any time, equity securities
of any Parent Significant Subsidiary. Except as set forth on Schedule 4.5(c),
there are no (i) outstanding obligations of Parent or Parent Significant
Subsidiary to repurchase, redeem or otherwise acquire any capital stock (or
other ownership interests) of any of the Parent Significant Subsidiaries or (ii)
voting trusts, proxies or other agreements with respect to the voting or
transfer of the capital stock (or other ownership interests) of the Parent
Significant Subsidiaries.
(d) Except as set forth on Schedule 4.5(d), and except for the
capital stock (or other ownership interests) of the Parent Significant
Subsidiaries, Parent does not own, directly or indirectly, (i) any shares of
outstanding capital stock or membership interests of any other corporation or
limited liability company or securities convertible into or exchangeable for
capital stock or membership interests of any other corporation or limited
17
liability company (ii) any equity or other participating interest in the
revenues or profits of any Person, and neither Parent nor any of the Parent
Significant Subsidiaries is subject to any obligation to make any investment (in
the form of a loan, capital contribution or otherwise) in any Person.
Section 4.6. Parent SEC Documents.
(a) Parent has made available to the Investors a true and complete
copy of each report, schedule, registration statement and proxy statement filed
by Parent with the SEC since December 31, 2004 (the "Parent SEC Documents"),
which are all the documents that Parent was required to file with the SEC since
December 31, 2004. As of their respective dates, the Parent SEC Documents
complied in all material respects with the requirements of the Securities Act,
the Exchange Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder, and, to the extent in effect and applicable, the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act, and none of Parent SEC Documents contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Parent has made
available to the Investors true and complete copies of all comment letters
received by Parent from the SEC since December 31, 2004, together with all
written responses of Parent thereto. As of the date hereof, to the Knowledge of
Parent, there are no outstanding or unresolved comments in such comment letters
and none of the Parent SEC Documents is the subject of any ongoing review by the
SEC.
(b) The financial statements of Parent included in the Parent SEC
Documents comply as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, were prepared in accordance
with GAAP (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q or Rule 10-01 of Regulation S-X
of the SEC) and present fairly in all material respects the consolidated
financial position of Parent and its consolidated Subsidiaries as of their
respective dates and the consolidated results of operations and the consolidated
cash flows of Parent and its consolidated Subsidiaries for the periods presented
therein (subject, in the case of the unaudited statements, to year-end audit
adjustments, as permitted by Rule 10-01, and any other adjustments described
therein).
(c) Parent and its Subsidiaries have established and maintain
"disclosure controls and procedures" (as defined in Rule 13a-15(e) promulgated
under the Exchange Act) and "internal control over financial reporting" (as
defined in Rule 13a-15(f) promulgated under the Exchange Act), in each case, as
required by Rule 13a-15 under the Exchange Act. Such "disclosure controls and
procedures" are designed to ensure that information required to be disclosed by
Parent in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the rules and forms of the SEC, and that such information is accumulated and
communicated to Parent's management, including its principal executive officer
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure and to make
the certifications of the principal executive officer and the principal
financial officer of Parent required by Sections 302 and 906 of the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act with respect to such reports. For purposes of this Agreement,
18
"principal executive officer" and "principal financial officer" shall have the
meanings given to such terms in the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act. Each of the principal
executive officer and the principal financial officer of Parent (and each former
principal executive officer of Parent and each former principal financial
officer of Parent, as applicable) has made all certifications required by
Sections 302 and 906 of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act and the rules and regulations
promulgated thereunder with respect to the Parent SEC Documents. Such "internal
control over financial reporting" provides reasonable assurances regarding the
reliability of financial reporting and the preparation of financial statements,
including that (A) transactions are executed in accordance with management's
general or specific authorization; and (B) transactions are recorded as
necessary (x) to permit preparation of consolidated financial statements in
conformity with GAAP and (y) to maintain accountability of the assets of Parent
and its Subsidiaries. The management of Parent has disclosed, based on its most
recent evaluation, to Parent's auditors and the audit committee of Parent's
board of directors (i) all significant deficiencies in the design or operation
of internal control over financial reporting which could adversely affect
Parent's ability to record, process, summarize and report financial data and
have identified for Parent's auditors any material weaknesses in internal
controls and (ii) any fraud, whether or not material, that involves management
or other employees who have a significant role in Parent's internal controls
over financial reporting. A summary of any such disclosure made by management to
Parent's auditors and audit committee has been made available to the Investors.
Section 4.7. No Undisclosed Liabilities. Neither Parent nor any of
its Subsidiaries has any liability other than (i) liabilities reflected in
consolidated balance sheet of Parent included in the Annual Report on Form 10-K
for the fiscal year of Parent ended December 31, 2006 filed by Parent on March
16, 2007 (including the related notes thereto) (the "Latest Parent Balance
Sheet"), (ii) liabilities arising under Contractual Obligations that are
connected with future performance under such Contractual Obligations and not
required to be reflected on a consolidated balance sheet of Parent and its
Subsidiaries prepared in accordance with GAAP, (iii) liabilities that were
incurred in the ordinary course of business since the date of the Latest Parent
Balance Sheet and (iv) liabilities that have not had and would not reasonably be
expected to have a Parent Material Adverse Effect.
Section 4.8. Title to Tangible Personal Property. Parent or a
Subsidiary of Parent has good title to all of the tangible personal property
reflected as being owned by them on the Latest Parent Balance Sheet, in each
case, free and clear of Liens (other than Permitted Liens), except for any such
assets which have been sold or otherwise disposed of since the date of the
Latest Parent Balance Sheet or where the failure to have such good title has not
had and would not reasonably be expected to have a Parent Material Adverse
Effect. Parent and its Subsidiaries own or lease all tangible assets necessary
for the conduct of their business as presently conducted except where such
failure to own or lease has not had and would not reasonably be expected to have
a Parent Material Adverse Effect.
Section 4.9. Absence of Certain Developments. Except as set forth on
Schedule 4.9, during the period beginning on the date of the Latest Balance
Sheet and ending on the date of this Agreement, (a) there has not been any
change, event or effect that has had or would reasonably be expected to have a
Parent Material Adverse Effect and (b) each of Parent and its Subsidiaries has
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conducted its business in the ordinary course substantially consistent with past
practices. Without limiting the generality of the foregoing, except as set forth
on Schedule 4.9, none of Parent or any of its Subsidiaries has taken any action
that would have constituted a violation of Section 5.3(b) of this Agreement if
Section 5.3(b) had been in effect at all times since the date of the Latest
Parent Balance Sheet.
Section 4.10 Governmental Authorizations; Licenses; Etc. Except as
set forth on Schedule 4.10, the business of each of Parent and its Subsidiaries
is now and has been at all times since January 1, 2005 operated in compliance
with all applicable Legal Requirements, except where failure to so comply has
not had and would not reasonably be expected to have a Parent Material Adverse
Effect. Parent is, and has been since the effective date thereof, in compliance
in all material respects with the provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
applicable to it. Except as set forth on Schedule 4.10, each of Parent and its
Subsidiaries has all permits, licenses, approvals, certificates, Governmental
Authorizations, and has made all notifications, registrations, certifications
and filings with all Governmental Authorities, necessary or advisable for the
operation of its business as currently conducted, in each case except as has not
had and would not reasonably be expected to have a Parent Material Adverse
Effect. Except as set forth on Schedule 4.10, all such permits, licenses,
approvals, certificates and Governmental Authorizations are in full force and
effect. Except as set forth on Schedule 4.10, there is no action, audit, case,
proceeding or investigation pending or, to Parent's Knowledge, threatened in
writing by any Governmental Authority with respect to (i) any alleged violation
by Parent or any of its Subsidiaries of any Legal Requirement, (ii) any alleged
failure by Parent or any of its Subsidiaries to have any permit, license,
approval, certification or other authorization required in connection with the
operation of the business of Parent and its Subsidiaries or (iii) any change or
amendment to the permits, licenses, approvals, certifications or other
authorizations which would impair the ability of Parent and/or its Subsidiaries
to operate in the normal course, in each case except as has not had and would
not reasonably be expected to have a Parent Material Adverse Effect. This
Section 4.10 does not relate to matters with respect to Taxes (which are the
subject of Section 4.12), Employee Matters (which are the subject of Section
4.13) or Employee Benefit Plans (which are the subject of Section 4.14).
Section 4.11 Litigation. Except as set forth on Schedule 4.11, there
are no judgments, decrees, lawsuits, actions, proceedings, claims, complaints,
injunctions or orders by or before any Governmental Authority pending or, to
Parent's Knowledge, threatened in writing or, to Parent's Knowledge, any pending
investigation by any Governmental Authority, in any such case, against Parent or
any of its Subsidiaries which have had or would reasonably be expected to have a
Parent Material Adverse Effect.
Section 4.12 Taxes.
(a) Except as set forth on Schedule 4.12(a), or except as has not
had and would not reasonably be expected to have a Parent Material Adverse
Effect, each of Parent and its Subsidiaries has duly and timely filed all Tax
Returns required to be filed by it, all such Tax Returns have been prepared in
material compliance with all applicable Legal Requirements and are true, correct
and complete in all material respects. Except as set forth on Schedule 4.12, or
except as has not had and would not reasonably be expected to have a Parent
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Material Adverse Effect, all Taxes owed by each of Parent and its Subsidiaries,
whether or not shown as due on any such Tax Return, have been timely paid.
(b) Except as set forth on Schedule 4.12(b), or except as has not
had and would not reasonably be expected to have a Parent Material Adverse
Effect:
(i) neither Parent nor any of its Subsidiaries is currently
the subject of a Tax audit or examination nor is party to any claim, dispute,
action or controversy;
(ii) neither Parent nor any of its Subsidiaries has consented
to extend the time, or is the beneficiary of any extension of time, in which any
Tax may be assessed or collected by any taxing authority;
(iii) neither Parent nor any of its Subsidiaries has received
from any taxing authority any written notice of proposed adjustment, deficiency,
underpayment of Taxes or any other such written notice which has not been
satisfied by payment or been withdrawn;
(iv) no claim, or notice of a claim, has ever been made by an
authority in a jurisdiction where Parent or any of its Subsidiaries does not
file Tax Returns that Parent or any of its Subsidiaries is or may be subject to
taxation by that jurisdiction;
(v) the unpaid Taxes of Parent and its Subsidiaries did not,
as of December 31, 2006, exceed the reserve for Taxes (rather than any reserve
for deferred Taxes established to reflect timing differences between GAAP and
Tax income) set forth on the face of the Latest Parent Balance Sheet. Parent and
its Subsidiaries have paid all estimated Taxes required to be paid for Parent's,
and each of its Subsidiaries', current taxable year; and
(vi) neither Parent nor any of its Subsidiaries has ever been
a member of a combined, consolidated, affiliated or unitary group for Tax
purposes, other than a group of which Parent is or one of its Subsidiaries was
the parent corporation.
