EXHIBIT 2.1
EXECUTION VERSION
================================================================================
AGREEMENT AND PLAN OF MERGER
DATED AS OF JULY 6, 2005
BY AND AMONG
UNITEDHEALTH GROUP INCORPORATED
POINT ACQUISITION LLC
AND
PACIFICARE HEALTH SYSTEMS, INC.
================================================================================
TABLE OF CONTENTS
ARTICLE I The Merger
Section 1.01 The Merger......................................................................................2
Section 1.02 Closing.........................................................................................2
Section 1.03 Effective Time..................................................................................2
Section 1.04 Effects of the Merger...........................................................................2
Section 1.05 Certificate of Formation; Operating Agreement...................................................2
Section 1.06 Managers........................................................................................3
Section 1.07 Officers........................................................................................3
Section 1.08 Alternative Merger Structure....................................................................3
ARTICLE II Effect of the Merger on the Capital Stock of the
Constituent Entities; Exchange of Certificates; Company
Equity Awards
Section 2.01 Effect on Capital Stock.........................................................................3
Section 2.02 Exchange of Certificates........................................................................4
Section 2.03 Company Equity Awards...........................................................................8
ARTICLE III Representations and Warranties of the Company
Section 3.01 Organization, Standing and Corporate Power.....................................................11
Section 3.02 Subsidiaries...................................................................................11
Section 3.03 Capital Structure..............................................................................12
Section 3.04 Authority; Noncontravention....................................................................13
Section 3.05 Governmental Approvals.........................................................................14
Section 3.06 Company SEC Documents; No Undisclosed Liabilities..............................................15
Section 3.07 Information Supplied...........................................................................16
Section 3.08 Absence of Certain Changes or Events...........................................................16
Section 3.09 Litigation.....................................................................................16
Section 3.10 Contracts......................................................................................17
Section 3.11 Compliance with Laws...........................................................................19
Section 3.12 Employee Benefit Plans.........................................................................22
Section 3.13 Taxes..........................................................................................24
Section 3.14 Intellectual Property; Software................................................................26
Section 3.15 Properties and Assets..........................................................................29
Section 3.16 Environmental Matters..........................................................................29
Section 3.17 Transactions with Related Parties..............................................................30
Section 3.18 Brokers and Other Advisors.....................................................................30
Section 3.19 Opinion of Financial Advisor...................................................................31
Section 3.20 Statutory Financial Statements.................................................................31
Section 3.21 Reserves.......................................................................................31
Section 3.22 Capital or Surplus Maintenance.................................................................32
Section 3.23 Company Rights Plan............................................................................32
ARTICLE IV Representations and Warranties of Parent and
Merger Sub
Section 4.01 Organization, Standing and Corporate Power.....................................................33
Section 4.02 Capital Structure..............................................................................33
Section 4.03 Authority; Noncontravention....................................................................34
Section 4.04 Governmental Approvals.........................................................................35
Section 4.05 Parent SEC Documents...........................................................................36
Section 4.06 Information Supplied...........................................................................36
Section 4.07 Absence of Certain Changes or Events...........................................................37
Section 4.08 Litigation.....................................................................................37
Section 4.09 Compliance with Laws...........................................................................37
Section 4.10 No Business Activities.........................................................................38
Section 4.11 No Parent Vote Required........................................................................38
Section 4.12 Taxes..........................................................................................38
ARTICLE V Covenants Relating to Conduct of Business
Section 5.01 Conduct of Business............................................................................38
Section 5.02 No Solicitation by the Company.................................................................44
ARTICLE VI Additional Agreements
Section 6.01 Preparation of the Form S-4 and the Proxy Statement; Company Stockholders Meeting..............47
Section 6.02 Access to Information; Confidentiality.........................................................48
Section 6.03 Reasonable Best Efforts........................................................................48
Section 6.04 Indemnification, Exculpation and Insurance.....................................................52
Section 6.05 Fees and Expenses..............................................................................53
Section 6.06 Public Announcements...........................................................................53
Section 6.07 Affiliates.....................................................................................53
Section 6.08 Stock Exchange Listing.........................................................................53
Section 6.09 Tax-Free Reorganization Treatment..............................................................54
ii
Section 6.10 Stockholder Litigation.........................................................................54
Section 6.11 Employee Matters...............................................................................54
Section 6.12 Employment Agreements..........................................................................56
Section 6.13 Standstill Agreements, Confidentiality Agreements, Anti-takeover Provisions....................56
Section 6.14 Letters of the Accountants.....................................................................56
Section 6.15 Reserves.......................................................................................56
ARTICLE VII Conditions Precedent
Section 7.01 Conditions to Each Party's Obligation to Effect the Merger.....................................57
Section 7.02 Conditions to Obligations of Parent and Merger Sub.............................................57
Section 7.03 Conditions to Obligation of the Company........................................................59
Section 7.04 Frustration of Closing Conditions..............................................................60
ARTICLE VIII Termination, Amendment and Waiver
Section 8.01 Termination....................................................................................60
Section 8.02 Termination Fee................................................................................61
Section 8.03 Effect of Termination..........................................................................63
Section 8.04 Amendment......................................................................................64
Section 8.05 Extension; Waiver..............................................................................64
Section 8.06 Procedure for Termination or Amendment.........................................................64
ARTICLE IX General Provisions
Section 9.01 Nonsurvival of Representations and Warranties..................................................64
Section 9.02 Notices........................................................................................64
Section 9.03 Definitions....................................................................................65
Section 9.04 Interpretation.................................................................................66
Section 9.05 Counterparts...................................................................................67
Section 9.06 Entire Agreement; No Third-Party Beneficiaries.................................................67
Section 9.07 Governing Law..................................................................................67
Section 9.08 Assignment.....................................................................................67
Section 9.09 Specific Enforcement; Consent to Jurisdiction..................................................67
Section 9.10 Severability...................................................................................68
iii
EXHIBITS
--------
Exhibit A - Covered Employees
Exhibit B - Form of Affiliate Letter
Exhibit C - Form of Company Tax Representation Letter
Exhibit D - Form of Company Tax Representation Letter for Reverse Merger
Exhibit E - Form of Parent Tax Representation Letter
Exhibit F - Form of Parent Tax Representation Letter for Reverse Merger
Exhibit G - Closing Consents
iv
TABLE OF DEFINED TERMS
Adverse Recommendation Notice.............................................46
Affected Employees........................................................54
Affiliate.................................................................65
Agreement..................................................................1
Authorized Control Level..................................................32
Cash Consideration.........................................................4
Certificate................................................................4
Certificate of Merger......................................................2
Closing....................................................................2
Closing Consents..........................................................65
Closing Date...............................................................2
CMS.......................................................................19
COBRA.....................................................................23
Code.......................................................................1
Company....................................................................1
Company Adverse Recommendation Change.....................................45
Company Board.............................................................10
Company By-Laws...........................................................11
Company Certificate.......................................................11
Company Common Stock.......................................................3
Company Deferred Stock Plans...............................................9
Company Disclosure Letter.................................................11
Company DSUs...............................................................9
Company Insiders..........................................................10
Company Intellectual Property.............................................26
Company Material Adverse Effect...........................................14
Company Plans.............................................................22
Company Preferred Stock...................................................12
Company Regulatory Filings................................................20
Company Restricted Shares..................................................9
Company Rights............................................................12
Company RSUs...............................................................9
Company SEC Documents.....................................................15
Company State Regulatory Filings..........................................31
Company Stock Options......................................................8
Company Stock Plans........................................................8
Company Stockholder Approval..............................................13
Company Stockholders Meeting..............................................47
Company Superior Proposal.................................................45
Company Takeover Proposal.................................................45
Confidentiality Agreement.................................................48
Contract..................................................................14
Convertible Debentures....................................................12
Copyrights................................................................26
Corporate Merger Subsidiary................................................3
v
Covered Employees..........................................................1
Delaware Law...............................................................2
DGCL.......................................................................2
Dissenting Shares..........................................................8
Effective Time.............................................................2
Employees.................................................................22
Environmental Laws........................................................30
Environmental Liabilities.................................................30
ERISA.....................................................................22
ERISA affiliate...........................................................22
Exchange Act..............................................................10
Exchange Agent.............................................................4
Exchange Fund..............................................................5
Exchange Ratio.............................................................4
Filed Company SEC Documents...............................................16
Form S-4..................................................................16
GAAP......................................................................15
Governmental Authority....................................................15
Hazardous Material........................................................30
HSR Act...................................................................15
Indemnified Parties.......................................................52
Intellectual Property.....................................................26
IP Licenses...............................................................26
IRS.......................................................................24
Knowledge.................................................................65
Largest Broker Contracts..................................................19
Largest Customer Contracts................................................19
Largest Provider Contracts................................................18
Laws......................................................................19
Leased Real Property......................................................29
Liens.....................................................................11
Material Company Takeover Proposal........................................63
Merger.....................................................................1
Merger Consideration.......................................................4
Merger Sub.................................................................1
Merger Sub Interests......................................................34
Negative Regulatory Action................................................50
New Employment Agreements..................................................1
New York Stock Exchange...................................................15
Option Exchange Ratio......................................................9
Other Agreements..........................................................65
Other Core States.........................................................66
Owned Real Property.......................................................29
Parent.....................................................................1
Parent Articles...........................................................33
Parent Board..............................................................34
vi
Parent By-laws............................................................33
Parent Common Stock........................................................4
Parent Disclosure Letter..................................................33
Parent Material Adverse Effect............................................35
Parent Preferred Stock....................................................33
Parent SEC Documents......................................................36
Parent Trading Price.......................................................9
Patents...................................................................26
Permits...................................................................20
Permitted Liens...........................................................66
Person....................................................................66
Precedent Health Care Transaction.........................................66
Proprietary Software......................................................28
Providers.................................................................66
Proxy Statement...........................................................16
Regulated Subsidiaries....................................................32
Release...................................................................30
Relevant Consent..........................................................52
Relevant Filing...........................................................52
Reportable Acquisition....................................................52
Reportable Agreement......................................................51
Representatives...........................................................44
Reserves..................................................................32
Restraints................................................................57
Reverse Merger.............................................................3
Rights Agent..............................................................12
Rights Agreement..........................................................12
SAP.......................................................................31
▇▇▇▇▇▇▇▇-▇▇▇▇▇............................................................21
SEC.......................................................................10
Securities Act............................................................15
Software..................................................................26
Stock Consideration........................................................4
Subsidiary................................................................66
Substitute Stock Option....................................................8
Surviving Entity...........................................................2
Termination Date..........................................................60
Termination Fee...........................................................62
Trade Secrets.............................................................26
Trademarks................................................................26
vii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
July 6, 2005, is by and among UnitedHealth Group Incorporated, a Minnesota
corporation ("Parent"), Point Acquisition LLC, a limited liability company
organized under the laws of the State of Delaware and a direct wholly-owned
subsidiary of Parent ("Merger Sub"), and PacifiCare Health Systems, Inc., a
Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent and the Company
and the Managing Member of Merger Sub have approved and declared advisable this
Agreement and the merger of the Company with and into Merger Sub (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, for United States Federal income tax purposes, it is
intended that the Merger qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the rules and regulations promulgated thereunder, and that this Agreement
constitutes, and hereby is adopted as, a plan of reorganization;
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger; and
WHEREAS, concurrently with the execution of this Agreement, Parent
(and/or one of its Subsidiaries) is entering into employment agreements with the
individuals set forth on Exhibit A hereto (such employment agreements referred
to, collectively, as the "New Employment Agreements," and such individuals, the
"Covered Employees" ) in order to provide for the continued service and
employment of such persons.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
ARTICLE I
The Merger
Section 1.01 The Merger. Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with the General
Corporation Law (the "DGCL") and the Limited Liability Company Act of the State
of Delaware (collectively, "Delaware Law"), the Company shall be merged with and
into Merger Sub at the Effective Time. At the Effective Time, as a result of the
Merger, the separate corporate existence of the Company shall cease, and Merger
Sub shall continue as the surviving entity in the Merger (the "Surviving
Entity") and shall succeed to and assume all the rights and obligations of the
Company in accordance with Delaware Law.
Section 1.02 Closing. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. on a date to be specified by the parties (the "Closing
Date"), which shall be no later than the second business day after satisfaction
or waiver of the conditions set forth in Article VII (other than those
conditions that by their terms are to be satisfied at the Closing, but subject
to the satisfaction or waiver of those conditions at such time), at the offices
of Weil, Gotshal & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, unless
another time, date or place is agreed to in writing by the parties hereto.
Section 1.03 Effective Time. Subject to the provisions of this
Agreement, as soon as practicable on the Closing Date, the parties shall file
with the Secretary of State of the State of Delaware a certificate of merger
(the "Certificate of Merger") executed in accordance with the relevant
provisions of Delaware Law and, as soon as practicable on or after the Closing
Date, shall make all other filings or recordings required under Delaware Law.
The Merger shall become effective at such time as the Certificate of Merger is
duly filed with the Secretary of State of the State of Delaware, or at such
other time as Parent and the Company shall agree upon and shall specify in the
Certificate of Merger (the time the Merger becomes effective being the
"Effective Time").
Section 1.04 Effects of the Merger. The Merger shall have the
effects set forth in Delaware Law.
Section 1.05 Certificate of Formation; Operating Agreement.
(a) The Certificate of Formation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of Formation
of the Surviving Entity until thereafter changed or amended as provided therein
or by Delaware Law or other applicable Law.
(b) The Operating Agreement of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the Operating Agreement of the Surviving
Entity until thereafter changed or amended as provided therein or by applicable
Law; provided, however, that the Operating Agreement of the Surviving Entity
shall be amended as necessary to comply with the obligations of the Surviving
Entity set forth in Section 6.04 hereof.
2
Section 1.06 Managers. The managers of Merger Sub immediately prior
to the Effective Time shall be the managers of the Surviving Entity until the
earlier of their resignation or removal or until their respective successors are
duly designated, as the case may be.
Section 1.07 Officers. The officers of Merger Sub immediately prior
to the Effective Time shall be the officers of the Surviving Entity until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
Section 1.08 Alternative Merger Structure. Notwithstanding any other
provision of this Agreement, if requested in writing by Parent at least three
business days prior to the Closing Date, the transactions contemplated hereby
shall be effected (subject to the conditions contained herein) by (i) Merger Sub
converting into a Delaware corporation (the "Corporate Merger Subsidiary") and
(ii) Corporate Merger Subsidiary merging with and into the Company (the "Reverse
Merger"), provided that such revision to the structure does not preclude
satisfaction of the closing conditions set forth in Section 7.02(e) and Section
7.03(c), without any waiver thereof. In such event, the Company shall be the
Surviving Entity, the conversion of the outstanding Company securities will
occur as provided in the following Article, and each issued and outstanding
share of capital stock of Corporate Merger Subsidiary shall be converted into
and become one validly issued, fully paid and nonassessable share of common
stock, par value $0.01 per share, of the Surviving Entity in the Reverse Merger.
The other provisions of this Agreement will continue to apply in the event of
the Reverse Merger, mutatis mutandis (with all references to Merger Sub deemed
to mean the Corporate Merger Subsidiary). Notwithstanding anything to the
contrary set forth in this Section 1.08, no revision to the structure of the
transactions contemplated hereby shall (i) result in any change in the Merger
Consideration, (ii) be materially adverse to the interests of Parent, the
Company, Merger Sub, the holders of shares of Parent Common Stock or the holders
of shares of Company Common Stock, or (iii) unreasonably impede or delay
consummation of the Merger. The parties agree to amend this Agreement to the
extent necessary to provide for more specific mechanics of the alternative
structure described in this Section 1.08.
ARTICLE II
Effect of the Merger on the Capital Stock of the Constituent Entities;
Exchange of Certificates; Company Equity Awards
Section 2.01 Effect on Capital Stock. As of the Effective Time, by
virtue of the Merger and without any action on the part of the Company, Parent,
Merger Sub or any holder of any shares of common stock, par value $0.01 per
share, of the Company (together with the associated Company Rights, the "Company
Common Stock") or any membership interests of Merger Sub:
(a) Membership Interests of Merger Sub. The issued and outstanding
membership interests of Merger Sub shall remain outstanding and shall constitute
the only issued and outstanding equity interests of the Surviving Entity.
3
(b) Cancellation of Treasury Stock. Each share of Company Common
Stock that is owned by the Company (as treasury stock or otherwise),
automatically shall be canceled and retired and shall cease to exist, and no
shares of Parent Common Stock, cash or other consideration shall be delivered in
exchange therefor.
(c) Conversion of Company Common Stock. Subject to Section 2.02(e),
each issued and outstanding share of Company Common Stock (other than shares to
be canceled in accordance with Section 2.01(b), and other than as provided in
Section 2.02(k) with respect to shares as for which appraisal rights have been
perfected), shall be converted into the right to receive:
(i) 1.10 (the "Exchange Ratio") validly issued, fully paid and
nonassessable shares of common stock, par value $0.01 per share, of
Parent ("Parent Common Stock") (the "Stock Consideration"); and
(ii) $21.50 in cash (the "Cash Consideration " and, together with
the Stock Consideration, the "Merger Consideration").
As of the Effective Time, all such shares of Company Common Stock
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate which immediately
prior to the Effective Time represented any such shares of Company Common Stock
(each, a "Certificate") shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration, any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c) and
cash in lieu of any fractional share of Parent Common Stock to which such holder
is entitled pursuant to Section 2.02(e), in each case to be issued or paid in
consideration therefor upon surrender of such Certificate in accordance with
Section 2.02(b), without interest. Notwithstanding the foregoing, if between the
date of this Agreement and the Effective Time, the outstanding shares of Parent
Common Stock or Company Common Stock shall have been changed into a different
number of shares or a different class, by reason of the occurrence or record
date of any stock dividend, subdivision, reclassification, recapitalization,
split, combination, exchange of shares or similar transaction, the Merger
Consideration shall be appropriately adjusted to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination, exchange of
shares or similar transaction.
Section 2.02 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall deposit,
for the benefit of the holders of shares of Company Common Stock, with ▇▇▇▇▇
Fargo Bank, N.A. or such other bank or trust company as may be designated by
Parent, with the Company's prior written consent, which shall not be
unreasonably withheld or delayed, as exchange agent (the "Exchange Agent" ), for
exchange in accordance with this Article II, through the Exchange Agent, (i)
certificates (or evidence of shares in book-entry form) representing the shares
of Parent Common Stock issuable pursuant to Section 2.01(c) in exchange for
outstanding shares of Company Common Stock, (ii) cash sufficient to pay the Cash
Consideration and (iii) from time to time as needed, additional cash sufficient
to pay cash in lieu of fractional shares pursuant to Section 2.02(e) hereof and
any dividends and other distributions pursuant to Section 2.02(c) hereof (such
4
shares of Parent Common Stock and Cash Consideration, together with any
dividends or other distributions with respect thereto with a record date after
the Effective Time and any cash payments in lieu of any fractional shares of
Parent Common Stock, being hereinafter referred to as the "Exchange Fund").
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Parent shall cause the Exchange Agent to mail to each holder of
record of a Certificate whose shares of Company Common Stock were converted into
the right to receive the Merger Consideration pursuant to Section 2.01(c), (i) a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent and which shall be in
customary form and shall have such other provisions as Parent may reasonably
specify) and (ii) instructions for use in surrendering the Certificates in
exchange for certificates (or evidence of shares in book-entry form)
representing the Stock Consideration portion of the Merger Consideration and
cash representing the Cash Consideration portion of the Merger Consideration,
any dividends or other distributions to which holders of Certificates are
entitled pursuant to Section 2.02(c) and cash in lieu of any fractional shares
of Parent Common Stock to which such holders are entitled pursuant to Section
2.02(e). Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with such letter of transmittal, duly completed and validly executed,
and such other documents as may be reasonably required by the Exchange Agent,
the holder of such Certificate shall be entitled to receive in exchange therefor
(A) a certificate (or evidence of shares in book-entry form) representing that
number of whole shares of Parent Common Stock that such holder has the right to
receive pursuant to the provisions of this Article II after taking into account
all the shares of Company Common Stock then held by such holder under all such
Certificates so surrendered and (B) a check for the cash that such holder is
entitled to receive pursuant to the provisions of this Article II after taking
into account all the shares of Company Common Stock then held by such holder
under all such Certificates so surrendered, including for the Cash Consideration
portion of the Merger Consideration, any dividends or other distributions to
which such holder is entitled pursuant to Section 2.02(c) and cash in lieu of
any fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e), and the Certificate so surrendered shall then be
canceled. In the event of a transfer of ownership of shares of Company Common
Stock that is not registered in the transfer records of the Company, (w) a
certificate (or evidence of shares in book-entry form) representing the proper
number of shares of Parent Common Stock, (x) a check for the Cash Consideration
portion of the Merger Consideration, (y) any dividends or other distributions to
which such holder is entitled pursuant to Section 2.02(c) and (z) cash in lieu
of any fractional shares of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e), may be issued to a person other than the person in
whose name the Certificate so surrendered is registered, if, upon presentation
to the Exchange Agent, such Certificate shall be properly endorsed or otherwise
be in proper form for transfer and the person requesting such issuance shall pay
any transfer or other taxes required by reason of the issuance of shares of
Parent Common Stock to a person other than the registered holder of such
Certificate or establish to the reasonable satisfaction of the Exchange Agent
that such tax has been paid or is not applicable. Until surrendered as
contemplated by this Section 2.02(b), each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration, any dividends or other distributions to
which the holder of such Certificate is entitled pursuant to Section 2.02(c) and
cash in lieu of any fractional share of Parent Common Stock to which such holder
is entitled pursuant to Section 2.02(e). No interest will be paid or will accrue
on the Merger Consideration or on any cash payable to holders of Certificates
pursuant to Section 2.02(c) or (e).
5
(c) Distributions with Respect to Unexchanged Shares. No dividends or
other distributions with respect to Parent Common Stock with a record date after
the Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the share of Parent Common Stock that the holder thereof has the
right to receive upon the surrender thereof, and no cash payment in lieu of any
fractional shares of Parent Common Stock shall be paid to any such holder
pursuant to Section 2.02(e), in each case until the holder of such Certificate
shall surrender such Certificate in accordance with this Article II. Following
surrender of any Certificate, there shall be paid to the holder thereof (i) at
the time of such surrender, the amount of cash payable in lieu of any fractional
share of Parent Common Stock to which such holder is entitled pursuant to
Section 2.02(e) and the amount of dividends or other distributions payable with
respect to such whole shares of Parent Common Stock with a record date after the
Effective Time and paid with respect to Parent Common Stock prior to such
surrender and (ii) at the appropriate payment date, the amount of dividends or
other distributions with a record date after the Effective Time but prior to
such surrender and a payment date subsequent to such surrender payable with
respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares
of Parent Common Stock issued and cash paid upon the surrender for exchange of
Certificates in accordance with the terms of this Article II (including any
dividends or other distributions paid pursuant to Section 2.02(c) and cash paid
in lieu of any fractional shares pursuant to Section 2.02(e)) shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock previously represented by such Certificates, and
at the close of business on the day on which the Effective Time occurs, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Entity of the shares of Company Common Stock that were outstanding immediately
prior to the Effective Time. Subject to the last sentence of Section 2.02(f),
if, at any time after the Effective Time, Certificates are presented to the
Surviving Entity or the Exchange Agent for any reason, they shall be canceled
and exchanged as provided in this Article II.
