EXHIBIT 10.1
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PURCHASE AND EXCHANGE AGREEMENT
by and among
NEWQUEST, LLC,
THE SELLERS NAMED HEREIN,
NEWQUEST HOLDINGS, INC.
and
NEWQUEST, INC.
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TABLE OF CONTENTS
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ARTICLE I CERTAIN DEFINITIONS.......................................... 1
1.1 Definitions..................................................... 1
ARTICLE II PURCHASE, SALE AND CONTRIBUTION OF THE UNITS.................. 11
2.1 Basic Transaction............................................... 11
2.2 Closing Transactions............................................ 12
2.3 Total Value and Cash Purchase Price............................. 14
ARTICLE III CONDITIONS TO CLOSING........................................ 17
3.1 Conditions to Holding's and Buyer's Obligations................. 17
3.2 Conditions to the Company's and Sellers' Obligations............ 20
ARTICLE IV COVENANTS PRIOR TO CLOSING................................... 21
4.1 General......................................................... 21
4.2 Maintenance of Business......................................... 22
4.3 Third-Party Notices and Consents................................ 22
4.4 HSR Act, Other Governmental Notices and Consents................ 22
4.5 Operation of Business........................................... 22
4.6 Full Access..................................................... 23
4.7 Notice of Material Developments................................. 24
4.8 Exclusivity..................................................... 24
4.9 Tax Matters..................................................... 25
4.10 Delivery of Interim Financial Statements and Certain
Other Information............................................... 25
4.11 Management Fee Arrangements..................................... 25
4.12 Acquisition of Certain Minority Interests....................... 25
4.13 Conversion of Phantom Equity Interests into Units............... 26
ARTICLE V REPRESENTATIONS AND WARRANTIES CONCERNING SELLERS............ 26
5.1 Authority and Capacity.......................................... 26
5.2 Title to Units.................................................. 26
5.3 Authorization; Noncontravention................................. 27
5.4 Brokerage and Transaction Bonuses............................... 27
5.5 Investment Representations...................................... 27
5.6 Closing Date.................................................... 28
ARTICLE VI REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY........ 28
6.1 Capacity, Organization, Limited Liability Company Power
and Licenses.................................................... 28
6.2 Equity Securities and Related Matters; Title to Units........... 28
6.3 Authorization; Noncontravention................................. 29
6.4 Subsidiaries.................................................... 30
6.5 Financial Statements............................................ 31
6.6 Accounts Receivable............................................. 31
6.7 Absence of Undisclosed Liabilities.............................. 31
6.8 No Material Adverse Effect...................................... 32
6.9 Absence of Certain Developments................................. 32
6.10 Assets.......................................................... 34
6.11 Contracts and Commitments....................................... 34
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TABLE OF CONTENTS (continued)
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6.12 Intellectual Property Rights.................................... 36
6.13 Litigation...................................................... 37
6.14 Compliance with Laws............................................ 37
6.15 Environmental and Safety Matters................................ 40
6.16 Employees....................................................... 40
6.17 Employee Benefit Plans.......................................... 41
6.18 Insurance....................................................... 42
6.19 Tax Matters..................................................... 42
6.20 Brokerage and Transaction Bonuses............................... 44
6.21 Bank Accounts................................................... 44
6.22 Names and Locations............................................. 44
6.23 Affiliate Transactions.......................................... 44
6.24 Customers and Providers......................................... 44
6.25 Real Property................................................... 45
6.26 Disclosure; Knowledge of Breach of Representations of
Buyer and Holdings.............................................. 45
6.27 Closing Date.................................................... 46
ARTICLE VII REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS......... 46
7.1 Organization and Power.......................................... 46
7.2 Holdings Capital Stock.......................................... 46
7.3 No Operations................................................... 46
7.4 Authorization................................................... 47
7.5 No Violation.................................................... 47
7.6 Governmental Authorities and Consents........................... 47
7.7 Litigation...................................................... 47
7.8 Brokerage....................................................... 47
7.9 Availability of Funds........................................... 47
7.10 Closing Date.................................................... 48
7.11 Investment Representations; Access to Information............... 48
7.12 Acknowledgment.................................................. 48
7.13 Knowledge of Buyer.............................................. 49
ARTICLE VIII TERMINATION................................................. 49
8.1 Termination..................................................... 49
8.2 Effect of Termination........................................... 50
ARTICLE IX ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING............... 51
9.1 Survival of Representations and Warranties...................... 51
9.2 Indemnification................................................. 51
9.3 Mutual Assistance............................................... 57
9.4 Non-Competition; Non-Solicitation............................... 57
9.5 Press Release and Announcements................................. 60
9.6 Expenses........................................................ 60
9.7 Specific Performance............................................ 60
9.8 Further Assurances.............................................. 60
9.9 Confidentiality................................................. 61
9.10 Tax Matters..................................................... 61
9.11 Appointment of Sellers' Representative.......................... 62
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TABLE OF CONTENTS (continued)
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9.12 Employee Benefits............................................... 64
9.13 Use of Names.................................................... 64
ARTICLE X MISCELLANEOUS................................................ 64
10.1 Amendment and Waiver........................................... 64
10.2 Notices........................................................ 65
10.3 Successors and Assigns......................................... 66
10.4 Severability................................................... 66
10.5 Interpretation................................................. 66
10.6 No Third-Party Beneficiaries................................... 67
10.7 Complete Agreement............................................. 67
10.8 Counterparts................................................... 67
10.9 Delivery by Facsimile.......................................... 67
10.10 Governing Law; Jurisdiction.................................... 67
10.11 Waiver of Jury Trial........................................... 68
10.12 Holdings Securities Legend..................................... 68
10.13 Amendment; Waivers of Company LLC Agreement.................... 68
10.14 Schedules...................................................... 69
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EXHIBITS AND SCHEDULES
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Exhibits:
Exhibit A - Escrow Agreement
Exhibit B - Form of Phantom Membership Cancellation Agreement
Exhibit C - Stockholders Agreement
Exhibit D - Registration Agreement
Exhibit E - Certificate of Incorporation of Holdings
Exhibit F - Form of Investor Qualification Statement
Exhibit G - Debt Financing Commitment Letters
Exhibit H - Form of Employment Agreement
Exhibit I - Intentionally Omitted
Exhibit J - Amended and Restated Bylaws of Holdings
Exhibit K - 2004 Stock Option Plan of Holdings
Exhibit L - Form of GTCR and Cash Purchaser Purchase Agreement
Exhibit M - GTCR Fund VIII Guaranty Letter
Exhibit N - Form of Joinder
Schedules Article / Section Reference:
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Accounts Receivable Schedule................... 6.6
Affiliated Transactions Schedule............... 4.5(c), 6.23
Assets Schedule................................ 6.10
Bank Account Schedule.......................... 6.21
Buyer Brokerage Schedule....................... 7.8
Capitalization Schedule........................ 4.13, 6.2
Compliance Schedule............................ 6.14(a), 6.14(b), 6.14(g)
Contracts Schedule............................. 4.5(c), 6.7, 6.9(d), 6.9(h), 6.9(t), 6.11(a), 6.11(b), 6.11(c)
Customers and Providers Schedule............... 6.24
Defined Contribution Plans Schedule............ 6.17(d)
Developments Schedule.......................... 6.8, 6.9
Employee Benefits Schedule..................... 6.17(a)
Employees Schedule............................. 4.5(c), 6.16, 6.16(a), 6.16(b)
Financial Statements Schedule.................. 6.5
Holdings Governmental Approval Schedule........ 7.6
Indemnification Schedule....................... 9.2(a)
Insurance Schedule............................. 6.18
Intellectual Property Schedule................. 6.12(a), 6.12(b)
Knowledge Schedule............................. 1.1
Liabilities Schedule........................... 6.7
Litigation Schedule............................ 6.13
Names and Locations Schedule................... 6.22
Officers and Managers Schedule................. 6.1
Officers and Directors Schedule................ 6.4
Other Cash Purchasers Schedule................. 1.1, 3.1(t)
Permits Schedule............................... 6.14(b)
Post-Closing Consents Schedule................. 3.1(b), 3.2(b)
Post-Closing Governmental Approvals Schedule... 3.1(c), 3.2(b)
Phantom Members Schedule....................... Recitals, 1.1, 3.1(t), 4.13, 6.2
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Real Property Schedule......................... 6.25(b)
Restrictions Schedule.......................... 3.1(b), 3.2(b), 5.3, 6.3
Sale of Assets Schedule........................ 4.5(c)
Schedule of Retained Liens..................... 3.1(l)
Schedule of Jurisdictions...................... 3.1(p)
Schedule of Sellers............................ Preamble, Recitals, 1.1, 4.13, 5.2, 6.2, 10.2
Select Seller Permitted Activity Schedule...... 9.4(a)
Select Sellers Schedule........................ 1.1
Subsidiary Schedule............................ 4.12, 6.4
Taxes Schedule................................. 6.19(b)
Total Value Calculation Schedule............... 2.2(b)(i), 2.3(c)
Transaction Bonuses Schedule................... 5.4, 6.20
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PURCHASE AND EXCHANGE AGREEMENT
THIS PURCHASE AND EXCHANGE AGREEMENT (this "Agreement") is made and
entered into as of November 10, 2004, by and among NewQuest, LLC, a Texas
limited liability company (the "Company"), the Persons listed on the attached
Schedule of Sellers (collectively referred to herein as the "Sellers" and
individually as a "Seller"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as the Sellers'
Representative ("Sellers' Representative"), NewQuest Holdings, Inc., a Delaware
corporation ("Holdings"), and NewQuest, Inc., a Delaware corporation ("Buyer").
WHEREAS, Holdings owns all of the issued and outstanding Capital Stock
of Buyer;
WHEREAS, as of the date hereof, all of the issued and outstanding
limited liability company interests of the Company, which comprise the only
equity interests of the Company (other than the phantom equity interests issued
to the Phantom Members as set forth on the Phantom Members Schedule which shall
be cancelled at Closing pursuant to the Phantom Equity Cancellation Agreements,
subject to Section 4.13 below), consist of 700,000 Founders' Units, 3,055,000
Series A Units, 232,000 Series B Units and 591,176.47 Series C Units (as may be
adjusted pursuant to Section 4.13 below, the "Units");
WHEREAS, each Seller owns the number and series of Units set forth on
the attached Schedule of Sellers;
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, at the Closing, certain Sellers shall contribute to Holdings the
number and type of Units set forth opposite such Seller's name on the attached
Schedule of Sellers (the "Contributed Units") in exchange for Holdings Preferred
Stock and Holdings Common Stock in a transaction intended to be treated as an
exchange under Section 351 of the Code, the Rollover Phantom Members shall
reinvest a portion of their after-tax proceeds with respect to their phantom
equity interests (based on the Estimated Total Value) to acquire Holdings
Preferred Stock and Holdings Common Stock and each of the Other Cash Purchasers
shall invest cash to acquire Holdings Preferred Stock and Holdings Common Stock;
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, at the Closing, Buyer shall purchase from Sellers, and Sellers shall
sell to Buyer, the Purchased Units;
WHEREAS, all of the Purchased Units and all of the Contributed Units
together comprise all of the Units;
WHEREAS, simultaneously with the execution of this Agreement, GTCR
Fund VIII, L.P., a Delaware limited partnership ("GTCR Fund VIII"), shall enter
into a guaranty letter with Holdings and Buyer in the form of Exhibit M attached
hereto.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and understandings contained herein and intending to be legally bound, the
parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 Definitions. For the purposes of this Agreement, the following terms
have the meanings set forth below:
"Accounting Firm" has the meaning set forth in Section 2.3(c).
"Acquired Minority Interests" has the meaning set forth in Section
4.11.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such Person. For
purposes of this definition, "control" (including the terms "controlling,"
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise, and such "control" will be presumed if any Person owns
20% or more of the voting capital stock or other ownership interests, directly
or indirectly, of any other Person.
"Affiliated Group" means an affiliated group as defined in Section
1504 of the Code (or any analogous combined, consolidated or unitary group
defined under state, local or foreign income Tax law).
"Buyer Parties" has the meaning set forth in Section 9.2(a).
"Baptist" means Baptist Hospital System, Inc., a Tennessee nonprofit
corporation.
"Baptist Loans" means (i) that certain Line of Credit Loan Agreement,
dated as of November 18, 2002, by and among Baptist, the Company and its
subsidiaries in principal sum of $5,000,000, as amended pursuant to that certain
Loan Modification Agreement, dated as of July 25, 2003, and (ii) that certain
Term Loan Agreement, dated June 28, 2002, by and between Baptist and
HealthSpring Management, Inc., a Tennessee corporation ("HSM"), in principal sum
of $2,000,000, as amended by that certain First Amendment to Term Loan
Agreement, dated as of November 18, 2002, as further amended by the Loan
Modification Agreement, dated as of July 25, 2003.
"Cash" means for any Person or Persons, as of any date of
determination, the aggregate amount of unencumbered cash, cash equivalents and
marketable securities of such Person or Persons, including the face amount of
any checks received and not yet deposited and funds sent to the Company or any
Subsidiary via electronic transfer that are confirmed initiated but not yet
received, but excluding the face amount of any checks written and not yet
cleared and funds sent by the Company or any Subsidiary via electronic transfer
that are confirmed initiated but not yet received, as of the close of business
on the day immediately prior to such date of determination, including the
Company Regulated Cash and the Company Unregulated Cash. For purposes of this
Agreement, the value of Cash with respect to cash equivalents and marketable
securities shall be equal to the Cash which could be actually realized with
respect to such cash equivalents and marketable securities as of such date of
determination (net of any discounts, redemption penalties or similar
deductions).
"Cash Purchase Price" has the meaning set forth in Section 2.3(a).
"Cash Purchasers" means the Rollover Phantom Members and the Other
Cash Purchasers.
"Closing" has the meaning set forth in Section 2.2(a).
"Closing Balance Sheet" has the meaning set forth in Section 2.3(c).
"Closing Net Working Capital" has the meaning set forth in Section
2.3(a).
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"Closing Date" has the meaning set forth in Section 2.2(a).
"Closing Indebtedness" has the meaning set forth in Section 2.3(a).
"Closing Net Working Capital Target" has the meaning set forth in
Section 2.3(a).
"Closing Payment" has the meaning set forth in Section 2.2(c)(vi).
"Closing Tax Liability" has the meaning set forth in Section 2.3(a).
"CMS" means the Centers for Medicare and Medicaid Services.
"Code" means the Internal Revenue Code of 1986, as amended, and any
reference to any particular Code section shall be interpreted to include any
revision of or successor to that section regardless of how numbered or
classified.
"Company LLC Agreement" means the Amended and Restated Regulations of
the Company dated as of September 1, 2000, as amended by the First Amendment to
the Amended and Restated Regulations of the Company dated as of September, 2001
and supplemented by the (i) Certificate of Designation of Preferences,
Limitations, and Relative Rights of the Company's Series A Preferred Units dated
as of September, 2000, (ii) Certificate of Designation of Preferences,
Limitations, and Relative Rights of the Company's Series B Preferred Units dated
as of December 15, 2000, and (iii) Certificate of Designation of Preferences,
Limitations, and Relative Rights of the Company's Series C Preferred Units dated
as of September, 2001.
"Company Regulated Cash" means all Cash of the HMO Subsidiaries.
"Company Unregulated Cash" means all Cash of the Company and all
Subsidiaries which is not Company Regulated Cash.
"Company Transaction" shall have the meaning set forth in Section 4.8.