Section 4.13 Employee Matters. Except as set forth on Schedule 4.13,
(i) neither Parent nor any of its Subsidiaries has entered into any collective
bargaining agreement with respect to its employees, (ii) there is no labor
strike, labor dispute, or work stoppage or lockout pending or, to Parent's
Knowledge, threatened in writing against or affecting Parent or any of its
Subsidiaries and since January 1, 2005 there has been no such action, (iii) to
Parent's Knowledge, no union organization campaign is in progress with respect
to any of the employees of Parent or any of its Subsidiaries, and (iv) except as
has not had and would not reasonably be expected to have a Parent Material
Adverse Effect, there is no unfair labor practice, charge or complaint pending
or, to Parent's Knowledge, threatened against Parent or any of its Subsidiaries.
Neither Parent nor any of its Subsidiaries has engaged in any plant closing or
employee layoff activities since January 1, 2005 that would violate or give rise
to an obligation to provide any notice required pursuant to the Worker
Adjustment Retraining and Notification Act of 1988, as amended, or any similar
state or local plant closing or mass layoff statute, rule or regulation.
21
Section 4.14 Employee Benefit Plans. Each Parent Employee Benefit
Plan has been maintained and administered in compliance in all material respects
with the applicable requirements of ERISA, the Code and any other applicable
Legal Requirements.
Section 4.15 Intellectual Property Rights.
(a) Except as set forth on Schedule 4.15(a), Parent and its
Subsidiaries own all right, title and interest in, free and clear of all Liens,
or have a license or other right to use, all of the material Intellectual
Property Rights necessary for the conduct of the business of Parent and its
Subsidiaries as currently conducted (collectively, the "Parent Intellectual
Property Rights").
(b) To Parent's Knowledge, the Parent Intellectual Property Rights
are valid and enforceable by Parent and/or its Subsidiaries. Except as has not
had and would not reasonably be expected to have a Parent Adverse Effect, there
is not pending against Parent or any of its Subsidiaries or, to Parent's
Knowledge, threatened against Parent or any of its Subsidiaries any claim by any
third party contesting the validity, enforceability, ownership, or Parent's and
its Subsidiaries' rights with respect to, any Parent Intellectual Property
Rights, and there has been no such claim pending or, to Parent's Knowledge,
threatened in the past three (3) years. Except as has not had and would not
reasonably be expected to have a Parent Adverse Effect, to Parent's Knowledge,
the operations of Parent and its Subsidiaries, and the provision of goods and
services therein, do not infringe or misappropriate any material Intellectual
Property Rights of any third party. Except as has not had and would not
reasonably be expected to have a Parent Adverse Effect, there is no pending or,
to Parent's Knowledge, threatened assertion or claim and there has been no such
assertion or claim in the last three (3) years asserting that the operations of
Parent or any of its Subsidiaries infringe upon or misappropriate in any way the
material Intellectual Property Rights of any Person.
Section 4.16 Contracts. Schedule 4.16 sets forth a list of all
contracts, agreements, leases, permits or licenses that would be required to be
filed by Parent as of the date hereof as a "material contract" pursuant to Item
601(b)(10) of Regulation S-K under the Securities Act (the "Parent Contracts").
Each Contractual Obligation of Parent is a valid and binding agreement of Parent
or its Subsidiary, as the case may be, and, to Parent's Knowledge, of the other
parties thereto, enforceable by Parent or its Subsidiary against the other party
thereto in accordance with its terms (subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other laws affecting generally the
enforcement of creditors' rights and subject to general principles of equity).
Except as has not had and would not reasonably be expected to have a Parent
Material Adverse Effect, (A) neither Parent nor any of its Subsidiaries or, to
Parent's Knowledge, any other party to any Contractual Obligation of Parent, is
in breach or violation of, or default under any such Contractual Obligation of
Parent (and no event has occurred which with notice or lapse of time would
constitute such breach, violation or default) and (B) neither Parent nor any of
its Subsidiaries has received written notice of any such breach, violation or
default under any such Contractual Obligation of Parent. Parent has made
available to the Investors true and complete copies of all Parent Contracts,
including all amendments thereto.
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Section 4.17 Insurance. Except as would not, individually or in the
aggregate, have or reasonably be expected to have a Parent Material Adverse
Effect, the insurance policies maintained by Parent and its Subsidiaries provide
insurance in such amounts and against such risks as are customary and adequate
for companies of similar size and operating in the same industry as Parent and
its Subsidiaries, and such insurance policies are in full force and effect and
were in full force and effect during the periods of time such insurance policies
are purported to be in effect and all premiums due with respect to all such
policies have been paid.
Section 4.18 Real Property.
(a) Each material lease or sublease of real property to which
Parent or any of its Subsidiaries is a party or by which it is bound (each a
"Parent Lease", and collectively the "Parent Leases") is a valid and binding
agreement of Parent or its Subsidiary, as the case may be, and, to Parent's
Knowledge, of the other parties thereto, enforceable in accordance with its
terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium
or other laws affecting generally the enforcement of creditors' rights and
subject to general principles of equity). Except as set forth on Schedule
4.18(a), (A) neither Parent nor any of its Subsidiaries or, to Parent's
Knowledge, any other party to any Parent Lease is in material breach or material
violation of, or material default under any such Parent Lease (and no event has
occurred which with notice or lapse of time would constitute such material
breach, violation or default) and (B) neither Parent nor any of its Subsidiaries
has received written notice of any such material breach, violation or default
under any such Parent Lease. Parent has made available to the Investors true and
complete copies of all Parent Leases, including all amendments thereto and all
material notices and correspondence, memoranda of lease, estoppel certificates
and subordination, non-disturbance and attornment agreements related thereto.
(b) Neither Parent nor any of its Subsidiaries owns any real
property.
Section 4.19 Transactions With Affiliates. Except as set forth on
Schedule 4.19 or as described in Parent SEC Documents filed prior to the date
hereof, and except pursuant to the Transactions, no director or executive
officer of Parent or of any of its Subsidiaries (or, to Parent's knowledge, any
family member of any such Person who is an individual or any entity in which any
such Person or any such family member owns a material beneficial interest) or
any Person owning 5% of more of Parent Common Stock (i) is involved in any
material business arrangement or relationship with Parent or any of its
Subsidiaries other than employment arrangements and severance arrangements
entered into in the ordinary course of business or (ii) owns any material
property or right, tangible or intangible, which is used by Parent or any of its
Subsidiaries.
Section 4.20 Financing. Parent has received a commitment letter,
dated as of May 7, 2007 (the "Debt Commitment Letter"), from Bank of America,
N.A. (the "Lender"), pursuant to which the Lender has committed, subject to the
terms and conditions set forth therein, to provide up to $500,000,000 in senior
secured debt financing (the "Debt Financing"). True, accurate and complete
copies of the Debt Commitment Letter, as in effect on the date of this
Agreement, have been furnished to the Investors. The proceeds to Parent from the
issuance and sale of the Convertible Shares to the Investors pursuant to this
23
Agreement together with the financing contemplated by the Debt Commitment Letter
(collectively, the "Financing") is sufficient for Parent to consummate the
Transactions on the Closing Date and pay the initial merger consideration under
the Merger Agreement and all related fees and expenses thereunder and hereunder.
As of the date hereof, (A) the Debt Commitment Letter has not been amended or
modified, and (B) the financing commitments contained in the Debt Commitment
Letter have not been withdrawn or rescinded in any respect. The Debt Commitment
Letter, in the form so delivered, is in full force and effect and is a legal,
valid and binding obligation of Parent and, to the Knowledge of Parent, the
other parties thereto. As of the date hereof and assuming the accuracy of all
representations and warranties of MemberHealth in the Merger Agreement, no event
has occurred which, with or without notice, lapse of time or both, would
constitute a default or breach on the part of Parent under any term or condition
of the Debt Commitment Letter. As of the date hereof and assuming the accuracy
of all representations and warranties of MemberHealth in the Merger Agreement
and compliance by MemberHealth with its agreements in the Merger Agreement,
Parent has no reason to believe that it will be unable to satisfy on a timely
basis any term or condition of closing to be satisfied by it contained in the
Debt Commitment Letter. Parent has fully paid, or caused to be fully paid, any
and all commitment and other fees required by the terms of the Debt Commitment
Letter to be paid on or before the date hereof.
Section 4.21 Information Supplied. The information included or
incorporated by reference or to be included or incorporated by reference in the
Registration Statement (other than information supplied by the Investors in
writing specifically for inclusion therein) shall not at the time the
Registration Statement is filed with the SEC or at any time it is supplemented
or amended or at the time it becomes effective under the Securities Act contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The information included or incorporated by reference or to be
included or incorporated by reference in the Proxy Statement (other than
information supplied by the Investors in writing and designated specifically for
inclusion therein) shall not, on the date the Proxy Statement is mailed to the
shareholders of Parent (or of MemberHealth), or on the Parent Shareholder
Meeting Date, 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.
Section 4.22 Required Parent Shareholder Approval. The Required
Parent Shareholder Approval is the only vote of the holders of Parent's capital
stock or other securities necessary (under applicable Legal Requirement or
otherwise) to consummate the Transactions. No vote of the holders of Parent's
capital stock or other securities is necessary (under applicable Legal
Requirement or otherwise) to consummate the transactions contemplated by the
▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇.
Section 4.23 Valid Issuance of Parent Shares. Prior to the closing
under the Stage 1 Purchase Agreement, Parent shall have (i) duly filed the
Series A Preferred Stock Certificate of Designations and Series B Preferred
Stock Certificate of Designations, in the forms attached as Exhibits B-1 and B-2
hereto, respectively, with the Secretary of State of the State of New York in
24
accordance with all applicable provisions of the Business Corporation Law of the
State of New York and (ii) delivered to the Investors a correct and complete
official copy of such filing dated and stamped as accepted and filed by such
Secretary of State. The issuance, sale and delivery by Parent of the shares of
Series A Preferred Stock and Series B Preferred Stock pursuant to the Stage 1
Purchase Agreement (and the issuance and delivery of shares of Series B
Preferred Stock issuable in exchange for any such shares of Series A Preferred
Stock) and of the Convertible Shares in accordance with this Agreement, and the
issuance and delivery of the Conversion Shares issuable upon conversion of all
such shares of Series A Preferred Stock and Series B Preferred Stock, have been
duly authorized by all necessary corporate action on the part of Parent
(subject, with respect to the Convertible Shares, to obtaining the Required
Parent Shareholder Approval). The Conversion Shares have been duly reserved for
issuance. The Convertible Shares (when issued, sold and delivered at the Closing
against payment therefor in accordance with the provisions of this Agreement),
all shares of Series A Preferred Stock and Series B Preferred Stock deliverable
pursuant to the Stage 1 Purchase Agreement (and all shares of Series B Preferred
Stock issuable in exchange for any such shares of Series A Preferred Stock), and
all of the Conversion Shares (when issued upon conversion of such shares of
Series A Preferred Stock and Series B Preferred Stock), will all be duly and
validly issued, fully paid and nonassessable, free and clear of any Liens (other
than transfer restrictions of general applicability under the Securities Act).