(e) No Fractional Shares.
(i) No certificates, scrip or evidence of shares in book-entry
form representing fractional shares of Parent Common Stock shall be
issued upon the surrender for exchange of Certificates, no dividends
or other distributions of Parent shall relate to such fractional share
interests and such fractional share interests will not entitle the
owner thereof to vote or to any rights of a stockholder of Parent.
(ii) In lieu of such fractional share interests, Parent shall pay
to each former holder of shares of Company Common Stock an amount in
cash equal to the product obtained by multiplying (A) the fractional
share interest to which such former holder (after taking into account
all shares of Company Common Stock held at the Effective Time by such
holder) would otherwise be entitled and (B) the per share closing
price of Parent Common Stock on the Closing Date (or, if such date is
not a trading day, the trading day immediately preceding the Closing
Date) on the NYSE Composite Transactions Tape (or, if not reported
6
thereby, as reported by any other authoritative source). As promptly
as practicable after the determination of the amount of cash, if any,
to be paid to holders of fractional interests, the Exchange Agent
shall so notify Parent and Parent shall cause the Surviving Entity to
deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional
interests subject to and in accordance with the terms hereof.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
that remains undistributed to the holders of the Certificates for nine months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Certificates who have not previously complied with this Article II
shall thereafter look only to Parent for payment of their claim for the Merger
Consideration, any dividends or other distributions with respect to shares of
Parent Common Stock and cash in lieu of any fractional shares of Parent Common
Stock in accordance with this Article II. If any Certificate shall not have been
surrendered immediately prior to the date on which any Merger Consideration (and
all dividends or other distributions payable pursuant to Section 2.02(c) and all
cash payable in lieu of fractional shares pursuant to Section 2.02(e)) would
otherwise escheat to or become the property of any Governmental Authority (as
defined below), any such Merger Consideration (and all dividends or other
distributions payable pursuant to Section 2.02(c) and all cash payable in lieu
of fractional shares pursuant to Section 2.02(e)) in respect thereof shall, to
the extent permitted by applicable Law, become the property of Parent, free and
clear of all claims or interest of any person previously entitled thereto.
(g) No Liability. None of Parent, Merger Sub, the Company or the
Exchange Agent shall be liable to any person in respect of any shares of Parent
Common Stock (or dividends or other distributions with respect thereto) or cash
in lieu of any fractional shares of Parent Common Stock or cash from the
Exchange Fund, in each case delivered to a public official pursuant to any
applicable abandoned property, escheat or similar Law.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any
cash included in the Exchange Fund, as directed by Parent, on a daily basis. Any
interest and other income resulting from such investments shall be the property
of, and shall be paid to, Parent. Any losses resulting from such investments
shall not in any way diminish Parent's and Merger Sub's obligation to pay the
full amount of the Merger Consideration.
(i) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
Parent or the Exchange Agent, the posting by such person of a bond in such
reasonable amount as Parent or the Exchange Agent may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration, any dividends or other distributions to
which the holder of such Certificate would be entitled pursuant to Section
2.02(c) and cash in lieu of any fractional share of Parent Common Stock to which
such holder would be entitled pursuant to Section 2.02(e), in each case in
accordance with the terms of this Agreement.
7
(j) Withholding Rights. The Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable to any holder of
shares of Company Common Stock pursuant to this Agreement such amounts as may be
required to be deducted and withheld with respect to the making of such payment
under the Code and the rules and regulations promulgated thereunder, or under
any provision of state or foreign tax Law. To the extent that amounts are so
withheld and paid over to the appropriate taxing authority, such withheld
amounts shall be treated for the purposes of this Agreement as having been paid
to the former holder of the shares of Company Common Stock. Any such withholding
shall be applied first against the Cash Consideration to the full extent thereof
and then against the Stock Consideration. If withholding is required from shares
of Parent Common Stock, the Exchange Agent shall sell in the open market such
shares of Parent Common Stock on behalf of the former holder of Company Common
Stock as is necessary to satisfy such withholding obligation and shall pay such
cash proceeds to the appropriate taxing authority.
(k) Dissenting Shares. Notwithstanding Section 2.01(c), any shares of
Company Common Stock outstanding immediately prior to the Effective Time and
held by a person who has not voted in favor of the Merger or consented thereto
in writing and who has properly demanded appraisal for such shares in accordance
with Delaware Law (the "Dissenting Shares") shall not be converted into a right
to receive the Merger Consideration, unless such holder fails to perfect or
withdraws or otherwise loses its rights to appraisal or it is determined that
such holder does not have appraisal rights in accordance with Delaware Law. If,
after the Effective Time, such holder fails to perfect or withdraws or loses its
right to appraisal, or if it is determined that such holder does not have
appraisal rights, such shares shall be treated as if they had been converted as
of the Effective Time into the right to receive the Merger Consideration. The
Company shall give Parent and Merger Sub prompt notice of any demands received
by the Company for appraisal of shares, and Parent and Merger Sub shall have the
right to participate in all negotiations and proceedings with respect to such
demands except as required by applicable Law. The Company shall not, except with
prior written consent of Parent, make any payment with respect to, or settle or
offer to settle, any such demands, unless and to the extent required to do so
under applicable Law.
Section 2.03 Company Equity Awards.
(a) Except as provided in Section 5.01(a)(ii)(2) of the Company
Disclosure Letter, all stock options (the "Company Stock Options") outstanding,
whether or not exercisable and whether or not vested, at the Effective Time
granted under the Company's 1996 Stock Option Plan for Officers and Key
Employees, 1996 Non-Officer Directors Stock Plan, Amended 1997 Premium Priced
Stock Option Plan, 2000 Employee Plan, 2000 Non-Employee Directors Stock Plan
and the 2005 Equity Inventive Plan (collectively, the "Company Stock Plans"),
shall remain outstanding following the Effective Time. At the Effective Time,
all of the Company Stock Options shall, by virtue of the Merger and without any
further action on the part of the Company or the holder thereof, be assumed in
full by Parent, which shall have assumed the Company Stock Plans as of the
Effective Time by virtue of this Agreement and without any further action by
Parent. From and after the Effective Time, all references to the Company in the
Company Stock Plans and in any agreement granting Company Stock Options shall be
deemed to refer to Parent. Each Company Stock Option assumed by Parent (each, a
"Substitute Stock Option") shall be converted automatically into options to
8
purchase shares of Parent Common Stock upon the same terms and conditions as are
in effect immediately prior to the Effective Time with respect to such Company
Stock Option, except that (i) each such Substitute Stock Option shall represent
the right to acquire, that whole number of shares of Parent Common Stock
(rounded down to the next whole share) equal to the number of shares of Company
Common Stock subject to such Company Stock Option multiplied by the Option
Exchange Ratio and (ii) the option price per share of Parent Common Stock under
each Substitute Stock Option shall be an amount equal to the option price per
share of Company Common Stock subject to the related Company Stock Option in
effect immediately prior to the Effective Time divided by the Option Exchange
Ratio (the option price per share, as so determined, being rounded up to the
next 100th of a cent). Each Substitute Stock Option shall otherwise have the
same terms and conditions (including with respect to vesting and
exercisability), as such Company Stock Option. For purposes of this Agreement,
the "Option Exchange Ratio" shall be the sum of (x) plus (y), where (x) is the
Exchange Ratio and (y) is the number equal to the quotient of the Cash
Consideration divided by the Parent Trading Price. The "Parent Trading Price"
means the per share closing trading price of Parent Common Stock on the NYSE
Composite Transactions Tape (or, if not reported thereby, as reported by any
other authoritative source), on the trading day immediately prior to the Closing
Date. Except as provided in Section 5.01(a)(ii)(2) of the Company Disclosure
Letter, Parent acknowledges and agrees that all outstanding Company Stock
Options shall vest in full as of the Effective Time under the terms of the
Company Stock Plans as a result of the transactions contemplated by this
Agreement.
(b) Except as provided in Section 5.01(a)(ii)(2) of the Company
Disclosure Letter, each share of Company Common Stock outstanding as of the
Effective Time granted under the Company Stock Plans which is subject to
forfeiture risk ("Company Restricted Shares") shall be deemed fully vested as of
the Effective Time in accordance with the terms of such plans and, in full
settlement thereof (net of applicable withholding in accordance with the
practices of the Company prior to the date of this Agreement), shall be
converted into the right to receive the per share Merger Consideration
contemplated by Section 2.01 of this Agreement, which shall be paid by Parent as
promptly as practicable after the Effective Time. Except as provided in Section
5.01(a)(ii)(2) of the Company Disclosure Letter, each deferred stock unit
("Company DSUs") and restricted stock unit ("Company RSUs") deferred under the
Company Stock Plans, the Third Amended and Restated Stock Unit Deferred
Compensation Plan and the Third Amended and Restated Non-Qualified Deferred
Compensation Plan (collectively, the "Company Deferred Stock Plans") shall
become distributable (whether or not then vested) and, in full settlement
thereof (net of applicable withholding in accordance with the practices of the
Company prior to the date of this Agreement), shall be converted into the right
to receive the per share Merger Consideration contemplated by Section 2.01 of
this Agreement, which shall be paid by Parent as promptly as practicable after
the Effective Time. Each share of Company Common Stock to which holders of
Company Restricted Shares, Company DSUs and Company RSUs are entitled as of the
Effective Time shall be converted into the right to receive the Merger
Consideration in accordance with Sections 2.01 and 2.02 of this Agreement. To
the extent that amounts are withheld from the consideration otherwise payable to
holders of Company Restricted Shares, Company DSUs or Company RSUs pursuant to
this Section 2.03, such withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the holders in respect of which the
withholding was made.
9
(c) As soon as reasonably practicable after the Effective Time,
Parent shall deliver, or cause to be delivered, to each holder of a Substitute
Stock Option a notice setting forth such holder's rights pursuant thereto.
Except as provided herein, Parent shall comply with the terms of all such
Substitute Stock Options and ensure that the conversion and assumption provided
in this Section 2.03 with respect to any Company Stock Option that qualifies as
an "incentive stock option" (as defined in section 422 of the Code) shall be
effected in a manner consistent with the requirements of section 424(a) of the
Code. Parent shall take all actions with respect to the Company Stock Plans, and
the Company Stock Options that are necessary to implement the provisions of this
Section 2.03, including all corporate action necessary to reserve for issuance a
sufficient number of shares of Parent Common Stock for delivery upon exercise of
Substitute Stock Options pursuant to the terms set forth in this Section 2.03.
Parent shall register the shares of Parent Common Stock subject to Substitute
Stock Options by filing on the Closing Date a registration statement on Form S-8
(or any successor form) or another appropriate form, with the United States
Securities and Exchange Commission (the "SEC") and Parent shall use commercially
reasonable efforts to maintain the effectiveness of such registration statement
or registration statements with respect thereto for so long as Substitute Stock
Options remain outstanding.
(d) Parent and the Company agree that, in order to most effectively
compensate and retain Company Insiders in connection with the Merger, both prior
to and after the Effective Time, it is desirable that Company Insiders not be
subject to a risk of liability under Section 16(b) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated thereunder
(the "Exchange Act"), to the fullest extent permitted by applicable Law in
connection with the conversion of shares of Company Common Stock and other
equity securities including derivative securities (i.e., Company Stock Options,
Company DSUs and Company RSUs) into shares of Parent Common Stock and Substitute
Stock Options in the Merger, and for that compensatory and retentive purpose
agree to the provisions of this Section 2.03(d). The Board of Directors of the
Company (the "Company Board"), or a committee of Non-Employee Directors (as such
term is defined for purposes of Rule 16b-3(d) under the Exchange Act) thereof,
shall adopt a resolution providing that the disposition by Company Insiders of
Company Common Stock, Company DSUs and Company RSUs in exchange for Merger
Consideration and the disposition by Company Insiders of Company Stock Options
upon conversion into Substitute Stock Options, in each case pursuant to the
transactions contemplated by this Agreement, are intended to be exempt from
liability pursuant to Section 16(b) under the Exchange Act. "Company Insiders"
shall mean those officers and directors of the Company who are subject to the
reporting requirements of Section 16(a) of the Exchange Act. Actions described
in this Section 2.03(c) shall be taken in accordance with the interpretative
letter, dated January 12, 1999, issued by the SEC's Division of Corporation
Finance to Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP relating to Rule 16b-3 under
the Exchange Act.
(e) Except as set forth in Section 5.01(a)(ii) of the Company
Disclosure Letter, since January 1, 2004, the Company, including the Company
Board and any committee acting on behalf of the Company Board, has not, and will
not hereafter, except for the Company Stockholder Approval and the Merger, take
any action to accelerate the vesting or exercisability, or otherwise amend,
modify or change the terms, of any Company Stock Option, Company Restricted
Shares, Company DSUs or Company RSUs.
10
ARTICLE III
Representations and Warranties of the Company
Except as set forth in the disclosure letter (with specific reference
to the Section or Subsection of this Agreement to which the information stated
in such disclosure relates; provided that any fact or condition disclosed in any
section of such disclosure letter in such a way as to make its relevance to a
representation or representations made elsewhere in this Agreement or
information called for by another section of such disclosure letter reasonably
apparent shall be deemed to be an exception to such representation or
representations or to be disclosed on such other section of such disclosure
letter notwithstanding the omission of a reference or cross reference thereto)
delivered by the Company to Parent prior to the execution of this Agreement (the
"Company Disclosure Letter"), the Company represents and warrants to Parent and
Merger Sub as follows:
Section 3.01 Organization, Standing and Corporate Power. The Company
and each of its Subsidiaries is an entity duly organized, validly existing and
in good standing under the Laws of the jurisdiction in which it is formed and
has all requisite power and authority to carry on its business as now being
conducted. The Company and each of its Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership, leasing or operation of its
properties makes such qualification or licensing necessary, other than in such
jurisdictions where the failure to be so qualified, licensed or in good
standing, individually or in the aggregate has not resulted in, and would not
reasonably be expected to result in, material direct or indirect costs or
liabilities to the Company and its Subsidiaries, taken as a whole. The Company
has made available to Parent complete and correct copies of its Certificate of
Incorporation (the "Company Certificate") and By-laws (the "Company By-laws")
and the certificate of incorporation and by-laws (or comparable organizational
documents) of each of its Subsidiaries, in each case as amended to the date of
this Agreement. The Company has made available to Parent and its representatives
correct and complete copies of the minutes of all meetings of stockholders, the
Company Board and each committee of the Company Board and the board of directors
of each of its Subsidiaries held since December 31, 2001.
Section 3.02. Subsidiaries. Section 3.02 of the Company Disclosure
Letter lists all the Subsidiaries of the Company and, for each such Subsidiary,
the state of formation and each jurisdiction in which such Subsidiary is
qualified or licensed to do business. All the outstanding shares of capital
stock of, or other equity interests in, each such Subsidiary have been validly
issued and are fully paid and nonassessable and are owned directly or indirectly
by the Company free and clear of all pledges, claims, liens, charges,
encumbrances or security interests of any kind or nature whatsoever
(collectively, "Liens"), and free of any restriction on the right to vote, sell
or otherwise dispose of such capital stock or other equity interests. Except for
the capital stock or other equity or voting interests of its Subsidiaries and
publicly traded securities held for investment which do not exceed 5% of the
outstanding securities of any entity, the Company does not own, directly or
indirectly, any capital stock or other equity or voting interests in any person.
11
Section 3.03 Capital Structure.
(a) The authorized capital stock of the Company consists of (x)
200,000,000 shares of Company Common Stock and (y) 40,000,000 shares of
preferred stock, par value $0.01 per share ("Company Preferred Stock"), of
which, as of the date hereof, 2,000,000 shares of Company Preferred Stock have
been designated as Series A Junior Participating Preferred Stock, of which
2,000,000 shares are reserved for issuance upon the exercise of preferred share
purchase rights (the "Company Rights") issued pursuant to the Rights Agreement,
dated as of November 19, 1999, between the Company and ChaseMellon Shareholder
Services, L.L.C., as rights agent (which firm has been replaced as rights agent
by ComputerShare Investor Services L.L.C.) (the "Rights Agent"), pursuant to the
terms thereof) (the "Rights Agreement"). At the close of business on June 29,
2005, (i) 87,628,414 shares of Company Common Stock were issued and outstanding
(which number includes 977,619 Company Restricted Shares), (ii) no shares of
Company Common Stock were held by the Company in its treasury, (iii) 14,753,323
shares of Company Common Stock were reserved for issuance pursuant to the
Company Stock Plans and the Company Deferred Stock Plans (of which 7,647,807
shares of Company Common Stock were subject to outstanding Company Stock
Options, 977,619 shares of Company Common Stock were subject to outstanding
Company Restricted Shares, 1,256,443 shares of Company Common Stock were subject
to outstanding Company RSUs and 641,969 shares of Company Common Stock were
subject to outstanding Company DSUs), (iv) 6,428,566 shares of Company Common
Stock were reserved for issuance upon conversion of the Company's 3% Convertible
Subordinated Debentures due 2032 (the "Convertible Debentures") issued pursuant
to an Indenture, dated as of November 22, 2002, between the Company and State
Street Bank and Trust Company of California, N.A. (a complete and correct copy
of which has been delivered or made available to Parent) and (v) no shares of
Company Preferred Stock were issued or outstanding.
(b) The Company has delivered to Parent a correct and complete list,
as of June 24, 2005, of all outstanding Company Stock Options, Company
Restricted Shares, Company RSUs, Company DSUs and any other rights to purchase
or receive shares of Company Common Stock granted under the Company Stock Plans
or otherwise, the number of shares of Company Common Stock subject thereto,
whether or not a stock option is an incentive stock option, expiration dates and
exercise prices thereof, in each case broken down as to each plan, agreement or
other arrangement and as to each individual holder. Except as set forth above in
this Section 3.03, at the close of business on June 24, 2005, no shares of
capital stock or other voting securities of the Company were issued, reserved
for issuance or outstanding. Except as set forth above in this Section 3.03,
there are no outstanding stock appreciation rights, rights to receive shares of
Company Common Stock on a deferred basis or other rights that are linked to the
value of Company Common Stock granted under the Company Stock Plans or
otherwise. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to the Company Stock Plans will be, when
issued in accordance with the terms thereof, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights.
12
(c) Except as set forth above in this Section 3.03, there are no
bonds, debentures, notes or other indebtedness of the Company having the right
to vote (or convertible into, or exchangeable for, securities having the right
to vote) on any matters on which stockholders of the Company may vote. Except as
set forth above in this Section 3.03, (i) there are not issued, reserved for
issuance or outstanding (A) any securities of the Company or any of its
Subsidiaries convertible into or exchangeable or exercisable for shares of
capital stock or voting securities of the Company or any of its Subsidiaries or
(B) any warrants, calls, options or other rights to acquire from the Company or
any of its Subsidiaries, or any obligation of the Company or any of its
Subsidiaries to issue, any capital stock, voting securities or securities
convertible into or exchangeable or exercisable for capital stock or voting
securities of the Company or any of its Subsidiaries and (ii) there are not any
outstanding obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any such securities or to issue, deliver or sell, or
cause to be issued, delivered or sold, any such securities. Neither the Company
nor any of its Subsidiaries is a party to any voting agreement with respect to
the voting of any such securities.
(d) Section 3.03(d) of the Company Disclosure Letter sets forth a
complete and correct list of the following information, as of June 29, 2005,
with respect to the Convertible Debentures: (i) the aggregate principal amount
thereof, (ii) the aggregate amount of accrued and unpaid interest thereon and
(iii) the conversion price thereof as of the date hereof.
Section 3.04 Authority; Noncontravention.
(a) The Company has all requisite corporate power and authority to
enter into this Agreement and, subject to the adoption of this Agreement and the
Merger by the affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock (the "Company Stockholder Approval"), to
consummate the Merger and the other transactions contemplated by this Agreement.
The execution and delivery of this Agreement by the Company and the consummation
by the Company of the Merger and the other transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Company, and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby, subject, in the case of the Merger, to receipt
of the Company Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery by each of the other parties hereto, constitutes a legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms (subject to applicable bankruptcy, solvency, fraudulent transfer,
reorganization, moratorium and other Laws affecting creditors' rights generally
from time to time in effect and by general principles of equity). As of the date
hereof, the Company Board, at a meeting duly called and held at which all the
directors of the Company were present in person or by telephone, duly and
unanimously adopted resolutions (i) declaring that this Agreement, the Merger
and the other transactions contemplated by this Agreement are advisable and in
the best interests of the Company and the Company's stockholders, (ii) approving
and adopting this Agreement, the Merger and the other transactions contemplated
by this Agreement, (iii) directing that the adoption of this Agreement be
submitted to a vote at a meeting of the stockholders of the Company, and (iv)
recommending that the stockholders of the Company adopt this Agreement. The
provisions of Section 203 of the DGCL are inapplicable to this Agreement, the
Merger and the other transactions contemplated by this Agreement. No "fair
price", "merger moratorium", "control share acquisition" or other anti-takeover
or similar statute or regulation applies or purports to apply to this Agreement,
the Merger or the other transactions contemplated by this Agreement.
13
(b) The execution and delivery of this Agreement by the Company do
not, and the consummation of the Merger and the other transactions contemplated
by this Agreement by the Company and compliance with the provisions of this
Agreement by the Company will not, conflict with, or result in any violation or
breach of, or default (with or without notice or lapse of time or both) under,
or give rise to a right of termination, cancellation or acceleration of any
obligation or to the loss of a benefit under, or result in the creation of any
Lien in or upon any of the properties or other assets of the Company or any of
its Subsidiaries under, (i) the Company Certificate or the Company By-laws or
the comparable organizational documents of any of its Subsidiaries, (ii) any
loan or credit agreement, bond, debenture, note, mortgage, indenture, lease or
other contract, agreement, obligation, commitment, arrangement, understanding,
instrument, permit or license (each, a "Contract"), to which the Company or any
of its Subsidiaries is a party or any of their respective properties or other
assets is subject or (iii) subject to the governmental filings and other matters
referred to in Section 3.05, any Law applicable to the Company or any of its
Subsidiaries or their respective properties or other assets, other than, in the
case of clauses (ii) and (iii) above, any such conflicts, violations, breaches,
defaults, rights, losses or Liens that individually or in the aggregate (A) have
not had and would not reasonably be expected to have a Company Material Adverse
Effect, (B) would not reasonably be expected to impair in any material respect
the ability of the Company to perform its obligations hereunder and (C) would
not reasonably be expected to prevent or materially delay the consummation of
any of the transactions contemplated by this Agreement.
(c) For purposes of this Agreement, "Company Material Adverse Effect"
shall mean any change, effect, event, circumstance, occurrence or state of facts
that is materially adverse to the business, financial condition or results of
operations of the Company and its Subsidiaries, taken as a whole, other than any
change, effect, event, circumstance, occurrence or state of facts relating to
(a) the economy or the financial markets in general, (b) the industries in which
the Company and its Subsidiaries operate in general, (c) the announcement of the
execution of this Agreement or the transactions contemplated hereby or the
identity of Parent (provided that the exclusion set forth in this clause (c)
shall not apply to Section 3.04(b) hereof), (d) changes in applicable Laws or
regulations after the date hereof, (e) changes in GAAP or regulatory accounting
principles after the date hereof, (f) liabilities relating to the pending or
threatened litigations, mediations, arbitrations and investigations set forth in
Section 3.09 of the Company Disclosure Letter in an aggregate amount equal to or
less than the amount set forth in Section 3.04(c)(i) of the Company Disclosure
Letter or (g) any litigation, mediation, arbitration or investigation set forth
in Section 3.04(c)(ii) of the Company Disclosure Letter; provided that with
respect to clauses (a), (b), (d) and (e), such change, effect, event,
circumstance, occurrence or state of facts (i) does not specifically relate to
(or have the effect of specifically relating to) the Company and its
Subsidiaries and (ii) is not more adverse to the Company and its Subsidiaries
than to other companies operating in the industries in which the Company and its
Subsidiaries operate.