"Confidential Information" means all information of the Company and
its Subsidiaries of a confidential or proprietary nature (whether or not
specifically labeled or identified as "confidential"), in any form or medium,
that relates to the business, products, financial condition, services or
research or development of the Company or its Subsidiaries or their respective
suppliers, distributors, customers, independent contractors or other business
relations. Confidential Information includes, but is not limited to, the
following: (i) internal business and financial information (including
information relating to strategic and staffing plans and practices, business,
finances, training, marketing, promotional and sales plans and practices, cost,
rate and pricing structures and accounting and business methods); (ii)
identities of, individual requirements of, specific contractual arrangements
with, and information about, the Company's or any of its Subsidiaries'
suppliers, distributors, customers, independent contractors or other business
relations and their confidential information; (iii) trade secrets, know-how,
compilations of data and analyses, techniques, systems, formulae, recipes,
research, records, reports, manuals, documentation, models, data and data bases
relating thereto; (iv) inventions, innovations, improvements, developments,
methods, designs, analyses, drawings, reports and all similar or related
information (whether or not patentable); and (v) other Intellectual Property
Rights. Notwithstanding the foregoing, the term "Confidential Information" shall
not include information that (x) is or becomes generally known or available to
the public through no unauthorized action or omission or any other action or
omission outside of the ordinary course of business on the part of any of the
Sellers, the Company, any of the Company's Subsidiaries or any of their
respective officers, directors or Affiliates at or prior to the time of
disclosure;
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(y) becomes known to the disclosing party (or one of its Affiliates) after the
Closing Date without any restriction on disclosure, which has not been disclosed
to the disclosing party in violation of any agreement; or (z) is required to be
disclosed by law, rule, regulation or judicial order, provided, however, that
prompt notice of said requirement shall have been given to the non-disclosing
party.
"Contributing Seller" means each Seller who has been allocated any
Indemnification Share.
"Debt Financing Commitment Letters" means the financing commitment
letters attached as Exhibit G hereto.
"Debt Transactions" means the senior debt financing and mezzanine debt
financing in the amounts and upon substantially the terms and conditions as set
forth on the term sheets attached to the Debt Financing Commitment Letters.
"Deemed Per Unit Value" shall mean an amount equal to the sum of the
Estimated Total Value divided by the total number of Units outstanding
immediately prior to the Closing.
"Encumbrance" means any lien, charge, security interest, claim,
pledge, Tax, option, warrant, right, contract, call, commitment, equity, demand,
proxy, voting agreement, restriction on transfer (other than restrictions on
transfer under the Securities Act and applicable state securities laws or, prior
to the Closing, the Company LLC Agreement which shall be released pursuant to
Section 10.13 below) or other encumbrance.
"Environmental and Safety Requirements" means all federal, state,
local and foreign statutes, regulations, ordinances and other provisions having
the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law in each case
concerning public health and safety, worker health and safety, and pollution or
protection of the environment and in effect on or prior to the Closing Date.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow Agent" means ▇▇▇▇▇ Fargo Bank, National Association.
"Escrow Agreement" means the escrow agreement substantially in the
form of Exhibit A attached hereto.
"Escrow Amount" means Seventeen Million Two Hundred Thousand Dollars
($17,200,000).
"Escrow Funds" shall have the meaning given to such term in the Escrow
Agreement.
"Estimated Cash Purchase Price" has the meaning set forth in Section
2.2(b)(iv).
"Estimated Closing Net Working Capital" means the Company's estimate
of the Net Working Capital as of the Closing Date as set forth in the Total
Value Certificate delivered pursuant to Section 2.2(b).
"Estimated Total Value" has the meaning set forth in Section
2.2(b)(i).
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"Executives" means ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇ ▇▇., J. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, W. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇.
"FIRPTA Affidavit" has the meaning set forth in Section 3.1(q).
"Final Cash Purchase Price" has the meaning set forth in Section
2.3(d).
"GAAP" means United States generally accepted accounting principles,
as in effect from time to time, applied on a basis consistent with the Company's
past practices.
"GTCR and Cash Purchaser Purchase Agreement" has the meaning set forth
in Section 3.1.
"GTCR Entities" means GTCR Fund VIII, GTCR Fund VIII/B, L.P., a
Delaware limited partnership, GTCR Co-Invest II, L.P., a Delaware limited
partnership, and any investment fund managed by GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, L.L.C., a
Delaware limited liability company or any of its Affiliates.
"Governmental Approvals" has the meaning set forth in Section 3.1(c).
"Guaranty" means any agreement, undertaking or arrangement by which
any Person guarantees, endorses or otherwise becomes or is contingently liable
upon the debt, obligation or other liability of any other Person (other than by
endorsements of instruments in the ordinary course of collection), or guaranties
of the payment of dividends or other distributions upon the shares of any other
Person.
"HealthSpring, Inc." means HealthSpring, Inc., a Tennessee
corporation.
"HealthSpring Management, Inc." means HealthSpring Management, Inc., a
Tennessee corporation.
"HealthSpring USA, LLC" means HealthSpring USA, LLC, a Tennessee
limited liability company.
"HMO Subsidiary" means any Subsidiary of the Company that is licensed
by any state as a health maintenance organization or equivalent health insurer,
including HealthSpring, Inc., Texas HealthSpring, HealthSpring of Alabama, Inc.,
an Alabama corporation and HealthSpring of Illinois, Inc., an Illinois
corporation.
"Holdings Common Percentage" means the ratio equal to the aggregate
purchase price for all Holdings Common Stock acquired by the GTCR Entities
pursuant to the GTCR and Cash Purchaser Purchase Agreement divided by the
aggregate purchase price for all Holdings Securities acquired by the GTCR
Entities pursuant to the GTCR and Cash Purchaser Purchase Agreement.
"Holdings Common Stock" means the common stock, par value $.01 per
share, of Holdings.
"Holdings Preferred Percentage" means the ratio equal to the aggregate
purchase price for all Holdings Preferred Stock acquired by the GTCR Entities
pursuant to the GTCR and Cash Purchaser Purchase Agreement divided by the
aggregate purchase price for all Holdings Securities acquired by the GTCR
Entities pursuant to the GTCR and Cash Purchaser Purchase Agreement.
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"Holdings Preferred Stock" means the Series A Preferred Stock, par
value $.01 per share, of Holdings.
"Holdings Securities" means the Holdings Common Stock and Holdings
Preferred Stock.
"HSR Act" means ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended.
"Indebtedness" means, with respect to any Person at any date, without
duplication: (i) all obligations of such Person for borrowed money or in respect
of loans or advances, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments or debt securities, (iii) all
obligations in respect of letters of credit and bankers' acceptances issued for
the account of such Person, (iv) all obligations arising from cash/book
overdrafts, (v) all obligations arising from deferred compensation arrangements,
(vi) all obligations of such Person secured by a Lien, (vii) all Guaranties of
such Person in connection with any of the foregoing, (viii) all capital lease
obligations, (ix) all indebtedness for the deferred purchase price of property
or services with respect to which a Person is liable, contingently or otherwise,
as obligor or otherwise (other than trade payables incurred in the ordinary
course of business which are not past due), (x) all other liabilities classified
as non-current liabilities in accordance with GAAP as of the date of
determination of such Indebtedness, but excluding (a) any portion of the
Company's building loss accrual included in long-term liabilities consistent
with past practices and (b) any deferred rent and deferred gain on leases and
(xi) all accrued interest, prepayment premiums or penalties related to any of
the foregoing.
"Indemnification Share" means, with respect to each Seller, a fraction
as set forth on the attached Schedule of Sellers, which for each Seller together
with such Seller's Affiliates who are Sellers, shall be equal to the aggregate
Pro Rata Share of such Seller and its Affiliates which are Sellers. If any
Seller's Indemnification Share is zero, such Seller shall be deemed to not have
been allocated any Indemnification Share for purposes of this Agreement.
"Indemnitee" has the meaning set forth in Section 9.2(e).
"Indemnitor" has the meaning set forth in Section 9.2(e).
"Individual Obligations" has the meaning set forth in Section 9.2(b).
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) Internet domain names,
trademarks, service marks, trade dress, trade names, logos and corporate names
and registrations and applications for registration thereof together with all of
the goodwill associated therewith, (iii) copyrights (registered or unregistered)
and copyrightable works and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation thereof, (vi)
trade secrets and other confidential information (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, financial and marketing plans and
customer and supplier lists and information), and (vii) other intellectual
property rights.
"Investment" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including limited
liability company interests, partnership interests and joint venture interests)
of any other Person and (ii) any capital contribution by such Person to any
other Person.
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"Joinder" means a joinder to this Agreement in the form of Exhibit N
hereto, pursuant to which a Phantom Member who becomes a Seller pursuant to
Section 4.13 below shall become party to this Agreement as a Seller in the same
manner as if the undersigned were an original signatory to this Agreement as a
Seller.
"Knowledge" (i) with respect to knowledge of the Company, means the
actual knowledge of the individuals set forth on the Knowledge Schedule attached
hereto after reasonable investigation of the matters in question by such
individuals, and (ii) with respect to Buyer and Holdings, the actual knowledge
of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇., ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ without
obligation to investigate the matters in question.
"Latest Balance Sheet" has the meaning set forth in Section 6.5(b).
"Leased Real Property" means all leasehold or subleasehold estates and
other rights to use or occupy any land, buildings, structures, improvements,
fixtures or other interest in real property held by any of the Company or any of
its Subsidiaries.
"Leases" means all leases, subleases, licenses, concessions and other
agreements (written or oral), including all amendments, extensions, renewals,
guaranties and other agreements with respect thereto, pursuant to which any of
the Company or its Subsidiaries holds any Leased Real Property.
"Lien" means any mortgage, pledge, hypothecation, lien (statutory or
otherwise), preference, priority, security interest, security agreement,
easement, covenant, restriction or other encumbrance of any kind or nature
whatsoever (including any conditional sale or other title retention agreement
and any lease having substantially the same effect as any of the foregoing and
any assignment or deposit arrangement in the nature of a security device).
"Losses" has the meaning set forth in Section 9.2(a).
"Material Adverse Effect" means a material and adverse effect or
development upon the business, operations, assets, liabilities, financial
condition, operating results, cash flow, net worth or provider relations of the
Company and its Subsidiaries (taken as a whole), excluding any material and
adverse effect or development arising from or relating to (i) business or
economic conditions generally affecting the national business or economic
markets as a whole and not affecting the Company or any of its Subsidiaries in
any materially more adverse manner or degree therefrom, (ii) any proposed
legislative action or initiative generally affecting health maintenance
organizations and not affecting the Company or any of its Subsidiaries in a
materially more adverse manner or degree from health maintenance organizations
generally or (iii) any action taken or not taken at the express direction of
Holdings or Buyer or otherwise taken expressly in accordance with this
Agreement.
"Minority Interests" means any equity or equity-like investments by
any Person or Persons other than the Company or one or more of its Subsidiaries
in any of the Company's Subsidiaries.
"Net Working Capital" means, as of any date of determination, an
amount equal to (a) the Company's and its Unregulated Subsidiaries' total
current assets as of such date (excluding Cash of the Company and its
Unregulated Subsidiaries as of such date and excluding any intercompany
receivables, Tax asset, Tax refund or deferred Tax asset) minus (b) the
Company's and its Unregulated Subsidiaries' total current liabilities as of such
date (excluding Indebtedness, the amount of Taxes otherwise included therein to
the extent deducted from the Total Value and the Cash Purchase Price pursuant to
Section 2.3(a) below, intercompany payables, building loss accrual, deferred
rent/leasehold, deferred gain on lease and any deferred Tax liability),
determined in accordance with GAAP. In determining total current
7
assets and total current liabilities hereunder, all accounting entries shall be
taken into account regardless of their amount and all errors and omissions shall
be corrected.
"Notice of Disagreement" has the meaning set forth in Section 2.3(c).
"Other Cash Purchasers" means, collectively, the employees of the
Company or any of its Subsidiaries who will reinvest a portion of any special
bonuses or other similar compensation payable to any employee of the Company or
any of its Subsidiaries in connection with the transactions contemplated hereby
pursuant to the GTCR and Cash Purchaser Purchase Agreement as set forth on the
Other Cash Purchasers Schedule.
"Other Sellers" means all Sellers other than the Select Sellers.
"Owned Real Property" means all land, together with all buildings,
structures, improvements and fixtures located thereon, including all easements
and other rights and interests appurtenant thereto (including air, oil, gas,
mineral and water rights), owned by any of the Company or its Subsidiaries.
"Permitted Lien" shall mean (a) any Liens for Taxes not yet due and
payable or the validity of which is being contested by the Company or any of its
Subsidiaries in good faith by appropriate proceedings and for which adequate
reserves have been established on the Company's financial statements in
accordance with GAAP, (b) Liens resulting from a filing by a lessor as a
precautionary filing for a true lease, (c) landlord's Liens under leases, (d)
any mechanics', carriers', workers', repairers' and similar statutory Liens
arising in the ordinary course of business by operation of law with respect to
an obligation or liability that is not yet due or payable and which would not,
individually or in the aggregate, have a Material Adverse Effect, and as to
which adequate reserves have been established on the Company's financial
statements in accordance with GAAP, and (e) prior to the Closing, restrictions
on transfer set forth in the Company LLC Agreement.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated association, corporation, limited liability
company, entity or governmental entity (whether federal, state, county, city or
otherwise and including any instrumentality, division, agency or department
thereof).
"Per Unit Holdings Securities" means with respect to each Contributed
Unit, (a) a number of shares of Holdings Common Stock equal to the Deemed Per
Unit Value multiplied by the Holdings Common Percentage divided by $0.10 and (b)
a number of shares of Holdings Preferred Stock equal to the Deemed Per Unit
Value multiplied by the Holdings Preferred Percentage divided by $1,000.
"Phantom Members" means all Persons who have been granted phantom
equity interests in the Company pursuant to phantom membership agreements, each
of whom is identified on the Phantom Members Schedule.
"Phantom Membership Cancellation Agreement" means a Phantom Membership
Cancellation Agreement between the Company and each Person who is party to a
NewQuest LLC Phantom Membership Agreement.
"Pre-Closing D&O Liability" means any Loss incurred or suffered by any
Seller who was a director, officer or manager of the Company or any of its
Subsidiaries in connection with any claim, suit, action, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Closing, first asserted after the
8
Closing, to the fullest extent that the Company and its Subsidiaries would have
been permitted by law and under the certificates of formation or incorporation,
operating agreements and/or by-laws, of the Company and its Subsidiaries in
effect on the date hereof to indemnify such Person; but only to the extent such
Loss is not actually covered by the Run-Off Insurance Policies. Notwithstanding
the foregoing, "Pre-Closing D&O Liability" shall not include any deductibles
under Run-Off Insurance Policies.
"Pre-Closing Tax Period" has the meaning set forth in Section 9.2(a).
"Pro Rata Share" means, with respect to each Seller, a fraction as set
forth on the attached Schedule of Sellers, the numerator of which shall be equal
to the number of Units owned by such Seller immediately prior to the Closing as
set forth on the attached Schedule of Sellers and the denominator of which shall
be equal to the number of Units owned by all Sellers immediately prior to the
Closing as set forth on the attached Schedule of Sellers.
"Purchased Unit" means each issued and outstanding Unit which is not a
Contributed Unit.
"Real Property" means the Owned Real Property and the Leased Real
Property.
"Registration Agreement" has the meaning set forth in Section 3.1(k).
"Restricted Securities" has the meaning set forth in Section 5.5(a).
"Restricted Territories" has the meaning set forth in Section 9.4(a).
"Restrictive Covenants" has the meaning set forth in Section 9.4(d).
"Rollover Phantom Member" means each Phantom Member who will reinvest
a portion of their after-tax proceeds with respect to their phantom equity
interests (based on the Estimated Total Value) into shares of Holdings Preferred
Stock and Holdings Common Stock pursuant to the Phantom Membership Cancellation
Agreements as set forth on the Phantom Members Schedule.
"Rollover Seller" means each Seller who owns Contributed Units as set
forth on the Schedule of Sellers.