No Person has any preemptive right which would be triggered by reason of the
issuance of Convertible Shares, the Stage 1 Shares or Conversion Shares.
Section 4.24 Anti-Takeover Statutes. The Board of Directors of Parent
has taken all action necessary to ensure that any restrictions on business
combinations contained in the provisions of Section 912 of the New York Business
Corporation Law will not apply to the Transactions (including the Shares
Issuances) and the Collective Transactions. No other "fair price," "moratorium,"
"control share acquisition" or other similar anti-takeover statute or regulation
or any anti-takeover provision in Parent's Certificate of Incorporation or
Bylaws is, or at the Closing will be, applicable to Parent, the shares of Parent
capital stock, the Transactions or such other transactions contemplated by this
Agreement, the other Transaction Agreements, the Merger Agreement and the
Collective Transactions.
Section 4.25 Exemption from Registration. Assuming the accuracy of
the representations and warranties made by the Investors in Section 3.7 of this
Agreement, the offer and issuance by Parent of the Convertible Shares under this
Agreement, and the issuance and delivery of the Conversion Shares upon
conversion of Convertible Shares, is exempt from registration under the
Securities Act.
Section 4.26 Brokers. Except as set forth on Schedule 4.26, no Person
is or will be entitled to a broker's, finder's, investment banker's, financial
advisor's or similar fee from Parent or any of its Subsidiaries in connection
with this Agreement, the ▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, the Merger Agreement or the
Transactions.
25
Section 4.27 Fairness Opinion; Acknowledgement.
(a) The Board of Directors of Parent has received the opinion of
Credit Suisse, dated the date of this Agreement, to the effect that, as of such
date, the merger consideration to be paid by Parent pursuant to the Merger
Agreement is fair to Parent from a financial point of view. A correct and
complete copy of such opinion has been delivered to the Investors.
(b) Parent acknowledges and agrees that Investors are acting
solely in the capacity of arm's length purchasers with respect to this Agreement
and the transactions contemplated hereby. Parent further acknowledges that (i)
Investors are not acting as advisors or fiduciaries of Parent (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and (ii) Parent's decision to enter into this Agreement and the other
Transaction Agreements has been based solely on the independent evaluation of
the transactions contemplated hereby and thereby by Parent and its independent
representatives.
Section 4.28 Merger Agreement. Attached hereto as Exhibit A is a
correct and complete copy of the definitive Merger Agreement executed by the
parties thereto, together with all schedules and exhibits thereto, and none of
the foregoing have been amended, supplemented or otherwise modified as of the
date hereof.
ARTICLE 5
COVENANTS AND AGREEMENTS
Section 5.1. Access; Documents and Information.
(a) Except for information that, if provided, would adversely
affect the ability of a Person or any of its Subsidiaries to assert
attorney-client or attorney work product privilege or a similar privilege or as
limited by applicable Legal Requirements or the confidentiality provisions of
any material agreement, from and after the date hereof until the earlier of the
Closing or the termination of this Agreement in accordance with its terms,
Parent shall, and shall cause its Subsidiaries to, afford to the officers,
employees, accountants, counsel and other representatives and agents of each
Investor (each of the foregoing, respectively for each Investor, "Investor
Representatives"), during normal business hours and upon reasonable request,
reasonable access to Parent's and its Subsidiaries' books, records, leases,
licenses, contracts, properties, officers, employees, accountants, counsel and
other representatives who have material knowledge relating to Parent or any of
its Subsidiaries. Each Investor and its respective Investor Representatives
shall conduct any investigation under this Section 5.1(a) in a manner that does
not unreasonably interfere with the conduct of the business of Parent and its
Subsidiaries. An Investor shall be responsible for any breach of this Section
5.1(a) by any of its Investor Representatives.
(b) All information and documents disclosed to an Investor or its
Investor Representatives, whether before or after the date hereof, pursuant to
this Agreement or in connection with the transactions contemplated by, or the
26
discussions and negotiations preceding, this Agreement shall be subject to the
terms of the Parent Confidentiality Agreement.
Section 5.2. Charter Amendment. Prior to the Closing, Parent shall
duly file the Charter Amendment with the Secretary of State of the State of New
York in accordance with all applicable provisions of the Business Corporation
Law of the State of New York.
Section 5.3. Conduct of Business by Parent.
(a) From and after the date hereof until the earlier of the
Closing or the termination of this Agreement in accordance with its terms,
Parent will, and will cause its Subsidiaries to, except as otherwise provided on
Schedule 5.3(b) or as otherwise required by this Agreement or the Merger
Agreement (as in effect on the date hereof), by applicable Legal Requirements,
or consented to in writing by each of the Investors (which consent shall not be
unreasonably withheld, conditioned or delayed):
(i) conduct its business in the ordinary and regular course
in substantially the same manner as heretofore conducted (including any conduct
that is reasonably related, complementary or incidental thereto);
(ii) use commercially reasonable efforts to maintain the
insurance described on Schedule 4.17 (or reasonable replacement policies);
(iii) preserve intact its business organization and material
relationships with third parties with whom Parent and its Subsidiaries do
business; and
(iv) consult with the Investors prior to taking any action
which would reasonably be expected to result in a Parent Material Adverse
Effect.
(b) Without limiting the generality of the foregoing, from and
after the date hereof until the earlier of the Closing or the termination of
this Agreement in accordance with its terms, Parent will not, and will not cause
or permit any of its Subsidiaries to, except as otherwise provided on Schedule
5.3(b), or as otherwise required by this Agreement or by applicable Legal
Requirements, or as otherwise consented to in writing by each of the Investors
(which consent shall not be unreasonably withheld, conditioned or delayed):
(i) amend its Governing Documents (except to change Parent's
authorized shares of capital stock in the manner contemplated by this Agreement
or to amend Parent's by-laws to increase the size of its board of directors);
(ii) authorize or adopt a plan of liquidation or dissolution;
(iii) (A) except with respect to Parent's wholly owned
Subsidiaries, declare or pay dividends on, or make other distributions in
respect of, any capital stock or other equity interests, (B) adjust, split,
combine or reclassify any capital stock or other equity interests; (C) issue,
sell, pledge or otherwise transfer any capital stock or other equity interests
or any securities exercisable or exchangeable for or convertible into capital
stock or other equity interests, other than (w) the issuance of Convertible
Shares as contemplated by this Agreement, (x) the issuance of the Stage 1 Shares
27
as contemplated by the Stage 1 Purchase Agreement (and the issuance of shares of
Series B Preferred Stock upon exchange of shares of Series A Preferred Stock),
(y) the issuance of Parent Common Stock as Merger consideration pursuant to, and
on the terms and subject to the conditions set forth in, the Merger Agreement as
in effect on the date of this Agreement, or the issuance of any Conversion
Shares upon conversion of any shares of Series A Preferred Stock or Series B
Preferred Stock and (z) the issuance of Parent Common Stock issued pursuant to
the terms of Outstanding Parent Stock Awards or (D) purchase, redeem or
otherwise acquire any capital stock or other equity interests;
(iv) merge or consolidate with, or acquire any equity
interest in, any business entity, or acquire any line of business, division or
other material assets other than in the ordinary course of business or pursuant
to the Merger Agreement;
(v) enter into any new line of business;
(vi) sell, lease, license, encumber or otherwise dispose of,
or subject to any Lien (other than a Permitted Lien), any of its material assets
other than in the ordinary course of business;
(vii) make any change in its customary methods of accounting
or accounting practices, other than changes required by GAAP, industry
organizations or Governmental Authorities;
(viii) enter into a settlement or compromise of any pending or
threatened claims, litigation, arbitrations or other proceedings if such
settlement or compromise (A) involves payments by or to Parent or any of its
Subsidiaries of more than $500,000 in the aggregate or (B) involves a consent to
material non-monetary relief by Parent or any Subsidiary of Parent;
(ix) incur or guarantee any Funded Indebtedness other than
(A) in the ordinary course of business or (B) pursuant to the Debt Commitment
Letter for purposes of financing the Merger; or
(x) enter into a contractual obligation to do any of the
things referred to in this Section 5.3(b).
(c) Promptly after receipt by Parent of the notice of commencement
thereof, Parent shall provide the Investors with notice of (i) any audit,
investigation, claim (excluding immaterial adjustments, complaints, and
corrective activity in the ordinary course of business), proceeding, settlement,
judgment, consent order, or corporate integrity agreement by or imposed by any
Governmental Authority, (ii) any suspension, debarment or disqualification of
Parent from being a government contractor, holder of any Governmental
Authorization or recipient of reimbursement from any Payment Program, or (iii)
any suspension, termination, or revocation of any Governmental Authorization.
(d) Parent shall provide the Investors with reasonable notice of
any and all settlement discussions and/or negotiations (excluding immaterial
adjustments, complaints, and corrective activity in the ordinary course of
28
business) ("Settlement Discussions") between representatives of Parent and any
Governmental Authority, including without limitation negotiations with respect
to any claim, settlement agreement, consent order or corporate integrity
agreement between Parent and any Governmental Authority. In connection with any
such Settlement Discussions, (i) Parent shall timely provide the Investors with
copies of any and all documents that Parent intends to submit, or that Parent
receives, in connection with any such Settlement Discussions, and (ii) Parent
shall timely advise the Investors as to the status of such Settlement
Discussions.
(e) Parent shall furnish the Investors, within ten (10) days of
the receipt by Parent, any and all written notices or charges issued relating to
non-compliance from any Governmental Authority and/or any Payment Program that
Parent's Governmental Authorizations, Medicare or Medicaid certification, or
accreditation or ranking by any Governmental Authority or Payment Program are
being, or could be, downgraded, revoked, or suspended, that action is pending,
being considered or being, or could be, taken to downgrade, revoke, or suspend
Parent's Governmental Authorization or certification or to fine, penalize or
impose material remedies upon Parent, or that action is pending, being
considered, or being, or could be, taken, to discontinue, suspend, deny,
decrease or recoup any payments or reimbursements due, made or coming due to
Parent or related to the operation of Parent.