Section 3.05 Governmental Approvals. No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration or
filing with, any Governmental Authority is required by the Company or any of its
Subsidiaries in connection with the execution and delivery of this Agreement by
the Company or the consummation by the Company of the Merger or the other
14
transactions contemplated by this Agreement, except for those required under or
in relation to (a) the premerger notification and report form under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (b) the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Securities Act"), (c) the Exchange Act, (d) the
Certificate of Merger to be filed with the Secretary of State of the State of
Delaware and appropriate documents to be filed with the relevant authorities of
other states in which the Company is qualified to do business, (e) any
appropriate filings with and approvals of the New York Stock Exchange (the
"NYSE"), (f) the state insurance department, department of health and other
filings and/or approvals set forth in Section 3.05(f) of the Company Disclosure
Letter, (g) state securities or "blue sky" laws and (h) such other consents,
approvals, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made individually or in the aggregate would
not reasonably be expected to (x) have a Company Material Adverse Effect, (y)
impair in any material respect the ability of the Company to perform its
obligations hereunder or (z) prevent or materially delay the consummation of any
of the transactions contemplated by this Agreement. The Regulated Subsidiaries
are only domiciled or commercially domiciled in the jurisdictions set forth in
Section 3.05 of the Company Disclosure Letter. The Regulated Subsidiaries hold
licenses to conduct their businesses from state insurance and health departments
only in the states listed in Section 3.05 of the Company Disclosure Letter. For
purposes of this Agreement, "Governmental Authority" shall mean any Federal,
state, local or foreign government, any court, administrative, regulatory or
other governmental agency, commission or authority or any non-governmental
self-regulatory agency, commission or authority having regulatory authority over
the Company, Parent or their respective subsidiaries, as the case may be.
Section 3.06 Company SEC Documents; No Undisclosed Liabilities.
(a) The Company has filed all reports, schedules, forms, statements
and other documents (including exhibits and other information incorporated
therein) with the SEC required to be filed by the Company since December 31,
2001 (such documents, the "Company SEC Documents"). No Subsidiary of the Company
is required to file, or files, any form, report or other document with the SEC.
As of their respective dates, the Company SEC Documents complied in all material
respects with the requirements of the Securities Act, or the Exchange Act, as
the case may be, applicable to such Company SEC Documents, and none of the
Company SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading, unless such information contained in any Company
SEC Document has been corrected, revised or superceded by a later-filed Company
SEC Document filed prior to the date hereof. The financial statements of the
Company included in the Company SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles ("GAAP") (except, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the financial
position of the Company and its consolidated Subsidiaries as of the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to the absence
of footnote disclosure and to normal and recurring year-end audit adjustments).
15
(b) Except (i) as set forth in the financial statements included in
the Company's Annual Report on Form 10-K filed prior to the date hereof for the
year ended December 31, 2004 or (ii) as incurred in the ordinary course of
business since December 31, 2004, neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) that individually or in the aggregate have
had or would reasonably be expected to have a Company Material Adverse Effect.
Section 3.07 Information Supplied. None of the information supplied
or to be supplied by the Company specifically for inclusion or incorporation by
reference in (a) the registration statement on Form S-4 to be filed with the SEC
by Parent in connection with the issuance of shares of Parent Common Stock in
the Merger (as amended or supplemented from time to time, the "Form S-4") will,
at the time the Form S-4 is filed with the SEC, at any time it is amended or
supplemented and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading or (b)
the proxy statement relating to the Company Stockholders Meeting (together with
any amendments thereof or supplements thereto, in each case in the form or forms
mailed to the Company's stockholders, the "Proxy Statement") will, at the date
the Proxy Statement is first mailed to the stockholders of the Company and at
the time of the Company Stockholders Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act. Notwithstanding the foregoing, no representation or warranty is
made by the Company with respect to statements made or incorporated by reference
in the Form S-4 or the Proxy Statement based on information supplied by Parent
or Merger Sub specifically for inclusion or incorporation by reference in the
Form S-4 or the Proxy Statement or portions thereof that relate only to Parent
and its Subsidiaries.
Section 3.08 Absence of Certain Changes or Events. Since the date of
the most recent audited financial statements included in the Company SEC
Documents filed by the Company and publicly available prior to the date of this
Agreement (the "Filed Company SEC Documents"), except (a) for liabilities
incurred in connection with this Agreement or the transactions contemplated
hereby to Parent, Merger Sub and the Company's financial and legal advisors or
(b) as disclosed in the Filed Company SEC Documents there has not been any
change, effect, event, circumstance, occurrence or state of facts that
individually or in the aggregate has had or would reasonably be expected to have
a Company Material Adverse Effect.
Section 3.09 Litigation. There is no suit, action, claim, proceeding
or investigation pending or, to the Knowledge of the Company, threatened against
the Company or any of its Subsidiaries that individually or in the aggregate has
had or would reasonably be expected to have a Company Material Adverse Effect,
nor is there any judgment, decree, injunction, rule or order of any Governmental
Authority or arbitrator outstanding against, or, to the Knowledge of the
Company, investigation by any Governmental Authority involving, the Company or
any of its Subsidiaries that individually or in the aggregate has had or would
reasonably be expected to have a Company Material Adverse Effect.
16
Section 3.10 Contracts.
(a) As of the date hereof, neither the Company nor any of its
Subsidiaries is a party to, and none of their respective properties or other
assets is subject to, any Contract that is of a nature required to be filed as
an exhibit to a report or filing under the Securities Act or the Exchange Act,
other than any Contract that is filed as an exhibit to the Filed Company SEC
Documents.
(b) Except for Contracts filed in unredacted form as exhibits to the
Filed Company SEC Documents, Section 3.10(b) of the Company Disclosure Letter
sets forth a correct and complete list as of the date of this Agreement, and the
Company has made available to Parent correct and complete copies (including all
amendments, modifications, extensions, renewals, guaranties or other Contracts
with respect thereto, but excluding certain names, terms and conditions that
have been redacted in compliance with applicable Laws governing the sharing of
information or otherwise), of:
(i) all Contracts (other than Contracts of the category required
to be disclosed in clause (xiv), clause (xv) or clause (xvi) of this
Section 3.10(b), regardless of value) of the Company or any of its
Subsidiaries having an aggregate value per Contract, or involving
payments by or to the Company or any of its Subsidiaries, of more than
$750,000 on an annual basis;
(ii) all Contracts to which the Company or any of its
Subsidiaries is a party, or by which the Company, any of its
Subsidiaries or any of its Affiliates is bound, that contain a
covenant restricting the ability of the Company or any of its
Subsidiaries (or which, following the consummation of the Merger,
would restrict the ability of Parent or any of its Subsidiaries,
including the Surviving Entity and its Subsidiaries) to compete in any
business or with any person or in any geographic area;
(iii) all Contracts of the Company or any of its Subsidiaries
with any Affiliate of the Company (other than any of its
Subsidiaries);
(iv) any (A) Contract to which the Company or any of its
Subsidiaries is a party granting any license to Intellectual Property,
and (B) other license (other than real estate) having an aggregate
value per license, or involving payments by the Company or any of its
Subsidiaries, of more than $750,000 on an annual basis;
(v) all confidentiality agreements (other than in the ordinary
course of business), agreements by the Company not to acquire assets
or securities of a third party or agreements by a third party not to
acquire assets or securities of the Company;
(vi) any Contract having an aggregate value per Contract, or
involving payments by or to the Company or any of its Subsidiaries, of
more than $750,000 on an annual basis that requires consent of or
notice to a third party in the event of or with respect to the Merger,
including in order to avoid a breach or termination of or loss of
benefit under any such Contract;
17
(vii) all joint venture, profit sharing, partnership or other
similar agreements involving co-investment with a third party to which
the Company or any of its Subsidiaries is a party (other than any such
profit sharing or similar agreements entered into in the ordinary
course of business);
(viii) any Contract or order with or from a Governmental
Authority (other than ordinary course Contracts with Governmental
Authorities as a customer or as a Provider) which imposes any material
obligation or restriction on the Company or its Subsidiaries;
(ix) all leases, subleases, licenses or other Contracts pursuant
to which the Company or any of its Subsidiaries use or hold any
material property involving payments by or to the Company or any of
its Subsidiaries of more than $750,000 on an annual basis;
(x) all material outsourcing Contracts;
(xi) all Contracts with investment bankers, financial advisors,
attorneys, accountants or other advisors retained by the Company or
any of its Subsidiaries involving payments to be made by or to the
Company or any of its Subsidiaries after the date of this Agreement of
more than $750,000 on an annual basis;
(xii) all Contracts providing for the indemnification by the
Company or any of its Subsidiaries of any person, except for any such
Contract that is not material to the Company or any of its
Subsidiaries;
(xiii) all Contracts pursuant to which any indebtedness of the
Company or any of its Subsidiaries is outstanding or may be incurred
and all guarantees of or by the Company or any of its Subsidiaries of
any indebtedness of any other person (other than the Company or any of
its Subsidiaries) (except for such indebtedness or guarantees the
aggregate principal amount of which does not exceed $750,000 on an
annual basis and excluding trade payables arising in the ordinary
course of business);
(xiv) (i) the largest Contracts of the Company and its
Subsidiaries with facilities and capitated Providers (including
hospitals and medical groups) in the states of California, Texas,
Arizona and Colorado (measured in terms of total projected payments by
the Company and its Subsidiaries during the year ending December 31,
2005) that, in the aggregate, represent at least 60% of the total
projected 2005 payments by the Company and its Subsidiaries to such
Providers in each of such states and (ii) the largest Contracts of the
Company and its Subsidiaries with such Providers in the states of
Oklahoma, Oregon, Nevada and Washington (measured in terms of total
projected payments by the Company and its Subsidiaries during the year
ending December 31, 2005) that, in the aggregate, represent at least
50% of the total projected 2005 payments by the Company and its
Subsidiaries to such Providers in each of such states (collectively,
the "Largest Provider Contracts");
18
(xv) Contracts of the Company and its Subsidiaries with the 20
largest customers in California and the 10 largest customers in the
Other Core States in the aggregate (in each case measured in terms of
total projected payments to the Company and its Subsidiaries during
the year ending December 31, 2005) (the "Largest Customer Contracts");
(xvi) Contracts of the Company and its Subsidiaries with the 20
largest brokers, the 10 largest general agents and the largest broker
for American Medical Security Group, Inc. (measured in terms of total
projected payments by the Company and its Subsidiaries during the year
ending December 31, 2005) (the "Largest Broker Contracts");
(xvii) any Contract with respect to any risk sharing or risk
transfer arrangement or that provides for a retroactive premium or
similar adjustment or withholding arrangement, pursuant to the terms
of which an adjustment, premium, payment or arrangement is reasonably
expected to result therefrom in an amount of $750,000 or more;
(xviii) any Contract or policy for reinsurance with third
parties;
(xix) any demonstration or pilot or other material Contract with
the Centers for Medicare and Medicaid Services ("CMS") or any
successor thereto; and
(xx) any Contract with the Office of Personnel Management, or any
successor thereto.
(c) (i) None of the Company or any of its Subsidiaries (x) is, or has
received written notice or has Knowledge that any other party to any of its
Contracts is, in violation or breach of or default (with or without notice or
lapse of time or both) under, or (y) has waived or failed to enforce any rights
or benefits under, any Contract to which it is a party or any of its properties
or other assets is subject, and (ii) to the Knowledge of the Company, there has
occurred no event giving to others any right of termination, amendment or
cancellation of (with or without notice or lapse of time or both) any such
Contract except for violations, breaches, defaults, waivers or failures to
enforce rights or benefits covered by clauses (i) or (ii) above that
individually or in the aggregate have not had and would not reasonably be
expected to have a Company Material Adverse Effect.
Section 3.11 Compliance with Laws.
(a) The Company and each of its Subsidiaries, has been since December
31, 2002 and is in compliance with all statutes, laws, ordinances, rules,
regulations, judgments, orders and decrees of any Governmental Authority,
including the federal Medicare statute, the Federal Civil False Claims Act and
the Health Insurance Portability and Accountability Act of 1996, or the
regulations promulgated pursuant to such statutes or acts or any similar state
laws, or regulations, applicable to it, its properties or other assets or its
business or operations (collectively, "Laws"), except for instances of
non-compliance that individually or in the aggregate have not had and would not
reasonably be expected to have a Company Material Adverse Effect. None of the
Company or any of its Subsidiaries has received, since December 31, 2002, a
notice or other communication alleging or relating to a possible material
19
violation of any Laws applicable to its businesses or operations. The Company
and its Subsidiaries have in effect all material permits, licenses, certificates
of authority, variances, exemptions, authorizations, operating certificates,
franchises, orders and approvals of all Governmental Authorities (collectively,
"Permits") necessary to carry on their businesses as now conducted, and since
December 31, 2002, there has occurred no material violation of, default (with or
without notice or lapse of time or both) under, or event giving to others any
right of termination or cancellation of, with or without notice or lapse of time
or both, any Permit. There is no event which has occurred that, to the Knowledge
of the Company, would reasonably be expected to result in the revocation,
cancellation, non-renewal or adverse modification of any such Permit which
revocation, cancellation, non-renewal or adverse modification individually or in
the aggregate would reasonably be expected to have a Company Material Adverse
Effect. Assuming all Closing Consents (as defined below) are made or obtained,
the Merger, in and of itself, would not cause the revocation or cancellation of
any such Permit.
(b) Since December 31, 2002, (i) neither the Company nor any of its
Subsidiaries has received, nor otherwise has any Knowledge of, any written
notice from any Governmental Authority or has become a party to any enforcement
action, order, decree, stipulation or open and pending financial examination
that (x) alleges any material noncompliance (or that the Company or any of its
Subsidiaries is under investigation or the subject of an inquiry by any such
Governmental Authority for such alleged material noncompliance) with any
applicable material Law, (y) asserts any risk-based capital deficiency or (z)
would be reasonably likely to result in a material fine, assessment or cease and
desist order, or the suspension, revocation or material limitation or
restriction of any Permit; and (ii) neither the Company nor any of its
Subsidiaries has entered into any agreement or settlement with any Governmental
Authority with respect to its non-compliance with, or violation of, any
applicable Law. Since December 31, 2002, to the Knowledge of the Company, no
third party service provider acting on behalf of the Company or any of its
Subsidiaries, has received any written notice from any Governmental Authority or
has become a party to any enforcement action, order, decree or stipulation that
alleges any material noncompliance (or that such third party service provider is
under investigation or the subject of an inquiry by any such Governmental
Authority for such alleged material noncompliance) with the Health Insurance
Portability and Accountability Act of 1996 and the regulations promulgated
thereunder or applicable state privacy or information security laws and
regulations.
(c) Since December 31, 2002, the Company and each of its Subsidiaries
has timely filed all material regulatory reports, schedules, statements,
documents, filings, submissions, forms, registrations and other documents,
together with any amendments required to be made with respect thereto, that each
was required to file with any Governmental Authority, including state health and
insurance regulatory authorities ("Company Regulatory Filings") and any
applicable Federal regulatory authorities, and have timely paid all Taxes, fees
and assessments due and payable in connection therewith, except where the
failure to make such filings on a timely basis or payments would not be material
to the Company or any of its Subsidiaries, taken as a whole. All such Company
Regulatory Filings complied in all material respects with applicable Law.
20
(d) All premium rates, rating plans, policy forms and terms
established or used by the Company's Subsidiaries that are required to be filed
with and/or approved by Governmental Authorities have been in all material
respects so filed and/or approved, the premiums charged conform in all material
respects to the premiums so filed and/or approved and comply in all material
respects with the Laws applicable thereto, and to the Company's Knowledge, no
such premiums are subject to any investigation by any Governmental Authority.
(e) The Company and its Subsidiaries have implemented policies,
procedures and/or programs designed to assure that its producers, agents,
brokers and employees are in material compliance with all applicable Laws,
including laws, regulations, directives and opinions of Governmental Authorities
relating to advertising, licensing, sales and compensation disclosure practices,
unfair trade practices and conflict of interest policies. Each of the Company
and its Subsidiaries, and to the Knowledge of the Company, each agent acting on
behalf of the Company or any of its Subsidiaries has marketed, administered,
sold and issued insurance and healthcare products in compliance in all material
respects with all applicable Laws.
(f) The Company and, to the Knowledge of the Company, each of its
executive officers and directors are in compliance with, and have complied, in
all material respects with (i) the applicable provisions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇
Act of 2002 and the related rules and regulations promulgated under such act or
the Exchange Act ("▇▇▇▇▇▇▇▇-▇▇▇▇▇") and (ii) the applicable listing and
corporate governance rules and regulations of the NYSE. The Company has
previously disclosed to Parent all of the information required to be disclosed
by the Company's chief executive officer and chief financial officer to the
Company Board or its audit committee pursuant to the certification requirements
relating to Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
(g) The Company has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) or 15d-15(e) under the
Exchange Act), and such disclosure controls and procedures are effective.
(h) The Company has disclosed, based on its most recent evaluation,
to the Company's auditors and the audit committee of the Board of Directors of
the Company and to Parent (i) any significant deficiencies and material
weaknesses in the design or operation of internal controls over financial
reporting that existed as of December 31, 2004 or later which are reasonably
likely to adversely affect in any material respect the Company's ability to
record, process, summarize and report financial information for its financial
statements and (ii) any fraud, whether or not material, that involves management
or other employees who have a significant role in the Company's internal
controls over financial reporting.
(i) To the Knowledge of the Company, the Company's principal
executive officer and its principal financial officer will be able to give the
certifications required pursuant to the rules and regulations adopted pursuant
to Sections 302, 906 and 404 of ▇▇▇▇▇▇▇▇-▇▇▇▇▇, without qualification, when next
due.
(j) Since January 1, 2003, neither the Company nor any of its
Subsidiaries has effected any securitization transaction or other "off-balance
sheet arrangement" (as defined in Item 303 of Regulation S-K of the SEC).
21
Section 3.12 Employee Benefit Plans.
(a) Section 3.12(a) of the Company Disclosure Letter sets forth a
correct and complete list of: all "employee benefit plans" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and all other employee benefit plans, programs, agreements,
policies, arrangements or payroll practices, including bonus plans, employment,
consulting or other compensation agreements, collective bargaining agreements,
Company Stock Plans, individual stock option agreements to which the Company is
a party granting stock options to acquire Company Common Stock that have not
been granted under a Company Stock Plan, incentive and other equity or
equity-based compensation, or deferred compensation arrangements, change in
control, termination or severance plans or arrangements, stock purchase,
severance pay, sick leave, vacation pay, salary continuation for disability,
hospitalization, medical insurance, life insurance and scholarship plans and
programs maintained by the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries contributed or is obligated to contribute
thereunder for current or former employees of the Company or any of its
Subsidiaries (the "Employees") (collectively, the "Company Plans").
(b) Correct and complete copies of the following documents, with
respect to each of the Company Plans (other than a Multiemployer Plan), have
been delivered or made available to Parent by the Company, to the extent
applicable: (i) any plans, all amendments and attachments thereto and related
trust documents, insurance contracts or other funding arrangements, and
amendments thereto; (ii) the most recent Forms 5500 and all schedules thereto
and the most recent actuarial report, if any; (iii) the most recent IRS
determination letter; (iv) summary plan descriptions; and (v) material written
communications to employees generally.
(c) The Company Plans have been maintained in accordance with their
terms and with all provisions of ERISA, the Code and other applicable Laws, and
neither the Company (or any of its Subsidiaries) nor any "party in interest" or
"disqualified person" with respect to the Company Plans has engaged in a
non-exempt "prohibited transaction" within the meaning of Section 4975 of the
Code or Section 406 of ERISA, except as individually or in the aggregate have
not had and would not reasonably be expected to have a Company Material Adverse
Effect. No fiduciary has any liability for breach of fiduciary duty or any other
failure to act or comply in connection with the administration or investment of
the assets of any Company Plan, except as individually or in the aggregate have
not had and would not reasonably be expected to have a Company Material Adverse
Effect.
(d) The Company Plans intended to qualify under Section 401 of the
Code are so qualified and any trusts intended to be exempt from federal income
taxation under Section 501 of the Code are so exempt, except as individually or
in the aggregate have not had and would not reasonably be expected to have a
Company Material Adverse Effect.
(e) None of the Company, its Subsidiaries or any trade or business
(whether or not incorporated) that is treated as a single employer, with any of
them under Section 414(b), (c), (m) or (o) of the Code (each an "ERISA
affiliate") has any current or contingent liability with respect to (i) a plan
subject to Title IV or Section 302 of ERISA or Section 412 or 4971 of the Code
22
or (ii) any "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA).
Each Company Plan that is intended to meet the requirements for tax-favored
treatment under Subchapter B of Chapter 1 of Subtitle A of the Code meets such
requirements, with such exceptions that individually or in the aggregate have
not had and would not reasonably be expected to have a Company Material Adverse
Effect.
(f) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Plans (including workers compensation) or by Law (without regard to
any waivers granted under Section 412 of the Code), to any funds or trusts
established thereunder or in connection therewith have been made by the due date
thereof (including any valid extension).
(g) There are no pending actions, claims or lawsuits that have been
asserted or instituted against the Company Plans, the assets of any of the
trusts under the Company Plans or the sponsor or administrator of any of the
Company Plans, or against any fiduciary of the Company Plans with respect to the
operation of any of the Company Plans (other than routine benefit claims), nor
does the Company have any Knowledge of facts that could form the basis for any
such action, claim or lawsuit, other than such actions, claims or lawsuits that
individually or in the aggregate have not had and would not reasonably be
expected to have a Company Material Adverse Effect.
(h) None of the Company Plans provides for post-employment life or
health insurance, benefits or coverage for any participant or any beneficiary of
a participant, except as may be required under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), or applicable state law, and
at the expense of the participant or the participant's beneficiary. Each of the
Company and any ERISA affiliate which maintains a "group health plan" within the
meaning Section 5000(b)(1) of the Code has complied with the notice and
continuation requirements of Section 4980B of the Code, COBRA, Part 6 of
Subtitle B of Title I of ERISA and the regulations thereunder, except where the
failure to comply individually or in the aggregate has not had and would not
reasonably be expected to have a Company Material Adverse Effect.
(i) Except as set forth in Section 3.12(i) of the Company Disclosure
Letter (to the extent applicable, in each case broken down as to each item, and
the individual and amount involved), neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby,
including the Company Stockholder Approval or the Merger, will (i) result in any
payment becoming due to any Employee, (ii) increase any benefits otherwise
payable under any Company Plan, (iii) result in the acceleration of the time of
payment or vesting of any such benefits under any Company Plan or (iv) result in
any obligation to fund any trust or other arrangement with respect to
compensation or benefits under a Company Plan. Except as set forth in Section
3.12(i) of the Company Disclosure Letter, since January 1, 2005, the Company,
including the Company Board, any committee thereof and any officer of the
Company, has not taken any action to increase the compensation or benefits
payable after the date hereof to any officer having the title of senior vice
president or higher of the Company.