"Run-Off Insurance Policies" has the meaning set forth in Section
3.1(r).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"Select Sellers" means the Sellers identified on the Select Sellers
Schedule attached hereto.
"Sellers' Expenses" shall mean (a) all of the fees, expenses and other
costs incurred, paid or required to be paid by the Company or any of its
Subsidiaries (whether or not on behalf of the Sellers) in connection with the
negotiation of this Agreement, the performance of the Sellers', the Company's or
any of its Subsidiaries' obligations hereunder and the consummation of the
transactions contemplated hereby (including all of the fees, expenses and other
costs of the Sellers' Representative and the Company's legal counsel, investment
bankers, brokers, accountants and other representatives and consultants but
excluding, for avoidance of doubt, any expenses of (i) Buyer or Holdings
described in Section 9.6 or otherwise required or incurred in connection with
this Agreement and the transactions
9
contemplated hereby or (ii) the Company or any of its Subsidiaries incurred
after the Closing), including any expenses of any Seller that the Company or any
of its Subsidiaries agrees to reimburse in connection with the transactions
contemplated by this Agreement and which are not paid directly by the Sellers,
whether or not such fees, expenses or costs have been assessed or billed prior
to the Closing Date (including the Run-Off Insurance Policies), (b) the pre-tax
value of all consideration required to terminate all agreements or plans of the
Company or any of its Subsidiaries with respect to phantom equity or the
equivalent, including all amounts required to terminate all NewQuest, LLC
Phantom Membership Agreements with the Phantom Members to be paid to the Phantom
Members pursuant to Phantom Membership Cancellation Agreements, and all special
bonuses, change in control payments, sale bonus or other similar compensation
payable to any Person in connection with the transactions contemplated hereby,
(c) all amounts required to purchase, redeem or otherwise acquire each of the
Acquired Minority Interests, including any fees (including any filing fees
pursuant to the HSR Act), expenses or other costs and any liabilities
(contingent or otherwise) incurred by the Company or any of its Subsidiaries
associated with such purchase, redemption or acquisition, and (d) the aggregate
actual and/or deemed purchase price necessary to purchase, redeem or acquire 80%
of the investment by the owners of the Minority Interests in Texas HealthSpring
outstanding as of the date hereof (based upon the purchase price of the Minority
Interests in Texas HealthSpring after the date hereof and at or prior to the
Closing), together with all fees, expenses and other costs incurred in
connection with the foregoing, including payments pursuant to any related
non-competition agreements minus the aggregate actual purchase price paid by the
Company and its Subsidiaries to purchase, redeem or acquire any investments by
the owners of the Minority Interests in Texas HealthSpring at any time after the
date hereof but prior to or at the Closing. Without limiting the foregoing,
Sellers' Expenses shall include all fees and expenses of Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
and Brentwood Capital Advisors LLC in connection with the transactions
contemplated by this Agreement and the process to sell the Company and its
Subsidiaries. Notwithstanding any provision to the contrary, the foregoing
expenses shall not be deemed "Sellers' Expenses" to the extent such expenses
have been paid by the Company or one or more of its Subsidiaries (other than the
HMO Subsidiaries) solely with Company Unregulated Cash at or prior to the
Closing which would reduce the Total Value and the Cash Purchase Price to avoid
duplication.
"Sellers' Representative" has the meaning set forth in Section 9.11.
"Stockholders Agreement" has the meaning set forth in Section 3.1(j).
"Straddle Period" has the meaning set forth in Section 9.10(a).
"Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (irrespective of whether, at the time, stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, limited liability
company, association or other business entity, either (A) a majority of the
partnership or other similar ownership interest thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more Subsidiaries
of that Person or a combination thereof, or (B) such Person is or has the right
to designate a general partner, managing member or managing director of such
partnership, limited liability company, association or other entity.
"Tax" means any (i) federal, state, local or foreign income, gross
receipts, franchise, estimated, alternative minimum, add-on minimum, sales, use,
transfer, registration, value added, excise, natural resources, severance,
stamp, occupation, premium, windfall profit, environmental, customs, duties,
real property, personal property, capital stock, social security, unemployment,
disability, payroll,
10
license, employee or other withholding, or other tax, of any kind whatsoever,
including any interest, penalties or additions to tax or additional amounts in
respect of the foregoing; (ii) liability for the payment of any amounts of the
type described in clause (i) above arising as a result of being (or ceasing to
be) a member of any Affiliated Group (or being included (or required to be
included) in any Tax Return relating thereto); and (iii) liability for the
payment of any amounts of the type described in clause (i) above as a result of
any express or implied obligation to indemnify or otherwise assume or succeed to
the liability of any other Person.
"Tax Returns" means returns, declarations, reports, claims for refund,
information returns or other documents (including any related or supporting
schedules, statements or information) filed or required to be filed in
connection with the determination, assessment or collection of any Taxes of any
party or the administration of any laws, regulations or administrative
requirements relating to any Taxes.
"Texas HealthSpring" means Texas HealthSpring I, LLC, a Texas limited
liability company (d/b/a Texas HealthSpring).
"Third Party Approvals" has the meaning set forth in Section 3.1(b).
"Total Value" has the meaning set forth in Section 2.3(a).
"Total Value Calculation" has the meaning set forth in Section 2.3(c).
"Total Value Certificate" has the meaning set forth in Section 2.2(b).
"Total Value Components" has the meaning set forth in Section
2.2(b)(i).
"Transaction Documents" means this Agreement and all other agreements
executed and delivered by Holdings, Buyer, the Company, the Sellers'
Representative or any of the Sellers under this Agreement or in any instrument,
certificate or document delivered by any such Person pursuant to this Agreement
or any other Transaction Document, including the Escrow Agreement, the
Stockholders Agreement, the Registration Agreement and the Phantom Membership
Cancellation Agreements.
"Treasury Regulations" means the United States Treasury Regulations
promulgated under the Code, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Unregulated Subsidiary" means a Subsidiary of the Company that is not
an HMO Subsidiary.
"Value of Holdings Securities" means, (i) with respect to each share
of Holdings Preferred Stock, $1,000.00 per share, and (ii) with respect to each
share of Holdings Common Stock, $0.10 per share.
ARTICLE II
PURCHASE, SALE AND CONTRIBUTION OF THE UNITS
2.1 Basic Transaction. On the terms and subject to the conditions set forth
in this Agreement, at the Closing, (i) each Seller shall contribute, convey,
assign, transfer and deliver to Holdings the Contributed Units owned by such
Seller (as set forth on the Total Value Certificate), free
11
and clear of all Encumbrances and Holdings shall issue Holdings Preferred Stock
and Holdings Common Stock as set forth on the Total Value Certificate, and (ii)
each Seller shall sell, convey, assign, transfer and deliver to Buyer the
Purchased Units (as set forth on the Total Value Certificate) owned by such
Seller, free and clear of all Encumbrances and Buyer shall purchase from each
Seller the Purchased Units owned by such Seller for cash as set forth on the
Total Value Certificate.
2.2 Closing Transactions.
(a) Closing. Subject to the provisions of Section 4.7, the closing of
the transactions contemplated by this Agreement (the "Closing") shall take place
at the offices of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, or at such other place as is mutually
agreeable to Buyer and the Sellers' Representative, at 10:00 a.m. local time on
the second business day (or, at either party's option, any other business day
within five business days) following the satisfaction or waiver of the
conditions to Closing set forth in Article III (other than conditions to be
satisfied at the Closing itself) or such other date as Buyer and Sellers'
Representative may mutually determine (the "Closing Date"); provided, however,
that subject to Article VIII, the failure to consummate the Closing on such date
shall not relieve any party to this Agreement of any obligation under this
Agreement.
(b) Delivery of Total Value Certificate Prior to Closing. At least
three (3) business days prior to the Closing, the Sellers' Representative, on
behalf of the Sellers, shall deliver to Holdings and Buyer a certificate (the
"Total Value Certificate"), accepted by Buyer in its reasonable discretion
(which acceptance shall be deemed an acceptance to use such determination for
purposes of Closing, but shall not be construed as an agreement with Sellers as
to the actual contents thereof other than for purposes of the determination of
the number and type of Contributed Units and Purchased Units with respect to
each Seller) and which shall be prepared under the supervision of and executed
in good faith by the Company's chief operating officer, which shall include the
following, each in reasonable detail:
(i) the estimated Total Value (the "Estimated Total Value"), as
determined pursuant to Section 2.3 below (including the estimated Closing
Indebtedness, Closing Tax Liability, the Company Unregulated Cash as of the
Closing, the Company Regulated Cash as of the Closing, the amount of any
Sellers' Expenses which have not been paid at or prior to the Closing solely out
of Company Unregulated Cash, and the Estimated Closing Net Working Capital (such
components of the Total Value are hereinafter referred to as the "Total Value
Components")), prepared in a manner consistent with the Total Value Calculation
Schedule, which has been attached hereto solely for illustrative purposes to
demonstrate the Sellers' calculation of Total Value and Cash Purchase Price as
if the Closing occurred on September 30, 2004;
(ii) the number of shares of Holdings Preferred Stock and
Holdings Common Stock to be issued to each Rollover Phantom Member, the gross
cash proceeds to be paid to each Phantom Member pursuant to the Phantom
Membership Cancellation Agreements, the amount of withholding tax to be withheld
by the Company from such Rollover Phantom Member with respect to the
transactions contemplated by this Agreement and the net cash proceeds to be paid
to each Phantom Member after deducting the withholding tax;
(iii) the number of shares of Holdings Preferred Stock and
Holdings Common Stock to be issued to each Other Cash Purchaser, the gross cash
proceeds to be paid to each Other Cash Purchaser with respect to the
transactions contemplated by this Agreement pursuant to any agreement with such
Other Cash Purchaser, the amount of withholding tax to be withheld by the
Company from such Other Cash Purchaser, if any, with respect to the transactions
contemplated by this Agreement and the net cash proceeds to be paid to each
Other Cash Purchaser after deducting the withholding tax, if any;
12
(iv) the Cash Purchase Price (the "Estimated Cash Purchase
Price"), as determined pursuant to Section 2.3, and the amount of the Closing
Payment to be paid to the Sellers' Representative, on behalf of the Sellers, at
the Closing pursuant to Section 2.2(c) below;
(v) the portion of the Escrow Amount to be funded by each
Contributing Seller based upon such Contributing Seller's Indemnification Share;
(vi) the type and number (in each case rounded up to the nearest
whole number) of Contributed Units with respect to each Seller and the number of
shares of Holdings Preferred Stock and Holdings Common Stock to be issued to
each Seller with respect to such Seller's Contributed Units; provided that the
aggregate Value of Holdings Securities to be issued to each Seller shall be
equal to the aggregate Deemed Per Unit Value of such Seller's Contributed Units;
and
(vii) the type and number of Purchased Units with respect to each
Seller and the portion of the Closing Payment to be paid to each Seller pursuant
to Section 2.3(b) below.
(c) Deliveries at Closing. At the Closing:
(i) Each Seller shall deliver to Holdings the certificates
representing the Contributed Units together with such other appropriately
executed instruments of contribution, transfer and conveyance reasonably
requested by Holdings in form and substance reasonably satisfactory to Holdings
and its counsel evidencing and effecting the contribution and transfer to
Holdings of the Contributed Units;
(ii) Holdings shall issue to each Rollover Seller Per Unit
Holdings Securities with respect to such Seller's Contributed Unit immediately
prior to the Closing as set forth on the Total Value Certificate with legends
affixed to the stock certificates evidencing such shares of Holdings Securities
as set forth in Section 10.12;
(iii) Each Seller shall deliver to Buyer the certificates
representing the Purchased Units together with such other appropriately executed
instruments of contribution, transfer and conveyance reasonably requested by
Holdings in form and substance reasonably satisfactory to Buyer and its counsel
evidencing and effecting the contribution and transfer to Buyer of the Purchased
Units;
(iv) Buyer shall repay, or cause to be repaid, on behalf of the
Company and its Subsidiaries, the Indebtedness outstanding under the Baptist
Loans, specified in a payoff letter delivered to Buyer pursuant to Section
3.1(l) by wire transfer in immediately available funds (and the amount of such
Indebtedness shall reduce the Total Value);
(v) Buyer shall pay, or cause to be paid, on behalf of the
Sellers, the Company and its Subsidiaries, as applicable, the Sellers' Expenses
identified by the Company prior to the Closing to the extent not paid by the
Company at or prior to Closing solely out of Company Unregulated Cash by wire
transfer in immediately available funds to the accounts and/or Persons specified
by the Company prior to Closing (and the amount of any such Sellers' Expenses
shall reduce the Total Value);
(vi) Buyer shall pay an amount (the "Closing Payment") equal to
the Estimated Cash Purchase Price minus the Escrow Amount to Sellers'
Representative, on behalf of Sellers, by wire transfer of immediately available
funds to the account designated in writing by the Sellers' Representative to
Buyer at least two (2) business days prior to the Closing;
13
(vii) Buyer shall deliver to the Escrow Agent the Escrow Amount
by wire transfer of immediately available funds to the account designated in
writing by the Escrow Agent for deposit into an escrow account established
pursuant to the terms of the Escrow Agreement. The Escrow Amount shall be
available to satisfy amounts owing to the Buyer Parties pursuant to Section
2.3(d), Section 9.2 and Section 9.10(b) below. Subject to the conditions and
limitations set forth in the Escrow Agreement, (i) upon determination of the
Final Cash Purchase Price pursuant to Section 2.3 below, the Escrow Agent will
distribute an amount equal to (A) $2,200,000 minus (B) the excess (if any) of
the Estimated Cash Purchase Price over the Final Cash Purchase Price, in
accordance with the terms of the Escrow Agreement, (ii) on the date that is
eighteen months after the Closing Date, any Escrow Funds (other than Escrow
Funds subject to outstanding claims) in excess of $5 million held by the Escrow
Agent in the Escrow Account will be disbursed in accordance with the terms of
the Escrow Agreement and, (iii) on the third anniversary of the Closing Date,
all remaining Escrow Funds (other than Escrow Funds subject to outstanding
claims) shall be disbursed in accordance with the terms of the Escrow Agreement;
(viii) the Company, Sellers, the Sellers' Representative, Buyer
and Holdings, as applicable, shall deliver the certificates and other documents
and instruments required to be delivered by or on behalf of such party under
Article III below; and
(ix) Sellers shall deliver to the Company all corporate books and
records and other property of the Company in their possession, if any.
2.3 Total Value and Cash Purchase Price.
(a) The "Total Value" for all of the outstanding Units shall be an
amount equal to Four Hundred Twenty-Two Million Five Hundred Thousand Dollars
($422,500,000.00), minus (i) the aggregate amount of all Indebtedness of the
Company and its Subsidiaries existing as of the Closing, including all
Indebtedness under any of the Baptist Loans (the "Closing Indebtedness"), minus
(ii) the aggregate amount of all foreign, federal, state and local Taxes of or
payable by the Company and its Unregulated Subsidiaries with respect to any
taxable year or taxable period or portion thereof ended on or prior to the
Closing Date which have not been paid by the Company as of the Closing (the
"Closing Tax Liability"), minus (iii) the amount (if any) by which Company
Unregulated Cash as of the Closing is less than Five Million Two Hundred Eighty
Thousand Dollars ($5,280,000.00), plus (iv) the amount (if any) by which the
Company Unregulated Cash as of the Closing is greater than Five Million Two
Hundred Eighty Thousand Dollars ($5,280,000.00), minus (v) the amount of any
Sellers' Expenses which have not been paid at or prior to the Closing solely out
of Company Unregulated Cash, minus (vi) the amount (if any) by which the Net
Working Capital as of the Closing Date as finally determined in accordance with
the provisions of this Section 2.3 (the "Closing Net Working Capital") is less
(i.e., a greater negative number) than negative Two Million Six Hundred Fifty
Thousand Dollars (-$2,650,000.00) (the "Closing Net Working Capital Target"),
and plus (vii) the amount (if any) by which the Closing Net Working Capital is
greater than the Closing Net Working Capital Target. The "Cash Purchase Price"
for all of the outstanding Purchased Units shall be an amount equal to the Total
Value minus the aggregate Value of Holdings Securities with respect to all
Holdings Securities to be issued to the Sellers at Closing as set forth on the
Total Value Certificate.