(f) Parent shall furnish the Investors, within ten (10) Business
Days of receipt but at least five (5) days prior to the earliest date on which
Parent is required to take any action with respect thereto or would suffer any
material adverse consequence, a copy of any Payment Program or other
Governmental Authority licensing or accreditation or ranking agency or entity
survey, report, warning letter, or written notice, and any statement of
deficiencies, and within the time period required by the particular agency for
furnishing a plan of correction also furnish or cause to be furnished to the
Investors a copy of the plan of correction generated from such survey, report,
warning letter, or written notice for Parent and by subsequent correspondence
related thereto, and use commercially reasonable efforts to correct or cause to
be corrected any deficiency, the curing of which is a condition of continued
licensure or of full participation in any Payment Program by the date required
for cure by such agency or entity (plus extensions granted by such agency or
entity).
(g) Prior to the Closing, Parent shall promptly notify the
Investors if Parent obtains Knowledge that any of the representations and
warranties of Parent in this Agreement are not true and correct in all material
respects.
(h) Prior to the Closing, Parent shall promptly provide the
Investors and Investor Representatives correct and complete copies of all
notices, documents and other materials made available by or to Parent under the
Merger Agreement.
Section 5.4. Closing Documents. Each Investor, severally but not
jointly, hereby agrees that it shall, prior to or on the Closing Date, execute
and deliver, or cause to be executed and delivered to Parent, the documents or
instruments described in Section 6.2 (c) Parent shall, prior to or on the
Closing Date, execute and deliver, or cause to be executed and delivered, to the
Investors, the documents or instruments described in Section 6.3(h).
29
Section 5.5. Commercially Reasonable Efforts; Further Assurances.
(a) Each Investor, severally but not jointly, and Parent, shall
cooperate with each other and use (and shall cause their respective Affiliates
to use) their respective commercially reasonable efforts to take or cause to be
taken all actions, and to do or cause to be done all things necessary, proper or
advisable under all applicable Contracts and Legal Requirements to consummate
and make effective the Collective Transactions as soon as practicable, including
preparing and filing as promptly as practicable all documentation to effect all
necessary notices, reports and other filings and to obtain as promptly as
practicable all waivers, consents, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from CMS and/or any other
Governmental Authority or other third party (hereinafter referred to as
"Consents") and to lift any injunction or other legal bar to the transactions
contemplated hereby in order to consummate the transactions contemplated hereby
as promptly as practicable. All costs incurred in connection with obtaining such
Consents, including CMS consent fees and expert consultant fees, shall be borne
by Parent. HSR filing fees shall be borne by Parent. Without limiting the
foregoing, each Investor, severally but not jointly, and Parent, undertakes and
agrees to file (or cause their respective Affiliates to file, as applicable) as
soon as practicable, and in any event prior to fifteen (15) Business Days after
the date hereof, a Notification and Report Form under the HSR Act with the
United States Federal Trade Commission (the "FTC") and the Antitrust Division of
the United States Department of Justice (the "Antitrust Division"). Each
Investor, severally but not jointly, and Parent, agrees to make appropriate
filings with all appropriate Governmental Authorities, including insurance
regulators, other competition authorities and CMS (or cause their respective
Affiliates to make such filings, as applicable) with respect to the Collective
Transactions promptly after the date of this Agreement and shall supply as
promptly as practicable to such Governmental Authorities any additional
information and documentary material that may be requested in connection
therewith. Each Investor, severally but not jointly, and Parent, agrees to (and
to cause their respective Affiliates to) respond as promptly as practicable to
any inquiries received from such Governmental Authorities for additional
information or documentation and to all inquiries and requests received from any
other Governmental Authority in connection with Consents.
(b) Parent shall (and shall cause its Affiliates to) offer to take
(and if such offer is accepted, commit to take) all reasonable steps to avoid or
eliminate impediments under any antitrust, competition, or trade regulation
Legal Requirement that may be asserted by the FTC, the Antitrust Division or any
other Governmental Authority with respect to the Collective Transactions so as
to enable the Closing to occur as expeditiously as possible; provided, however,
that nothing in this Agreement will require, or be deemed to require, Parent to
agree to or effect any divestiture. In addition, nothing in this Agreement will
require or be deemed to require Parent to take any other action (including
agreeing to any requirements or conditions to be imposed in order to obtain CMS
or insurance regulatory consents or approvals, including those listed on
Schedule 6.1(b) hereto) if in the reasonable judgment of Parent doing so would
be materially detrimental to the business conducted by Parent or MemberHealth
taken as a whole. Subject to the foregoing sentence, Parent shall cooperate in a
reasonable manner with the Investors in connection with Investors' efforts to
seek consents and approvals from Governmental Authorities in connection with the
Transactions (including by keeping the Investors informed on a reasonably
30
current basis of the status of such efforts and using its commercially
reasonable efforts to permit the representatives of the Investors to attend any
meetings between Parent's representatives and Governmental Authorities).
(c) In the event any claim, action, suit, investigation or other
proceeding by any Governmental Authority or other Person is commenced which
questions the validity or legality of the transactions contemplated hereby or
seeks damages in connection therewith, the Investors, severally but not jointly,
and Parent, agree to cooperate and use commercially reasonable efforts to defend
against such claim, action, suit, investigation or other proceeding and, if an
injunction or other order is issued in any such action, suit or other
proceeding, to use commercially reasonable efforts to have such injunction or
other order lifted, and to cooperate reasonably regarding any other impediment
to the consummation of the Collective Transactions.
(d) Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5.5 shall (i) limit any applicable rights the
Investors may have to terminate this Agreement pursuant to Article 7, (ii)
require any Investor to offer, accept or agree to (A) dispose or hold separate
any businesses, assets or operations and/or (B) restrict the manner in which, or
whether, such Investor or any of its Affiliates may carry on business or compete
in any geographic area or line of business, or (iii) obligate any Investor to
litigate or threaten any litigation.
(e) Parent shall provide to the Investors copies of any
application or other communication, which references the Investors, to
Governmental Authorities in connection with the Merger Agreement in advance of
filing or submission thereof, and Parent shall provide the Investors a
reasonable opportunity to comment upon or modify any such reference as to the
Investors. Parent's consent to accepting such comment or modification shall not
be unreasonably withheld.
Section 5.6. Public Announcements. The timing and content of all
announcements regarding any aspect of this Agreement to the financial community,
governmental agencies or the general public shall be mutually agreed upon in
advance by the Investors and Parent; provided, that each party hereto may make
any such announcement which it in good faith believes, based on advice of
counsel, is necessary in connection with any Legal Requirement, it being
understood and agreed that each party shall provide the other parties hereto
with copies of any such announcement in advance of such issuance and the
reasonable opportunity to comment on the same.
Section 5.7. Availability of Shares. Parent will not issue or agree
to issue any shares of Parent Common Stock or options, rights or warrants to
purchase shares of Parent Common Stock or securities convertible into or
exchangeable for shares of Parent Common Stock or take any other action if,
after giving effect thereto, the number of shares of Parent Common Stock
remaining unissued and duly reserved for issuance upon conversion of the shares
of Series A Preferred Stock and Series B Preferred Stock shall be insufficient
to permit conversion of all the then outstanding shares of Series A Preferred
Stock and Series B Preferred Stock after giving effect to any adjustment in the
number of shares of Parent Common Stock into which such shares of Series A
Preferred Stock and Series B Preferred Stock are convertible as a result of such
31
action. Parent shall take all action necessary to at all times have authorized,
and reserved for the purpose of issuance, after the Closing Date, the maximum
number of shares of Parent Common Stock issuable from time to time upon
conversion of the shares of Series A Preferred Stock and Series B Preferred
Stock.
Section 5.8. Certificates. If, from and after the Closing, any
certificate for shares of Series A Preferred Stock or Series B Preferred Stock
or Conversion Shares shall be mutilated, lost, stolen or destroyed, Parent shall
issue, in exchange and in substitution the mutilated certificate, or in lieu of
and substitution for the certificate lost, stolen or destroyed, a new
certificate of like tenor and representing an equivalent amount and kind of
shares. If reasonably required by Parent in connection with replacing a share
certificate as aforesaid, the applicable record holder of such shares shall
furnish Parent with an indemnity on customary terms for such situations,
reasonably sufficient to protect Parent from any out-of-pocket loss which it may
suffer from replacing such certificate.
Section 5.9. Certain Claims. Without limiting Parent's obligations
under any other provision of this Agreement (or under any other contractual
obligation, or under the Certificate of Incorporation or By-laws of Parent),
Parent shall (a) cooperate with the Investors in the defense or settlement of
any claim, suit, litigation, arbitration or proceeding ("Claim") against Parent
and/or its directors that is brought or asserted by any third party (whether
filed in the name of a shareholder of Parent or other third party or
derivatively in the name of Parent) in which any of the Investors or any of
their respective Affiliates is made a party (by subpoena or otherwise),
challenging, or otherwise arising out of or relating to, this Agreement or the
▇▇▇▇▇ ▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, and (b) reimburse the Investors for reasonable
attorney's fees and expenses incurred by the Investors or any of their
respective Affiliates in connection with any Claim; provided that (i) each
Investor, severally but not jointly, hereby agrees to cooperate reasonably with
Parent in connection with the defense, or any proposed settlement of, any such
Claim; (ii) unless in the reasonable judgment of the Investors there exists an
actual or potential conflict of interest between Investors, this clause (b)
shall apply only to one counsel (plus local counsel in each applicable
jurisdiction) for all the Investors (it being understood that this clause (ii)
shall not limit any rights a Person may otherwise have to indemnification or
advancement of expenses from Parent); and (iii) this clause (b) shall not apply
to any expenses incurred in connection with any Claim brought or asserted by any
Person in such Person's capacity as a limited partner or other investor in any
investment fund controlled or managed by an Investor.
Section 5.10 Certain Tax Matters. All transfer, documentary, sales,
use, stamp, registration and other such Taxes, and all conveyance fees,
recording charges and other fees and charges (including any penalties and
interest) incurred in connection with consummation of the Transactions shall be
paid by Parent.
Section 5.11 Preparation of the Proxy Statement; Parent Shareholder
Meeting.