23
(j) Neither the Company nor any of its Subsidiaries has a contract,
plan or commitment, whether legally binding or not, to create any additional
Company Plan or to modify any existing Company Plan, except as required by
applicable Law or tax qualification requirement.
(k) Any individual who performs services for the Company or any of
its Subsidiaries (other than through a contract with an organization other than
such individual) and who is not treated as an employee of the Company or any of
its Subsidiaries for federal income tax purposes by the Company or any of its
Subsidiaries is not an employee for such purposes, except as individually or in
the aggregate, together with any breach or breaches of Section 3.12(c) hereof
(without regard to any materiality or Company Material Adverse Effect qualifiers
therein), has not had and would not reasonably be expected to have a Company
Material Adverse Effect.
(l) Neither the Company nor any of its Subsidiaries is a party to any
contract, agreement or other arrangement providing for the payment of any amount
which would not be deductible by reason of Section 162(m) or Section 280G of the
Code.
Section 3.13 Taxes.
(a) The Company and each of its Subsidiaries has timely filed, or has
caused to be timely filed on its behalf (taking into account any extension of
time within which to file), all material tax returns required to be filed by it,
and all such filed tax returns are correct and complete in all material
respects. All taxes shown to be due on such tax returns, and all material taxes
otherwise required to be paid by the Company or any of its Subsidiaries, have
been timely paid.
(b) All taxes due and payable by the Company and its Subsidiaries
have been adequately provided for in the financial statements of the Company and
its Subsidiaries for all periods ending through the date hereof. No material
deficiency with respect to taxes has been proposed, asserted or assessed against
the Company or any of its Subsidiaries that has not been paid in full or fully
resolved in favor of the taxpayer. No reductions have been made to the December
31, 2004 current tax reserve and valuation allowance previously reported to
Parent.
(c) The federal income tax returns of the Company and each of its
Subsidiaries have been examined by and settled with (or received a "no change"
letter from) the Internal Revenue Service (the "IRS") (or, to the Knowledge of
the Company, the applicable statute of limitations has expired) for all years
through December 31, 1997. All material assessments for taxes due with respect
to such completed and settled examinations or any concluded litigation have been
fully paid.
(d) Neither the Company nor any of its Subsidiaries has any
obligation under any agreement (either with any person or any taxing authority)
with respect to material taxes.
(e) Neither the Company nor any of its Subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code since the
effective date of Section 355(e) of the Code.
24
(f) Since December 31, 1997, neither the Company nor any of its
Subsidiaries has (i) been a member of an affiliated group of corporations within
the meaning of Section 1504 of the Code, other than the affiliated group of
which the Company is the common parent or (ii) any material liability for the
taxes of any Person (other than the Company or any of its Subsidiaries).
(g) No audit or other administrative or court proceedings are pending
with any taxing authority with respect to any Federal, state or local income or
other material taxes of the Company or any of its Subsidiaries, and no written
notice thereof has been received by the Company or any of its Subsidiaries and,
to the Knowledge of the Company, none is threatened. No issue has been raised by
any taxing authority in any presently pending tax audit that could be material
and adverse to the Company or any of its Subsidiaries for any period after the
Effective Time. Neither the Company nor any of its Subsidiaries has any
outstanding agreements, waivers or arrangements extending the statutory period
of limitations applicable to any claim for, or the period for the collection or
assessment of, any Federal, state or local income or other material taxes.
(h) No written claim that could give rise to material taxes has been
made within the previous five years by a taxing authority in a jurisdiction
where the Company or any of its Subsidiaries does not file tax returns that the
Company or any of its Subsidiaries is or may be subject to taxation in that
jurisdiction.
(i) The Company has made available to Parent correct and complete
copies of (i) all income and franchise tax returns of the Company and its
Subsidiaries for the preceding three taxable years and (ii) any audit report
issued within the last three years (or otherwise with respect to any audit or
proceeding in progress) relating to income or franchise taxes of the Company or
any of its Subsidiaries.
(j) No Liens for taxes exist with respect to any properties or other
assets of the Company or any of its Subsidiaries, except for Permitted Liens.
(k) All material taxes required to be withheld by the Company or any
of its Subsidiaries have been withheld and have been or will be duly and timely
paid to the proper taxing authority.
(l) The Company is not, has not been and will not be a "United States
real property holding corporation" within the meaning of Section 897 of the Code
at any time during the five-year period ending on the Closing Date.
(m) Neither the Company nor any of its Subsidiaries has taken any
action, has failed to take any action or has any Knowledge of any fact or
circumstance that would reasonably be likely to prevent the Merger from
qualifying as a reorganization under Section 368 of the Code.
(n) For purposes of this Agreement, (i) "taxes" shall mean taxes of
any kind (including those measured by or referred to as income, franchise, gross
receipts, sales, use, ad valorem, profits, license, withholding, payroll,
employment, excise, severance, stamp, occupation, premium, value added,
property, windfall profits, customs, duties or similar fees, assessments or
charges of any kind whatsoever) together with any interest and any penalties,
25
additions to tax or additional amounts imposed by any taxing authority with
respect thereto, domestic or foreign and shall include any transferee or
successor liability in respect of taxes (whether by contract or otherwise) and
any several liability in respect of any tax as a result of being a member of any
affiliated, consolidated, combined, unitary or similar group and (ii) "tax
returns" shall mean any return, report, claim for refund, estimate, information
return or statement or other similar document relating to or required to be
filed with any taxing authority with respect to taxes, including any schedule or
attachment thereto, and including any amendment thereof.
Section 3.14 Intellectual Property; Software.
(a) As used herein: (i) "Intellectual Property means all U.S. and
foreign (a) trademarks, service marks, trade names, Internet domain names,
designs, logos, slogans and other distinctive indicia of origin, together with
goodwill, registrations and applications relating to the foregoing
("Trademarks"); (b) patents and pending patent applications, invention
disclosure statements, and any and all divisions, continuations,
continuations-in-part, reissues, reexaminations, and any extensions thereof, any
counterparts claiming priority therefrom and like statutory rights ("Patents");
(c) registered and unregistered copyrights (including those in Software), rights
of publicity and all registrations and applications to register the same
("Copyrights"); and (d) confidential technology, know-how, inventions,
processes, formulae, algorithms, models and methodologies ("Trade Secrets");
(ii) "IP Licenses" means all Contracts (excluding "click-wrap" or "shrink-wrap"
agreements or agreements contained in "off-the-shelf" Software or the terms of
use or service for any Web site) pursuant to which the Company and its
Subsidiaries have acquired rights in (including usage rights) to any
Intellectual Property, or licenses and agreements pursuant to which the Company
and its Subsidiaries have licensed or transferred the right to use any
Intellectual Property, including license agreements, settlement agreements and
covenants not to ▇▇▇; (iii) "Software" means all computer programs, including
any and all software implementations of algorithms, models and methodologies
whether in source code or object code form, databases and compilations,
including any and all electronic data and electronic collections of data, all
documentation, including user manuals and training materials, related to any of
the foregoing and the content and information contained on any Web site; and
(iv) "Company Intellectual Property" means the Intellectual Property and
Software held for use or used in the business of the Company or its Subsidiaries
as presently conducted.
(b) Section 3.14(b) of the Company Disclosure Letter sets forth, for
the Intellectual Property owned by the Company and its Subsidiaries, a complete
and accurate list of all U.S., state and foreign: (i) Patents issued or pending;
(ii) Trademark registrations and applications for registration (including
Internet domain name registrations) and material unregistered trademarks and
service marks; and (iii) material Copyrights.
(c) Section 3.14(c) of the Company Disclosure Letter lists all (i)
material Software that is owned by the Company or its Subsidiaries and (ii)
material IP Licenses.
(d) The Company, or one of its Subsidiaries, owns or possesses all
licenses or other legal rights to use, sell or license all material Company
Intellectual Property, free and clear of all Liens, except as would not
reasonably be expected to result in, in the aggregate, material direct or
indirect costs or liabilities to, or other material direct or indirect negative
impact on, the Company and its Subsidiaries, taken as a whole.
26
(e) All Trademark registrations and applications for registration,
Patents issued or pending and Copyright registrations and applications for
registration owned by the Company and its Subsidiaries are valid and subsisting,
in full force and effect and have not lapsed, expired or been abandoned, and, to
the Knowledge of the Company or its Subsidiaries, are not the subject of any
opposition filed with the United States Patent and Trademark Office or any other
intellectual property registry.
(f) The Company Intellectual Property constitutes all the
Intellectual Property and Software necessary for the continuing conduct and
operation of the Company's business as currently conducted and operated by the
Company, except as would not reasonably be expected to result in, in the
aggregate, material direct or indirect costs or liabilities to, or other
material direct or indirect negative impact on, the Company and its
Subsidiaries, taken as a whole.
(g) Except as set forth in Section 3.14(g) of the Company Disclosure
Letter:
(i) no unresolved claims, or to the Knowledge of the Company,
threat of claims within the three (3) years prior to the date of this
Agreement, have been asserted in writing by any third party against
the Company or any of its Subsidiaries related to the use in the
conduct of the businesses of the Company and its Subsidiaries that the
Company Intellectual Property or the conduct of the business of the
Company infringes, misappropriates, dilutes or otherwise violates any
Intellectual Property rights of any third party;
(ii) the conduct of the businesses of the Company and its
Subsidiaries does not infringe, misappropriate, dilute or otherwise
violate any Intellectual Property rights of any third party, except as
would not reasonably be expected to result in, in the aggregate,
material direct or indirect costs or liabilities to, or other material
direct or indirect negative impact on, the Company and its
Subsidiaries, taken as a whole;
(iii) to the Knowledge of the Company, no third party is
infringing, misappropriating, diluting or violating any Company
Intellectual Property, except as would not reasonably be expected to
result in, in the aggregate, material direct or indirect costs or
liabilities to, or other material direct or indirect negative impact
on, the Company and its Subsidiaries, taken as a whole;
(iv) no settlement agreements, consents, judgments, orders,
forbearances to ▇▇▇ or similar obligations limit or restrict the
Company's or any Subsidiary's rights in and to any Company
Intellectual Property, except as would not reasonably be expected to
result in, in the aggregate, material direct or indirect costs or
liabilities to, or other material direct or indirect negative impact
on, the Company and its Subsidiaries, taken as a whole;
(v) the Company and its Subsidiaries have not licensed or
sublicensed their rights in any Company Intellectual Property, or
received or been granted any such rights (except pursuant to
"click-wrap" or "shrink-wrap" agreements or agreements contained in
"off-the-shelf" Software or the terms of use or service for any Web
site), other than pursuant to the IP Licenses;
27
(vi) the IP Licenses are valid and binding obligations of the
Company and/or relevant Subsidiary, enforceable in accordance with
their terms, and there is no default under any of the IP Licenses by
the Company or any of its Subsidiaries or, to the Knowledge of the
Company, by the other party thereto, except as would not reasonably be
expected to result in, in the aggregate, material direct or indirect
costs or liabilities to, or other material direct or indirect negative
impact on, the Company and its Subsidiaries, taken as a whole;
(vii) the Company and its Subsidiaries have taken reasonable
measures to protect the confidentiality of their Trade Secrets; and
(viii) the consummation of the transactions contemplated hereby
will not result in the loss or impairment of the Company's and its
Subsidiaries' rights to own or use any of the Company Intellectual
Property or obligate them to pay any royalties or other amounts to any
third party in excess of the amounts payable by them prior to the
Closing, nor will such consummation require the consent of any third
party in respect of any Company Intellectual Property, except as would
not reasonably be expected to result in, in the aggregate, material
direct or indirect costs or liabilities to, or other material direct
or indirect negative impact on, the Company and its Subsidiaries,
taken as a whole.
(h) The Company and its Subsidiaries have (i) disclosed their
personal data collection and use policy on their websites and (ii) complied in
all material respects with such policy. Neither this Agreement nor the
consummation of the transactions contemplated hereby will violate in any
material respect any such personal data policy or any other applicable privacy
or personal data Laws.
(i) The Company maintains possession over the Software and
documentation (including user guides) reasonably necessary to use the Software,
and the Company maintains possession and/or control over the source code and/or
such other documentation (including user guides and specifications) for all
Software set forth in Section 3.14(c) of the Company Disclosure Letter which is
listed as owned by the Company or any of its Subsidiaries (the "Proprietary
Software") reasonably necessary to use, maintain, and modify the Proprietary
Software. The Proprietary Software, and, to the Knowledge of the Company, the
Software included in the Company Intellectual Property which it or its
Subsidiaries license or otherwise use (i) functions in compliance in all
respects with its related documentation and specifications, and functions
properly in all respects to achieve its intended purposes and (ii) is free of
any computer instructions, devices or techniques that are designed to infect,
disrupt, damage, disable or alter such Software or its processing environment
(including other programs, equipment and data), except in the case of clauses
(i) and (ii) above, as would not reasonably be expected to result in, in the
aggregate, material direct or indirect costs or liabilities to, or other
material direct or indirect negative impact on, the Company and its
Subsidiaries, taken as a whole.
28
Section 3.15 Properties and Assets.
(a) Section 3.15(a) of the Company Disclosure Letter sets forth the
address of each parcel of real property owned by the Company or its Subsidiaries
(collectively, the "Owned Real Property"). The Company or one of its
Subsidiaries has good and marketable title to the Owned Real Property and to all
of the buildings, structures and other improvements thereon except to the extent
that not having such title would not, individually or in the aggregate, be
reasonably expected to materially interfere with its ability to conduct its
business as presently conducted. Neither the Company nor any of its Subsidiaries
has leased, licensed or otherwise granted any Person the right to use or occupy
the Owned Real Property. Neither the Company nor any of its Subsidiaries has
collaterally assigned or granted any other security interest in the Owned Real
Property, except (i) to the extent that such collateral assignment or grant
would not, individually or in the aggregate, be reasonably expected to
materially interfere with its ability to conduct its business as presently
conducted or (ii) in connection with any Lien to be released at or prior to the
Effective Time.
(b) Section 3.15(b) of the Company Disclosure Letter sets forth the
address of each parcel of all leasehold or subleasehold estates and other rights
to use or occupy any land, buildings, structures, improvements, fixture or other
interest in real property held by or for the Company or its Subsidiaries (the
"Leased Real Property"). Section 3.15(b) of the Company Disclosure Letter sets
forth all sublicenses, licenses and other grants by the Company or any of its
Subsidiaries to any person of the right to use or occupy such Leased Real
Property or any portion thereof involving, in any such case, payments of more
than $750,000 annually.
(c) The Company and each of its Subsidiaries has such good and valid
title to, or such valid rights by lease, license, other agreement or otherwise
to use, all assets and properties (other than the Owned Real Property which is
the subject of the representation contained in Section 3.15(a) hereof) (in each
case, tangible and intangible) necessary to enable the Company and its
Subsidiaries to conduct their business as currently conducted, except defects in
title, easements, restrictive covenants and similar encumbrances that,
individually or in the aggregate, would not reasonably be expected to materially
interfere with its ability to conduct its business as presently conducted.
Section 3.16 Environmental Matters. Except as would not reasonably
be expected to have a Company Material Adverse Effect in the case of clauses
(b), (c) and (d) below (it being agreed that clause (a) below shall not be
qualified by a Company Material Adverse Effect), (a) no material written notice,
notification, demand, request for information, citation, summons, complaint or
order has been received by, and no material action, claim, suit, proceeding or
review or investigation is pending or, to the Knowledge of the Company or any of
its Subsidiaries, threatened by any person against, the Company, any of its
Subsidiaries or any person whose liability the Company or any of its
Subsidiaries has or may have retained or assumed either contractually or by
operation of law with respect to any matters relating to or arising out of any
Environmental Law; (b) the Company and its Subsidiaries have been and are in
compliance with all Environmental Laws, including possessing all permits,
authorizations, licenses, exemptions and other governmental authorizations
required for their operations under applicable Environmental Laws; (c) the
Company and its Subsidiaries do not have any Environmental Liabilities and, to
29
the Knowledge of the Company or any of its Subsidiaries, no facts, circumstances
or conditions relating to, arising from, associated with or attributable to (i)
any real property currently or formerly owned, operated or leased by the Company
or its Subsidiaries or operations thereon or (ii) any person whose liability the
Company or any of its Subsidiaries has or may have retained or assumed either
contractually or by operation of law would reasonably be expected to result in
Environmental Liabilities; and (d) to the Knowledge of the Company or any of its
Subsidiaries, with respect to any real property currently or formerly owned or
leased, as the case may be, by the Company or its Subsidiaries, there have been
no Releases of Hazardous Materials that have or are reasonably likely to result
in a claim against the Company or its Subsidiaries.
As used in this Agreement, the term "Environmental Laws" means
Federal, state, local and foreign statutes, Laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, codes, injunctions, permits
and governmental agreements relating to Hazardous Materials, the protection of
the environment or human health as it relates to exposure to Hazardous
Materials.
As used in this Agreement, the term "Environmental Liabilities" with
respect to any Person means any and all liabilities of or relating to such
Person or any of its Subsidiaries (including any entity which is, in whole or in
part, a predecessor of such Person or any of such Subsidiaries), whether vested
or unvested, contingent or fixed, including contractual, which (i) arise under
applicable Environmental Laws or with respect to Hazardous Materials and (ii)
relate to actions occurring or conditions existing on or prior to the Closing
Date.
As used in this Agreement, the term "Hazardous Material" means all
substances or materials regulated as hazardous, toxic, explosive, dangerous,
flammable or radioactive under any Environmental Law including (i) petroleum,
asbestos or polychlorinated biphenyls and (ii) in the United States, all
substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in
the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
Section 300.5.
As used in this Agreement, the term "Release" means any release,
spill, emission, discharge, leaking, pumping, injection, deposit, disposal,
dispersal, leaching or migration into the indoor or outdoor environment
(including ambient air, surface water, groundwater, and surface or subsurface
strata) or into or out of any property, including the movement of Hazardous
Materials through or in the air, soil, surface water, groundwater or property.
Section 3.17 Transactions with Related Parties. Except as disclosed
in the Filed Company SEC Documents, since April 13, 2005, there has been no
transaction, or series of similar transactions, agreements, arrangements or
understandings, nor are there any currently proposed transactions, or series of
similar transactions, agreements, arrangements or understandings to which the
Company or any of its Subsidiaries was or is to be a party, that would be
required to be disclosed under Item 404 of Regulation S-K promulgated under the
Securities Act.
30
Section 3.18 Brokers and Other Advisors. No broker, investment
banker, financial advisor or other person, other than MTS Health Partners, L.P.
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated, the fees and expenses of which will be
paid by the Company in accordance with the Company's agreements with such firms
(a complete copy of each of which has previously been made available to Parent),
is entitled to any broker's, finder's, financial advisor's or other similar fee
or commission, or the reimbursement of expenses, in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company or its Subsidiaries.
Section 3.19 Opinion of Financial Advisor. The Company has received
the opinions of MTS Health Partners, L.P. and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. Incorporated,
each dated the date hereof to the effect that, as of such date and subject to
the considerations set forth therein, the Merger Consideration is fair from a
financial point of view to the holders of shares of Company Common Stock, a
complete copy of such opinions will be made available to Parent as soon as
practicable after the date of this Agreement.
Section 3.20 Statutory Financial Statements.
(a) Section 3.20(a) of the Company Disclosure Letter sets forth a
list of all annual statements and quarterly statements of the Company's
Subsidiaries filed with Governmental Authorities for the years ended December
31, 2003 and December 31, 2004, and for each quarterly period ending after
December 31, 2004 (together with all such filings hereafter made for annual and
quarterly periods prior to the Closing, the "Company State Regulatory Filings").
Except as otherwise set forth in such Company State Regulatory Filings when
made, all such Company State Regulatory Filings and the statutory balance sheets
and income statements included therein (i) were prepared or will be prepared
from the books and records of the Company's Subsidiaries, (ii) fairly present or
will fairly present in each case in all material respects the statutory
financial condition and results of operations of the Company's Subsidiaries, as
applicable, as of the date and for the periods indicated therein and (iii) have
been prepared or will be prepared in each case in all material respects in
accordance with applicable statutory accounting principles ("SAP") consistently
applied throughout the periods indicated, except as may be reflected in the
notes thereto and subject to the absence of notes where not required by SAP and
to normal year-end adjustments.
(b) The Company has provided Parent with true and correct copies of
all actuarial reports requested by Parent in its letter dated May 20, 2005
prepared by independent or internal actuaries since January 1, 2002 (other than
actuarial reports prepared by independent or internal actuaries evaluating the
aggregate reserves of the Company and any of its Subsidiaries, which are not
material to the Company and its Subsidiaries taken as a whole) and all
attachments, addenda, supplements and modifications thereto.
Section 3.21 Reserves.
(a) Except as set forth in this Section 3.21, nothing contained in
this Agreement, including the Company Disclosure Letter, the Exhibits hereto, or
any other agreement, document or instrument to be delivered in connection
herewith is intended or shall be construed to be a representation or warranty
(express or implied) of the Company or any of its Affiliates, for any purpose of
this Agreement, including the Company Disclosure Letter, the Exhibits hereto, or
any other agreement, document or instrument to be delivered in connection
herewith, in respect of (i) the adequacy or sufficiency of any reserves relating
to any liability or obligation arising under or relating to any insurance or
31
health maintenance policies and contracts issued by the Regulated Subsidiaries,
including all supplements, endorsements, riders and related agreements in
connection with any of the foregoing ("Reserves"), (ii) the effect of the
adequacy or sufficiency of such Reserves on any line item, asset, liability or
equity amount set forth on any financial or other document or (iii) whether or
not Reserves were determined in accordance with any actuarial, statutory,
regulatory or other standard.
(b) The loss, expense and other Reserves (including reserves for
medical costs and for payment disputes with Providers) and other actuarial
amounts relating to dental and life of the Company and each of its Subsidiaries
recorded in their respective financial statements contained in the Company's SEC
Documents and the State Regulatory Filings (i) are determined in all material
respects in accordance with generally accepted actuarial principles consistently
applied (except as otherwise noted in such financial statements) and in
accordance in all material respects with the actuarial and accounting principles
prescribed or permitted by applicable Governmental Authorities, (ii) are fairly
stated in all material respects in accordance with generally accepted actuarial
principles and (iii) include provisions for all actuarial reserves which are
required to be established in accordance with applicable Laws. To the Knowledge
of the Company, there are no facts or circumstances which would necessitate, in
the good faith application of the Company's existing reserving practices and
policies in accordance with past practice, any material adverse change in the
statutorily required reserves or reserves above those reflected in the most
recent consolidated balance sheet of the Company and its Subsidiaries (other
than increases consistent with past experience resulting from increases in
enrollment with respect to services provided by the Company or its
Subsidiaries). As of December 31, 2004, each of the Company's Subsidiaries
listed in Section 3.21 of the Company Disclosure Letter (the "Regulated
Subsidiaries") met or exceeded said statutory net worth, deposit or other
capital requirements. As of December 31, 2004, each of the Regulated
Subsidiaries had statutory net worth in excess of 300% of their respective
authorized control levels, as such term is defined in the NAIC Risk-Based
Capital guidelines ("Authorized Control Level").