(b) Subject to Section 2.3(e) below, upon receipt of the Closing
Payment by the Sellers' Representative, each Seller at Closing shall be entitled
to receive a portion of the Closing Payment from the Sellers' Representative in
an amount equal to (x) the Closing Payment multiplied by (y) the number of
Purchased Units owned by such Seller immediately prior to Closing divided by (z)
the aggregate number of Purchased Units outstanding immediately prior to Closing
as set forth on the Total Value Certificate.
14
(c) As soon as practicable (but in no event more than 90 days
following the Closing Date), Buyer shall deliver to Sellers' Representative a
balance sheet of the Company as of the Closing Date (in its final and binding
form, the "Closing Balance Sheet"), prepared in good faith and setting forth, in
reasonable detail, the Total Value Components and a certificate setting forth,
in reasonable detail, the resulting Total Value and Cash Purchase Price
calculated with reference to such amounts (in its final and binding form,
together with the Closing Balance Sheet, the "Total Value Calculation"). The
Closing Balance Sheet and the Total Value Components shall include all known
adjustments required in a year-end closing of the books and shall be prepared in
a manner consistent with GAAP and, to the extent consistent with GAAP, the Total
Value Calculation Schedule. Sellers shall cooperate as reasonably requested in
connection with the preparation of the Total Value Calculation. Following
Sellers' Representative's receipt of the Total Value Calculation, Sellers'
Representative shall be permitted to review the Company's books and records and
Buyer's and the Company's working papers related to the preparation of the Total
Value Calculation and determination of the Total Value and Cash Purchase Price.
The Total Value Calculation shall become final and binding upon the parties
hereto 30 days following Sellers' Representative's receipt thereof unless
Sellers' Representative gives written notice of its disagreement (a "Notice of
Disagreement") to Buyer prior to such date. Any Notice of Disagreement shall be
made in good faith and specify in reasonable detail the nature and dollar amount
of any disagreement so asserted. If a timely Notice of Disagreement is received
by Buyer, then the Total Value Calculation and the resulting Total Value and
Cash Purchase Price calculated with reference thereto (as revised in accordance
with clause (x) or (y) below) shall become final and binding upon the parties on
the earliest of (x) the date the parties resolve in writing any differences they
have with respect to the matters specified in the Notice of Disagreement (the
"Disputed Matters") or (y) the date all Disputed Matters are finally resolved in
writing by the Accounting Firm (defined below). During the 20 days following
delivery of a Notice of Disagreement, Buyer and the Sellers' Representative
shall seek in good faith to resolve in writing any differences which they have
with respect to the Disputed Matters. Following delivery of a Notice of
Disagreement, Buyer and its agents and representatives shall be permitted to
review Sellers' Representative's and its representatives' working papers
relating to the Notice of Disagreement. At the end of the 20-day period referred
to above, Buyer and the Sellers' Representative, on behalf of the Sellers, shall
submit to a mutually satisfactory independent "big-four" accounting firm other
than KPMG LLP or PricewaterhouseCoopers LLP for review and resolution of all
Disputed Matters that remain in dispute (but only such matters) (the "Remaining
Disputed Matters"). If Buyer and the Sellers' Representative are unable to
mutually agree upon an accounting firm, Buyer and the Sellers' Representative
shall select by lot a "big-four" accounting firm other than KPMG LLP or
PricewaterhouseCoopers LLP. The parties shall instruct the accounting firm
ultimately agreed upon or selected by lot under this Section 2.3(c) (the
"Accounting Firm") to make a final determination of the Remaining Disputed
Matters and the resulting Total Value and Cash Purchase Price calculated with
reference to such amounts to the extent such amounts were Remaining Disputed
Matters, in accordance with the guidelines and procedures set forth in this
Agreement. The parties hereto will cooperate with the Accounting Firm during the
term of its engagement. Buyer and the Sellers' Representative shall instruct the
Accounting Firm to not assign a value to any item in dispute greater than the
greatest value for such item assigned by Buyer, on the one hand, or Sellers'
Representative, on the other hand, or less than the smallest value for such item
assigned by Buyer, on the one hand, or Sellers' Representative, on the other
hand. Buyer and the Sellers' Representative shall also instruct the Accounting
Firm to make its determination consistent with GAAP and based solely on
presentations by Buyer and Sellers' Representative which are in accordance with
the guidelines and procedures set forth in this Agreement (i.e., not on the
basis of an independent review). The Total Value Calculation and the
determination of the Total Value Components and the resulting Total Value and
Cash Purchase Price calculated with reference thereto shall become final and
binding on the parties hereto on the date the Accounting Firm delivers its final
resolution in writing to Buyer and the Sellers' Representative (which final
resolution shall be requested by Buyer and the Sellers' Representative to be
delivered not more than 45 days following submission of such disputed matters).
The fees and expenses of the Accounting Firm shall be
15
allocated by the Accounting Firm based on the relative accuracy of Buyer's and
the Sellers' Representative's proposed Cash Purchase Price against the
Accounting Firm's final resolution of the amount of the Cash Purchase Price. For
the avoidance of doubt and by way of example only, if Sellers' Representative
proposes $350 million as the amount of the Cash Purchase Price, and Buyer
proposes $300 million, and the Accounting Firm settles at $325 million, fees and
expenses shall be shared 50% by Sellers and 50% by Holdings and Buyer. If,
however, Buyer had instead proposed $325 million, all fees and expenses would be
borne by Sellers, because the Sellers' Representative's proposed amount was the
only proposal that differed from the Accounting Firm's final amount.
(d) Promptly after the Total Value Calculation and the determination
of the Total Value Components and the resulting Total Value and Cash Purchase
Price calculated with reference to such amounts become final and binding on the
parties under Section 2.3(c) above, the Estimated Cash Purchase Price shall be
recalculated by giving effect to the final and binding Total Value Components
and Total Value (as recalculated, the "Final Cash Purchase Price"). If the
Estimated Cash Purchase Price is greater than the Final Cash Purchase Price,
Sellers shall, and if the Final Cash Purchase Price is greater than the
Estimated Cash Purchase Price, Buyer shall, within three business days after the
Total Value Calculation becomes final and binding on the parties hereto, make
payment by check or wire transfer to Buyer or Sellers' Representative, as the
case may be, in immediately available funds of the amount of such difference.
Subject to Section 2.3(e) below, upon receipt of any amounts by the Sellers'
Representative pursuant to this Section 2.3(d), each Seller shall be entitled to
receive from the Sellers' Representative a portion of any such amounts equal to
such Seller's Pro Rata Share multiplied by such amount. Notwithstanding the
foregoing, any amounts owing from Sellers pursuant to this Section 2.3(d) shall
first be made to the extent possible from the Escrow Funds held by the Escrow
Agent pursuant to the Escrow Agreement in an amount not to exceed $2,200,000 and
thereafter shall be made, at the option of Buyer in its sole discretion, (x)
from any additional Escrow Funds held by the Escrow Agent pursuant to the Escrow
Agreement, or (y) directly by Sellers in cash, on a several but not joint basis
on the basis of each Seller's Pro Rata Share. If Buyer is unable to recover cash
from a Seller pursuant to clause (y) within 10 days after delivery of written
notice to the Sellers' Representative (and to the extent practicable a
confirmatory phone call to the Sellers' Representative to confirm receipt of
such notice), Buyer may recover directly from that Seller through surrendering
shares or portions of shares of Holdings Securities held by such Seller or such
Seller's transferees with a value equal to the amount of any such unsatisfied
liability. For purposes of the foregoing sentence, each share of Holdings
Securities shall have a value equal to the fair market value determined by
Holdings' board of directors in its reasonable discretion. Any shares of
Holdings Securities surrendered pursuant to this Section 2.3(d) shall be in the
ratio of one (1) share of Holdings Preferred Stock to the number of shares of
Holdings Common Stock equal to (A) the Holdings Common Percentage divided by (B)
the Holdings Preferred Percentage multiplied by 10,000. In the event Buyer
elects to recover shares of Holdings Securities from a Seller pursuant to this
Section, such Seller shall surrender (or cause to be surrendered by such
Seller's transferee(s)) Holdings Securities with a value equal to the amount of
any unsatisfied liability to Buyer, and shall promptly deliver (or cause to be
delivered by such Seller's transferee(s) or, if held by Holdings as custodian on
behalf of such Seller pursuant to the Stockholders Agreement shall request that
Holdings release for surrender) to Buyer the stock certificate(s) representing
such Seller's shares (or such Seller's transferee(s) shares) of Holdings
Securities for cancellation, together with duly executed forms of assignment
sufficient to transfer title thereto to the Buyer. Upon receipt of such stock
certificate(s) from such Seller or such Seller's transferee(s), Holdings shall
issue a new stock certificate to such Seller or its permitted transferee
evidencing the number of shares of each class of Holdings Securities delivered
to Buyer on behalf of such Seller pursuant to the preceding sentence less the
number of shares of each class of Holdings Securities to be surrendered to Buyer
pursuant to clause (z) above.
(e) Notwithstanding any provision to the contrary in this Agreement,
Holdings and Buyer shall have no obligations to make or cause any payments or
deliveries to be made to any of the
16
Sellers, individually. Holdings and Buyer shall be able to rely conclusively on
the proper distribution of cash by the Sellers' Representative among the Sellers
upon receipt by the Sellers' Representative of such cash. Without limiting the
foregoing, upon receipt of any cash by the Sellers' Representative which any
Seller may be entitled to receive pursuant to this Agreement, none of Holdings,
Buyer, the Company or any of their respective Affiliates shall be liable to such
Seller for any Losses or other damages resulting from such Seller not receiving
such cash payment.
ARTICLE III
CONDITIONS TO CLOSING
3.1 Conditions to Holding's and Buyer's Obligations. The obligation of
Holdings and Buyer to consummate the transactions contemplated by this Agreement
is subject to the satisfaction or waiver of the following conditions on or prior
to the Closing Date:
(a) (i) The representations and warranties in Article V and Article VI
hereof that are subject to materiality qualifications shall be true and correct
in all respects at and as of the Closing Date and the representations and
warranties contained in Article V and Article VI hereof that are not subject to
materiality qualifications shall be true and correct in all material respects at
and as of the Closing, in each case as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties (without taking into account any disclosures made
by Sellers or the Company to Holdings or Buyer pursuant to Section 4.7 below
other than pursuant to Section 4.13 below), other than those representations and
warranties that address matters as of particular dates which shall be true and
correct or true and correct in all material respects, as the case may be, at and
as of such particular dates, and (ii) Sellers, the Sellers' Representative and
the Company shall have performed in all material respects all of the covenants
and agreements required to be performed by Sellers, the Sellers' Representative
and the Company hereunder prior to the Closing; provided that, the conditions
set forth in subsection (i) above shall be deemed satisfied for purposes of this
Section 3.1(a) unless the effect of any applicable breaches of representations
and warranties individually or in the aggregate has had, or would reasonably be
expected to have, a Material Adverse Effect;
(b) Except as set forth on the Post-Closing Consents Schedule attached
hereto, Sellers and the Company shall have received or obtained all third-party
consents and approvals that are necessary (i) for the consummation of the
transactions contemplated hereby or (ii) to prevent a breach of or default
under, a termination, modification or acceleration of, or a right to terminate,
modify or accelerate, any instrument, contract, lease, license or other
agreement which have not been identified on the Restrictions Schedule or which
are identified with an asterisk on the attached Restrictions Schedule
(collectively, the "Third-Party Approvals"), in each case on terms reasonably
satisfactory to Buyer;
(c) Except as set forth on the Post-Closing Governmental Approvals
Schedule attached hereto, Buyer, Sellers and the Company shall have received or
obtained all governmental and regulatory consents, approvals, licenses and
authorizations that are necessary (i) for the consummation of the transactions
contemplated hereby or (ii) for Holdings and Buyer to own the Contributed Units
and Purchased Units, respectively, and to operate the businesses of and control
the Company and its Subsidiaries following the Closing, in each case on terms
and conditions reasonably satisfactory to Buyer, and all applicable waiting
periods under the HSR Act shall have expired or been terminated (collectively,
the "Governmental Approvals");
(d) No suit, action or other proceeding shall be pending or threatened
before any court or governmental or regulatory official, body or authority or
any arbitrator (i) seeking to prevent the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or
17
declare unlawful any of the transactions contemplated hereby, (ii) wherein an
unfavorable injunction, judgment, order, decree, ruling or charge would
reasonably be expected to cause any of the transactions contemplated by this
Agreement to be rescinded following consummation, (iii) wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would reasonably be
expected to materially and adversely affect the right of Holdings or Buyer to
own the Contributed Units or Purchased Units, respectively, or operate the
businesses of the Company or any of its Affiliates or control the Company and
its Subsidiaries or (iv) wherein an unfavorable injunction, judgment, order,
decree, ruling or charge would reasonably be expected to materially and
adversely affect the right of the Company and its Subsidiaries to own their
respective assets or control their respective businesses, and no such
injunction, judgment, order, decree or ruling shall have been entered or be in
effect;
(e) Since the date of this Agreement, there shall have been no
Material Adverse Effect;
(f) Buyer shall have consummated the Debt Transactions on
substantially the terms set forth in the Debt Financing Commitment Letters,
including any flex provisions contained in the Debt Financing Commitment Letters
or in any fee letter attached thereto;
(g) The Executives shall have entered into employment and
non-competition arrangements with the Company substantially in the form of
Exhibit H attached hereto;
(h) The Sellers' Representative and the Escrow Agent shall have
executed and delivered the Escrow Agreement, and the Escrow Agreement shall be
in full force and effect as of the Closing and shall not have been amended or
modified;
(i) Each of the Phantom Members (x) shall have executed and delivered
a Phantom Membership Cancellation Agreement in the form of Exhibit B attached
hereto, all such Phantom Membership Cancellation Agreements shall be in full
force and effect as of the Closing and shall not have been amended or modified,
or (y) if any Person has converted his or her phantom equity interests in the
Company pursuant to phantom membership agreements into Units, such Person shall
(A) have converted such phantom equity interests into Units on terms and
conditions reasonably satisfactory to Buyer and (b) executed a Joinder, and such
Joinder shall be in full force and effect as of the Closing and shall not have
been amended or modified;
(j) Each of the Rollover Sellers and each of the Cash Purchasers shall
have executed and delivered a stockholders agreement substantially in the form
of Exhibit C attached hereto (the "Stockholders Agreement"), and the
Stockholders Agreement shall be in full force and effect as of the Closing and
shall not have been amended or modified;
(k) Each of the Rollover Sellers and each of the Cash Purchasers shall
have executed and delivered a registration agreement substantially in the form
of Exhibit D attached hereto (the "Registration Agreement"), and the
Registration Agreement shall be in full force and effect as of the Closing and
shall not have been amended or modified;
(l) The Company shall have obtained payoff letters with respect to the
Indebtedness outstanding as of the Closing under the Baptist Loans (in each case
on terms and conditions satisfactory to Buyer), and the Company shall have
obtained releases of all Liens (other than the Liens set forth on the Schedule
of Retained Liens attached hereto (the "Retained Liens")) relating to the assets
and properties of the Company and its Subsidiaries (which may be conditioned
upon payment of all amounts set forth in the payoff letter with respect to the
Baptist Loans delivered by the Company to Buyer);
18
(m) INTENTIONALLY OMITTED;
(n) INTENTIONALLY OMITTED;
(o) INTENTIONALLY OMITTED;
(p) The Company and its Subsidiaries shall have obtained all permits,
licenses, bonds, approvals, certificates, registrations, accreditations and
other authorizations required to operate as a health maintenance organization in
the states, counties and other jurisdictions listed on the Schedule of
Jurisdictions attached hereto;
(q) Each Seller shall have delivered to Buyer a non-foreign affidavit
dated as of the Closing Date and in form and substance required under the
Treasury Regulations issued pursuant to Section 1445 of the Internal Revenue
Code so that Buyer is exempt from withholding any portion of the Purchase Price
hereunder (the "FIRPTA Affidavit");
(r) The Company shall have obtained the following insurance policies,
in each case on terms and conditions reasonably satisfactory to Buyer and
Holdings (the "Run-Off Insurance Policies"): (i) one year run-off insurance
coverage on managed care errors and omissions liability and excess managed care
errors and omissions liability in the amount of $5.0 million with a $375,000
deductible and (ii) six year run-off insurance coverage on directors and
officers liability (including employment practices liability), excess directors
and officers liability (including employment practices liability) and fiduciary
liability in the amount of $5.0 million with a $250,000 deductible;
(s) To the Company's Knowledge (without obligation to investigate) the
Company shall have achieved an EBITDA (as hereinafter defined) for the trailing
twelve month period ending December 31, 2004 of at least $65,000,000 or, if the
Closing occurs prior to December 31, 2004, then to the Company's Knowledge
(without obligation to investigate) the Company shall have achieved an EBITDA
since January 1, 2004 (on an annualized basis) of at least $65,000,000 and the
Company will reasonably be expected to achieve an EBITDA for the trailing twelve
month period ending December 31, 2004 of at least $65,000,000. For purposes of
this paragraph, "EBITDA" as of any date shall mean the earnings of the Company
and its Subsidiaries on a consolidated basis for any period before interest,
taxes, depreciation and amortization for such period, determined in accordance
with GAAP. Without limiting the foregoing, in calculating EBITDA, changes in
reserves, including reserves for incurred but not reported health care claims
liabilities, shall be consistent with past practices of the Company and its
Subsidiaries;
(t) Each of the Cash Purchasers shall have entered into a stock
purchase agreement in substantially the form of Exhibit L attached hereto ("GTCR
and Cash Purchaser Purchase Agreement") and each of the Rollover Phantom Members
and each of the Other Cash Purchasers shall have acquired Holdings Securities
with an Aggregate Value equal to the value of any proceeds to be invested in
Holdings pursuant to the GTCR and Cash Purchaser Purchase Agreement as set forth
on the Phantom Members Schedule and the Other Cash Purchasers Schedule, as
applicable; and
(u) At or prior to the Closing, Sellers shall have delivered to Buyer
(i) a certificate signed by the Company, dated the date of the Closing, stating
that the conditions specified in subsections (a) through (e) and (i), (l) and
(t) above have been satisfied as of the Closing (provided that such certificate
may be qualified by any disclosures made by Sellers or the Company to Buyer or
Holdings pursuant to Section 4.7 below with respect to subsection (a) above);
(ii) the Total Value Certificate; (iii) copies of all Third-Party Approvals and
Governmental Approvals; (iv) certified copies of the resolutions of the
Company's board of managers authorizing the execution, delivery and performance
of this
19
Agreement and the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby and thereby; (v) the resignations,
effective as of the Closing, of each director, manager and officer of the
Company and its Subsidiaries (except as otherwise determined by Buyer); (vi)
good standing certificates for each of the Company and its Subsidiaries from
their respective jurisdictions of incorporation or formation and each
jurisdiction in which the Company and its Subsidiaries is qualified to do
business as a foreign entity, in each case dated as of a recent date prior to
the Closing Date; and (vii) such other documents or instruments as are required
to be delivered by Sellers or the Company at the Closing pursuant to the terms
hereof or that Holdings or Buyer reasonably requests prior to the Closing Date
to effect the transactions contemplated hereby.