(a) As soon as practicable following the date of this Agreement
(but in any event no later than twenty (20) Business Days after the date of this
Agreement), Parent shall prepare in accordance with the provisions of the
Securities Act and the Exchange Act, as applicable, and Parent shall file with
the SEC the Proxy Statement. Each Investor, severally but not jointly, and
32
Parent, agree to cooperate with each other in connection with the preparation of
the Proxy Statement. Each of the parties shall be provided with reasonable
opportunity to review and comment on drafts of the Proxy Statement (including
each amendment or supplement thereto) and all responses to requests for
additional information by and replies to comments of the SEC, prior to filing
such with or sending such to the SEC, and Parent will provide the Investors with
copies of all such filings made and correspondence with the SEC. Parent shall
include in any such documents or responses all comments reasonably proposed by
the Investors and shall not file, mail or otherwise deliver such document or
respond to the SEC or the staff of the SEC over an Investor's reasonable
objection. Parent will as promptly as practicable notify the Investors of (i)
the receipt of any oral or written comments from the SEC with respect to the
Registration Statement or the Proxy Statement, (ii) any request by the SEC for
any amendment to the Registration Statement or the Proxy Statement or comments
thereon and responses thereto or requests from the SEC for additional
information, (iii) the time at which the Registration Statement has become
effective or any supplement or amendment has been filed with the SEC, (iv) the
issuance of any stop order or (v) the suspension of the qualification of any of
the shares of Parent capital stock issuable in connection with the Transactions
(or shares issuable upon conversion thereof) for offering or sale in any
jurisdiction.
(b) Parent will use its commercially reasonable efforts to have
the Proxy Statement cleared by the SEC as soon as practical after the date
hereof. Parent shall take all or any action reasonably required under Legal
Requirements pertaining to applicable state securities laws in connection with
the issuance of Stage 1 Shares pursuant to the Stage 1 Purchase Agreement (and
shares of Series B Preferred Stock issuable in exchange for any shares of Series
A Preferred Stock) and of the Convertible Shares in accordance with this
Agreement, and the issuance and delivery of the Conversion Shares. Each
Investor, severally but not jointly, and Parent, agree to furnish all
information concerning itself as the other may reasonably request in connection
with such actions and the preparation of the Proxy Statement. As promptly as
practicable, but in no event later than the third Business Day after the
Registration Statement is declared effective under the Securities Act, Parent
shall mail or cause to be mailed the Proxy Statement to its shareholders.
(c) If at any time prior to the Parent Shareholder Meeting Date,
any information should be discovered by any party hereto which should be set
forth in an amendment or supplement to the Proxy Statement so that the Proxy
Statement would not include any misstatement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, the party which discovers such information shall promptly
notify the other parties hereto and, to the extent required by applicable Legal
Requirement, the parties will cooperate with each other in connection with the
preparation of an appropriate amendment or supplement describing such
information, which amendment or supplement will be promptly filed by Parent with
the SEC and, in the case of any amendment or supplement to the Proxy Statement,
disseminated to the shareholders of Parent.
(d) Parent shall, acting through its Board of Directors and in
accordance with applicable Legal Requirements and the Certificate of
Incorporation and the Bylaws of Parent, (i) duly call, give notice of, convene
and hold the Parent Shareholder Meeting as promptly as practicable for the
33
purpose of obtaining the Required Parent Shareholder Approval, (ii) use its
commercially reasonable efforts to hold the Parent Shareholder Meeting as soon
as practicable after the date on which the Registration Statement is declared
effective under the Securities Act and (iii) shall in any event hold the Parent
Shareholder Meeting within 45 days after such effective date. Parent shall
solicit proxies in favor of the Required Parent Shareholder Approval and shall
take all other commercially reasonable action necessary or advisable to secure
the Required Parent Shareholder Approval in accordance with all applicable Legal
Requirements and its Governing Documents. The Proxy Statement shall include the
recommendation of the Board of Directors of Parent to the stockholders of Parent
to vote in favor of the Parent Charter Vote and the Share Issuances (the "Parent
Board Recommendation") and neither the Board of Directors of Parent nor any
committee thereof shall withhold or withdraw or amend, modify or change in any
manner adverse to the Investors, or propose to withhold or withdraw or adversely
amend, modify or change, the Parent Board Recommendation.
Section 5.12 Anti-Takeover Statutes. Parent shall (i) take all action
necessary to ensure that no "business combination", "fair price", "control share
acquisition" or other similar anti-takeover statute or regulation, including
Section 912 of the New York Business Corporation Law, is or becomes applicable
to the Transactions (including the Share Issuances, any other transactions
contemplated by this Agreement or the other Transaction Agreements) or the
Collective Transactions or to the ownership and voting of such securities
deliverable in the Collective Transactions and (ii) if any such anti-takeover
statute or similar statute or regulation becomes applicable to any of such
transactions or to the ownership or voting of any such securities, take all
action necessary to ensure that each of such transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and the
other agreements referred to herein and otherwise to minimize the effect of such
statute or regulation on such transactions and the ownership and voting of such
securities.
Section 5.13 Nasdaq National Market Listing. Parent shall promptly
prepare and file with Nasdaq a Notification Form for Listing Additional Shares
with respect to the Conversion Shares, and shall use its reasonable efforts to
obtain, prior to the Closing, approval for the listing of such shares of Parent
Common Stock, subject only to official notice to Nasdaq of issuance, and each
Investor, severally but not jointly, agrees to cooperate with Parent with
respect to such filing.
Section 5.14 Legends. Each Investor, severally but not jointly,
agrees with Parent not to transfer any Convertible Shares or Conversion Shares
unless (a) there is then in effect a registration statement under the Securities
Act covering such proposed transfer or (b) such transfer is made in accordance
with Rule 144 under the Securities Act or another available exemption from
registration under the Securities Act. Certificates representing Convertible
Shares issued pursuant to this Agreement may be imprinted with a legend
substantially as follows (in addition to any legends required pursuant to the
Shareholders Agreement):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
34
EFFECTIVE REGISTRATION STATEMENT RELATING THERETO UNDER SUCH ACT OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT OR SUCH LAWS.
Securities law legends on share certificates shall be removed by
Parent (and a certificate without such legend shall be delivered, at Parent's
expense) upon request (i) in connection with any transfer pursuant to clause (b)
of this Section if the legend is no longer required to ensure compliance with
the Securities Act, or (ii) in connection with any transfer pursuant to clause
(a) of this Section.
Section 5.15 Use of Proceeds. Parent shall apply all of the proceeds
from the issuance and sale of Convertible Shares to the Investors pursuant to
this Agreement toward payments of the cash portion of the Merger consideration
pursuant to the Merger Agreement and payments of fees and expenses pursuant to
Section 8.6 hereof, and the balance for general corporate purposes.
Section 5.16 Exchange of Series A Preferred Stock for Series B
Preferred Stock. Without limiting any of Parent's other obligations contained
elsewhere herein:
(a) Parent hereby covenants that, at anytime after the date
hereof, at an Investor's request and to the extent so requested, Parent shall
exchange all or any shares of Series A Preferred Stock held by such Investor at
such time for a like number of shares of Series B Preferred Stock (such
exchange, the "A/B Preferred Exchange"); provided that, prior to the
consummation of any such A/B Preferred Exchange, such Investor shall have either
received Regulatory Clearance, or represented to Parent that no Regulatory
Clearance is required, in connection with such A/B Preferred Exchange.
(b) Each Investor, severally but not jointly, and Parent, shall
cooperate with each other and use (and shall cause their respective Affiliates
to use) their respective commercially reasonable efforts to take or cause to be
taken all actions, and to do or cause to be done all things necessary, proper or
advisable under all applicable Contracts and Legal Requirements to obtain all
Regulatory Clearance in anticipation of effecting any A/B Preferred Exchange
requested by such Investor so as to enable such A/B Preferred Exchange to occur
as expeditiously as possible, including preparing and filing as promptly as
practicable all documentation to effect all necessary notices, reports and other
filings and to obtain as promptly as practicable all waivers, consents,
registrations, approvals, permits and authorizations necessary or advisable to
be obtained from CMS and/or any other Governmental Authority or other third
party (hereinafter referred to as "A/B Consents") and to lift any injunction or
other legal bar to such A/B Preferred Exchange in order to consummate such A/B
Preferred Exchange as promptly as practicable. All costs incurred in connection
with obtaining such A/B Consents, including CMS consent fees and expert
consultant fees, shall be borne by Parent. HSR filing fees shall be borne by
Parent. Each Investor, severally but not jointly, and Parent, agrees to make
appropriate filings with all appropriate Governmental Authorities, including
insurance regulators, other competition authorities and CMS (or cause their
respective Affiliates to make such filings, as applicable) promptly after the
date of this Agreement in anticipation of any A/B Preferred Exchange and shall
supply as promptly as practicable to such Governmental Authority any additional
information and documentary material that may be requested in connection
therewith. Each Investor, severally but not jointly, and Parent, agrees to (and
35
to cause their respective Affiliates to) respond as promptly as practicable to
any inquiries received from such Governmental Authority for additional
information or documentation and to all inquiries and requests received from any
other Governmental Authority in connection with A/B Consents.
(c) Parent shall (and shall cause its Affiliates to) offer to take
(and if such offer is accepted, commit to take) all reasonable steps to avoid or
eliminate impediments under any antitrust, competition, or trade regulation
Legal Requirement that may be asserted by the FTC, the Antitrust Division or any
other Governmental Authority with respect to any A/B Preferred Exchange so as to
enable such A/B Preferred Exchange to occur as expeditiously as possible;
provided, however, that nothing in this Agreement will require, or be deemed to
require, Parent to agree to or effect any divestiture. In addition, nothing in
this Agreement will require or be deemed to require Parent to take any other
action with respect to any A/B Preferred Exchange (including agreeing to any
requirements or conditions to be imposed in order to obtain CMS or insurance
regulatory consents or approvals) if doing so would be materially detrimental to
the business conducted by Parent or MemberHealth taken as a whole. Subject to
the foregoing sentence, Parent shall cooperate in a reasonable manner with the
Investors in connection with Investors' efforts to seek consents and approvals
from Governmental Authorities in anticipation of effecting any A/B Preferred
Exchange (including by keeping the Investors informed on a reasonably current
basis of the status of such efforts and using its commercially reasonable
efforts to permit the representatives of the Investors to attend any meetings
between Parent's representatives and Governmental Authorities).
(d) In the event any claim, action, suit, investigation or other
proceeding by any Governmental Authority or other Person is commenced which
questions the validity or legality of any A/B Preferred Exchange or seeks
damages in connection therewith, each Investor, severally but not jointly, and
Parent, agree to cooperate and use commercially reasonable efforts to defend
against such claim, action, suit, investigation or other proceeding and, if an
injunction or other order is issued in any such action, suit or other
proceeding, to use commercially reasonable efforts to have such injunction or
other order lifted, and to cooperate reasonably regarding any other impediment
to the consummation of such A/B Preferred Exchange.