Section 3.22 Capital or Surplus Maintenance. None of the
Subsidiaries of the Company is subject to any requirement to maintain capital or
surplus amounts or levels, or is subject to any restriction on the payment of
dividends or other distributions on its shares of capital stock, except for any
such requirements or restrictions under insurance or other laws or regulations
of general application.
Section 3.23 Company Rights Plan. The Company has taken all actions
necessary (subject only to execution by the Rights Agent, which the Company
shall cause to take place as soon as reasonably practicable on the date hereof)
to (a) render the Rights Agreement inapplicable to this Agreement and the
transactions contemplated hereby, (b) ensure that (i) none of Parent, Merger Sub
or any other Subsidiary of Parent is an Acquiring Person (as defined in the
Rights Agreement) pursuant to the Rights Agreement solely as a result of this
Agreement or the transactions contemplated hereby and (ii) a Distribution Date
or a Shares Acquisition Date (as such terms are defined in the Rights Agreement)
does not occur, in the case of clauses (i) and (ii), solely by reason of the
execution of this Agreement or the consummation of the transactions contemplated
hereby, and (c) provide that the Final Expiration Date (as defined in the Rights
Agreement) shall occur immediately prior to the Effective Time.
32
ARTICLE IV
Representations and Warranties of Parent and Merger Sub
Except as set forth in the disclosure letter (with specific reference
to the Section or Subsection of this Agreement to which the information stated
in such disclosure relates; provided that, any fact or condition disclosed in
any section of such disclosure letter in such a way as to make its relevance to
a representation or representations made elsewhere in this Agreement or
information called for by another section of such disclosure letter reasonably
apparent shall be deemed to be an exception to such representation or
representations or to be disclosed on such other section of such disclosure
letter notwithstanding the omission of a reference or cross reference thereto)
delivered by Parent to the Company prior to the execution of this Agreement (the
"Parent Disclosure Letter"), Parent and Merger Sub represent and warrant to the
Company as follows:
Section 4.01 Organization, Standing and Corporate Power. Each of
Parent, its Subsidiaries and Merger Sub is an entity duly organized, validly
existing and in good standing under the Laws of the jurisdiction in which it is
formed and has all requisite power and authority to carry on its business as now
being conducted. Each of Parent, its Subsidiaries and Merger Sub is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing or
operation of its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so qualified, licensed
or in good standing individually or in the aggregate, has not resulted in and
would not reasonably be expected to result in, material direct or indirect cost
or liabilities to Parent and its Subsidiaries taken as a whole. Parent has made
available to the Company complete and correct copies of its Articles of
Incorporation (the "Parent Articles") and By-laws (the "Parent By-laws") and the
articles of incorporation and by-laws (or comparable organizational documents)
of each of its Subsidiaries and Merger Sub, in each case as amended to the date
of this Agreement.
Section 4.02 Capital Structure.
(a) The authorized capital stock of Parent consists of 3,000,000,000
shares of Parent Common Stock and 10,000,000 shares of preferred stock, par
value $0.001 per share ("Parent Preferred Stock"). At the close of business on
June 24, 2005, (i) 1,255,097,891 shares of Parent Common Stock were issued and
outstanding, (ii) no shares of Parent Common Stock were held by Parent in its
treasury, (iii) 264,490,747 shares of Parent Common Stock were reserved for
issuance (including shares underlying outstanding stock options and shares
available for future grant) pursuant to the 2002 Stock Incentive Plan, as
amended, the 1993 Qualified Employee Stock Purchase Plan, as amended, and stock
options assumed in connection with prior acquisitions (of which 177,175,007
shares of Parent Common Stock were subject to outstanding stock options) and
(iv) no shares of Parent Preferred Stock were issued or outstanding. Except as
set forth above in this Section 4.02(a), at the close of business on June 24,
2005, no shares of capital stock or other voting securities of Parent were
issued, reserved for issuance or outstanding. All outstanding shares of capital
33
stock of Parent are, and all shares which may be issued (including shares of
Parent Common Stock to be issued in accordance with this Agreement) will be,
when issued, duly authorized, validly issued, fully paid and nonassessable and
not subject to preemptive rights. Except as set forth above in this Section
4.02(a), there are no bonds, debentures, notes or other indebtedness of Parent
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of Parent may
vote.
(b) The authorized equity interests of Merger Sub consist of 100
membership interests ("Merger Sub Interests"). All of the issued and outstanding
Merger Sub Interests are owned by Parent. Merger Sub does not have issued or
outstanding any options, warrants, subscriptions, calls, rights, convertible
securities or other agreements or commitments obligating Merger Sub to issue,
transfer or sell any Merger Sub Interests to any person, other than Parent.
Section 4.03 Authority; Noncontravention.
(a) Each of Parent and Merger Sub has all requisite organizational
power and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement by Parent and Merger Sub have been duly authorized by all necessary
corporate or other organizational action on the part of Parent and Merger Sub
and no other corporate proceedings on the part of Parent or Merger Sub are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Parent and Merger Sub and, assuming the due authorization, execution and
delivery by the other party hereto, constitutes a legal, valid and binding
obligation of Parent and Merger Sub, enforceable against Parent and Merger Sub
in accordance with its terms (subject to applicable bankruptcy, solvency,
fraudulent transfer, reorganization, moratorium and other Laws affecting
creditors' rights generally from time to time in effect and by general
principles of equity). As of the date hereof, the board of directors of Parent
(the "Parent Board"), at a meeting duly called and held, duly adopted
resolutions, (i) declaring that this Agreement, the Merger and the other
transactions contemplated by this Agreement are advisable and in the best
interests of Parent and Parent's stockholders and (ii) approving and adopting
this Agreement, the Merger and the other transactions contemplated by this
Agreement. Parent, in its capacity as sole member of Merger Sub, has consented
in writing to the approval and adoption of this Agreement and the transactions
contemplated hereby, including the Merger.
(b) The Board of Managers of Merger Sub, by a validly adopted
unanimous consent has (i) determined that this Agreement and the transactions
contemplated hereby, including the Merger, are advisable and in the best
interests of Merger Sub and Merger Sub's stockholder, (ii) approved and adopted
this Agreement and the transactions contemplated hereby, including the Merger
and (iii) resolved to recommend approval and adoption of this Agreement and the
Merger to the sole member of Merger Sub.
(c) The execution and delivery of this Agreement by Parent and Merger
Sub do not, and the consummation of the Merger and the other transactions
contemplated by this Agreement by Parent and Merger Sub and compliance with the
provisions of this Agreement by Parent and Merger Sub will not, conflict with,
or result in any violation or breach of, or default (with or without notice or
lapse of time or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the loss of a benefit
34
under, or result in the creation of any Lien in or upon any of the properties or
other assets of Parent, any of its Subsidiaries or Merger Sub under (i) the
Parent Articles or Parent By-laws or the comparable organizational documents of
any of its Subsidiaries or Merger Sub, (ii) any Contract to which Parent, any of
its Subsidiaries or Merger Sub is a party or any of their respective properties
or other assets is subject or (iii) subject to the governmental filings and
other matters referred to in Section 4.04 hereof, any Law applicable to Parent,
any of its Subsidiaries or Merger Sub or their respective properties or other
assets, other than, in the case of clauses (ii) and (iii) above, any such
conflicts, violations, breaches, defaults, rights, losses or Liens that
individually or in the aggregate (A) have not had and would not reasonably be
expected to have a Parent Material Adverse Effect, (B) would not reasonably be
expected to impair in any material respect the ability of Parent or Merger Sub
to perform its obligations under this Agreement and (C) would not reasonably be
expected to prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement.
(d) For purposes of this Agreement, "Parent Material Adverse Effect"
shall mean any change, effect, event, circumstance, occurrence or state of facts
that is materially adverse to the business, financial condition, or results of
operations of Parent and its Subsidiaries, taken as a whole, other than any
change, effect, event, circumstance, occurrence or state of facts relating to
(i) the economy or the financial markets in general, (ii) the industries in
which Parent and its Subsidiaries operate in general, (iii) the announcement of
the execution of this Agreement or the transactions contemplated hereby or the
identity of the Company (provided that the exclusion set forth in this clause
(iii) shall not apply to Section 4.03(c) hereof), (iv) changes in applicable
Laws or regulations after the date hereof, (v) changes in GAAP or regulatory
accounting principles after the date hereof or (vi) any litigation, mediation,
arbitration or investigation set forth in Section 4.03(d) of the Parent
Disclosure Letter; provided that with respect to clauses (i), (ii), (iv) and (v)
such change, effect, event, circumstance, occurrence or state of facts (A) does
not specifically relate to (or have the effect of specifically relating to)
Parent and its Subsidiaries and (B) is not more adverse to Parent and its
Subsidiaries than to other companies operating in the industries in which Parent
and its Subsidiaries operate.
Section 4.04 Governmental Approvals. No consent, approval, order or
authorization of, action by or in respect of, or registration, declaration or
filing with, any Governmental Authority is required by Parent, any of its
Subsidiaries or Merger Sub in connection with the execution and delivery of this
Agreement by Parent and Merger Sub or the consummation by Parent and Merger Sub
of the Merger or the other transactions contemplated by this Agreement, except
for those required under or in relation to (a) the premerger notification and
report form under the HSR Act, (b) the Securities Act, (c) the Exchange Act, (d)
the Certificate of Merger to be filed with the Secretary of State of the State
of Delaware and appropriate documents to be filed with the relevant authorities
of other states in which the Company is qualified to do business, (e) any
appropriate filings with and approvals of the NYSE, (f) the state insurance
department, department of health and other filings and/or approvals set forth in
Section 4.04(f) of the Parent Disclosure Letter, (g) state securities or "blue
sky" laws and (h) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made individually or in the aggregate would not reasonably be expected to (x)
have a Parent Material Adverse Effect, (y) impair in any material respect the
ability of Parent or Merger Sub to perform its obligations under this Agreement
or (z) prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
35
Section 4.05 Parent SEC Documents.
(a) Parent has filed all reports, schedules, forms, statements and
other documents (including exhibits and other information incorporated therein)
with the SEC required to be filed by Parent since December 31, 2002 (such
documents, the "Parent SEC Documents"). No Subsidiary of Parent is required to
file, or files, any form, report or other document with the SEC. As of their
respective dates, the Parent SEC Documents complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, applicable to such Parent SEC Documents, and none of the Parent SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, unless such information contained in any Parent SEC Document has
been corrected, revised or superceded by a later filed Parent SEC Document filed
prior to the date hereof. The financial statements of Parent included in the
Parent SEC Documents comply as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP (except, in the case
of unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the financial
position of Parent and its consolidated Subsidiaries as of the dates thereof and
the consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to the absence of footnote
disclosure and to normal and recurring year-end audit adjustments).
(b) Except (i) as set forth in the financial statements included in
Parent's Annual Report on Form 10-K filed prior to the date hereof for the year
ended December 31, 2004 or (ii) as incurred in the ordinary course of business
since December 31, 2004, neither Parent nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that individually or in the aggregate have had or would reasonably
be expected to have a Parent Material Adverse Effect.
Section 4.06 Information Supplied. None of the information supplied
or to be supplied by Parent or Merger Sub specifically for inclusion or
incorporation by reference in (a) the Form S-4 will, at the time the Form S-4 is
filed with the SEC, at any time it is amended or supplemented and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they are made, not misleading or (b) the Proxy Statement will, at the date
it is first mailed to the stockholders of the Company and at the time of the
Company Stockholders Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The Form S-4 will comply as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act, as applicable. Notwithstanding the foregoing, no representation or warranty
is made by Parent or Merger Sub with respect to statements made or incorporated
by reference in the Form S-4 or the Proxy Statement based on information
supplied by the Company specifically for inclusion or incorporation by reference
in the Form S-4 or the Proxy Statement or portions thereof that relate only to
the Company and its Subsidiaries.
36
Section 4.07 Absence of Certain Changes or Events. Since the date of
the most recent audited financial statements included in the Parent SEC
Documents filed by Parent and publicly available prior to the date of this
Agreement, except (a) for liabilities incurred in connection with this Agreement
or the transactions contemplated hereby to the Company or (b) as disclosed in
the Parent SEC Documents filed by Parent and publicly available prior to the
date of this Agreement, there has not been any change, effect, event,
circumstance, occurrence or state of facts that individually or in the aggregate
has had or would reasonably be expected to have a Parent Material Adverse
Effect.
Section 4.08 Litigation. There is no suit, action, claim, proceeding
or investigation pending or, to the Knowledge of Parent, threatened against
Parent or any of its Subsidiaries that individually or in the aggregate has had
or would reasonably be expected to have a Parent Material Adverse Effect, nor is
there any judgment, decree, injunction, rule or order of any Governmental
Authority or arbitrator outstanding against, or, to the Knowledge of Parent,
investigation by any Governmental Authority involving, Parent or any of its
Subsidiaries that individually or in the aggregate has had or would reasonably
be expected to have a Parent Material Adverse Effect.
Section 4.09 Compliance with Laws.
(a) Parent and each of its Subsidiaries has been since December 31,
2002 and is in compliance with all Laws applicable to it, its properties or
other assets or its business or operations, except for instances of
non-compliance that individually or in the aggregate have not had and would not
reasonably be expected to have a Parent Material Adverse Effect. None of Parent
or any of its Subsidiaries has received, since December 31, 2002, a notice or
other communication alleging or relating to a possible material violation of any
Laws. Parent and its Subsidiaries have in effect all material Permits necessary
to carry on their businesses as now conducted, and there has occurred no
material violation of, default (with or without notice or lapse of time or both)
under, or event giving to others any right of termination or cancellation of,
with or without notice or lapse of time or both, any such Permit. There is no
event which has occurred that, to the Knowledge of Parent, would reasonably be
expected to result in the revocation, cancellation, non-renewal or adverse
modification of any such Permit which revocation, cancellation, non-renewal or
adverse modification individually or in the aggregate would reasonably be
expected to have a Parent Material Adverse Effect. Assuming all Closing Consents
are made or obtained, the Merger, in and of itself, would not cause the
revocation or cancellation of any such Permit.
(b) Parent and, to the Knowledge of Parent, each of its executive
officers and directors are in compliance with and have complied, in all material
respects, with (i) the applicable provisions of ▇▇▇▇▇▇▇▇-▇▇▇▇▇ and (ii) the
applicable listing and corporate governance rules and regulations of the NYSE.
Parent has previously disclosed to the Company all of the information required
to be disclosed, by Parent's chief executive officer and chief financial
officer, to the Parent Board or its audit committee thereof pursuant to the
certification requirements relating to Annual Reports on Form 10-K and Quarterly
Reports on Form 10-Q.
37
(c) Parent has established and maintains disclosure controls and
procedures (as such term is defined in Rule 13a-15(e) or 15d-15(e) under the
Exchange Act) and such disclosure controls and procedures are effective.
(d) Parent has disclosed, based on its most recent evaluation, to
Parent's auditors and the audit committee of the Board of Directors of Parent
and to the Company (i) any significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting that
existed as of December 31, 2004 or later which are reasonably likely to
adversely affect in any material respect Parent's ability to record, process,
summarize and report financial information for its financial statements 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.
(e) To the Knowledge of Parent, Parent's principal executive officer
and its principal financial officer will be able to give the certifications
required pursuant to the rules and regulations adopted pursuant to Sections 302,
906 and 404 of ▇▇▇▇▇▇▇▇-▇▇▇▇▇, without qualification, when next due.
Section 4.10 No Business Activities. Merger Sub has not conducted
any activities other than in connection with the organization of Merger Sub, the
negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby.
Section 4.11 No Parent Vote Required. No vote or other action of the
stockholders of Parent is required by Law, the Parent Articles or the Parent
By-laws or otherwise in order for Parent and Merger Sub to consummate the Merger
and the transactions contemplated hereby.
Section 4.12 Taxes.
(a) Neither Parent nor any of its Subsidiaries has taken any action,
has failed to take any action or has Knowledge of any fact or circumstance that
would reasonably be likely to prevent the Merger from qualifying as a
reorganization under Section 368 of the Code.
(b) Merger Sub is a Delaware limited liability company all of the
membership interests of which are owned by Parent and as to which Parent has not
elected to treat as a corporation for United States Federal income tax purposes.
ARTICLE V
Covenants Relating to Conduct of Business
Section 5.01 Conduct of Business.
(a) Conduct of Business by the Company. Except as required by
applicable Law or provided in Section 5.01(a) of the Company Disclosure Letter
or otherwise expressly permitted by this Agreement, during the period from the
date of this Agreement to the Effective Time, the Company shall, and shall cause
each of its Subsidiaries to, carry on its business in the ordinary course
consistent with past practice, and, to the extent consistent therewith, use its
commercially reasonable efforts to preserve intact its current business
38
organizations, keep available the services of its current officers, employees
and consultants and preserve its relationships with customers, Providers,
producers, members, Governmental Authorities, suppliers, licensors, licensees,
distributors and others having business dealings with it with the intention that
its goodwill and ongoing business shall not be materially impaired at the
Effective Time. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, except as required
by applicable Law (it being understood that the Company shall give prompt notice
to Parent of any action taken by the Company or its Subsidiaries that would
otherwise be restricted by clauses (i) through (xviii) of this Section 5.01 but
for such applicable Law) or provided in Section 5.01(a) of the Company
Disclosure Letter and except as expressly contemplated by this Agreement, the
Company shall not, and shall not permit any of its Subsidiaries to, without
Parent's prior written consent, which shall not be unreasonably withheld or
delayed:
(i) (A) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, stock or property) in respect
of, any of its capital stock, other than dividends or distributions by
a direct or indirect wholly-owned Subsidiary of the Company to its
parent, (B) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (C)
purchase, redeem or otherwise acquire any shares of its capital stock
or any other securities thereof or any rights, warrants or options to
acquire any such shares or other securities;
(ii) issue, deliver, sell, grant, pledge or otherwise encumber or
subject to any Lien any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants
or options to acquire, any such shares, voting securities or
convertible securities, or any "phantom" stock, "phantom" stock
rights, stock appreciation rights or stock based performance units
(other than (A) the issuance of shares of Company Common Stock upon
the exercise of Company Stock Options outstanding on the date hereof
or granted after the date hereof in accordance with clause (B) below,
in either case in accordance with their terms on the date hereof (or
on the date of grant, if later), (B) the grant of options or Company
Restricted Shares to employees hired or promoted within sixty (60)
days prior to, or anytime after, the date hereof to acquire shares of
Company Common Stock, as permitted by Section 5.01(a)(ii) of the
Company Disclosure Letter or the crediting of Company DSUs and Company
RSUs pursuant to the terms of the Company Deferred Stock Plans as in
effect on the date hereof, in accordance with the Company's ordinary
course of business consistent with past practice, or, in the event
that the Effective Time occurs in 2006, ordinary course grant of
options or issuance of restricted stock under the Company Stock Plans
to employees and directors permitted by Section 5.01(a)(ii) of the
Company Disclosure Letter, (C) upon the conversion of the Convertible
Debentures, in each case, that are outstanding on the date of this
Agreement and in accordance with the terms thereof, (D) the issuance
of shares of Company Common Stock in settlement of Company DSUs and
Company RSUs outstanding on the date hereof or credited after the date
hereof in accordance with clause (B) above, in either case, in
accordance with their terms on the date hereof or (E) the issuance of
shares of Company Common Stock under the Company's 2001 Employee Stock
Purchase Plan, as amended, in accordance with the terms thereof);
39
(iii) amend the Company Certificate or the Company By-laws or the
comparable charter or organizational documents of any of its
Subsidiaries;
(iv) directly or indirectly acquire (A) by merging or
consolidating with, or by purchasing all of or a substantial equity
interest in, or by any other manner, any division, business or equity
interest of any person or (B) any assets forming part of such a
division or business that have a purchase price in excess of one
million dollars ($1,000,000) individually or two million dollars
($2,000,000) in the aggregate;
(v) sell, lease, license, mortgage, sell and leaseback or
otherwise encumber or subject to any Lien or otherwise dispose of any
of its properties or other assets with a fair market value in excess
of three million dollars ($3,000,000) individually or seven million
five hundred thousand dollars ($7,500,000) in the aggregate to a third
party (except (A) by incurring Permitted Liens, (B) with respect to
properties or other assets no longer used in the operation of the
Company's business, and/or (C) in the ordinary course of business);
(vi) with respect to the Company's 2005 fiscal year, make any
capital expenditure or expenditures not budgeted for in the Company's
2005 fiscal year capital expenditure plan, a correct and complete copy
of which shall have been provided to Parent prior to the date of this
Agreement, which (A) involves the purchase of any real property or (B)
is in excess of three million dollars ($3,000,000) individually or
seven million five hundred thousand dollars ($7,500,000) in the
aggregate;
(vii) with respect to the Company's 2006 fiscal year, make any
capital expenditure or expenditures of amounts in excess of the
amounts of capital expenditures set forth in Section 5.01(a)(vii) of
the Company Disclosure Letter;
(viii) (A) repurchase or prepay any indebtedness for borrowed
money except as required by the terms of such indebtedness, (B) other
than debt incurrence pursuant to any credit facility or line of credit
existing prior to the date hereof, incur any indebtedness for borrowed
money or guarantee any such indebtedness of another person or issue or
sell any debt securities or options, warrants, calls or other rights
to acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of another person, enter
into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement
having the economic effect of any of the foregoing or (C) make any
loans, advances or capital contributions to, or investments in, any
other person in excess of $375,000 in the aggregate, other than in the
Company or in or to any direct or indirect wholly-owned Subsidiary of
the Company and other than any advance treated as a loan to any
Provider in the ordinary course of business;
40
(ix) other than claims, liabilities or obligations that may be
settled by the Company without the consent of Parent under Section
6.10, (i) pay, discharge, settle or satisfy any claims (including
claims of stockholders), liabilities or obligations (whether absolute,
accrued, asserted or unasserted, contingent or otherwise) relating to
any litigations, mediations, arbitrations or investigations, except
for the payment, discharge, settling or satisfaction of any claims,
liabilities or obligations relating to any pending or threatened
litigations, mediations, arbitrations and investigations in amounts in
the aggregate that are equal to or less than the amount set forth in
Section 5.01(a)(ix) of the Company Disclosure Letter or (ii) pay,
discharge, settle or satisfy any claims, liabilities or obligations
relating to any litigations, mediations, arbitrations or
investigations involving any material limitation on, or any material
change in, the conduct of the business of the Company or its
Subsidiaries or (iii) waive or release any right of the Company or any
of its Subsidiaries with a value in excess of $375,000, other than
waivers of rights with respect to Providers, brokers or customers in
the ordinary course of business;
(x) (A) modify, amend or terminate any of the Largest Customer
Contracts, the Largest Provider Contracts, the Largest Broker
Contracts or any of the Medicare Advantage Contracts except for
non-material modifications, terminations or amendments made in the
ordinary course of business or modifications, terminations or
amendments which in the aggregate would not materially and adversely
effect the value of the Company's network; (B) enter into, modify,
amend or terminate (1) any Contract which if so entered into,
modified, amended or terminated would reasonably be expected to (x)
have a Company Material Adverse Effect, (y) impair in any material
respect the ability of the Company to perform its obligations under
this Agreement or (z) prevent or materially delay the consummation of
any of the transactions contemplated by this Agreement, (2) any
Contract not covered by (A) above that involves the Company or any of
its Subsidiaries incurring a liability in excess of three million
dollars ($3,000,000) individually or seven million five hundred
thousand dollars ($7,500,000) in the aggregate, and that is not
terminable by the Company without penalty with one year or less notice
(excluding Contracts or amendments entered into or made in the
ordinary course of business with customers or Providers of the Company
or its Subsidiaries and terminations in the ordinary course of
business of Contracts with customers or Providers of the Company or
its Subsidiaries), (3) any Contract by which the Company or any of its
Subsidiaries grants any license to Company Intellectual Property other
than intracompany grants of licenses or (4) any covenant in a Contract
restricting the ability of the Company or any of its Subsidiaries (or
which, following the consummation of the Merger, would restrict the
ability of Parent or any of its Subsidiaries, including the Surviving
Entity and its Subsidiaries) to compete in any business or with any
person or in any geographic area, (it being agreed and acknowledged by
the parties that this clause (4) shall not cover Medicare Provider
Contracts and Medicare Contracts containing exclusivity provisions
made in the ordinary course of business); or (C) except as required by
this Agreement, modify or amend the Rights Agreement;
(xi) enter into any Contract which if in effect as of the date
hereof would be required to be disclosed pursuant to Section 3.10(b)
hereof (other than Contracts required to be disclosed pursuant to
Section 3.10(b)(v)) to the extent consummation of the transactions
contemplated by this Agreement or compliance by the Company with the
provisions of this Agreement would reasonably be expected to conflict
with, or result in a violation or breach of, or default (with or
41
without notice or lapse of time or both) under, or give rise to a
right of, or result in, termination, cancellation or acceleration of
any obligation or to a loss of a benefit under, or result in the
creation of any Lien other than a Permitted Lien in or upon any of the
properties or other assets of the Company or any of its Subsidiaries
under, or give rise to any increased, additional, accelerated or
guaranteed right or entitlement of any third party under, or result in
any material alteration of, any provision of such Contract;
(xii) except as required to comply with applicable Law or any
Contract or Company Plan disclosed in Section 3.12 of the Company
Disclosure Letter, (A) increase in any manner the compensation or
fringe benefits of, or pay any bonus to, any current or former
director, officer, employee or consultant of the Company or any of its
Subsidiaries (except in the ordinary course of business and except for
the payment of pro rata bonuses to employees of the Company and its
Subsidiaries in respect of fiscal year 2005 or 2006, as the case may
be, immediately prior to the Effective Time as set forth in Section
6.11(a) of the Company Disclosure Letter and, in addition, if the
Effective Time occurs in 2006, except for the payment of bonuses in
respect of the 2005 fiscal year on the date such bonuses are
ordinarily paid by the Company or, if earlier, immediately prior to
the Effective Time), (B) pay to any current or former director,
officer, employee or consultant of the Company or any of its
Subsidiaries any benefit not provided for under any Contract or
Company Plan other than the payment of cash compensation in the
ordinary course of business consistent with past practice, (C) grant
any awards under any Company Plan (including the grant of stock
options, stock appreciation rights, stock based or stock related
awards, performance units, restricted stock units, or restricted stock
or the removal of existing restrictions in any Contract or Company
Plan or awards made thereunder), except for the grant of options and
restricted stock to employees hired or promoted within sixty days
prior to, or any time after, the date hereof, as permitted by Section
5.01(a)(ii) of the Company Disclosure Letter or the crediting of
Company DSUs and Company RSUs pursuant to the terms of the Company
Deferred Stock Plans as in effect on the date hereof, in accordance
with the Company's ordinary course of business consistent with past
practice, (D) take any action to fund or in any other way secure the
payment of compensation or benefits under any Contract or Company Plan
(except for the funding, immediately prior to the Effective Time, of
the rabbi trust maintained by the Company listed in Section 3.12 of
the Company Disclosure Letter as provided by Section 5.01(a)(xii) of
the Company Disclosure Letter), (E) exercise any discretion to
accelerate the vesting or payment of any compensation or benefit under
any Contract or Company Plan, (F) materially change any actuarial or
other assumption used to calculate funding obligations with respect to
any Company Plan or change the manner in which contributions to any
Company Plan are made or the basis on which such contributions are
determined or (G) adopt any new employee benefit plan or arrangement
or amend, modify or terminate any existing Company Plan, in each case
for the benefit of any current or former director, officer, employee
or consultant of the Company or any of its Subsidiaries, other than
required by applicable Law or tax qualification requirement or as
necessary or advisable to comply with the requirements of Section 409A
of the Code;
42
(xiii) adopt or enter into any collective bargaining agreement or
other labor union contract applicable to the employees of the Company
or any of its Subsidiaries;
(xiv) fail to use reasonable efforts to maintain existing
material insurance policies or comparable replacement policies to the
extent available for a similar reasonable cost;
(xv) change its fiscal year, revalue any of its material assets,
or make any changes in financial, statutory or tax accounting methods,
principles or practices or make any material change in actuarial or
reserving methods, principles or practices, except in each case as
required by GAAP, SAP or applicable Law;
(xvi) make any material tax election or settle or compromise any
material tax liability, or agree to an extension of a statute of
limitations with respect to material taxes;
(xvii) make any change in the investment, hedging, underwriting
or claims administration policies, practices or principles that would
be material to the Company and its Subsidiaries, taken as a whole,
except as may be appropriate to conform to changes in applicable Law,
SAP or GAAP; or
(xviii) authorize any of, or commit, propose or agree to take any
of, the foregoing actions.