(v) Any condition specified in this Section 3.1 may be waived by
Holdings or Buyer if such waiver is set forth in a writing duly executed by
Holdings or Buyer.
3.2 Conditions to the Company's and Sellers' Obligations. The obligation of
the Company and Sellers to consummate the transactions contemplated by this
Agreement is subject to the satisfaction or waiver of the following conditions
at or prior to the Closing:
(a) (i) The representations and warranties in Article VII hereof that
are subject to materiality qualifications shall be true and correct in all
respects at and as of the Closing Date and the representations and warranties
made in Article VII hereof that are not subject to materiality qualifications
shall be true and correct in all material respects at and as of the Closing
Date, in each case as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations and
warranties (without taking into account any disclosures made by Holdings or
Buyer to the Company or Sellers pursuant to Section 4.7 below), other than those
representations and warranties that address matters as of particular dates which
shall be true and correct or true and correct in all material respects, as the
case may be, at and as of such particular dates, and (ii) Holdings and Buyer
shall have performed in all material respects all of the covenants and
agreements required to be performed by Holdings or Buyer hereunder, as
appropriate, prior to the Closing; provided that, the conditions set forth in
subsection (i) above shall be deemed satisfied for purposes of this Section
3.2(a) unless the effect of any applicable breaches of representations and
warranties individually or in the aggregate has had, or would reasonably be
expected to have, a material and adverse effect or development upon the ability
of Buyer or Holdings to consummate the transactions contemplated hereby (a
"Buyer MAE");
(b) All applicable waiting periods under the HSR Act shall have
expired or been otherwise terminated, and, except as set forth on the
Post-Closing Consents Schedule and the Post- Closing Governmental Approvals
Schedule attached hereto, Sellers and the Company shall have received all
Third-Party Approvals and all Governmental Approvals, except where failure to
obtain any such Third-Party Approvals or Governmental Approvals would not have a
Material Adverse Effect and would not constitute a material violation of any
applicable law, and all other Third-Party Approvals and Governmental Approvals
identified as a "Seller Requirement" on the Restrictions Schedule;
(c) No suit, action or other proceeding shall be pending or threatened
before any court or governmental or regulatory official, body or authority or
any arbitrator (i) seeking to prevent the performance of this Agreement or the
consummation of any of the transactions contemplated hereby or declare unlawful
any of the transactions contemplated hereby, or (ii) wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would reasonably be
expected to cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, and no such injunction, judgment, order,
decree or ruling shall have been entered or be in effect;
20
(d) Each of the parties to the Stockholders Agreement other than the
Sellers shall have executed and delivered the Stockholders Agreement, and the
Stockholders Agreement shall be in full force and effect as of the Closing and
shall not have been amended or modified;
(e) Each of the parties to the Registration Agreement other than the
Sellers shall have executed and delivered the Registration Agreement, and the
Registration Agreement shall be in full force and effect as of the Closing and
shall not have been amended or modified;
(f) Each of Buyer and the Escrow Agent shall have executed and
delivered the Escrow Agreement, and the Escrow Agreement shall be in full force
and effect as of the Closing and shall not have been amended or modified;
(g) Holdings shall have delivered to Sellers' Representative a copy of
the Certificate of Incorporation of Holdings in the form of Exhibit E, certified
by the Secretary of State of the State of Delaware;
(h) Holdings shall have duly authorized the Amended and Restated
Bylaws of Holdings, in the form of Exhibit J attached hereto;
(i) Holdings shall have duly authorized the 2004 Stock Option Plan of
Holdings, in the form of Exhibit K attached hereto;
(j) At or prior to the Closing, Buyer shall have delivered to Sellers
(i) a certificate signed by Buyer, dated the date of the Closing, stating that
the conditions specified in subsections (a), (b) with respect to the expiration
or termination of all applicable waiting periods under the HSR Act, (c), (g),
(h) and (i) above have been satisfied (provided that such certificate may be
qualified by any disclosures made by Buyer or Holdings to Sellers pursuant to
Section 4.7 below with respect to subsection (a) above), (ii) certified copies
of the resolutions of the Buyer's and Holding's board of directors, as
applicable, authorizing (A) the execution, delivery and performance of this
Agreement and the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby and thereby, and (B) the issuance and
delivery of the Holdings Securities as contemplated hereby, and that all such
resolutions are in full force and effect; (iii) good standing certificates for
each of Buyer and Holdings from their respective jurisdictions of incorporation
or formation, in each case dated as of a recent date prior to the Closing Date;
and (iv) such other documents or instruments as are required to be delivered by
Buyer or Holdings at the Closing pursuant to the terms hereof or that Sellers
reasonably request prior to the Closing Date to effect the transactions
contemplated hereby.
Any condition specified in this Section 3.2 may be waived by the
Seller's Representative if such waiver is set forth in a writing duly executed
by Sellers' Representative.
ARTICLE IV
COVENANTS PRIOR TO CLOSING
Each of the parties agrees as follows with respect to the period between
the date of this Agreement and the Closing (or until this Agreement is
terminated pursuant to Article VIII):
4.1 General. Subject to the terms of this Agreement, each party shall use
reasonable best efforts to take all actions and do all things necessary, proper
or advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
conditions set forth in Article III above).
21
4.2 Maintenance of Business. The Company and its Subsidiaries shall use
reasonable best efforts to (and the Company shall use reasonable best efforts to
cause its Subsidiaries to) (a) maintain their assets in good operating condition
and repair in accordance with past practices (normal wear and tear excepted),
(b) maintain insurance reasonably comparable to that in effect on the date of
the Latest Balance Sheet, (c) maintain its assets at customary and adequate
operating levels consistent with past practice and replace in accordance with
past practice any inoperable, worn out, damaged or obsolete assets with assets
of at least comparable quality, (d) maintain its books, accounts and records in
accordance with past custom and practice as used in the preparation of the
Latest Balance Sheet and the financial statements described in Section 6.5 below
and provide for accruals for Taxes, incurred but not reported claims, vacation
and other items consistent with GAAP, (e) make capital expenditures in a manner
consistent with past practice, (f) maintain reserves sufficient to be in
compliance with all applicable laws, ordinances, codes, rules, requirements and
regulations, and (g) maintain in full force and effect the existence of all
material Intellectual Property Rights.
4.3 Third-Party Notices and Consents. Sellers and the Company shall give
all required notices to third parties and use their respective reasonable best
efforts to obtain all required third-party consents in connection with the
matters contemplated by this Agreement.
4.4 HSR Act, Other Governmental Notices and Consents. As promptly as
practicable after the date of this Agreement, each of the parties shall file any
Notification and Report Forms and related materials that it may be required to
file with the Federal Trade Commission and the Antitrust Division of the United
States Department of Justice under the HSR Act, use reasonable efforts to obtain
an early termination of the applicable waiting period, and make any further
filings pursuant thereto that may be necessary, proper, or advisable. Each of
the parties shall give any other notices to, make any other filings with, and
use reasonable best efforts to obtain, any other authorizations, consents and
approvals of governments and governmental agencies required in connection with
the matters contemplated by this Agreement.
4.5 Operation of Business. The Company and its Subsidiaries shall (and the
Company shall cause its Subsidiaries to) operate their business only in the
usual and ordinary course of business consistent with past practice and use
reasonable best efforts to preserve the goodwill and organization of their
business and the relationships with their customers, suppliers, employees and
other Persons having business relations with the Company and its Subsidiaries.
Without limiting the generality of the foregoing and except as provided in
Section 4.13 below or as set forth on Schedule 4.5, prior to the Closing, the
Company shall not (and the Company shall not permit any of its Subsidiaries to)
without the prior written consent of Buyer:
(a) knowingly take or omit to take any action that would require
disclosure under Section 6.9 below or that would otherwise result in a material
breach of any of the representations, warranties or covenants made by Sellers or
the Company in this Agreement;
(b) knowingly take any action or omit to take any action which act or
omission would reasonably be anticipated to have a Material Adverse Effect;
(c) (i) enter into any contract out of the ordinary course of business
or restricting in any material respect the conduct of its business, (ii) make
any loans or Investments (other than advances to the Company's or its
Subsidiaries' employees in the ordinary course of business consistent with past
custom and practice), (iii) increase the compensation, incentive arrangements or
other benefits to any officer or employee of the Company with annual
compensation in excess of $200,000, except for increases or bonuses made in the
ordinary course of business consistent with past custom and practice that are
set forth on the Employees Schedule attached hereto or pursuant to existing
contractual arrangements
22
set forth on section (a) of the Contracts Schedule, (iv) redeem, purchase or
otherwise acquire directly or indirectly any of its issued and outstanding
equity securities, or any outstanding rights or securities exercisable or
exchangeable for or convertible into its equity securities or make any
distribution with respect to its equity securities except for any tax
distributions pursuant to Section 5.1(b) of the Company LLC Agreement in the
ordinary course of business consistent with past practices solely from Company
Unregulated Cash, (v) amend the Company LLC Agreement, articles of organization
or formation (or equivalent) or issue or agree to issue any equity securities or
any rights or options to acquire, or securities convertible into or exchangeable
for, any of its equity securities, (vi) directly or indirectly engage in or
modify any transaction, arrangement or contract with the Company or any
Subsidiary or any officer, director, unitholder or other insider or Affiliate of
the Company or any of its Subsidiaries, except in the ordinary course of
business consistent with past custom and practice as described on the Affiliated
Transactions Schedule attached hereto, and shall not amend any of the management
fee arrangements with any of the HMO Subsidiaries, (vii) execute any guaranty,
issue any debt, borrow any money or otherwise incur or create any Indebtedness
or liability (other than payables in the ordinary course of business consistent
with past practice); (viii) purchase, sell, lease or dispose of any material
property or assets except as set forth on the Sale of Assets Schedule attached
hereto; (ix) make any payments or distributions from Company Regulated Cash
(other than with respect to management fees pursuant to the terms of management
agreements approved by the applicable governmental regulatory authorities and
set forth on Section (a) of the Contracts Schedule and other administrative
expenses in the ordinary course of business consistent with past practice); (x)
cease from making accruals for Taxes, incurred but not reported claims, vacation
and other customary accruals of the Company and its Subsidiaries; (xi) abstain
from making payments on any Taxes, principal or interest on borrowed funds and
other customary expenses of the Company as they become due; (xii) amend, modify,
extend, renew or terminate the Leases, and shall not enter into any new lease,
sublease, license or other agreement for the use or occupancy of any real
property; or (xiii) file Tax Returns other than in a manner consistent with past
practices; or
(d) enter into any transaction, arrangement or contract with any
Person except on an arm's length basis in the ordinary course of business
consistent with past customs and practices.
Notwithstanding the foregoing, nothing in this Section 4.5 shall
prohibit the Company from taking any action or omitting to take any action as
required by law (provided that notice of such action or omission is promptly
provided to Buyer) or as expressly contemplated by this Agreement or from making
any distributions of cash from Unregulated Subsidiaries in the ordinary course
of business.
4.6 Full Access. The Company shall afford, and cause its officers,
directors, employees, attorneys, accountants and other agents to afford, to
Buyer and its accounting, legal and other representatives and potential lenders,
as well as their respective officers, employees, affiliates and other agents
subject to any requirement of law (including anti-trust law), full and complete
access at all reasonable times (upon reasonable advance notice) and during
normal business hours to the Company's and its Subsidiaries' personnel,
facilities, assets, and to business, financial, legal, tax, compensation and
other data and information concerning the Company's and its Subsidiaries'
affairs and operations; provided that Buyer shall use its reasonable best
efforts not to (i) disrupt the operation of the Company's and its Subsidiaries'
business or (ii) except as required by law (provided that prior notice is
provided to the Company), expressly contemplated by this Agreement or with the
written consent of the Company, not contact any governmental entity, customers,
suppliers, and business or joint venture partners of the Company or its
Subsidiaries. Buyer and Holdings acknowledge that the terms and conditions of
that certain Confidentiality Agreement, dated as of February 24, 2004, between
GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇, LLC and Brentwood Capital Advisors LLC, as agent for the
Company (the "Confidentiality Agreement"), shall apply to all information
furnished to any Buyer or Holdings representative hereunder or thereunder, until
the effective time of the Closing.