(e) Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 5.16 shall require any Investor to (i) offer,
accept or agree to (A) dispose or hold separate any businesses, assets or
operations, (B) restrict the manner in which, or whether, such Investor or any
of its Affiliates may carry on business or compete in any geographic area or
line of business, and/or (C) any limitations with respect to its or its
Affiliates' ownership or voting of Parent capital stock, or (ii) obligate any
Investor to litigate or threaten any litigation.
(f) Parent agrees to use its commercially reasonable efforts to
obtain, at the earliest practicable date, the Parent Charter Vote. Upon
obtaining the Parent Charter Vote, Parent shall promptly duly file the Charter
Amendment with the Secretary of State of the State of New York in accordance
with all applicable provisions of the Business Corporation Law of the State of
New York, and shall, with respect to each then outstanding share of Series A
Preferred Stock, on or after the first anniversary of the original issue date of
such share of Series A Preferred Stock, effect an exchange of such share of
36
Series A Preferred Stock for shares of a class of non-voting Parent Common Stock
authorized to be issued by Parent under the Charter Amendment, which exchange
shall be effected in accordance with the provisions of the Series A Preferred
Stock Certificate of Designation as if such share of Series A Preferred Stock is
being converted into Parent Common Stock (in the form of such class of
non-voting Parent Common Stock) under Section 8 of the Series A Preferred Stock
Certificate of Designations and at the conversion rate specified therein
(without giving effect to the provisions of Section 8(a) of the Series A
Preferred Stock Certificate of Designation).
ARTICLE 6
CONDITIONS TO CLOSING
Section 6.1. Mutual Conditions. The respective obligations of each
party to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment or waiver at or prior to the Closing of each of the
following conditions, any and all of which may be waived, in whole or in part,
by Parent, on the one hand, and unanimous consent of the Investors, on the other
hand, to the extent permitted by applicable law:
(a) No Injunction. At the Closing there shall be no effective
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or Governmental Authority of competent jurisdiction to the
effect that any of the Collective Transactions contemplated by this Agreement,
the other Transaction Agreements or the Merger Agreement may not be consummated
as herein and therein provided.
(b) Filings and Consents. All material consents, authorizations,
orders or approvals of, and filings or registrations with, any state insurance
regulators or other Governmental Authority which are required in connection with
the consummation of the Collective Transactions, as disclosed in Schedule
6.1(b), shall have been obtained or made and shall be in full force and effect
and shall not be subject to any materially adverse conditions (other than voting
restrictions) imposed by such regulators.
(c) HSR Waiting Period. Any waiting period (and any extension
thereof) under the HSR Act applicable to the Collective Transactions shall have
expired or shall have been terminated.
(d) Required Stockholder Approval. The Required Parent Shareholder
Approval shall have been obtained at the Parent Shareholder Meeting in
accordance with the New York Business Corporation Law, the Nasdaq Marketplace
Rules and the Certificate of Incorporation and Bylaws of Parent.
Section 6.2. Conditions to the Obligations of Parent. The obligations
of Parent to consummate the transactions contemplated by this Agreement shall be
subject to the fulfillment prior to or at Closing of each of the following
conditions, any and all of which may be waived, in whole or in part, by Parent,
to the extent permitted by applicable law:
(a) Representations and Warranties of the Investors. The
representations and warranties made by the Investors in Article 3 shall be true
and correct (disregarding all qualifications relating to materiality or an
37
Investor Material Adverse Effect) as of the date of this Agreement and as of the
Closing Date as though such representations and warranties were made as of the
Closing Date (or, in the case of any representation or warranty which
specifically relates to an earlier date, as of such date), except to the extent
the failure of such representations and warranties to be so true and correct as
of such dates, individually or in the aggregate, would not have an Investor
Material Adverse Effect.
(b) Performance of Obligations. The Investors shall have duly
performed or complied with, in all material respects, all of the covenants to be
performed or complied with by them under the terms of this Agreement prior to or
at Closing.
(c) Closing Deliveries. Prior to or at the Closing, the Investors
shall have delivered (or caused to be delivered) the following closing documents
in the form referred to below or otherwise in form and substance reasonably
acceptable to Parent:
(i) a certificate of an officer of each Investor, dated the
Closing Date, to the effect that (1) the Person signing such certificate is
familiar with this Agreement and (2) the conditions specified in Sections 6.2(a)
and (b), to the extent relating to the representations, warranties and covenants
of such Investor, have been satisfied; and
(ii) the Shareholders Agreement, executed by the Investors.
(d) Satisfaction of Merger Agreement Conditions. All conditions
precedent set forth in Sections 6.1 and 6.2 of the Merger Agreement shall have
been satisfied and each of the parties to the Merger Agreement (other than
Parent and its Subsidiaries) shall have confirmed that they are ready, willing
and able to consummate the Merger concurrently with the Closing under this
Agreement.
Section 6.3. Conditions to the Obligations of the Investors. The
obligations of the Investors to consummate the transactions contemplated by this
Agreement shall be subject to the fulfillment at or prior to the Closing of each
of the following conditions, any and all of which may be waived in whole or in
part by unanimous consent of the Investors, to the extent permitted by
applicable law:
(a) Representations and Warranties. (i) Other than with respect to
Sections 4.1, 4.2, 4.5, 4.9(a) (first sentence only), 4.21, 4.22, 4.23, 4.24,
4.25, 4.26, 4.27 and 4.28, the representations and warranties made by Parent in
Article 4 shall be true and correct (disregarding all qualifications relating to
materiality or a Parent Material Adverse Effect) as of the date of this
Agreement and as of the Closing Date as though such representations and
warranties were made as of the Closing Date (or, in the case of any
representation or warranty which specifically relates to an earlier date, as of
such date), except to the extent the failure of such representations and
warranties to be so true and correct as of such dates, individually or in the
aggregate, would not have a Parent Material Adverse Effect, (ii) the
representations and warranties made by Parent in Sections 4.1, 4.2, 4.5, 4.21,
4.22, 4.23, 4.24, 4.25, 4.26, 4.27 and 4.28 shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date as
though such representations and warranties were made as of the Closing Date (or,
in the case of any representation or warranty which specifically relates to an
38
earlier date, as of such date), and (iii) the representation contained in clause
(a) of the first sentence of Section 4.9 shall be true and correct in all
respects.
(b) Performance of Obligations. Parent shall have duly performed
or complied with, in all material respects, all of the covenants, obligations
and conditions to be performed or complied with by Parent under the terms of
this Agreement prior to or at the Closing.
(c) No Material Adverse Change. Since the date of this Agreement
there shall not have occurred any event, development or occurrence of any
condition that has had, or would reasonably be expected to have, individually or
in the aggregate, a Parent Material Adverse Effect.
(d) Nasdaq Listing. The Conversion Shares shall have been approved
for quotation on the Nasdaq Global Select Market, subject to official notice of
issuance.
(e) Charter Amendment. The Charter Amendment shall have been duly
filed with, and accepted for filing by, the Secretary of State of the State of
New York pursuant to all applicable provisions of the Business Corporation Law
of the State of New York, and shall be in full force and effect, and the
Investors shall have received a copy of such due filing.
(f) Satisfaction of Merger Agreement Conditions. All conditions
precedent set forth in Sections 6.1 and 6.2 of the Merger Agreement (as in
effect on the date of this Agreement) (other than the condition in Section
6.2(d) of the Merger Agreement) shall have been satisfied, without (A) waiver of
any such condition precedent or (B) amendment or other modification of any term
set forth in such Merger Agreement from the original execution version attached
hereto as Exhibit A, unless such waiver, amendment or modification (as the case
may be) shall have been approved in writing by all parties to this Agreement;
provided, however, that, for purposes of this Section 6.3(f): (x) when the term
"Company Material Adverse Effect" is used in Sections 6.2(a) and 6.2(c) of the
Merger Agreement (or in any related certificates deliverable pursuant to Section
6.2(e)(i) of the Merger Agreement, to the extent such certificates certify that
the conditions specified in Sections 6.2(a) and 6.2(c) of the Merger Agreement
have been satisfied), it shall be deemed to be replaced with the term "Parent
Material Adverse Effect" (as defined in this Agreement), and (y) the figure
"95%" when used in clauses (v) and (vi) of Section 6.2(e) of the Merger
Agreement shall be deemed to be replaced with "75%". At the Closing, each of the
parties to the Merger Agreement shall have confirmed that they are ready,
willing and able to consummate the Merger concurrently with the Closing under
this Agreement.
(g) Board of Directors. The Board of Directors of Parent shall
have been reconstituted as contemplated by the Shareholders Agreement.
(h) Closing Deliveries. Prior to or at the Closing, Parent shall
have delivered to the Investors the following closing documents in the form
referred to below or otherwise in form and substance reasonably acceptable to
the Investors:
39
(i) certificates of officers of Parent, dated the Closing
Date, to the effect that (1) the Person signing such certificate is
familiar with the Agreement and (2) the conditions specified in
Sections 6.3(a), (b), (c), (d), (e), and (f) have been satisfied;
(ii) certified copies of the resolutions of the board of
directors and stockholders of Parent authorizing the execution and
delivery of this Agreement and the other Transaction Agreements and
the consummation of the Transactions;
(iii) an opinion of Dechert LLP, dated as of the Closing Date,
in the form of Exhibit 6.3(h)(iii);
(iv) the Shareholders Agreement and the Registration Rights
Agreement, executed and delivered by Parent; and
(v) the certificates (in definitive form) for the
Convertible Shares pursuant to Section 2.2 hereof, duly executed on
behalf of Parent and registered in the names of the applicable
Investors (or their respective designees) representing the number of
Convertible Shares purchased pursuant to this Agreement.
Section 6.4. Frustration of Closing Conditions. No party hereto may
rely on the failure of any condition set forth in this Article 6 if
such party's failure to comply with any provision of this Agreement
was a proximate cause of such failure of such condition.