(b) Conduct of Business by Parent. During the period from the date of
this Agreement to the Effective Time, Parent shall not (i) amend the Parent
Articles or the Parent By-laws in a manner materially adverse to the Company's
stockholders; (ii) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of its
capital stock, other than (A) dividends or distributions by a direct or indirect
wholly owned Subsidiary of Parent to its parent or (B) regular cash dividends
paid in the ordinary course of business consistent with past practice or (iii)
authorize any of, or commit, propose or agree to take any of, the forgoing
actions.
(c) Other Actions. Except as otherwise contemplated or permitted by
this Agreement, the Company and Parent shall not, and shall not permit any of
their respective Subsidiaries to, take any action that would reasonably be
expected to result in any of the conditions to the Merger set forth in Article
VII not being satisfied. Prior to the Effective Time, the Company shall consult
with Parent in connection with any settlement of any litigation, mediation,
arbitration or investigation prior to any such settlement.
(d) Advice of Changes; Filings. Each of the Company and Parent shall
as promptly as practicable advise the other party orally and in writing upon
obtaining Knowledge of (i) any representation or warranty made by it (and, in
the case of Parent, made by Merger Sub) contained in this Agreement that is
qualified as to materiality, Company Material Adverse Effect or Parent Material
Adverse Effect, as the case may be, becoming untrue or inaccurate in any respect
or any representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) the failure of it (and, in the case
of Parent, of Merger Sub) to comply with or satisfy in any respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement. The Company and Parent shall promptly provide the other copies
43
of all filings made by such party with any Governmental Authority in connection
with this Agreement and the transactions contemplated hereby. Failure by the
Company to comply with Section 5.01(c)(i) shall not result in a failure by the
Company to satisfy the conditions set forth in Section 7.02(b), unless the event
or matter giving rise to the obligation to advise Parent pursuant to 5.01(c)(i)
hereto involves a breach of a representation or warranty hereunder which results
in a failure to satisfy the condition set forth in Section 7.02(a) and which
breach is incurable or has not been cured in all material respects as
contemplated by Section 8.01(c). Failure by Parent to comply with Section
5.01(c)(i) shall not result in a failure by Parent to satisfy the conditions set
forth in Sections 7.03(b), unless the event or matter giving rise to the
obligation to advise the Company pursuant to 5.01(c)(i) involves a breach of a
representation or warranty hereunder which results in a failure to satisfy the
condition set forth in Section 7.03(a) and which breach is incurable or has not
been cured in all material respects as contemplated by Section 8.01(d).
Section 5.02 No Solicitation by the Company.
(a) The Company shall not nor shall it authorize or permit any of its
Subsidiaries, any of its or their respective directors, officers or employees or
any investment banker, financial advisor, attorney, accountant or other advisor,
agent or representative retained by the Company or any Subsidiary in connection
with the transactions contemplated by this Agreement (collectively,
"Representatives") to, directly or indirectly through another person, (i)
solicit, initiate, cause, knowingly encourage, or knowingly facilitate, any
inquiries or the making of any proposal that constitutes or is reasonably likely
to lead to a Company Takeover Proposal or (ii) other than solely informing
persons of the provisions contained in this Section 5.02, participate in any
discussions or negotiations regarding any Company Takeover Proposal, or furnish
to any person any information in connection with, or in furtherance, of any
Company Takeover Proposal. Without limiting the foregoing, it is agreed that any
violation of the restrictions set forth in the preceding sentence by any
Representative of the Company or any of its Subsidiaries shall be a breach of
this Section 5.02(a) by the Company. The Company shall, and shall cause its
Subsidiaries and instruct its Representatives to, immediately cease and cause to
be terminated all existing discussions or negotiations with any person
previously conducted with respect to any Company Takeover Proposal and request
the prompt return or destruction of all confidential information previously
furnished. Notwithstanding the foregoing, at any time prior to obtaining the
Company Stockholder Approval (and in no event after obtaining such Company
Stockholder Approval), in response to an unsolicited bona fide written Company
Takeover Proposal made after the date hereof that the Company Board determines
in good faith (after receiving the advice of a financial advisor of nationally
recognized reputation (the Parent acknowledges and agrees that each of the
financial advisors engaged by the Company in connection with entering into this
Agreement satisfy this requirement) and outside counsel) constitutes or is
reasonably likely to constitute a Company Superior Proposal, the Company may if
the Company Board determines in good faith (after receiving the advice of its
outside counsel) that there is a reasonable probability that failure to take
such action would result in the Company Board breaching its fiduciary duties to
the stockholders of the Company under applicable Law, and subject to compliance
with Section 5.02(c) and after giving Parent prompt written notice of such
determination, (A) furnish information with respect to the Company and its
44
Subsidiaries to the person making such Company Takeover Proposal (and its
Representatives) pursuant to a confidentiality agreement not less restrictive of
such person than the Confidentiality Agreement (other than the ninth paragraph
thereto), provided that all such information (to the extent that such
information has not been previously provided or made available to Parent) is
provided or made available to Parent, as the case may be, prior to or
substantially concurrent with the time it is provided or made available to such
person, as the case may be, and (B) participate in discussions or negotiations
with the person making such Company Takeover Proposal (and its Representatives)
regarding such Company Takeover Proposal.
For purposes of this Agreement, "Company Takeover Proposal" shall
mean any inquiry, proposal or offer, whether or not conditional, and whether or
not withdrawn, (a) for a merger, consolidation, dissolution, recapitalization or
other business combination involving the Company, (b) for the issuance of 20% or
more of the equity securities of the Company as consideration for the assets or
securities of another person or (c) to acquire in any manner, directly or
indirectly, 20% or more of the equity securities of the Company or assets
(including equity securities of any Subsidiary of the Company) that represent
20% or more of the total consolidated assets of the Company, other than the
transactions contemplated by this Agreement.
For purposes of this Agreement, "Company Superior Proposal" shall
mean any bona fide written offer made by a third party, that if consummated
would result in such person (or its stockholders) owning, directly or
indirectly, greater than 50% of the shares of Company Common Stock then
outstanding (or of the surviving entity in a merger or the direct or indirect
parent of the surviving entity in a merger) or all or substantially all of the
total consolidated assets of the Company (i) on terms which the Company Board
determines in good faith (after receiving the advice of a financial advisor of
nationally recognized reputation and of its outside counsel and in light of all
relevant circumstances, including all the terms and conditions of such proposal
and this Agreement) to be more favorable to the stockholders of the Company than
the transactions contemplated by this Agreement and (ii) which is reasonably
likely to be completed, taking into account any approval requirements and all
other financial, legal, regulatory and other aspects of such proposal.
(b) Neither the Company Board nor any committee thereof shall (i) (A)
withdraw (or modify in a manner adverse to Parent), or propose to withdraw (or
modify in a manner adverse to Parent), the approval, recommendation or
declaration of advisability by such Company Board or any such committee thereof
of this Agreement or the Merger (it being understood that taking a neutral
position or no position for more than ten business days after receipt of a
Company Takeover Proposal (or if such Company Takeover Proposal is initially
received within ten business days of the Company Stockholder Meeting no later
than five business days after receipt of such Company Takeover Proposal) with
respect to such a Company Takeover Proposal shall be considered an adverse
modification) or (B) recommend, adopt or approve, or propose publicly to
recommend, adopt or approve, any Company Takeover Proposal (any action described
in this clause (i) being referred to as a "Company Adverse Recommendation
Change") or (ii) approve or recommend, or propose to approve or recommend, or
allow the Company or any of its Subsidiaries to execute or enter into, any
letter of intent, memorandum of understanding, agreement in principle, merger
agreement, acquisition agreement, option agreement, joint venture agreement,
partnership agreement or other similar agreement constituting or related to, any
Company Takeover Proposal (other than a confidentiality agreement pursuant to
Section 5.02(a)).
45
Notwithstanding the foregoing, the Company Board may make a Company
Adverse Recommendation Change (x) following receipt of any Company Takeover
Proposal made after the date hereof with respect to which the Company Board
determines in good faith (after receiving the advice of a financial advisor of
nationally recognized reputation and of its outside counsel) constitutes a
Company Superior Proposal or (y) if a Parent Material Adverse Effect has
occurred, and, in the case of either (x) or (y), the Company Board determines in
good faith (after receiving the advice of its outside counsel) that there is a
reasonable probability that failure to take such action would result in the
Company Board breaching its fiduciary duties to the stockholders of the Company
under applicable Law; provided, however, that no Company Adverse Recommendation
Change may be made in response to a Company Takeover Proposal until after the
fourth business day following Parent's receipt of written notice from the
Company (an "Adverse Recommendation Notice") advising Parent that the Company
Board has determined that such Company Takeover Proposal is a Company Superior
Proposal, that the Company Board intends to make such Company Adverse
Recommendation Change and containing all information required by Section
5.02(c), together with copies of any written offer or proposal in respect of
such Company Superior Proposal (it being understood and agreed that any
amendment to the financial terms or other material terms of such Company
Superior Proposal shall require a new Adverse Recommendation Notice and a new
four (4) business day period). It is understood and agreed that when a Company
Adverse Recommendation Change has been made not in response to or as a result of
a Company Superior Proposal, then no Adverse Recommendation Notice is required
but the Company shall, nonetheless, give Parent notice of such Company Adverse
Recommendation Change promptly after such change but prior to public disclosure
of such change. In determining whether to make a Company Adverse Recommendation
Change in response to a Company Superior Proposal, the Company Board shall take
into account any changes to the terms of this Agreement proposed by Parent (in
response to an Adverse Recommendation Notice or otherwise) in determining
whether such third party Company Takeover Proposal still constitutes a Company
Superior Proposal.
(c) In addition to the obligations of the Company set forth in
paragraphs (a) and (b) of this Section 5.02, the Company shall promptly advise
Parent orally and in writing, and in no event later than forty eight hours after
receipt of any request for information or other inquiry that the Company
reasonably believes could lead to any Company Takeover Proposal, the terms and
conditions of any such request, Company Takeover Proposal or inquiry (including
any changes thereto) and the identity of the person making any such request,
Company Takeover Proposal or inquiry. The Company shall promptly keep Parent
informed of the status and details (including changes to the terms thereof) of
any such request, Company Takeover Proposal or inquiry.
(d) Nothing contained in this Section 5.02 shall prohibit the Company
from (i) taking and disclosing to its stockholders a position contemplated by
Rule 14d-9 or Rule 14e-2(a) or Item 1012(a) of Regulation M-A promulgated under
the Exchange Act or (ii) making any required disclosure to the stockholders of
the Company if, in the good faith judgment of the Company Board (after receiving
the advice of its outside counsel), failure to so disclose would be inconsistent
with its obligations under applicable Law.
46
ARTICLE VI
Additional Agreements
Section 6.01 Preparation of the Form S-4 and the Proxy Statement;
Company Stockholders Meeting.
(a) As soon as practicable following the date of this Agreement, the
Company shall prepare and file with the SEC the Proxy Statement and Parent shall
prepare and Parent shall file with the SEC the Form S-4, in which the Proxy
Statement will be included as a prospectus. Each of the Company and Parent will
respond promptly to any comments from the SEC or the staff of the SEC on the
Proxy Statement or the Form S-4. Each of the Company and Parent shall use its
reasonable best efforts to have the Form S-4 declared effective under the
Securities Act as promptly as practicable after such filing and maintain the
Form S-4's effectiveness for so long as necessary to consummate the Merger. The
Company shall use its reasonable best efforts to cause the Proxy Statement to be
mailed to the stockholders of the Company as promptly as practicable after the
Form S-4 is declared effective under the Securities Act (but in no event later
than three (3) business days after the date the Form S-4 is declared effective).
Parent shall also take any action required to be taken under any applicable
state securities Laws in connection with the issuance of shares of Parent Common
Stock in the Merger, and the Company shall furnish all information concerning
the Company and the holders of shares of Company Common Stock as may be
reasonably requested by Parent in connection with any such action. No filing of,
or amendment or supplement to, the Form S-4 will be made by Parent, and no
filing of, or amendment or supplement to the Proxy Statement will be made by the
Company, without providing the other party and its counsel a reasonable
opportunity to review and comment thereon. If at any time prior to the Effective
Time any information relating to the Company or Parent, or any of their
respective Affiliates, directors or officers, should be discovered by the
Company or Parent which should be set forth in an amendment or supplement to
either the Form S-4 or the Proxy Statement, so that either such document would
not include any misstatement of a material fact or omit to state any material
fact necessary to make the statements therein, in 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 an appropriate
amendment or supplement describing such information shall be promptly filed with
the SEC and, to the extent required by Law, disseminated to the stockholders of
the Company. The parties shall notify each other promptly of the receipt of any
comments from the SEC or the staff of the SEC and of any request by the SEC or
the staff of the SEC for amendments or supplements to the Proxy Statement or the
Form S-4 or for additional information and shall supply each other with copies
of (i) all correspondence between it or any of its Representatives, on the one
hand, and the SEC or the staff of the SEC, on the other hand, with respect to
the Proxy Statement, the Form S-4 or the Merger and (ii) all orders of the SEC
relating to the Form S-4.
(b) The Company shall, as soon as practicable following the date of
this Agreement, establish a record date for and promptly take any and all
actions in connection therewith, and as soon as practicable after the Form S-4
is declared effective, duly call, give notice of, convene and hold, a meeting of
its stockholders (the "Company Stockholders Meeting") solely for the purpose of
obtaining the Company Stockholder Approval. Subject to Section 5.02(b), the
Company shall, through the Company Board, recommend to its stockholders adoption
47
of this Agreement, the Merger and the other transactions contemplated by this
Agreement. Without limiting the generality of the foregoing, the Company's
obligations pursuant to the first sentence of this Section 6.01(b) shall not be
affected by (i) the commencement, public proposal, public disclosure or
communication to the Company of any Company Takeover Proposal or (ii) any
Company Adverse Recommendation Change.
Section 6.02 Access to Information; Confidentiality.
(a) Each party shall afford to the other parties hereto, and the
other parties' Representatives, reasonable access during normal business hours
during the period prior to the Effective Time or the termination of this
Agreement to all its and its Subsidiaries' properties, books, contracts,
commitments, personnel and records and, during such period, each party shall
furnish promptly to the others (a) a copy of each report, schedule, registration
statement and other document filed by such party during such period pursuant to
the requirements of Federal or state securities Laws and (b) consistent with its
legal obligations all other information concerning such party and its
Subsidiaries' business, properties and personnel as the other party may
reasonably request; provided, however, that either party may restrict the
foregoing access to the extent that any law, treaty, rule or regulation of any
Governmental Authority applicable to such party requires such party or its
Subsidiaries to restrict access to any properties or information. Except for
disclosures expressly permitted by the terms of the confidentiality agreement,
dated as of May 24, 2005, between Parent and the Company (as it may be amended
from time to time, the "Confidentiality Agreement"), each party shall hold, and
shall cause its Representatives to hold, all information received from the other
party, directly or indirectly, in confidence in accordance with the
Confidentiality Agreement. No investigation pursuant to this Section 6.02(a) or
information provided, made available or received by any party hereto pursuant to
this Agreement will affect any of the representations or warranties of the
parties hereto contained in this Agreement or the conditions hereunder to the
obligations of the parties hereto.
(b) In addition to and without limiting the foregoing, from the date
hereof until the Effective Time, the Company shall furnish to Parent, within
fifteen (15) business days after the end of each month, the monthly reporting
package set forth in Section 6.02(b) of the Company Disclosure Letter.
Section 6.03 Reasonable Best Efforts.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement (for purposes of this Section 6.03, transactions "contemplated by this
Agreement" or transactions "contemplated hereby" shall include, without
limitation, the Other Agreements contemplated by this Agreement and the
transactions contemplated thereby), including using reasonable best efforts to
accomplish the following: (a) the taking of all acts necessary to cause the
conditions to Closing to be satisfied as promptly as practicable, (b) the
obtaining of all necessary actions or nonactions, waivers, consents and
approvals from Governmental Authorities and the making of all necessary
registrations and filings (including filings with Governmental Authorities) and
48
the taking of all steps as may be necessary to obtain an approval or waiver
from, or to avoid an action or proceeding by any Governmental Authority, (c) the
obtaining of all necessary consents, approvals or waivers from third parties,
(d) the avoidance of impediments under any insurance, health, antitrust, merger
control, competition, trade regulation or other Law that may be asserted by any
Governmental Authority with respect to this Agreement and the Merger and other
transactions contemplated hereby necessary to enable the conditions to Closing
to be satisfied as promptly as practicable and (e) the execution and delivery of
any additional instruments necessary to consummate the transactions contemplated
by, and to fully carry out the purposes of the Merger and the other transactions
to be performed or consummated by such party in accordance with this Agreement.