23
4.7 Notice of Material Developments. Each party shall promptly notify the
other party of any changes or additions to any such party's Schedules to this
Agreement, as soon as practicable; provided that notwithstanding any provision
to the contrary, if an MAE Notice is delivered to Buyer or Holdings within five
business days of any date scheduled for Closing, then Buyer may delay the
Closing Date until the date that is five business days following the date such
MAE Notice has been delivered to Buyer or Holdings. Except as set forth in
Section 4.13 below, no such updates made pursuant to this Section 4.7 shall be
deemed to cure any inaccuracy of any representation or warranty made in this
Agreement as of the date hereof, unless each of the nonbreaching parties
specifically agrees thereto in writing, nor shall any such notification be
considered to constitute or give rise to a waiver by each of the nonbreaching
parties of any condition set forth in this Agreement. Without limiting the
generality of the foregoing, each party shall give prompt written notice to the
other parties of (i) any variances in any of its representations or warranties
contained in Article V, Article VI or Article VII above, as the case may be,
(ii) any breach of any covenant or agreement hereunder by such party and (iii)
any other material event or development likely to impair such party's ability to
consummate the transactions contemplated by this Agreement. Notwithstanding the
foregoing, if any facts, events or circumstances occur after the date of this
Agreement which would cause the representations and warranties contained in
Article VI to not be true and correct on the Closing Date in a manner which
would reasonably be expected to result in a Material Adverse Effect, the
Sellers' Representative may provide the Buyer with a notice (the "MAE Notice")
which would inform the Buyer with reasonable specificity of any such facts,
events or circumstances and the resulting breach of Sellers' or the Company's
representations and warranties as of the Closing Date which would reasonably be
expected to result in a Material Adverse Effect and expressly grant Buyer the
option of terminating this Agreement or consummating the transactions
contemplated hereby. If Buyer receives a MAE Notice and does not terminate this
Agreement pursuant to Section 8.1(f), Buyer will not be entitled to recover any
Losses with respect to breaches of representations or warranties which arise and
are reasonably apparent from facts occurring after the date hereof which are
identified in such MAE Notice pursuant to Article IX or otherwise.
4.8 Exclusivity. Neither Sellers nor the Company shall, and Sellers and the
Company shall cause each of their respective Affiliates, representatives,
officers, employees, directors or agents not to, directly or indirectly, (i)
submit, solicit, initiate, encourage or discuss any proposal or offer from any
Person (other than Buyer and its Affiliates in connection with the transactions
contemplated hereby) or enter into any agreement or accept any offer relating to
or consummate any (a) reorganization, liquidation, dissolution or
recapitalization of the Company or any of its Subsidiaries, (b) merger or
consolidation involving the Company or any of its Subsidiaries, (c) purchase or
sale of equity securities (or any rights to acquire, or securities convertible
into or exchangeable for, any such equity securities) (other than as
contemplated by Section 6.11 hereunder) or all or substantially all of the
assets of the Company or any of its Subsidiaries (other than the purchase and
sale of inventory and capital equipment in the ordinary course of business
consistent with past custom and practice), or (d) similar transaction or
business combination involving the Company or any of its Subsidiaries or their
business or assets (each of the foregoing transactions described in clauses (a)
through (d), a "Company Transaction") or (ii) furnish any information with
respect to, assist or participate in or facilitate in any other manner any
effort or attempt by any Person (other than Buyer and its Affiliates) to do or
seek to do any of the foregoing. Sellers and the Company agree to notify Buyer
promptly if any Person makes any bona fide proposal, offer, inquiry or contact
with respect to a Company Transaction. If any of the provisions of this Section
4.8 are breached and the transactions contemplated hereby are not consummated
for any reason and Sellers or the Company enter into a Company Transaction
within 12 months of the termination of this Agreement with a Person with whom
the Company had discussions or to whom the Company provided information in
breach of this Section 4.8, the Company shall promptly reimburse Buyer and its
Affiliates for all reasonable out-of-pocket fees and expenses incurred before or
after the date of this Agreement by Buyer and its Affiliates related to the
transactions contemplated hereby, including reasonable fees and expenses of
legal counsel, accountants and other consultants and advisors retained by Buyer
and its
24
Affiliates in connection with the transactions contemplated hereby. The
foregoing provisions are in addition to, and not in derogation of, any statutory
or other remedy that Buyer and its Affiliates may have for a breach of this
Section 4.8.
4.9 Tax Matters. Without the prior written consent of Buyer (not to be
unreasonably withheld, conditioned or delayed), except as required by applicable
law (provided that prompt notice is provided to Buyer), neither Sellers nor the
Company or any of its Subsidiaries shall make or change any election, change an
annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company or any of its Subsidiaries, surrender any
right to claim a refund of Taxes, consent to any extension or waiver of the
limitation period applicable to any Tax claim or assessment relating to the
Company or any of its Subsidiaries, or take any other similar action, or omit to
take any action relating to the filing of any Tax Return or the payment of any
Tax, if such election, adoption, change, amendment, agreement, settlement,
surrender, consent or other action or omission would have the effect of
increasing the present or future Tax liability or decreasing any present or
future Tax benefit of Holdings, Buyer, the Company or any of its Subsidiaries.
4.10 Delivery of Interim Financial Statements and Certain Other
Information. The Company shall deliver to Buyer copies of the Company's interim
monthly and year-to-date consolidated and consolidating unaudited financial
statements as soon as reasonably practicable (and in any event within 25 days)
following the end of each monthly accounting period during the period between
the date of this Agreement and the Closing. The Company's financial statements
shall include income statements, balance sheets, and statements of cash flows
and comparisons to the Company's budget, but shall not be required to include
footnotes. The Company shall (and the Company shall cause its Subsidiaries to)
promptly deliver to Holdings and Buyer, any review, audit or investigation
report issued by any Person with respect to the Company or any of its
Subsidiaries that occurs between the date hereof and Closing or any draft
thereof which has been delivered to or otherwise obtained by the Company or any
of its Subsidiaries.
4.11 Management Fee Arrangements. Without the prior written consent of
Buyer (not to be unreasonably withheld, conditioned or delayed), neither Sellers
nor the Company or any of its Subsidiaries shall make any change to the
management fee arrangements payable to the Company or any of its Subsidiaries,
including arrangements for administrative and management services between the
Company and any of its Subsidiaries, between two or more Subsidiaries or between
the Company or any Subsidiaries of the Company and provider associations.
4.12 Acquisition of Certain Minority Interests. Notwithstanding anything to
the contrary in this Agreement, at or prior to the Closing, the Company and its
Subsidiaries shall purchase, redeem or otherwise acquire each of the following
Minority Interests (collectively, the "Acquired Minority Interests"), in a
manner which will not impose any liabilities (contingent or otherwise) on
Holdings, Buyer, the Company or any of its Subsidiaries or any of their
respective Affiliates, in each case in a manner approved by Buyer: (i)
investment by Baptist or any of its Affiliates in HealthSpring USA, LLC, a
Tennessee limited liability company; (ii) investment by Baptist or any of its
Affiliates in HealthSpring Management, Inc., a Tennessee corporation; and (iii)
at least 50% of the investment by the owners of the Minority Interests in Texas
HealthSpring, including various individual physician investors as set forth on
the Subsidiary Schedule, in Texas HealthSpring outstanding as of the date hereof
at a price approved by Buyer in its reasonable discretion. Any such purchase,
redemption or acquisition of Minority Interests shall either, at the option of
the Sellers' Representative: (i) be made by the Company or one or more of its
Subsidiaries solely with Company Unregulated Cash prior to the Closing which
would reduce the Total Value and the Cash Purchase Price or (ii) shall be deemed
Sellers' Expenses paid by Buyer at Closing and reducing the Total Value and the
Cash Purchase Price by the aggregate value of such consideration paid
25
by Buyer, or a combination of the foregoing alternatives. In addition, at or
prior to the Closing, the Company shall cause the operating agreement of Texas
HealthSpring to be amended so that, after the Closing, Texas HealthSpring will
be consolidated with Buyer and Holdings for income Tax purposes on such terms
approved by Buyer and Holdings.
4.13 Conversion of Phantom Equity Interests into Units. At any time on or
prior to December 31, 2004, the Company and the Phantom Members may convert all
of the phantom equity interests of the Company into Units on terms and
conditions reasonably satisfactory to Buyer if all Phantom Members execute
Joinders and become Sellers (the "Conversion"). In the event of the Conversion,
the Company may update the Schedule of Sellers, the Phantom Members Schedule,
and the Capitalization Schedule solely to reflect changes to such Schedules as a
result of the Conversion. The Company shall promptly notify Buyer and Holdings
of such changes to the Schedules as soon as practicable and such changes shall
be subject to the approval of Buyer, which approval shall not be unreasonably
conditioned or withheld. Buyer will not be entitled to recover any Losses with
respect to or arising from any changes to such Schedules solely as a result of
the Conversion as provided in this Section. Notwithstanding any provision to the
contrary in this Agreement, (a) the Company may amend the Company LLC Agreement
solely for the purpose of authorizing additional Units, to the extent necessary,
on terms and conditions reasonably satisfactory to Buyer and (b) the
non-competition and non-solicitation covenants of the Sellers set forth in
Section 9.4 shall survive until the 2nd anniversary of the Closing (rather than
the fifth anniversary of the Closing) with respect to any Phantom Member
identified on the Select Phantom Member Schedule attached hereto who executes a
Joinder and becomes a Seller.
4.14 Reallocation of Contributed Units. At least ten (10) business days
prior to the Closing, the Company may amend the number of Contributed Units set
forth on the Schedule of Sellers to reflect any increase or decrease in the
after-tax proceeds from the sale of such Seller's phantom equity interests in
the Company at the Closing pursuant to such Seller's Phantom Membership
Cancellation Agreement used to acquire Holdings Securities on terms and
conditions reasonably acceptable to Buyer; provided that the Value of Holdings
Securities to be issued to each Seller as contemplated by this Agreement and
such Seller's Phantom Membership Cancellation Agreement shall not change in the
aggregate.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
CONCERNING SELLERS
As a material inducement to Holdings and Buyer to enter into this Agreement
and consummate the transactions contemplated hereby, each Seller (subject to
Section 10.13 below) hereby represents and warrants to Holdings and Buyer,
severally, but not jointly, that:
5.1 Authority and Capacity. Such Seller has full power, authority and legal
capacity to enter into this Agreement and the other documents contemplated
hereby to which such Seller is a party and to perform his or her obligations
hereunder and thereunder.
5.2 Title to Units. Such Seller is the record owner of, and has good and
marketable title to, the number of Units set forth opposite his, her or its name
on the Schedule of Sellers attached hereto, free and clear of all Encumbrances.
At the Closing, such Seller shall sell to Buyer good and marketable title to the
number of Purchased Units set forth opposite his, her or its name on the
Schedule of Sellers attached hereto, and contribute to Holdings good and
marketable title to such Seller's Contributed Units, in each case, free and
clear of all Encumbrances. There are no agreements with such Seller with respect
to the voting or transfer of the Company's equity securities or with respect to
any other aspect of the Company's affairs, except pursuant to the Company LLC
Agreement.
26
5.3 Authorization; Noncontravention. The execution, delivery and
performance of this Agreement and all of the other agreements and instruments
contemplated hereby to which such Seller is a party have been duly authorized by
any action required of such Seller, and no other act on the part of such Seller
is necessary to authorize the execution, delivery or performance of this
Agreement or the other agreements contemplated hereby and the consummation of
the transactions contemplated hereby or thereby. This Agreement has been duly
executed and delivered by such Seller and constitutes a valid and binding
obligation of such Seller, enforceable in accordance with its terms (except as
enforceability may be limited by bankruptcy laws, other laws affecting
creditor's rights and general equitable principles affecting the availability of
specific performance and other equitable remedies), and each of the other
agreements and instruments contemplated hereby to which such Seller is a party,
when executed and delivered by such Seller, in accordance with the terms hereof
and thereof, shall each constitute a valid and binding obligation of such
Seller, enforceable in accordance with its respective terms (except as
enforceability may be limited by bankruptcy laws, other laws affecting
creditor's rights and general equitable principles affecting the availability of
specific performance and other equitable remedies). Except as set forth on the
attached Restrictions Schedule, the execution and delivery by such Seller of
this Agreement and all of the other agreements and instruments contemplated
hereby to which such Seller is a party and the fulfillment of and compliance
with the respective terms hereof and thereof by such Seller do not and shall not
(a) conflict with or result in a breach of the terms, conditions or provisions
of, (b) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (c) result in the creation of any Encumbrance
upon the Company's or any of its Subsidiaries' equity securities or assets
pursuant to, (d) give any third party the right to modify, terminate or
accelerate any obligation under (whether or not dependent upon additional
criteria), (e) result in a violation of, or (f) require any authorization,
consent, approval, exemption or other action of or by or notice or declaration
to, or filing with, any third party or any court or administrative or
governmental body or agency pursuant to any law, statute, rule or regulation to
which such Seller is subject, or any agreement, instrument, license, permit,
order, judgment or decree to which such Seller is subject. Such Seller is not a
party to or bound by any written or oral agreement or understanding with respect
to a Company Transaction other than this Agreement, and such Seller has
terminated all discussions with third parties (other than with Buyer and its
Affiliates) regarding Company Transactions.
5.4 Brokerage and Transaction Bonuses. There are no claims by any Person
for brokerage commissions, finders' fees or similar compensation in connection
with the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon such Seller. Except as set forth on the attached
Transaction Bonuses Schedule, there are no special bonuses or other similar
compensation payable to such Seller in connection with the transactions
contemplated hereby.
5.5 Investment Representations. With respect to any Seller which acquires
or is required to acquire Holdings Securities pursuant to this Agreement:
(a) Such Seller is acquiring Holdings Securities pursuant to this
Agreement (the "Restricted Securities") for such Seller's own account with the
present intention of holding such securities for purposes of investment, and
such Seller has no intention of selling such securities in a public distribution
in violation of the federal securities laws or any applicable state securities
laws; provided that nothing contained herein shall prevent such Seller or any
subsequent holder of such Restricted Securities from transferring such
securities in compliance with the provisions of the Transaction Documents
applicable to such Restricted Securities, including without limitation the
Stockholders Agreement and the Registration Agreement.
(b) Such Seller is an "accredited investor" as defined in Rule 501(a)
under the Securities Act of 1933, as amended (the "Securities Act") and has
executed the Investor Qualification Statement attached as Exhibit F, and such
Seller has such knowledge, sophistication and experience in
27
business and financial matters so as to be capable of evaluating the merits and
risks of the investment of such Seller in the Restricted Securities and is able
to bear the economic risk of such investment for an indefinite period of time.
(c) Such Seller understands that the Restricted Securities have not
been registered under the Securities Act on the basis that the transactions
contemplated in this Agreement are exempt from the registration provisions
thereof and that Holdings' reliance on such exemption is predicated in part upon
the representations of Sellers set forth herein.
(d) Such Seller has had an opportunity to ask questions and receive
answers concerning the terms and conditions of the offering of the Restricted
Securities and has had full access to such other information concerning Holdings
as such Seller has requested.