ARTICLE 7
TERMINATION
Section 7.1. Termination. This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing:
(a) by mutual written consent of Parent and the Investors;
(b) by either Parent or the Investors, if the Closing shall not
have been consummated on or before October 7, 2007 (the "Termination Date"),
unless extended by written agreement of the Investors and Parent; provided, that
the right to terminate this Agreement under this paragraph shall not be
available to any party whose failure to fulfill any obligation under this
Agreement has been the primary cause of the failure of the Closing to occur on
or prior to such date; and provided further that the Investors or Parent may
extend the Termination Date by not more than sixty (60) days if the Closing does
not occur by October 7, 2007 as a result of the failure to satisfy the
conditions set forth in (i) Sections 6.1(b) or (c) of this Agreement or (ii)
Sections 6.1(b), (c) or (e) of the Merger Agreement as in effect on the date of
this Agreement;
(c) by the Investors, if there has been a breach of any
representation, warranty or covenant made by Parent in this Agreement, such that
the conditions in Section 6.3 are not capable of being satisfied and which have
40
not been cured by Parent within fifteen (15) Business Days after receipt of
written notice from the Investors requesting such breach to be cured; provided
that the right to terminate this Agreement pursuant to this Section 7.1(c) shall
not be available to the Investors if the failure of the Investors to fulfill any
of their obligations under this Agreement has been a proximate cause of such
breach;
(d) by Parent, if there has been a breach of any representation,
warranty or covenant made by the Investors in this Agreement, such that the
conditions in Section 6.2 are not capable of being satisfied and which have not
been cured by the Investors within fifteen (15) Business Days after receipt of
written notice from Parent requesting such breach to be cured; provided that the
right to terminate this Agreement pursuant to this Section 7.1(d) shall not be
available to Parent if the failure of Parent to fulfill any of its obligations
under this Agreement has been a proximate cause of such breach;
(e) by either the Investors or Parent, if any Governmental
Authority shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the consummation of the
Collective Transactions and such order, decree, ruling or other action shall
have become final and nonappealable;
(f) by Parent or the Investors, if the Parent Shareholder Meeting
is held (and not adjourned) and Parent fails to obtain the Required Parent
Shareholder Approval at the Parent Shareholder Meeting (or any reconvened
meeting after any adjournment thereof); or
(g) by Parent or the Investors, if the Merger Agreement shall have
been terminated in accordance with its terms.
Section 7.2. Effect of Termination. If this Agreement is terminated
pursuant to Section 7.1, all rights and obligations of the parties hereunder
shall terminate and no party shall have any liability to the other party, except
for obligations of the parties hereto in Sections 5.1(b), 5.6, 5.9 and 7.2 and
Article 8 (including any definitions set forth in Article I that are used in
such sections), which shall survive the termination of this Agreement.
Notwithstanding anything to the contrary contained herein, termination of this
Agreement pursuant to Section 7.1 shall not release any party from any liability
for any material breach by such party of the terms and provisions of this
Agreement prior to such termination.
ARTICLE 8
MISCELLANEOUS
Section 8.1. Survival. The representations and warranties contained
in or made pursuant to this Agreement or in any certificate delivered pursuant
to this Agreement shall survive the execution and delivery of this Agreement and
the Closing for a period beginning on the Closing Date and ending on the twelve
month anniversary of the Closing Date; provided, that the representations and
warranties set forth in Sections 4.1 (first sentence only), 4.2, 4.5, 4.12,
4.21, 4.22, 4.23, 4.24, 4.25, 4.26, 4.27 and 4.28, and corresponding
representations and warranties in any certificate (collectively, the "Specified
41
Representations") shall survive the execution and delivery of this Agreement and
the Closing indefinitely. All covenants and agreements that contemplate
performance after the Closing contained herein shall survive the Closing
indefinitely or for any shorter period expressly specified in accordance with
their terms. Notwithstanding the preceding sentences, if notice of an
indemnification claim shall have been delivered before the aforementioned time
period has elapsed with respect to any breach of any such representation,
warranty, covenant or agreement, such representation, warranty, covenant or
agreement shall survive until such claim is finally resolved.
Section 8.2. Indemnification.
(a) Indemnification by Parent. Subject to the limitations set
forth in this Section 8.2, from and after the Closing Date, Parent shall
indemnify and hold harmless each of the Investors and each of their respective
direct or indirect Affiliates, officers, directors, members, managers, partners,
employees, agents and other representatives (collectively, the "Investor
Indemnified Persons"), from, against and in respect of any and all liabilities,
losses, damages, fines, penalties, fees, costs and expenses (in each case,
including reasonable attorneys' fees and expenses), whether or not involving a
third party claim (collectively, "Losses"), incurred or suffered by such
Investor Indemnified Persons as a result of:
(i) any breach of, or inaccuracy in, any representation or
warranty made by Parent in this Agreement or in any certificate delivered
pursuant to this Agreement; or
(ii) any breach or violation of any covenant or agreement of
Parent pursuant to this Agreement or the other Transaction Agreements.
For the purposes of clause (i) of this Section 8.2(a), the
representations and warranties of Parent contained in Article 4 of this
Agreement (other than the first sentence of Section 4.9), or in any certificate
delivered pursuant to this Agreement, shall be read as if all qualifications as
to materiality, including each reference to the terms and phrases "material",
"in all material respects" or like phrases, and the defined term "Parent
Material Adverse Effect", were deleted therefrom in determining whether there
has been a breach of any such representation or warranty.
(b) Limitations on Liability.
(i) Investor Indemnified Persons shall not be entitled to
assert any claim for indemnification under Section 8.2(a)(i) until such time as
the aggregate of all indemnifiable Losses that Investor Indemnified Persons may
have under Section 8.2(a)(i) exceed $5,000,000, and then Parent shall be
responsible for all Losses except the first $2,500,000 of such $5,000,000
threshold.
(ii) The maximum aggregate liability of Parent for
indemnification claims under Section 8.2(a)(i) shall be limited to $37,500,000.
(iii) The limitations set forth in Section 8.2(b)(i) and (ii)
shall not be applicable to Losses incurred or suffered by Investor Indemnified
Persons as a result of (A) any breach of, or inaccuracy in, the Specified
42
Representations or (B) fraud, intentional misrepresentation or intentional
omission by Parent.
(iv) The amount of Losses for which indemnification is
available under this Section 8.2 shall be calculated net of any amounts actually
recovered by the Person entitled to seek indemnification hereunder (the
"Indemnified Person") under insurance policies with respect to such Losses.
(c) Payment of Claims. If Parent shall be required to make an
indemnification payment to any Investor Indemnified Person pursuant to this
Article 8, Parent shall satisfy the claim of such Investor Indemnified Person
through a payment of immediately available funds.
(d) Third Party Claims.
(i) Notice of Claim. If any third party notifies an
Indemnified Person with respect to any matter (a "Third Party Claim") which may
give rise to a claim for indemnification against an Indemnifying Party, then the
Indemnified Person will promptly (and, in any event, within twenty (20) Business
Days) give written notice thereof to the party required to provide
indemnification under this Section 8.2 (the "Indemnifying Party"); provided,
that no delay on the part of the Indemnified Person in notifying the
Indemnifying Party will relieve the Indemnifying Person from any obligation
under this Article 8, except to the extent such delay actually and materially
prejudices the Indemnifying Party.
(ii) Assumption of Defense, etc. The Indemnifying Party will
be entitled to participate in the defense of any Third Party Claim that is the
subject of a notice given by the Indemnified Person pursuant to Section
8.2(d)(i). In addition, upon written notice to the Indemnified Person, the
Indemnifying Party will have the right to defend the Indemnified Person against
the Third Party Claim with counsel of its choice reasonably satisfactory to the
Indemnified Person. In such event, the Indemnified Person may retain separate
co-counsel at its sole cost and expense and participate in the defense of the
Third Party Claim. Notwithstanding the foregoing, the Indemnifying Person will
not consent to the entry of any judgment or enter into any compromise or
settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Person unless such judgment, compromise or settlement
(A) provides for the payment by the Indemnifying Party of money as sole relief
for the claimant and (B) results in the full and general release of all
Indemnified Persons from all liabilities arising or relating to, or in
connection with, the Third Party Claim.
(iii) Indemnified Party's Control. If the Indemnifying Party
does not deliver the notice contemplated by Section 8.2(d)(ii) within twenty
(20) days after the Indemnified Party has given notice of the Third Party Claim
pursuant to Section 8.2(d)(i), the Indemnified Party may defend, and may consent
to the entry of any judgment or enter into any compromise or settlement with
respect to, the Third Party Claim.
43
(e) Tax Treatment. The parties will treat any payment received
pursuant to this Section 8.2 as an adjustment to purchase price for Tax and
financial reporting purposes, to the extent permissible under applicable Legal
Requirements.
Section 8.3. Notices. All notices or other communications required or
permitted under this Agreement shall be in writing and shall be delivered
personally, by facsimile or sent by certified, registered or express air mail,
postage prepaid, and shall be deemed given when so delivered personally, or by
facsimile, or if mailed, two (2) days after the date of mailing, as follows:
If to Parent:
Universal American Financial Corp.
▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
with a required copy (which shall not constitute notice) to:
Dechert LLP
▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
If to WCAS:
Welsh, Carson, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
with required copies (which shall not constitute notice) to:
Ropes & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq. and ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
Esq.
- and-
44
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to ▇▇▇:
▇▇▇ Equity Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
with required copies (which shall not constitute notice) to:
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to Perry:
Perry Capital
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
with required copies (which shall not constitute notice) to:
Cravath, Swaine & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇, Esq.
- and -
45
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to Union Square:
Union Square Partners
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ Spass/▇▇▇▇ ▇▇▇▇▇▇▇▇
with required copies (which shall not constitute notice) to:
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone number: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
or to such other address as any party hereto shall notify the other parties
hereto (as provided above) from time to time.
Section 8.4. Exhibits and Schedules. All exhibits and schedules
hereto, or documents expressly incorporated into this Agreement, are hereby
incorporated into this Agreement and are hereby made a part hereof as if set out
in full in this Agreement. The inclusion of any information in the Disclosure
Schedules will not be deemed an admission or acknowledgment, in and of itself
and solely by virtue of the inclusion of such information in the Disclosure
Schedules, that such information is required to be listed in any Disclosure
Schedule or that such items are material to any party hereto or any of their
respective Subsidiaries. The headings, if any, of the individual sections of
each of the Disclosure Schedules are inserted for convenience only and will not
be deemed to constitute a part thereof or a part of the Agreement. The
Disclosure Schedules are arranged in sections and subsections that correspond to
the sections and subsections of this Agreement merely for convenience, and the
disclosure of an item in one section or subsection of the Disclosure Schedules
as an exception to a particular covenant, representation or warranty will be
deemed adequately disclosed as an exception with respect to all other covenants,
representations or warranties herein to the extent that the relevance of such
item to such other covenants, representations or warranties is reasonably
apparent on its face, notwithstanding (x) the presence or absence in this
Agreement of an appropriate reference to the section or subsection of the
Disclosure Schedules, (y) the presence or absence in the Disclosure Schedules of
46
an appropriate reference to the section or subsection of this Agreement to which
such disclosure relates or (z) an appropriate cross-reference thereto.