In connection with and without limiting the first sentence of this Section 6.03,
each of the Company and the Company Board and Parent and the Parent Board shall
(i) take all action reasonably necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to this
Agreement, the Merger or any of the other transactions contemplated by this
Agreement and (ii) if any state takeover statute or similar statute becomes
applicable to this Agreement, the Merger or any of the other transactions
contemplated by this Agreement, take all action reasonably necessary to ensure
that the Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
this Agreement, the Merger and the other transactions contemplated by this
Agreement. Notwithstanding the foregoing or anything else to the contrary in
this Agreement, nothing shall be deemed to require Parent to (A) agree to, or
proffer to, divest or hold separate any assets or any portion of any business of
Parent or any of its Subsidiaries or, assuming the consummation of the Merger,
the Company or any of its Subsidiaries, (B) not compete in any geographic area
or line of business, (C) restrict the manner in which, or whether, Parent, the
Company, the Surviving Entity or any of their respective Affiliates may carry on
business in any part of the world or restrict the exercise of the full rights of
ownership; (D) agree to any terms or conditions that would impose any
obligations on Parent or any of its Subsidiaries or, assuming the consummation
of the Merger, the Company or any of its Subsidiaries, to maintain facilities,
operations, places of business, employment levels, products or businesses, or
any other restriction, limitation, obligation or qualification or (E) make any
payments, which, in the case of any of clauses (A) through (E), (i) would have,
or would be reasonably likely to have, individually or in the aggregate, a
material adverse effect on the Company and its Subsidiaries, taken as a whole,
or on Parent and its Subsidiaries, taken as a whole (it being agreed that in the
case of measuring the effect on Parent and its Subsidiaries in this clause (i),
(x) "Subsidiaries" shall not include the Company or its Subsidiaries, (y)
"material adverse effect" shall be the level of, and shall be measured as to,
what would have, or would be reasonably likely to have, a "material adverse
effect" on the Company and its Subsidiaries, taken as a whole, and not the level
or measure of what would have, or would be reasonably likely to have, a
"material adverse effect" on Parent and its Subsidiaries, taken as a whole, and
(z) the effect shall be with respect to Parent and its Subsidiaries) or (ii)
would, or would be reasonably likely to, materially impair the benefits
reasonably expected to be derived by Parent from the transactions contemplated
by this Agreement, including the Merger, provided, however, that for purposes of
determining whether a material adverse effect under clause (i) above or a
material impairment under clause (ii) above has occurred, the parties agree to
exclude from any such determination the aggregate amount of the effects (1) of
the actions of the type described in clauses (A), if any, (B), if any, (C), (D)
49
and (E) above, that were imposed, required, agreed to or consented to by state
Governmental Authorities in any of the Precedent Health Care Transactions, such
exclusion to be limited to the extent such effects are comparable to or lesser
than those that were imposed, required, agreed to or consented to by state
Governmental Authorities in such Precedent Health Care Transactions (giving
consideration to all relevant factors, including the comparability of such
Precedent Health Care Transactions to the Merger and the amount, degree, scope
and duration of such effects of any such actions in the aggregate); or (2)
resulting from or arising out of changes in the business plans or operations of
(x) Parent or its Subsidiaries that have a material affect on Parent's or its
Subsidiaries' ability to satisfy or comply with statutory requirements of the
filings under applicable Law relating to the consents, approvals,
authorizations, orders, permits, waivers or waiting period expirations or
terminations required in connection with the Merger and other transactions
contemplated by this Agreement or (y) the Company or its Subsidiaries, which in
any case under clause (x) or (y), are proposed by Parent or its Subsidiaries to
be effective on and after the Effective Time, but not changes in the business
plans or operations requested or demanded by Governmental Authorities whose
consent, approval, authorization, order, permit, waiver or waiting period
expiration or termination is required in connection with the Merger and other
transactions contemplated by this Agreement (clauses (i) and (ii), as qualified
by the foregoing proviso, being a "Negative Regulatory Action "). In the event
any action of a type described in clauses (A), if any, (B), if any, (C), (D) or
(E) above was imposed, required, agreed to, or consented to by state
Governmental Authorities in more than one of the Precedent Health Care
Transactions, it is agreed and understood that the action of such type having
the greatest adverse effect in any of the Precedent Health Care Transactions
shall be used for purposes of determining both (I) comparability of the
Precedent Health Care Transactions to the Merger and the amount, degree, scope
and duration of effects, and (II) the effects which are excluded from the
determination of whether a material adverse effect under clause (i) above or a
material impairment under clause (ii) above has occurred. It is understood and
agreed that Parent or its Subsidiaries (including the Company and its
Subsidiaries) shall be required to take the actions described in clauses (A),
(B), (C), (D) and (E) of the second preceding sentence to the extent such
actions would not constitute a Negative Regulatory Action.
(b) Each of the parties hereto shall use its reasonable best efforts
to (1) cooperate in all respects with each other in connection with any filing
or submission with a Governmental Authority in connection with the Merger and in
connection with any investigation, approval process or other inquiry by or
before a Governmental Authority relating to the Merger, including any proceeding
initiated by a private party, and (2) keep the other party informed in all
material respects and on a reasonably timely basis of any written or material
oral communication received by such party from, or given by such party to any
Governmental Authority, or party to a proceeding, regarding the Merger. Subject
to applicable Laws relating to the exchange of information, each of the parties
hereto shall have the right to review in advance, and to the extent practicable
each will consult the other on, all the information relating to the other
parties and their respective Subsidiaries, as the case may be, that appears in
any filing made with, or written materials submitted to, any third party and/or
any Governmental Authority in connection with the Merger. The parties agree and
acknowledge that the "Future Plans for Domestic Insurer" section (or equivalent
section) of any Form A (or equivalent filing or application) and any amendments
thereto and supplemental information filed in relation thereto to be filed with
any Governmental Authority by Parent or its Subsidiaries in connection with the
transactions contemplated hereby shall be reviewed and approved by the Company
prior to any such filing, which approval shall not be unreasonably withheld or
delayed.
50
(c) Each party to this Agreement shall give the other party to this
Agreement reasonable prior notice of any written or material oral communication
with, and any proposed understanding, undertaking or agreement with, any
Governmental Authority relating to the Merger. Neither of the parties to this
Agreement shall independently participate in any meeting, or engage in any
substantive conversation, with any Governmental Authority in respect of any
filings or submissions with or investigation, approval process or other inquiry
by any Governmental Authority without giving the other prior notice of the
meeting or conversation and, unless objected to by such Governmental Authority,
the opportunity to attend or participate. The Company will not make any material
proposals relating to, or enter into, any material understanding, undertaking or
agreement with any Governmental Authority relating to the Merger without the
Parent's prior review and approval, and the Parent will not make any such
material proposal or enter into any such material understanding, undertaking or
agreement relating to the Merger without the Company's prior review and
approval, provided, however, that if such understanding, undertaking or
agreement is to take effect only upon the consummation of the Merger, Parent
shall have no obligation to obtain the Company's prior approval but shall
consult in advance with the Company with respect thereto.
(d) Subject to Section 6.03(a), each of Parent and the Company shall
use its reasonable best efforts to resolve such objections, if any, as may be
asserted by any Governmental Authority with respect to this Agreement and the
transactions contemplated hereby. In connection therewith and subject to Section
6.03(a), if any administrative or judicial action or proceeding is instituted or
threatened to be instituted by (i) any Governmental Authority (other than a
state or federal Governmental Authority, which is covered by clause (ii) below)
whose action or proceeding is reasonably likely to have or result in a Negative
Regulatory Action or materially delay the completion of the Merger, or (ii) any
state or federal Governmental Authority, which in any case under clause (i) or
(ii) challenges any transaction contemplated by this Agreement as inconsistent
with or violative of any Law, each of Parent and the Company shall (by
negotiation, litigation or otherwise) cooperate and use its reasonable best
efforts to contest, resist or avoid any such action or proceeding, including any
administrative or judicial action, and to have vacated, lifted, reversed or
overturned any decree, judgment, injunction or other order whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents,
materially delays or materially restricts consummation of the Merger or any
other transactions contemplated by this Agreement, including by pursuing
reasonable avenues of administrative and judicial appeal. It is understood and
agreed that, notwithstanding anything to the contrary set forth herein, in the
event such an administrative or judicial action or proceeding is instituted,
then the parties shall be obligated to contest and resist such action or
proceeding by reasonable litigation and proceedings, including reasonable
administrative and judicial action, vacating, lifting, reversing and overturning
any decree, judgment, injunction or other order, and pursuing reasonable avenues
of administrative and judicial appeal, and such actions shall be deemed to be
"reasonable best efforts" for all purposes hereunder.
(e) Parent agrees that prior to Parent or any of its subsidiaries
entering into any agreement ("Reportable Agreement ") to acquire by merger or
consolidation with, or by purchase of a substantial portion of the assets of or
equity in, or by any other manner, any health insurance or managed healthcare
business or any corporation, partnership, association or other business
organization or division thereof engaged in the health insurance or managed
healthcare business which business is located in California or Texas or has
significant operations in California or Texas (a "Reportable Acquisition ")
where a Relevant Filing (as defined below) is required to be made in California
51
or Texas in connection with such Reportable Acquisition, Parent shall consult in
good faith with the Company prior to Parent or its subsidiaries entering into
such Reportable Agreement regarding whether or not such Reportable Acquisition
would, or would reasonably be expected to, impose any material delay in the
obtaining of, or materially increase the risk of not obtaining, any Required
Consent (as defined below). If Parent determines in its reasonable discretion
(after consulting with the Company) that such Reportable Acquisition would not,
and would not reasonably be expected to, impose any material delay in the
obtaining of, or materially increase the risk of not obtaining, any Relevant
Consent, then Parent may enter into the Reportable Agreement with respect to
such Reportable Acquisition. If Parent enters into such Reportable Agreement,
then Parent agrees to (i) promptly after entering into such Reportable Agreement
file with the appropriate Governmental Authority such Relevant Filing and
promptly thereafter inquire of such Governmental Authority as to whether or not
such Reportable Acquisition would, or would reasonably be expected to, impose
any material delay in the obtaining of, or materially increase the risk of not
obtaining, any Relevant Consent and (ii) promptly withdraw from any such
Reportable Acquisition, terminate such Reportable Agreement and not pursue such
Reportable Acquisition if any such Governmental Authority indicates (whether by
action or inaction) that such Reportable Acquisition would, or would reasonably
be expected to, impose any material delay in the obtaining of, or materially
increase the risk of not obtaining, any Relevant Consent. A "Relevant Filing"
shall mean a Form A (or equivalent), Form E (or equivalent), a Form 1011(c) (or
equivalent), a merger or a "material modification" filing. A "Relevant Consent"
shall mean any authorization, consent, order, declaration or approval of any
Governmental Authority in California or Texas necessary to consummate the Merger
or other transactions contemplated by this Agreement. It is agreed and
understood by the parties that this Section 6.03(e) is in addition to and does
not in any manner limit Parent's covenants or obligations set forth elsewhere in
this Agreement or the Other Agreements.
Section 6.04 Indemnification, Exculpation and Insurance.
(a) All rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time now existing
in favor of the current or former directors, officers and employees of the
Company and its Subsidiaries (the "Indemnified Parties") as provided in the
Company Certificate, the Company By-laws, existing indemnification agreements or
as provided under applicable Law (in each case, as in effect on the date hereof)
shall be assumed by the Surviving Entity in the Merger, without further action,
as of the Effective Time and shall survive the Merger and shall continue in full
force and effect in accordance with their terms. Parent shall indemnify and hold
harmless, and provide advancement of expenses to the Indemnified Parties to the
same extent such persons are indemnified or have the right to advancement of
expenses as of the date hereof by the Company pursuant to the Company
Certificate, the Company By-laws, existing indemnification agreements or as
provided under applicable Law. The Limited Liability Company Operating Agreement
or certificate of incorporation, as appropriate, of the Surviving Entity shall
contain, and Parent shall cause the Limited Liability Company Operating
Agreement or certificate of incorporation, as appropriate, of the Surviving
Entity to contain, provisions no less favorable with respect to indemnification
and exculpation of present and former directors and officers of the Company than
are presently set forth in the Company Charter and Company By-laws.
52
(b) For a period of six years after the Effective Time, Parent shall
maintain in effect the Company's current directors' and officers' liability
insurance in respect of acts or omissions occurring at or prior to the Effective
Time (including for acts or omissions occurring in connection with the approval
of this Agreement and the consummation of the transactions contemplated hereby)
covering the Indemnified Parties currently covered by the Company's directors'
and officers' liability insurance policy (a correct and complete copy of which
has been previously made available to Parent), on terms with respect to such
coverage and amount no less favorable than those of such policy in effect on the
date hereof; provided, however, that Parent may substitute therefor policies of
Parent with containing terms with respect to coverage and amount no less
favorable to such Indemnified Parties; provided, further, however, that in
satisfying its obligation under this Section 6.04(b) Parent shall not be
obligated to pay aggregate premiums in excess of 300% of the amount paid by the
Company in its last full fiscal year, it being understood and agreed that Parent
shall nevertheless be obligated to provide such coverage as may be obtained for
such 300% amount.
(c) The covenants contained in this Section 6.04 are intended to be
for the benefit of, and shall be enforceable by, each of the Indemnified Parties
and their respective heirs and legal representatives, and shall not be deemed
exclusive of any other rights to which an Indemnified Party is entitled, whether
pursuant to Law, contract or otherwise.
Section 6.05 Fees and Expenses. All fees and expenses incurred in
connection with this Agreement, the Merger and the other transactions
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses, whether or not the Merger is consummated, except that each of the
Company and Parent shall bear and pay one-half of (a) the costs and expenses
incurred in connection with filing, printing and mailing the Form S-4 and (b)
the filing fees for the premerger notification and report forms under the HSR
Act.
Section 6.06 Public Announcements. Parent and the Company shall
consult with each other before issuing, and give each other the reasonable
opportunity to review and comment upon, any press release or other public
statements with respect to the transactions contemplated by this Agreement,
including the Merger, and shall not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
applicable Law, court process or by obligations pursuant to any listing
agreement with any national securities exchange or national securities quotation
system. The parties agree that the initial press release to be issued with
respect to the transactions contemplated by this Agreement shall be in the form
previously agreed to by the parties.
Section 6.07 Affiliates. Prior to the Effective Time the Company
shall deliver to Parent a letter identifying all persons who will be at the time
this Agreement is submitted for adoption by the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act
and applicable SEC rules and regulations. The Company shall use its reasonable
best efforts to cause each such person to deliver to Parent at least ten days
prior to the Closing Date a written agreement substantially in the form attached
as Exhibit B.
Section 6.08 Stock Exchange Listing. Parent shall use its reasonable
best efforts to cause the shares of Parent Common Stock to be issued in the
Merger to be approved for listing on the NYSE, subject to official notice of
issuance, prior to the Closing Date.
53
Section 6.09 Tax-Free Reorganization Treatment. The Company, Parent
and Merger Sub shall execute and deliver to each of ▇▇▇▇▇▇▇ ▇▇▇▇, special
counsel to the Company, and ▇▇▇▇ ▇▇▇▇▇▇▇, special counsel to Parent and Merger
Sub, representation letters, substantially in the forms attached hereto as
Exhibits C and E (in the case of the Merger) or Exhibits D and F (in the case of
the Reverse Merger), at such time or times as reasonably requested by each such
law firm in connection with its delivery of the opinion referred to in Section
7.02(e) or Section 7.03(c), as the case may be or any similar opinion that may
be required in connection with the Proxy Statement or Form S-4. Prior to the
Effective Time, none of the Company, Parent or Merger Sub shall take or cause to
be taken any action which would cause to be untrue any of the representations in
such representation letters. Each party shall, and shall cause each of its
respective subsidiaries to, use reasonable best efforts to cause the Merger to
qualify as a reorganization within the meaning of Section 368(a) of the Code.
Section 6.10 Stockholder Litigation. The Company shall promptly
advise Parent orally and in writing of any stockholder litigation against the
Company and/or its directors relating to this Agreement, the Merger and/or the
transactions contemplated by this Agreement and shall keep Parent fully informed
regarding any such stockholder litigation. The Company shall give Parent the
opportunity to consult with the Company regarding the defense or settlement of
any such stockholder litigation, shall give due consideration to Parent's advice
with respect to such stockholder litigation and shall not settle any such
litigation prior to such consultation and consideration, provided, however, that
the Company further will not, without Parent's prior written consent, settle any
such stockholder litigation (a) for an amount greater than five million dollars
($5,000,000) in excess of the Company's coverage under applicable third party
insurance policies, individually, or ten million dollars ($10,000,000) in excess
of the Company's coverage under applicable third party insurance polices in the
aggregate or (b) that involves or has the effect of imposing any material remedy
or restriction upon the Company or any of its Subsidiaries other than monetary
damages.
Section 6.11 Employee Matters.
(a) Parent agrees to honor, or cause the Surviving Entity to honor,
from and after the Effective Time any bonus payments for the Company's 2005
fiscal year (or any portion thereof) and, if the Closing occurs in 2006, the
Company's 2006 fiscal year (or any portion thereof) under the bonus plans set
forth in Section 6.11(a) of the Company Disclosure Letter in accordance with
their terms as in effect immediately before the Effective Time and as set forth
in Section 6.11(a) of the Company Disclosure Letter.
(b) Following the Effective Time, Parent shall cause to be provided
to individuals who are employed by the Company and its Subsidiaries immediately
prior to the Effective Time and who remain employed with the Surviving Entity or
any of Parent's Subsidiaries (the "Affected Employees"), compensation and
employee benefits no less favorable in the aggregate than, at Parent's election
from time to time, those provided (i) pursuant to the Company's and its
Subsidiaries' compensation and employee benefit policies, plans and programs
immediately prior to the Effective Time or (ii) to similarly situated employees
of Parent and its Subsidiaries. Notwithstanding the generality of the foregoing,
(x) during the 12 month period following the Effective Time, Affected Employees
shall be provided with the severance benefits provided under the Company's
Severance Plan without adverse amendment as set forth in Section 6.11(b) of the
Company Disclosure Letter and (y) Parent shall provide the severance
arrangements set forth in Section 6.11(b) of the Company Disclosure Letter.
54
(c) For all purposes, with respect to any benefit plan, program,
arrangement (including any "employee benefit plan" (as defined in Section 3(3)
of ERISA) Parent's retiree medical benefit plan and any vacation program), other
than under Parent's 2002 Stock Incentive Plan (or any successor plan thereto),
Parent shall, and shall cause the Surviving Entity to, recognize the service
with the Company and its Subsidiaries (including service recognized by the
Company and its Subsidiaries) prior to the Effective Time of the Affected
Employees for purposes of such plan, program or arrangement; provided, however,
that such recognition shall not result in a duplication of benefits. Parent
agrees to honor, or cause the Surviving Entity to honor, all vacation, sick
leave and other paid time off accrued by Affected Employees as of the Effective
Time.
(d) With respect to any welfare plan in which employees of the
Company and its Subsidiaries are eligible to participate after the Effective
Time, Parent shall, and shall cause the Surviving Entity to, (i) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to such employees
to the extent such conditions were satisfied under the welfare plans of the
Company and its Subsidiaries prior to the Effective Time, and (ii) provide each
such employee with credit for any co-payments and deductibles paid prior to the
Effective Time in satisfying any analogous deductible or out-of-pocket
requirements to the extent applicable under any such plan.
(e) Effective as of the Effective Time, the Company shall, if
requested to do so by Parent, terminate its defined contribution 401(k) plan.
Parent shall provide, or cause the Surviving Entity to provide, that the
Affected Employees are eligible to participate in a defined contribution 401(k)
plan immediately following the Effective Time and that such defined contribution
plan shall accept "eligible rollover distributions" for Affected Employees from
a terminated Company defined contribution 401(k) plan.
(f) Parent agrees that it shall, or shall cause the Surviving
Corporation to, continue the Company Supplemental Executive Retirement Plan
without adverse amendment or termination during the 12 month period following
the Effective Time.
(g) At least 30 days prior to the Effective Time, Parent shall
provide each of the Affected Employees listed on Section 6.11(g)(1) of the
Company Disclosure Letter with a written notice specifying that either (i) the
Affected Employee's employment shall be terminated immediately following the
Effective Time and that Parent and its affiliates shall honor the senior
executive employment agreement between the Company and the Affected Employee in
accordance with its terms as in effect on the date hereof on the basis of the
Company having terminated the Affected Employee without cause as such term is
defined in such agreement, or (ii) the Affected Employee shall be offered a new
employment agreement with Parent or an affiliate of Parent which contains terms
and conditions that are substantially similar to those contained in the
employment agreements provided to the category of Affected Employees identified
in Section 6.11(g)(2) of the Company Disclosure Letter.
55
Section 6.12 Employment Agreements. Notwithstanding anything to the
contrary in this Agreement, the Company shall use its reasonable best efforts to
cause each of the Covered Employees not to repudiate or otherwise breach the New
Employment Agreement to which such Covered Employee is a party.
Section 6.13 Standstill Agreements, Confidentiality Agreements,
Anti-takeover Provisions. During the period from the date of this Agreement
through the Effective Time, the Company will not terminate, amend, modify or
waive any provision of any agreement required to be disclosed pursuant to
Section 3.10(b)(v) hereof to which it or any of its Subsidiaries is a party,
other than the Confidentiality Agreement pursuant to its terms or by written
agreement of the parties thereto. During such period, the Company shall enforce,
to the fullest extent permitted under applicable Law, the provisions of any such
agreement, including by seeking to obtain injunctions to prevent any material
breaches of such agreements and to enforce specifically the material terms and
provisions thereof in any court of the United States of America or of any state
having jurisdiction. In addition, the Company will not (i) redeem the Company
Rights or otherwise take any action to render the Rights Agreement inapplicable
to any transaction (other than the transactions contemplated by this Agreement)
or any Person (other than Parent and Merger Sub) or (ii) approve a Company
Takeover Proposal or Company Superior Proposal for purposes of Section 203 of
the DGCL.
Section 6.14 Letters of the Accountants.
(a) The Company shall use its reasonable efforts to cause to be
delivered to Parent a letter from the Company's independent accountants dated a
date on or prior to (but no more than two (2) business days prior to) the date
on which the Form S-4 shall become effective addressed to Parent and the
Company, in form and substance reasonably satisfactory to Parent and customary
in scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4;
provided that the failure of such a letter to be delivered by the Company's
independent accountants shall not result in a failure of a condition to Closing
(including Section 7.02(b) hereof).
(b) Parent shall use its reasonable efforts to cause to be delivered
to the Company a letter from Parent's independent accountants dated a date on or
prior to (but no more than two (2) business days prior to) the date on which the
Form S-4 shall become effective addressed to the Company and Parent, in form and
substance reasonably satisfactory to the Company and customary in scope and
substance for comfort letters delivered by independent public accountants in
connection with registration statements similar to the Form S-4; provided that
the failure of such a letter to be delivered by Parent's independent accounts
shall not result in a failure of a condition to Closing (including Section
7.03(b) hereof).
56
Section 6.15 Reserves. Except as set forth in Section 6.15 of the
Company Disclosure Letter, the Company will cause the Regulated Subsidiaries to
maintain an aggregate statutory net worth on a consolidated basis in excess of
300% of their aggregate Authorized Control Level.
ARTICLE VII
Conditions Precedent
Section 7.01 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Stockholder Approval. The Company Stockholder Approval shall have
been obtained.
(b) Stock Exchange Listing. The shares of Parent Common Stock
issuable to the stockholders of the Company as contemplated by this Agreement
shall have been approved for listing on the NYSE, subject to official notice of
issuance.
(c) Antitrust. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act and any other clearances or approvals
required under applicable competition, merger control, antitrust or similar Law
shall have been granted, terminated or shall have expired.
(d) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other judgment, order or decree issued by
any court of competent jurisdiction or other statute, law, rule, legal restraint
or prohibition (collectively, "Restraints") shall be in effect preventing the
consummation of the Merger.
(e) Form S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop order or proceedings
seeking a stop order.
(f) Closing Consents. The consents, authorizations, orders, permits
and approvals listed on Exhibit G hereto shall have been obtained and shall be
in full force and effect.
Section 7.02 Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to effect the Merger are further subject to
the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Representations and Warranties. The representations and
warranties of the Company contained in this Agreement (other than the
representations and warranties of the Company set forth in Sections 3.03 and
3.08) shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on the Closing Date (without regard to materiality
or Company Material Adverse Effect qualifiers contained therein), except to the
extent such representations and warranties expressly relate to an earlier date,
in which case as of such earlier date, except where the failure of the
representations and warranties to be true and correct individually or in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect. The representations and warranties of the Company set
forth in Sections 3.03 and 3.08 shall be true and correct in all respects
(subject, in the case of Section 3.03, to de minimis exceptions for breaches
involving a net increase in the number of shares of Company Common Stock, stock
options, Company Restricted Shares, Company RSUs and Company DSUs of up to
70,000 in the aggregate) as of the date of this Agreement and as of the Closing
Date as though made on the Closing Date. Parent shall have received a
certificate signed on behalf of the Company by the chief executive officer and
the chief financial officer of the Company to the effect of the foregoing two
sentences.