5.6 Closing Date. The representations and warranties of such Seller
contained in this Article V and in any schedule (as updated pursuant to Section
4.7), attachment or exhibit hereto or in any certificate delivered by such
Seller to Buyer or Holdings shall be true and correct in all material respects
on the Closing Date as though then made and as though the Closing Date was
substituted for the date of this Agreement throughout such representations and
warranties, except those representations and warranties as of a specific date,
which shall be true and correct in all material respects as of such date.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES CONCERNING
THE COMPANY
As a material inducement to Holdings and Buyer to enter into this Agreement
and consummate the transactions contemplated hereby, the Company (subject to
Section 10.13 below) hereby represents and warrants to Holdings and Buyer that:
6.1 Capacity, Organization, Limited Liability Company Power and Licenses.
Each Seller has full power, authority and legal capacity to enter into this
Agreement and the other documents contemplated hereby to which such Seller is a
party and to perform his or her obligations hereunder and thereunder. The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Texas and is qualified to do
business in every jurisdiction in which its ownership of property or conduct of
business requires it to qualify except where the failure to be so qualified
would not have a Material Adverse Effect. The Company is not qualified to do
business in any jurisdiction other than the State of Texas. The Company
possesses all requisite limited liability company power and authority and all
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and to carry out the
transactions contemplated by this Agreement. The copies of the Company's
certificate of formation and Company LLC Agreement which have been furnished to
Buyer's special counsel reflect all amendments made thereto at any time prior to
the date of this Agreement and are true and complete. The minute books
(containing the records of meetings of the unitholders and managers), the unit
certificate books and the unit record books of the Company are true and complete
in all material respects. The Company is not in default under or in violation of
any provision of its certificate of formation or Company LLC Agreement. The
attached Officers and Managers Schedule sets forth a list all of the officers
and managers of the Company.
6.2 Equity Securities and Related Matters; Title to Units. The entire
authorized equity securities of the Company consists of 20,000,000 membership
units, of which 2,000,000 are authorized as Founders Units, of which 700,000 are
issued and outstanding, 3,500,000 are authorized as Series A Units, of which
3,055,000 are issued and outstanding, 232,000 are authorized as Series B Units,
all of
28
which are issued and outstanding, and 625,000 are authorized as Series C Units,
of which 591,176.47 are issued and outstanding. Sellers are the record owners
of, and have good and marketable title to, all of the Company's outstanding
equity, free and clear of all Encumbrances. All of the issued and outstanding
equity securities of the Company have been duly authorized, are validly issued,
fully paid, and nonassessable and are not subject to (except pursuant to the
Company LLC Agreement), nor were they issued in violation of, any preemptive
rights or rights of first refusal, and are owned of record and beneficially by
Sellers as set forth on the attached Schedule of Sellers. At the Closing,
Sellers shall sell to Buyer good and marketable title to the Purchased Units,
free and clear of all Encumbrances. Except as set forth on the attached
Capitalization Schedule, the Company does not have outstanding any units or
securities convertible or exchangeable for any equity securities or containing
any profit participation features, nor any rights or options to subscribe for or
to purchase its equity securities or any units or securities convertible into or
exchangeable for its equity securities or any equity appreciation rights or
phantom equity plan or agreements (other than the phantom equity interests
issued to the Phantom Members as set forth on the Phantom Members Schedule which
are to be cancelled at Closing pursuant to the Phantom Equity Cancellation
Agreements). The Phantom Members Schedule identifies all Persons who have been
granted phantom equity interests in the Company, the amount and type of phantom
equity interests issued to such Persons (including exercise price) and the
portion of any proceeds to be received by the Phantom Members to be reinvested
by such Phantom Member in exchange for shares of Holdings Preferred Stock and
Holdings Common Stock pursuant to Phantom Membership Cancellation Agreements.
All rights of Phantom Members who execute Phantom Membership Cancellation
Agreements shall be terminated as of the Closing pursuant to such Phantom
Membership Cancellation Agreement. The Company is not subject to any option or
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any equity securities or any warrants, options or other rights to acquire
its equity securities except pursuant to the Company LLC Agreement. The Company
has not violated any federal or state securities laws in connection with the
offer, sale or issuance of its equity securities. There are no agreements with
Sellers or the Company with respect to the voting or transfer of the Company's
equity securities or with respect to any other aspect of the Company's affairs,
except pursuant to the Company LLC Agreement.
6.3 Authorization; Noncontravention. The execution, delivery and
performance of this Agreement and all of the other agreements and instruments
contemplated hereby to which the Company is a party have been duly authorized by
the Company, and no other act or proceeding on the part of the Company or its
managers is necessary to authorize the execution, delivery or performance of
this Agreement or the other agreements contemplated hereby and the consummation
of the transactions contemplated hereby or thereby. The execution, delivery and
performance of this Agreement and all of the other agreements and instruments
contemplated hereby to which the Sellers' Representative or any of the Sellers
are a party have been duly authorized by the Sellers' Representative or such
Sellers, as appropriate, and no other act on the part of the Sellers'
Representative or any of the Sellers is necessary to authorize the execution,
delivery or performance of this Agreement or the other agreements contemplated
hereby and the consummation of the transactions contemplated hereby or thereby.
This Agreement has been duly executed and delivered by each of Company, the
Sellers' Representative and each of the Sellers and constitutes a valid and
binding obligation of the Company, the Sellers' Representative and each of the
Sellers, enforceable in accordance with its terms (except as enforceability may
be limited by bankruptcy laws, other laws affecting creditor's rights and
general equitable principles affecting the availability of specific performance
and other equitable remedies), and each of the other agreements and instruments
contemplated hereby to which the Company, the Sellers' Representative or any
Seller is a party, when executed and delivered by the Company, the Sellers'
Representative or Sellers, as applicable, in accordance with the terms hereof
and thereof, shall each constitute a valid and binding obligation of such
Person, enforceable in accordance with its respective terms (except as
enforceability may be limited by bankruptcy laws, other laws affecting
creditor's rights and general equitable principles affecting the availability of
specific performance and other equitable remedies). Except as set forth on the
attached
29
Restrictions Schedule or under the HSR Act, the execution and delivery by the
Company, the Sellers' Representative and Sellers of this Agreement and all of
the other agreements and instruments contemplated hereby to which the Company,
the Sellers' Representative or any Seller is a party and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, the
Sellers' Representative and Sellers do not and shall not (a) conflict with or
result in a breach of the terms, conditions or provisions of, (b) constitute a
default under (whether with or without the passage of time, the giving of notice
or both), (c) result in the creation of any Lien upon the Company's or any of
its Subsidiaries' equity securities or assets pursuant to, (d) modify, terminate
or accelerate any obligation under or give any third party the right to modify,
terminate or accelerate any obligation under (whether or not dependent upon
additional criteria), (e) result in a violation of, or (f) require any
authorization, consent, approval, exemption or other action of or by or notice
or declaration to, or filing with, any third party or any court or
administrative or governmental body or agency pursuant to the Sellers'
Representative's, any of the Sellers', the Company's or any of its Subsidiaries'
charter documents, bylaws, operating agreement, including the Company LLC
Agreement, or other constituent documents, or any law, statute, rule or
regulation to which the Company or any of its Subsidiaries, the Sellers'
Representative or any Seller is subject, or any agreement, instrument, license,
permit, order, judgment or decree to which the Company or any of its
Subsidiaries, the Sellers' Representative or any Seller is subject. Neither the
Company or any of its Subsidiaries nor any Seller is a party to or bound by any
written or oral agreement or understanding with respect to a Company Transaction
other than this Agreement, and each such Person has terminated all discussions
with third parties (other than with Buyer and its Affiliates) regarding Company
Transactions.
6.4 Subsidiaries. The attached Subsidiary Schedule sets forth the name of
each Subsidiary of the Company, the jurisdiction of its formation, all
jurisdictions in which each Subsidiary is qualified to do business, and the
Persons owning the outstanding equity securities of such Subsidiary, and whether
such Subsidiary is regulated by any healthcare-related governmental agency
(which shall identify such agency). Except as set forth on the Subsidiary
Schedule, there are no Minority Interests. For each Minority Interest, the
Subsidiary Schedule identifies the owner of such Minority Interest, the nature
and amount of securities of such Minority Interests, and the ownership of such
Minority Interests in any Subsidiary on a fully diluted basis assuming exercise
of all outstanding options and conversion of all securities convertible into
capital stock of such Subsidiary. Except as set forth in the agreements listed
on the Subsidiary Schedule, none of the Company or any of its Subsidiaries is
party to any registration rights agreements, stockholders agreements or similar
agreements with respect to any Minority Interests. Except as set forth in the
agreements listed on the Subsidiary Schedule, none of the Company or any of its
Subsidiaries has any obligations, commitments or restrictions with respect to
any Minority Interests, including without limitation any put or call
arrangements. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its formation, possesses all
requisite corporate or other power and authority and all material licenses,
permits and authorizations necessary to own its properties and to carry on its
businesses as now being conducted and is qualified to do business in every
jurisdiction in which its ownership of property or the conduct of business
requires it to qualify, except where the failure to be qualified would not
result in a Material Adverse Effect. All of the outstanding equity securities of
each Subsidiary are validly issued, fully paid and nonassessable, and all such
equity securities are owned solely by the Company or one or more of its
Subsidiaries, other than the Minority Interests, free and clear of all
Encumbrances. Except as set forth on the attached Subsidiary Schedule, neither
the Company nor any of its Subsidiaries owns or holds the right to acquire any
shares of stock or any other security or interest in any other Person or has any
obligation to make any Investment in any Person and with respect to such
ownership of such Person the Company or one of its Subsidiaries owns such shares
of stock or other equity interests as set forth on the Subsidiaries Schedule
free and clear of all Encumbrances. The copies of each Subsidiary's certificate
of formation or incorporation or its equivalent and limited liability company
agreement, partnership agreement, by-laws or other constituent documents which
have been furnished to Holdings' and Buyer's special counsel reflect all
amendments
30
made thereto at any time prior to the date of this Agreement and are true and
complete. The minute books or their equivalent (containing the records of
meetings of the equityholders and the board of managers, board of directors or
their equivalent), the stock certificate books or their equivalent and the stock
record books or their equivalent of each Subsidiary of the Company are true and
complete in all material respects. No Subsidiary of the Company is in default
under or in violation of any provision of its certificate of formation or
incorporation or its equivalent or limited liability company agreement,
partnership agreement or by-laws or other constituent documents. The attached
Officers and Directors Schedule sets forth a list all of the officers and
directors of each of the Company's Subsidiaries.
6.5 Financial Statements. Attached hereto on Section (A) of the Financial
Statements Schedule are the following financial statements:
(a) the audited consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 2003, December 31, 2002 and December 31, 2001,
and the related statements of income, cash flows and members' equity (or the
equivalent) for the fiscal years then ended; and
(b) the unaudited consolidated balance sheet of the Company and its
Subsidiaries as of September 30, 2004 (the "Latest Balance Sheet"), and the
related statements of income and cash flows (or the equivalent) for the
nine-month period then ended.
Each of the foregoing financial statements (including in all cases the notes
thereto, if any), is consistent in all material respects with the books and
records of the Company and its Subsidiaries (which, in turn, are accurate and
complete in all material respects), fairly presents in all material respects the
financial condition and operating results of the Company and its Subsidiaries as
of such dates and has been prepared in accordance with GAAP, subject in the case
of the unaudited financial statements to the absence of footnote disclosures and
normal year-end adjustments (none of which footnote disclosures or adjustments
would, alone or in the aggregate, result in a Material Adverse Effect). Without
limiting the foregoing, with respect to incurred but not reported health care
claims liabilities, (1) the Company and its Subsidiaries have established
reserves which are reasonable, consistent with generally accepted actuarial
principles consistently applied and such reserves have been reviewed annually by
an independent actuary authorized to sign Actuarial Statements of Opinion
related to incurred but not reported liabilities and (2) such amounts are
accurately reflected, consistent with GAAP, in the financial statements of the
Company and its Subsidiaries, including the financial statements required to be
attached to Section (A) of the Financial Statements Schedule. Attached hereto as
Section (B) of the Financial Statements Schedule is a list of all financial
statements filed with any state insurance departments or their equivalent for
the fiscal years ending December 31, 2001, December 31, 2002 and December 31,
2003, and any quarterly period in such fiscal years. Each of the financial
statements required to listed on Section (B) of the Financial Statements
Schedule is consistent with the books and records of the Company and its
Subsidiaries (which are accurate and complete) and fairly presents (as of the
dates in the periods presented) the statutory financial condition and results of
operations in accordance with applicable statutory accounting principles
consistently applied.
6.6 Accounts Receivable. Except as set forth on the attached Accounts
Receivable Schedule, all accounts and notes receivable reflected on the Latest
Balance Sheet (net of allowances for doubtful accounts as reflected thereon and
as determined in accordance with GAAP) represent valid receivables arising in
the ordinary course of business. No Person has any Lien (other than Permitted
Liens) on such receivables or any part thereof, and no material agreement for
deduction, free goods, discount or other deferred price or quantity adjustment
has been made with respect to any such receivables.
6.7 Absence of Undisclosed Liabilities. Except as set forth on the attached
Liabilities Schedule, neither the Company nor any of its Subsidiaries has or
will have any material obligation or
31
liability (whether accrued, absolute, contingent, unliquidated or otherwise,
whether or not known to the Company or any of its Subsidiaries, whether due or
to become due and regardless of when or by whom asserted) arising out of any
transaction entered at or prior to the date hereof, or any action or inaction at
or prior to the date hereof, or any state of facts existing at or prior to the
date hereof, other than (a) liabilities reflected on the Latest Balance Sheet,
(b) liabilities and obligations which have arisen after the date of the Latest
Balance Sheet in the ordinary course of business consistent with the past
practices of the Company (none of which is a material liability for breach of
contract, breach of warranty, tort, infringement, violation of law, claim or
lawsuit), and (c) obligations under contracts and commitments listed on the
attached Contracts Schedule or under contracts and commitments entered into in
the ordinary course of business consistent with past practice which are not
required to be disclosed on such Schedule pursuant to Section 6.11 below (but
not liabilities for any breach of any such contract or commitment occurring on
or prior to the Closing Date).
6.8 No Material Adverse Effect. From December 31, 2003 through the date of
this Agreement, there has occurred no fact, event or circumstance which has had
or would reasonably be expected to have a Material Adverse Effect. Since
December 31, 2003, except as set forth on the attached Developments Schedule,
each of the Company and its Subsidiaries has conducted its business only in the
ordinary course of business consistent with past practice.