Section 8.5. Time of the Essence; Computation of Time. Time is of the
essence for each and every provision of this Agreement. Whenever the last day
for the exercise of any privilege or the discharge or any duty hereunder shall
fall upon a day that is not a Business Day, the party having such privilege or
duty may exercise such privilege or discharge such duty on the next succeeding
day which is a regular Business Day.
Section 8.6. Expenses and Fees. Except as otherwise set forth in this
Agreement, if the transactions provided for in this Agreement are not
consummated, each party hereto shall pay its own expenses incident to this
Agreement. If the transactions provided for in this Agreement are consummated,
Parent shall, in addition to paying all of its own expenses incident to this
Agreement, also (a) pay the expenses of the Investors incident to this Agreement
(including fees and expenses of financial advisors, outside legal counsel and
accountants), and in addition (b) pay to the Investors the fees separately
agreed among the Investors and Parent.
Section 8.7. Governing Law. All issues and questions concerning the
construction, validity, enforcement and interpretation of this Agreement and the
schedules and exhibits hereto shall be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to any choice of
law or conflict of law rules or provisions that would cause the application of
the laws of any jurisdiction other than the State of New York.
Section 8.8. Jurisdiction and Venue; Waiver of Jury Trial. Each of
the parties submits to the exclusive jurisdiction of any state or federal court
sitting in New York, New York, in any action or proceeding arising out of or
relating to this Agreement, agrees that all claims in respect of the action or
proceeding may be heard and determined in any such court and agrees not to bring
any action or proceeding arising out of or relating to this Agreement in any
other court. Each of the parties waives any defense of inconvenient forum to the
maintenance of any action or proceeding so brought and waives any bond, surety
or other security that might be required of any other party with respect
thereto. Each party agrees that service of summons and complaint or any other
process that might be served in any action or proceeding may be made on such
party by sending or delivering a copy of the process to the party to be served
at the address of the party and in the manner provided for the giving of notices
in Section 8.3. Nothing in this Section 8.8, however, shall affect the right of
any party to serve legal process in any other manner permitted by law. Each
party agrees that a final, non-appealable judgment in any action or proceeding
so brought shall be conclusive and may be enforced by suit on the judgment or in
any other manner provided by law. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY AND ALL RIGHTS TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT.
Section 8.9. Assignment; Successors and Assigns; No Third Party
Rights. Except as otherwise provided herein, this Agreement may not, without the
prior written consent of the other parties hereto, be assigned by any party
hereto by operation of law or otherwise, and any attempted assignment shall be
null and void; provided that, (a) without the consent of any other parties
47
hereto, each Investor may assign its rights hereunder to one or more Affiliates
of such Investor, and (b) without the consent of any other parties hereto, each
Investor may assign up to 20% of its equity purchase commitment hereunder to (i)
any Permitted Transferees (as defined in the Shareholders Agreement) or (ii) any
other co-investors, provided in the case of (ii) that such Investor shall
maintain beneficial ownership (within the meaning of Rules 13d-3 and 13d-5 under
the Exchange Act) of all Parent shares directly or indirectly owned by such
assignees through such Investor maintaining voting discretion and voting control
over all such shares pursuant to a written agreement, and the assignee shall, to
the extent requested by the parties hereto other than the assigning Investor,
become a party to the Shareholders Agreement at the Closing; provided that no
such assignment under clause (a) or (b) of this sentence shall relieve the
assignor Investor of any of its obligations hereunder that shall have not been
performed timely by the assignee. Subject to the foregoing, this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, successors, permitted assigns and legal representatives.
Notwithstanding the foregoing or anything to the contrary, WCAS shall not assign
any of its rights hereunder to Welsh, Carson, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ IX, L.P. Except
as set forth in Section 8.2, this Agreement shall be for the sole benefit of the
parties to this Agreement and their respective heirs, successors, permitted
assigns and legal representatives and is not intended, nor shall be construed,
to give any Person, other than the parties hereto and their respective heirs,
successors, permitted assigns and legal representatives, any legal or equitable
right, remedy or claim hereunder. Nothing in this Agreement, expressed or
implied, is intended to or shall constitute the parties hereto partners or
participants in a joint venture.
Section 8.10 Counterparts. This Agreement may be executed in one or
more counterparts for the convenience of the parties hereto, each of which shall
be deemed an original and all of which together will constitute one and the same
instrument. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile or other electronic delivery shall be effective as
delivery of a mutually executed counterpart to this Agreement.
Section 8.11 Titles and Headings. The titles, captions and table of
contents in this Agreement are for reference purposes only, and shall not in any
way define, limit, extend or describe the scope of this Agreement or otherwise
affect the meaning or interpretation of this Agreement.
Section 8.12 Entire Agreement. This Agreement (including the
Schedules and Exhibits attached hereto) and the Confidentiality Agreement,
constitute the entire agreement among the parties with respect to the matters
covered hereby and supersedes all previous written, oral or implied
understandings among them with respect to such matters.
Section 8.13 Severability. The invalidity of any portion hereof shall
not affect the validity, force or effect of the remaining portions hereof. If it
is ever held that any restriction hereunder is too broad to permit enforcement
of such restriction to its fullest extent, such restriction shall be enforced to
the maximum extent permitted by law.
Section 8.14 No Strict Construction. Each of the parties hereto
acknowledges that this Agreement has been prepared jointly by the parties
hereto, and shall not be strictly construed against any party.
48
Section 8.15 Specific Performance. Each of the parties acknowledges
that the rights of each party to consummate the transactions contemplated hereby
are unique and recognize and affirm that in the event of a breach of this
Agreement by any party, money damages may be inadequate and the non-breaching
party may have no adequate remedy at law. Accordingly, the parties agree that
such non-breaching party shall have the right, in addition to any other rights
and remedies existing in their favor at law or in equity, to enforce their
rights and the other party's obligations hereunder by an action or actions for
specific performance, injunctive and/or other equitable relief (without posting
of bond or other security).
Section 8.16 Failure or Indulgence not Waiver. No failure or delay on
the part of any party hereto in the exercise of any right hereunder shall impair
such right or be construed to be waiver of, or acquiescence in, any breach of
any representation, warranty or agreement herein, nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or any other right. No provision of this Agreement may be waived except
by an instrument in writing executed by the party or parties, as applicable,
against whom the waiver is to be effective.
Section 8.17 Amendments. Subject to applicable law, this Agreement
may be amended by the parties hereto at any time prior to the Closing. This
Agreement (including the provisions of this Section 8.17) may not be amended or
modified except by an instrument in writing signed on behalf of the parties
hereto. Between the date hereof and the Closing, Parent shall not agree to, or
enter into, any amendment to the Merger Agreement or any agreement with an
Investor unless all Investors have consented thereto (such consent not to be
unreasonably withheld or delayed).
Section 8.18 Nature of Investors' Obligations and Rights.
(a) The obligations of each Investor under this Agreement or any
other Transaction Agreement are several and not joint with the obligations of
any other Investor, and no Investor shall be responsible in any way for the
performance of the obligations of any other Investor under this Agreement or any
other Transaction Agreement. Nothing contained herein or in any other
Transaction Agreement, and no action taken by any Investor pursuant hereto or
thereto, shall be deemed to constitute the Investors as a partnership, an
association, a joint venture or any other kind of entity, or create a
presumption that the Investors are in any way acting in concert or as a group
with respect to such obligations or the transactions contemplated by this
Agreement or the other Transaction Agreements. Each Investor confirms that it
has independently participated in the negotiation of the transactions
contemplated hereby. All rights, powers and remedies provided to the Investors
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative or exclusive, and the exercise or
beginning of the exercise of any thereof by any party shall not preclude the
simultaneous or later exercise of any other rights, powers or remedies by such
party.
(b) No information made available or provided to an Investor
pursuant to any provision of Article 5 of this Agreement, or otherwise obtained
or known to an Investor other than on account of being expressly disclosed in
the Parent Disclosure Schedule, shall limit or otherwise affect the remedies
49
available to the Investors, or the representations or warranties of, or the
conditions to the obligations of, the Investors hereunder.
(c) Notwithstanding anything to the contrary, in no event shall
any Investor's aggregate liability under this Agreement exceed an amount equal
to the respective purchase price such Investor may be obligated to pay pursuant
to Section 2.1. In addition, notwithstanding anything to the contrary, in no
event shall any Investor be liable for consequential, incidental, punitive or
special damages, including loss of future revenue, income or profits, diminution
of value or loss of business opportunity (provided that the limitation in this
sentence shall not limit Parent's rights to recover contract damages from an
Investor in connection with a failure by such Investor to close on the purchase
of Convertible Shares in violation of this Agreement).
(d) This Agreement may only be enforced against, and any claims or
causes of action that may be based upon, arise out of or relate to this
Agreement, or the negotiation, execution or performance of this Agreement may
only be made against, the entities that are expressly identified as parties
hereto and their respective successors and assigns, and no past, present or
future Affiliate, director, officer, employee, incorporator, member, manager,
partner, stockholder, agent, attorney or representative of any party hereto
shall have any liability for any obligations or liabilities of the parties to
this Agreement or for any claim based on, in respect of, or by reason of, the
negotiation, execution or performance of this Agreement or the transactions
contemplated hereby.
* * * * * * *
50
IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed as of the day and year first above
written.
UNIVERSAL AMERICAN FINANCIAL CORP.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: CEO
▇▇▇-UNIVERSAL HOLDINGS, LLC
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: CFO
WELSH, CARSON, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, X, L.P.,
By: WCAS X ASSOCIATES, LLC, its General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: Managing Member
UNION SQUARE UNIVERSAL PARTNERS, L.P.
By: UNION SQUARE UNIVERSAL GP, LLC, its General
Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Authorized Signatory
PERRY PARTNERS, L.P.,
By: PERRY CORP., its General Partner
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: General Counsel
51
PERRY PARTNERS INTERNATIONAL, INC.
By: PERRY CORP., its Investment Manager
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: General Counsel
PERRY COMMITMENT FUND, L.P.,
By: PERRY COMMITMENT ASSOCIATES, LLC, its
General Partner,
By: PERRY CORP., its Managing Member
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: General Counsel
PERRY COMMITMENT MASTER FUND, L.P.,
By: PERRY COMMITMENT ASSOCIATES, LLC, its
General Partner,
By: PERRY CORP., its Managing Member
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: General Counsel
` 52