57
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to such effect.
(c) No Litigation. There shall not be pending any suit, action or
proceeding by any federal or state Governmental Authority (i) challenging the
acquisition by Parent or Merger Sub of any shares of Company Common Stock,
seeking to restrain or prohibit the consummation of the Merger, seeking to place
limitations on the ownership of shares of Company Common Stock (or shares of
capital stock of the Surviving Entity) by Parent or Merger Sub, which suit,
action or proceeding Parent determines, in its reasonable discretion, has a
reasonable possibility of being decided in favor of such Governmental Authority
or could reasonably be expected to result in material damages or material harm
to the business of the Company and its Subsidiaries, taken as a whole, or the
Parent and its Subsidiaries, taken as a whole (it being agreed that in the case
of measuring the results on Parent and its Subsidiaries in this clause (i), (x)
"Subsidiaries" shall not include the Company or its Subsidiaries, (y) "material
damages" or "material harm" shall be the level of, and shall be measured as to,
what could result in, or could reasonably be expected to result in, "material
damages" or "material harm" to the business of the Company and its Subsidiaries,
taken as a whole, and not the level or measure of what could result in, or could
reasonably be expected to result in, "material damages" or "material harm" on
Parent and its Subsidiaries, taken as a whole and (z) the result shall be with
respect to Parent and its Subsidiaries), (ii) seeking to (A) prohibit or limit
in any respect the ownership or operation by the Company or any of its
Subsidiaries or by Parent or any of its Subsidiaries of any portion of any
business or of any assets of the Company and its Subsidiaries or Parent and its
Subsidiaries, (B) compel the Company or any of its Subsidiaries or Parent or any
of its Subsidiaries to divest or hold separate any portion of any business or of
any assets of the Company and its Subsidiaries or Parent and its Subsidiaries,
as a result of the Merger or (C) impose any obligations on Parent or any of its
Subsidiaries or the Company or any of its Subsidiaries to maintain facilities,
operations, places of business, employment levels, products or businesses or
other obligation relating to the operation of their respective businesses or
(iii) seeking to obtain from the Company, Parent or Merger Sub any damages,
payments, covenants or legally binding assurances, which suit, action or
proceeding in the case of clauses (ii) and (iii) above would have, or would be
reasonably likely to have, individually or in the aggregate, a Negative
Regulatory Action.
(d) Restraint. No Restraint that would reasonably be expected to
result, directly or indirectly, in any of the effects referred to in Section
7.02(c) shall be in effect.
(e) Tax Opinion. Parent shall have received from ▇▇▇▇ ▇▇▇▇▇▇▇,
special counsel to Parent, on the Closing Date, an opinion in form and substance
reasonably satisfactory to Parent and dated as of the Closing Date, to the
effect that the Merger will qualify for United States Federal income tax
purposes as a "reorganization" within the meaning of Section 368(a) of the Code.
The issuance of such opinion shall be conditioned upon the receipt by ▇▇▇▇
▇▇▇▇▇▇▇ of customary representation letters from each of Parent, Merger Sub and
the Company, in each case, substantially in the form of Exhibits C and E (or D
58
and F). Each such representation letter shall be dated on or before the date of
such opinion and shall not have been withdrawn or modified in any material
respect. The opinion condition referred to in this Section 7.02(e) shall not be
waivable after receipt of the Company Stockholder Approval, unless further
stockholder approval of the Company's stockholders is obtained with appropriate
disclosure.
(f) Closing Consents. The consents, authorizations, orders, permits
and approvals listed on Exhibit G hereto shall have been obtained and shall be
in full force and effect, without any conditions, restrictions, limitations,
qualifications or requirements, which (if implemented) would constitute, or
would be reasonably likely to constitute, individually or in the aggregate, a
Negative Regulatory Action.
Section 7.03 Conditions to Obligation of the Company. The obligation
of the Company to effect the Merger is further subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement (other than the
representations and warranties of Parent and Merger Sub set forth in Section
4.07) shall be true and correct as of the date of this Agreement and as of the
Closing Date as though made on the Closing Date (without regard to materiality
or Parent Material Adverse Effect qualifiers contained therein), except to the
extent such representations and warranties expressly relate to an earlier date,
in which case as of such earlier date, except where the failure of the
representations and warranties to be true and correct individually or in the
aggregate, has not had and would not reasonably be expected to have a Parent
Material Adverse Effect. The representations and warranties of Parent and Merger
Sub in Section 4.07 shall be true in all respects. The Company shall have
received a certificate signed on behalf of Parent by an executive officer of
Parent to such effect.
(b) Performance of Obligations of Parent and Merger Sub. Parent and
Merger Sub shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
(c) Tax Opinion. The Company shall have received from ▇▇▇▇▇▇▇ ▇▇▇▇,
special counsel to the Company, on the Closing Date, an opinion in form and
substance reasonably satisfactory to the Company and dated as of the Closing
Date, to the effect that the Merger will qualify for United States Federal
income tax purposes as a "reorganization" within the meaning of Section 368(a)
of the Code. The issuance of such opinion shall be conditioned upon the receipt
by ▇▇▇▇▇▇▇ ▇▇▇▇ of customary representation letters from each of Parent, Merger
Sub, and the Company, in each case, substantially in the form of Exhibits C and
E (or D and F). Each such representation letter shall be dated on or before the
date of such opinion and shall not have been withdrawn or modified in any
material respect. The opinion condition referred to in this Section 7.03(c)
shall not be waivable after receipt of the Company Stockholder Approval, unless
further stockholder approval of the Company's stockholders is obtained with
appropriate disclosure.
59
Section 7.04 Frustration of Closing Conditions. None of the Company,
Parent or Merger Sub may rely on the failure of any condition set forth in
Sections 7.01, 7.02 or 7.03, as the case may be, to be satisfied if such failure
was caused by such party's failure to use its reasonable best efforts to
consummate the Merger and the other transactions contemplated by this Agreement,
as required by and subject to Section 6.03.
ARTICLE VIII
Termination, Amendment and Waiver
Section 8.01 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after receipt of the Company
Stockholder Approval:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company:
(i) if the Merger shall not have been consummated on or before
May 5, 2006 (the "Termination Date"); provided, however, that if on
May 5, 2006 the conditions to Closing set forth in Sections 7.01(c),
7.01(f), 7.02(c) or 7.02(f) shall not have been satisfied but all
other conditions to Closing shall have been satisfied (or in the case
of conditions that by their terms are to be satisfied at the Closing,
shall be capable of being satisfied on May 5, 2006), then the
Termination Date shall be extended to and including August 7, 2006 if
either of the Company or Parent notifies the other party in writing on
or prior to May 5, 2006 of its election to extend the Termination Date
to August 7, 2006; provided, further, that the right to terminate this
Agreement under this Section 8.01(b)(i) shall not be available to any
party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to be consummated on or before
such date;
(ii) if any Restraint having the effect of permanently
restraining, enjoining, or otherwise prohibiting the Merger and the
transactions contemplated by this Agreement shall be in effect and
shall have become final and nonappealable;
(iii) if the Company Stockholder Approval shall not have been
obtained upon a vote at the Company Stockholders Meeting duly convened
therefor or at any adjournment or postponement thereof;
(c) by Parent, if the Company shall have breached or failed to
perform any of its representations, warranties, covenants or agreements set
forth in this Agreement, which breach or failure to perform (A) would give rise
to the failure of a condition set forth in Section 7.02(a) or (b) and (B) is
incapable of being cured, or is not cured, by the Company within 30 calendar
days following receipt of written notice from Parent of such breach or failure
to perform;
60
(d) by the Company, if Parent shall have breached or failed to
perform any of its representations, warranties, covenants or agreements set
forth in this Agreement, which breach or failure to perform (i) would give rise
to the failure of a condition set forth in Section 7.03(a) or (b) and (ii) is
incapable of being cured, or is not cured, by Parent within 30 calendar days
following receipt of written notice from the Company of such breach or failure
to perform; or
(e) by Parent, within 45 days of the date on which, (i) a Company
Adverse Recommendation Change shall have occurred or (ii) the Company Board or
any committee thereof shall have failed to publicly confirm its recommendation
and declaration of advisability of this Agreement and the Merger within ten (10)
business days after a written request by Parent that it do so (or if such
written request is initially received within ten (10) business days of the
Company Stockholder Meeting, no later than three (3) business days after receipt
of such request).
Section 8.02 Termination Fee.
(a) In the event that:
(i) this Agreement is terminated by either Parent or the Company
pursuant to Section 8.01(b)(i), and (A) a vote to obtain the Company
Stockholder Approval has not been held, (B) after the date of this
Agreement a Company Takeover Proposal shall have been made or
communicated to the Company or shall have been made directly to the
stockholders of the Company generally (and at least one such Company
Takeover Proposal shall not have been withdrawn prior to the event
giving rise to the right of termination under Section 8.01(b)(i)) and
(C) within twelve (12) months after such termination the Company shall
have reached a definitive agreement to consummate, or shall have
consummated, either (x) a Company Takeover Proposal with a Person who
after the date of this Agreement has made a Company Takeover Proposal
prior to the event giving rise to the right of termination under
Section 8.01(b)(i) or (y) a Material Company Takeover Proposal with a
Person who since the date of this Agreement has not made a Company
Takeover Proposal prior to such event;
(ii) this Agreement is terminated by either Parent or the Company
pursuant to Section 8.01(b)(iii) and (A) after the date of this
Agreement a Company Takeover Proposal shall have been made or
communicated to the Company or shall have been made directly to the
stockholders of the Company generally (and at least one such Company
Takeover Proposal shall not have been withdrawn prior to the event
giving rise to the right of termination under Section 8.01(b)(iii))
and (B) within twelve (12) months after such termination the Company
shall have reached a definitive agreement to consummate, or shall have
consummated, either (x) a Company Takeover Proposal with a Person who
after the date of this Agreement has made a Company Takeover Proposal
prior to the event giving rise to the right of termination under
Section 8.01(b)(iii) or (y) a Material Company Takeover Proposal with
a Person who since the date of this Agreement has not made a Company
Takeover Proposal prior to such event;
61
(iii) this Agreement is terminated by Parent pursuant to Section
8.01(c) and (A) the Company's breach or failure triggering such
termination shall have been willful, (B) after the date of this
Agreement a Company Takeover Proposal shall have been made or
communicated to the Company or shall have been made directly to the
stockholders of the Company generally and (C) within twelve (12)
months after such termination the Company shall have reached a
definitive agreement to consummate, or shall have consummated, either
(x) a Company Takeover Proposal with a Person who after the date of
this Agreement has made a Company Takeover Proposal prior to the event
giving rise to the right of termination under Section 8.01(c) or (y) a
Material Company Takeover Proposal with a Person who since the date of
this Agreement has not made a Company Takeover Proposal prior to such
event;
(iv) this Agreement is terminated by Parent pursuant to Section
8.01(e) (other than if the Change in Recommendation which resulted in
the right of termination under Section 8.01(e) occurred following a
Parent Material Adverse Effect),
then the Company shall (1) in the case of a Termination Fee payable pursuant to
clauses (i), (ii), or (iii) of this Section 8.02(a), upon the earlier of the
date of such definitive agreement and such consummation of a Material Company
Takeover Proposal or (2) in the case of a Termination Fee payable pursuant to
clause (iv) of this Section 8.02(a), on the date of such termination, pay Parent
a fee equal to two hundred forty-three million six hundred thousand dollars (the
"Termination Fee") by wire transfer of same-day funds. Notwithstanding the
foregoing sentence, in the event that the Company proposes to terminate this
Agreement at a time when the Termination Fee is payable, the Company shall pay
Parent the Termination Fee as described above prior to such termination by the
Company. Notwithstanding the foregoing in Section 8.02(a)(i) or Section
8.02(a)(ii), if a Termination Fee would have been payable under Section
8.02(a)(i) or Section 8.02(a)(ii) but for the fact that the person (or any of
its Affiliates) with whom the Company shall have reached a definitive agreement
to consummate, or shall have consummated, a Material Company Takeover Proposal
within twelve (12) months after termination of this Agreement withdrew a Company
Takeover Proposal prior to the event giving rise to the right of termination of
this Agreement under Section 8.01(b)(i) or Section 8.01(b)(ii), then the Company
shall upon the earlier of such definitive agreement and such consummation of a
Material Company Takeover Proposal pay Parent the Termination Fee by wire
transfer of same-day funds. In the case of a Termination Fee payable pursuant to
clause (iii) of this Section 8.02(a), the parties hereby agree that the
Termination Fee (including the right to receive such fee or the payment of such
fee) shall not limit in any respect any rights or remedies available to Parent
and Merger Sub relating to any willful breach or failure to perform any
representation, warranty, covenant or agreement set forth in this Agreement
resulting, directly or indirectly, in the right to receive the Termination Fee.
(b) The Company acknowledges and agrees that the agreements contained
in Section 8.02(a) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would not enter into this
Agreement. If the Company fails promptly to pay the amount due pursuant to
Section 8.02(a), and, in order to obtain such payment, Parent commences a suit
that results in a judgment against the Company for the Termination Fee, the
Company shall pay to Parent its reasonable costs and expenses (including
reasonable attorneys' fees and expenses) incurred in connection with such suit,
together with interest on the amount of the Termination Fee from the date such
payment was required to be made until the date of payment at the prime rate of
Citibank, N.A. in effect on the date such payment was required to be made.
62
(c) For purposes of this Agreement, "Material Company Takeover
Proposal" shall mean any inquiry, proposal or offer, whether or not conditional,
(a) for a merger, consolidation, dissolution, recapitalization or other business
combination in which the stockholders of the Company immediately prior to such
transaction will fail to own immediately after such transaction 60% or more of
the Company's (if the Company is the publicly traded parent company following
such transaction) equity securities or if the Company is not the publicly traded
parent company following such transaction 60% or more of the parent company's
equity securities into which Company equity securities are converted in such
transaction, (b) for a transaction that provides that the directors of the
Company immediately prior to the consummation of such transaction will not
constitute 70% or more of the directors of the Company immediately after such
transaction (if the Company is the publicly traded parent company following such
transaction) or if the Company is not the publicly traded parent company
following such transaction, 70% or more of the directors of the parent company
into which Company equity securities are converted in such transaction, (c) for
the issuance of 40% or more of the equity securities of the Company as
consideration for the assets or securities of another person or (d) to acquire
in any manner (other than (i) in the context of the issuance of equity
securities of the Company as consideration for the assets or the securities of
another person or (ii) a transaction of a type listed in clause (a) above),
directly or indirectly, 20% or more of the equity securities of the Company or
assets (including equity securities of any Subsidiary of the Company) that
represent 20% or more of the total consolidated assets of the Company, other
than the transactions contemplated by this Agreement. In determining the
percentage of equity securities of the Company or of the parent company's equity
securities owned by the stockholders of the Company following a transaction
covered by clause (a), such calculation shall be made on a fully diluted basis
and there shall be excluded any equity securities (or securities convertible
into equity securities) issued to co-venturers, private equity firms and/or
other persons providing financing (debt and/or equity) for such transaction,
with any such equity securities (or securities convertible into equity
securities) treated as being held by persons other than the stockholders of the
Company, regardless of the legal form of the transaction. For purposes of clause
(c) above, there shall be included in the calculation of equity securities
issued by the Company (which shall be made on a fully-diluted basis) any equity
securities (or securities convertible into equity securities) issued to
co-venturers, private equity firms and/or other persons providing financing
(debt and/or equity) for such transaction, regardless of the legal form of the
transaction.
Section 8.03 Effect of Termination. In the event of termination of
this Agreement by either the Company or Parent as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Parent, Merger Sub or the Company, other than the
provisions of the penultimate sentence of Section 6.02(a), Sections 6.05 and
8.02, this Section 8.03 and Article IX, which provisions shall survive such
termination; provided that nothing herein shall relieve any party from any
liability for any willful breach.
63
Section 8.04 Amendment. This Agreement may be amended by the parties
hereto at any time before or after receipt of the Company Stockholder Approval;
provided, however, (i) that after such approval has been obtained, there shall
be made no amendment that by Law requires further approval by the stockholders
of the Company without such approval having been obtained and (ii) no amendment
shall be made to this Agreement after the Effective Time. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 8.05 Extension; Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties contained herein or in any document delivered
pursuant hereto or (c) subject to the proviso to the first sentence of Section
8.04, waive compliance with any of the agreements or conditions contained
herein. Any agreement on the part of a party to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party. The failure of any party to this Agreement to assert any of its
rights under this Agreement or otherwise shall not constitute a waiver of such
rights.
Section 8.06 Procedure for Termination or Amendment. A termination
of this Agreement pursuant to Section 8.01 or an amendment of this Agreement
pursuant to Section 8.04 shall, in order to be effective, require, in the case
of Parent or the Company, action by the Parent Board or the Company Board, as
applicable, or the duly authorized committee or other designee of the Parent
Board or the Company Board, as applicable, to the extent permitted by Law.
ARTICLE IX
General Provisions
Section 9.01 Nonsurvival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time. This
Section 9.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Effective Time.
Section 9.02 Notices. Except for notices that are specifically
required by the terms of this Agreement to be delivered orally, all notices,
requests, claims, demands and other communications hereunder shall be in writing
and shall be deemed given if delivered personally, facsimiled (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Parent or Merger Sub, to:
UnitedHealth Group Incorporated
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
64
with a copy to:
Weil, Gotshal & ▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
if to the Company, to:
PacifiCare Health Systems, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: General Counsel
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Section 9.03 Definitions. For purposes of this Agreement:
(a) an "Affiliate" of any person means another person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "Closing Consents" means the consents, authorizations, orders,
permits and approvals listed on Exhibit G.
(c) "Knowledge" of any person that is not an individual means, (i)
with respect to the Company regarding any matter in question, the actual
knowledge of the employees of the Company and its Subsidiaries listed in Section
9.03(c) of the Company Disclosure Letter and (ii) with respect to Parent
regarding any matter in question, the actual knowledge of the employees of
Parent and its Subsidiaries listed in Section 9.03(c) of the Parent Disclosure
Letter;
(d) "Other Agreements " shall mean the New Employment Agreements.
65
(e) "Other Core States" means the states of Arizona, Colorado,
Nevada, Oklahoma, Oregon, Texas and Washington.
(f) "Person" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(g) "Permitted Liens" means (i) any liens for taxes not yet due or
which are being contested in good faith by appropriate proceedings, (ii)
carriers', warehousemen's, mechanics', materialmen's, repairmen's or other
similar liens, (iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation, (iv)
easements, rights-of-way, restrictions and other similar encumbrances incurred
in the ordinary course of business that, in the aggregate, are not material in
amount and that do not, in any case, materially detract from the value of the
property subject thereto, (v) statutory landlords' liens and liens granted to
landlords under any lease and (vi) any purchase money security interests;
(h) "Precedent Health Care Transaction" means any acquisition, merger
or similar transaction of a publicly traded company in the health insurance or
managed health care industries which was consummated within the 24 month period
prior to the date hereof.
(i) "Providers" means all providers of health care, including all
hospitals, physicians, physician groups, facilities and ancillary providers; and
(j) a "Subsidiary" of any person means another person, an amount of
the voting securities, other voting rights or voting partnership interests of
which is sufficient to elect at least a majority of its board of directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
Section 9.04 Interpretation. When a reference is made in this
Agreement to an Article, a Section, Exhibit or Schedule, such reference shall be
to an Article of, a Section of, or an Exhibit or Schedule to, this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include",
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation". The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement. All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein. The definitions contained in this Agreement
are applicable to the singular as well as the plural forms of such terms and to
the masculine as well as to the feminine and neuter genders of such term. Any
agreement, instrument or statute defined or referred to herein or in any
agreement or instrument that is referred to herein means such agreement,
instrument or statute as from time to time amended, modified or supplemented,
including (in the case of agreements or instruments) by waiver or consent and
(in the case of statutes) by succession of comparable successor statutes and
references to all attachments thereto and instruments incorporated therein.
References to a person are also to its permitted successors and assigns. The
66
parties have participated jointly in the negotiating and drafting of this
Agreement. In the event of an ambiguity or a question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
Section 9.05 Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties. Facsimile transmission
of any signed original document and/or retransmission of any signed facsimile
transmission will be deemed the same as delivery of an original. At the request
of any party, the parties will confirm facsimile transmission by signing a
duplicate original document.
Section 9.06 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, including the Company Disclosure Letter and the Parent Disclosure
Letter, the Exhibits hereto, the documents and instruments relating to the
Merger referred to herein and the Confidentiality Agreement (a) constitute the
entire agreement, and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter of this
Agreement and the Confidentiality Agreement and (b) except for the provisions of
Section 6.04, are not intended to confer upon any person other than the parties
any rights, benefits or remedies.
Section 9.07 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Delaware, regardless of
the Laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.08 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned, in whole or in
part, by operation of Law or otherwise by any of the parties without the prior
written consent of the other parties and any attempt to make any such assignment
without such consent shall be null and void, except that Merger Sub may assign,
in its sole discretion (and, if so requested by the Company, will assign to a
wholly owned corporate subsidiary of Parent) any of or all its rights, interests
and obligations under this Agreement to any direct, wholly owned Subsidiary of
Parent, provided that (i) no such assignment shall relieve Merger Sub of any of
its obligations hereunder and (ii) such assignment shall be null and void if it
would preclude satisfaction of the closing conditions set forth in Section
7.02(e) and Section 7.03(c), without any waiver thereof. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
Section 9.09 Specific Enforcement; Consent to Jurisdiction. The
parties agree that irreparable damage would occur and that the parties would not
have any adequate remedy at law in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. Accordingly, each party hereto (a) hereby waives, in any
action for specific performance, the defense of adequacy of a remedy at law and
any requirement for the posting of any bond or other security in connection with
any such remedy and (b) agrees, in addition to any other remedy to which the
other party may be entitled at law or in equity, to the granting of specific
performance of this Agreement in any action instituted with respect hereto,
including an injunction or injunctions to prevent or restrain breaches,
violations, defaults or threatened defaults, violations or breaches of this
Agreement and to any other equitable relief, including specific performance, in
each case in favor of the other party, without any requirement for the posting
of any bond or other security and to enforce specifically the terms and
provisions of this Agreement in any Federal court located in the State of
Delaware or in any state court in the State of Delaware. In addition, each of
the parties hereto (a) consents to submit itself to the personal jurisdiction of
any Federal court located in the State of Delaware or of any state court located
67
in the State of Delaware in the event any dispute arises out of this Agreement
or the transactions contemplated by this Agreement, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Agreement or the transactions contemplated by this Agreement in
any court other than a Federal court located in the State of Delaware or a state
court located in the State of Delaware.
Section 9.10 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable Law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
68
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, all as of the date first written above.
UNITEDHEALTH GROUP INCORPORATED
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, M.D.
Title: Chairman and Chief Executive Officer
POINT ACQUISITION LLC
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
PACIFICARE HEALTH SYSTEMS, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive Officer
69