6.9 Absence of Certain Developments. Except as set forth on the attached
Developments Schedule, or as expressly contemplated or required by this
Agreement, since December 31, 2003, neither the Company nor any of its
Subsidiaries has:
(a) issued any notes, bonds or other debt securities or any equity
securities or any securities or rights convertible, exchangeable or exercisable
into any equity securities;
(b) borrowed any material amount or incurred or become subject to any
material liabilities, except current liabilities incurred in the ordinary course
of business consistent with past practice;
(c) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the ordinary
course of business;
(d) declared, set aside or made any payment or distribution of cash
(including so-called "tax distributions") or other property to any of its
equityholders or their respective Affiliates with respect to such equityholder's
equity securities or otherwise, or purchased, redeemed or otherwise acquired any
equity securities (including any warrants, options or other rights to acquire
its equity securities) other than distributions of Company Unregulated Cash made
in the ordinary course of business consistent with past practices and payment of
management fees paid in the ordinary course of business consistent with past
practices pursuant to management fee agreements identified on the Contracts
Schedule;
(e) mortgaged or pledged any of its properties or assets or subjected
them to any Lien (other than Permitted Liens);
(f) sold, assigned, transferred, leased, licensed or otherwise
encumbered any of its tangible assets, except in the ordinary course of business
consistent with past practice, or canceled any material debts or claims;
(g) sold, assigned, transferred, leased, licensed or otherwise
encumbered any Intellectual Property Rights owned by the Company or any of its
Subsidiaries (other than licenses to
32
customers of the Company or any of its Subsidiaries in the ordinary course of
business consistent with past practice), disclosed any confidential information
to any Person (other than to Holdings, Buyer and their respective Affiliates and
other than in the ordinary course of business consistent with past practice in
circumstances or in connection with the process of soliciting offers with
respect to the sale of the Company in each case which it has imposed reasonable
confidentiality restrictions), or abandoned or permitted to lapse any
Intellectual Property Rights owned by the Company or any of its Subsidiaries;
(h) made or granted any bonus or any wage or salary increase to any
employee or group of employees except (x) as required by pre-existing contracts
listed on the attached Contracts Schedule or, (y) with respect to employees with
annual compensation under $200,000, consistent with past practice of the Company
and its Subsidiaries, or made or granted any increase in any employee benefit
plan or arrangement, or amended or terminated any existing employee benefit plan
or arrangement or adopted any new employee benefit plan or arrangement or
entered into, amended or terminated any collective bargaining agreement or other
employment agreement;
(i) implemented any plant closing or other layoff of employees that
could implicate the Worker Adjustment and Retraining Notification Act, as
amended, or any similar foreign, state or local law, regulation or ordinance;
(j) suffered any extraordinary loss or waived any right of material
value (whether or not in the ordinary course of business or consistent with past
practice) in excess of $200,000 in the aggregate;
(k) made capital expenditures or commitments therefor that amount
individually to more than $500,000;
(l) delayed or postponed the payment of any accounts payable or
commissions or any other liability or obligation or agreed or negotiated with
any party to extend the payment date of any accounts payable or commissions or
any other liability or obligation or accelerated the collection of (or
discounted) any accounts or notes receivable;
(m) made any loans or advances to, guaranties for the benefit of, or
any Investments in, any Person (other than advances to the Company's or its
Subsidiaries' employees in the ordinary course of business consistent with past
practice);
(n) made any charitable contribution or pledge to make any charitable
contribution in excess of $50,000, individually, or made any political
contribution or pledge to make any political contribution;
(o) suffered any damage, destruction or casualty loss exceeding in the
aggregate $250,000, whether or not covered by insurance;
(p) made any change in any method of accounting or accounting
policies, except any change required by a concurrent change in GAAP or
applicable law;
(q) made any Investment in or taken any steps to incorporate any
Subsidiary;
(r) amended its articles of incorporation, by-laws, operating
agreement, including the Company LLC Agreement, or other organizational
documents;
33
(s) entered into any agreement or arrangement prohibiting or
restricting it from freely engaging in any business or otherwise restricting the
conduct of its business anywhere in the world;
(t) entered into, amended or terminated any material contract other
than in the ordinary course of business consistent with past practice or any
contract or amendment disclosed on the Contracts Schedule, entered into any
other material transaction, whether or not in the ordinary course of business or
consistent with past practice, or materially changed any business practice;
(u) made any change to the management fee arrangements payable to the
Company or any of its Subsidiaries, including arrangements for administrative
and management services between Subsidiaries of the Company and between
Subsidiaries of the Company and provider associations; or
(v) agreed, whether orally or in writing, to do any of the foregoing.
6.10 Assets. Except as set forth on the attached Assets Schedule, the
Company or one of its Subsidiaries has good and marketable title to, or a valid
leasehold interest in, all properties and assets used by it, located on its
premises or shown on the Latest Balance Sheet or acquired after the date thereof
(other than properties and assets disposed of in the ordinary course of
business), free and clear of all Liens (other than Permitted Liens). The Company
and each of its Subsidiaries owns, has a valid leasehold interest in or has the
valid and enforceable right to use all assets, tangible or intangible, necessary
for the conduct of its business as presently conducted. Except as set forth on
the attached Assets Schedule, all of the Company's and its Subsidiaries'
equipment, machinery, fixtures, improvements and other tangible assets (whether
owned or leased) are in good condition and repair (ordinary wear and tear
excepted).
6.11 Contracts and Commitments.
(a) Except as set forth on section (a) of the attached Contracts
Schedule, neither the Company nor any of its Subsidiaries is a party to or bound
by any written or oral:
(i) pension, profit sharing, stock option, employee stock
purchase, bonus or other plan or arrangement providing for deferred or other
compensation to employees, former employees or consultants, or any other
employee benefit plan or arrangement, or any collective bargaining agreement or
any other contract with any labor union, or severance agreements, programs,
policies or arrangements;
(ii) collective bargaining agreement;
(iii) contract for insurance;
(iv) contract for the employment of any officer or key employee
or contract for any other employee or consultant with annual compensation in
excess of $200,000 or contract relating to loans to officers, directors or
Affiliates;
(v) contract under which the Company or any of its Subsidiaries
has advanced or loaned any other Person amounts in the aggregate exceeding
$100,000;
(vi) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien (other than
a Permitted Lien) on any material asset or material group of assets of the
Company or any of its Subsidiaries;
(vii) material Guaranty, performance bond or similar agreement;
34
(viii) lease or agreement under which the Company or any of its
Subsidiaries is lessee of or holds or operates any property, real or personal,
owned by any other party, except for any lease of real or personal property
under which the aggregate annual rental payments do not exceed $100,000;
(ix) lease or agreement under which the Company or any of its
Subsidiaries is lessor of or permits any third party to hold or operate any
property, real or personal, owned or controlled by the Company or any of its
Subsidiaries;
(x) contract or group of related contracts with the same party or
group of affiliated parties (excluding any medical provider agreements) the
performance of which involves consideration in the aggregate in excess of
$100,000;
(xi) assignment, license, indemnification or agreement with
respect to any intangible property (including any Intellectual Property Rights)
and all other agreements affecting the Company's or any of its Subsidiaries'
ability to use or disclose Intellectual Property (other than licenses of
commercially available, unmodified, mass-marketed software used solely for the
internal use of the Company or any of its Subsidiaries);
(xii) agreement under which it has granted any Person any
registration rights (including demand or piggyback registration rights);
(xiii) (A) management services or similar agreements (whether
providing services to Subsidiaries of the Company or otherwise), (B) contracts
with any governmental payor (including Medicare, Medicaid Tricare and the
Federal Employee Health Benefits Program), (C) employer group agreement which
would be included in a list of the top ten employer group agreements for each
HMO Subsidiary (according to revenue), and (D) agreement with hospital systems
which would be included in a list of the top ten agreements with hospital
systems for each HMO Subsidiary (according to revenue);
(xiv) agreement with a term of more than six months which is not
terminable by the Company or any of its Subsidiaries upon 30 days' or less
notice without penalty and involves a consideration from the Company in excess
of $100,000 annually;
(xv) contract regarding voting, transfer, issuance or other
arrangements related to the Company's or any of its Subsidiaries' equity
securities or warrants, options or other rights to acquire any of the Company's
or any of its Subsidiaries' equity securities, excluding the Company LLC
Agreement, but including any agreements with respect to the issuance of Minority
Interests, or any phantom equity plans, arrangements or agreements, including
all of the Company's phantom membership agreements;
(xvi) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world; or
(xvii) settlement, conciliation or similar contract or agreement
pursuant to which the Company or any of its Subsidiaries will be required, as of
or after the execution of this Agreement, to pay consideration to any Person or
group of related Persons in excess of $100,000; or
(xviii) any other agreement which is material to its operations
and business prospects or involves a consideration in excess of $250,000
annually.
35
(b) All of the contracts, leases, agreements and instruments with the
Company or any of its Subsidiaries are valid, binding and enforceable against
the Company or its Subsidiaries, as applicable, and to the knowledge of the
Company against any other party to such agreement, in accordance with their
respective terms (except as enforceability may be limited by bankruptcy laws,
other laws affecting creditors' rights and general equitable principles
affecting the availability of specific performance and other equitable
remedies). Except as set forth on section (b) of the Contracts Schedule, (i)
each of the Company and its Subsidiaries has performed in all material respects
all obligations required to be performed by it and is not in material default
under or in material breach of nor in receipt of any claim of material default
or material breach under any contract, lease, agreement or instrument to which
the Company or any of its Subsidiaries is subject; (ii) no event has occurred
which with the passage of time or the giving of notice or both would result in a
default, breach or event of noncompliance by the Company or any of its
Subsidiaries under any such contract, lease, agreement or instrument to which
the Company or any of its Subsidiaries is subject; (iii) neither the Company nor
any of its Subsidiaries has any present expectation or intention of not fully
performing all such obligations in all material respects; (iv) no contract,
lease, agreement or instrument to which the Company or any of its Subsidiaries
are bound is currently subject to or is expected to be subject to cancellation
or any other material modification by the other party thereto or is subject to
or is expected to be subject to any penalty, right of set-off or other charge by
the other party thereto for late performance or delivery; and (v) neither the
Company nor any Seller has knowledge of any breach or anticipated breach by the
other parties to any contract, lease, agreement, instrument or commitment to
which they are parties.
(c) Buyer's counsel has been supplied with a true and correct copy of
each of the written instruments, plans, contracts and agreements and an accurate
description of each of the oral arrangements, contracts and agreements which are
referred to on the attached Contracts Schedule, together with all amendments,
waivers or other changes thereto. The Contracts Schedule identifies the Company
or the relevant Subsidiary of the Company party to such contract, lease,
agreement, instrument or commitment.
6.12 Intellectual Property Rights.
(a) The attached Intellectual Property Schedule contains a complete
and accurate list of all (i) patented or registered Intellectual Property Rights
owned or used by the Company or any of its Subsidiaries, (ii) pending patent
applications and applications for other registrations of Intellectual Property
Rights filed by or on behalf of the Company or any of its Subsidiaries, (iii)
material unregistered Intellectual Property Rights owned or used by the Company
or any of its Subsidiaries, and (iv) computer software owned or used by the
Company or any of its Subsidiaries (other than licenses of commercially
available, unmodified, mass-marketed software used solely for the internal use
of the Company or any of its Subsidiaries). The attached Intellectual Property
Schedule also contains a complete and accurate list of all licenses and other
rights granted by the Company or any of its Subsidiaries to any third party with
respect to any Intellectual Property Rights (other than licenses to customers of
the Company or any of its Subsidiaries in the ordinary course of business
consistent with past practices) and all licenses and other rights granted by any
third party to the Company or any of its Subsidiaries with respect to any
Intellectual Property Rights (other than licenses of commercially available,
unmodified, mass-marketed software used solely for the internal use of the
Company or any of its Subsidiaries). The Company or one of its Subsidiaries owns
and possesses all right, title and interest to, or has the right to use pursuant
to a valid and enforceable license, all Intellectual Property Rights necessary
for the operation of the businesses of the Company and its Subsidiaries as
presently conducted, free and clear of all Liens. Except as set forth on the
attached Intellectual Property Schedule, the loss or expiration of any
Intellectual Property Right or related group of Intellectual Property Rights
owned or used by the Company or any of its Subsidiaries has not had and would
not reasonably be expected to have a Material Adverse Effect, and no loss or
expiration of any Intellectual Property Right is threatened, pending or, to the
Company's or Sellers'
36
knowledge, reasonably foreseeable. The Company and each of its Subsidiaries has
taken all necessary steps to maintain and protect the Intellectual Property
Rights which it owns and uses. To the Company's knowledge, the owners of any
Intellectual Property Rights licensed to the Company and its Subsidiaries have
taken commercially reasonable action to maintain and protect the Intellectual
Property Rights which are subject to such licenses.
(b) Except as set forth on the attached Intellectual Property
Schedule, (i) there have been no claims made against the Company or any of its
Subsidiaries asserting the invalidity, misuse or unenforceability of any of the
Intellectual Property Rights owned or used by the Company or any of its
Subsidiaries and, to the Company's knowledge, there is no basis for any such
claim, (ii) neither the Company nor any Seller has received any written or, to
the Company's knowledge, other notices of any infringement or misappropriation
by, or conflict with, any third party with respect to any Intellectual Property
Rights (including any demand or request that the Company or one or more of its
Subsidiaries license any rights from any third party, or any notification that
identifies one or more third party Intellectual Property Rights in relation to
any product or service of the Company or any of its Subsidiaries), (iii) the
conduct of the Company's and its Subsidiaries' businesses has not infringed,
misappropriated or conflicted with any Intellectual Property Rights of other
Persons and will not infringe any Intellectual Property Rights of other Persons
as such Intellectual Property Rights exist as of the date of this Agreement, and
(iv) to the Company's knowledge, the Intellectual Property Rights owned by or
licensed to the Company and its Subsidiaries have not been infringed,
misappropriated or conflicted by other Persons.
6.13 Litigation. Except as set forth on Section (a) of the attached
Litigation Schedule, there are no (and, except as set forth on Section (b) of
the Litigation Schedule, during the three years preceding the date hereof, there
have not been any) actions, suits, proceedings (including any grievance or
arbitration proceedings), orders, investigations or claims pending or, to the
Company's or Sellers' knowledge, threatened against or affecting the Company or
any of its Subsidiaries (or pending or, to the Company's or Sellers' knowledge,
threatened against or affecting any of the officers, directors or employees of
the Company or any of its Subsidiaries with respect to the Company's or any of
its Subsidiaries' business or proposed business activities), or pending or
threatened by the Company or any of its Subsidiaries (other than actions, suits,
proceedings (including any grievance or arbitration proceedings), orders,
investigations or claims involving not more than $15,000) against any Person, at
law or in equity, or before or by any governmental department, commission,
board, bureau, agency or instrumentality (including any actions, suits,
proceedings or investigations with respect to the transactions contemplated by
this Agreement); neither the Company nor any of its Subsidiaries is subject to
any arbitration proceedings under collective bargaining agreements or otherwise
or any governmental investigations or inquiries; and, to the Company's or
Sellers' knowledge, there is no basis for any of the foregoing. The foregoing
includes, without limitation, actions pending or threatened involving the prior
employment of any of the Company's or its Subsidiaries' employees, their use in
connection with the Company's or its Subsidiaries' businesses of any information
or techniques allegedly proprietary to any of their former employers or their
obligations under any agreements with prior employers. The Company and its
Subsidiaries are fully insured with respect to each of the matters set forth on
the attached Litigation Schedule. Neither the Company nor any of its
Subsidiaries is subject to any judgment, order or decree of any court or other
governmental agency, and neither the Company nor any of its Subsidiaries has
received any written opinion or memorandum from legal counsel to the effect that
it is exposed, from a legal standpoint, to any material liabilities. There are
no actions, suits, proceedings (including any arbitration proceedings), orders,
investigations or claims pending or, to the Company's or Sellers' knowledge,
threatened against or affecting any Seller in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with the
transactions contemplated hereby.
6.14 Compliance with Laws.
37
(a) Except as set forth on Section (a) of the attached Compliance
Schedule, each of the Company and its Subsidiaries is in compliance, and except
as set forth on Section (b) of the attached Compliance Schedule, each of the
Company and its Subsidiaries has been in compliance during the last three years,
in all material respects, with all applicable laws, ordinances, codes, rules,
requirements, regulations and policies of foreign, federal, state and local
governments and all agencies thereof, including, without limitation, the Centers
for Medicare and Medicaid Services, all state departments of insurance, health
and/or public health, as the case may be, relating to the operation of its
business and the maintenance and operation of its properties and assets
including, without limitation, 42 CFR Part Section 422 and any and all laws,
rules, regulations and policies relating to the federal Medicare Advantage
program (formerly Medicare + Choice). No written or, to the Company's knowledge,
other notices have been received by and no claims have been filed against the
Company or any of its Subsidiaries alleging a violation of any such laws,
ordinances, codes, rules, requirements, regulations or policies. Neither the
Company nor any of its Subsidiaries has made any bribes, kickback payments or
other similar payments of cash or other consideration.
(b) Except as set forth on Section (a) of the attached Compliance
Schedule, each of the Company and its Subsidiaries holds and is in compliance in
all material respects with all material permits, licenses, bonds, approvals,
certificates, registrations, accreditations and other authorizations of all
foreign, federal, state and local governmental agencies required for the conduct
of its business and the ownership of its properties or which are identified on
Section (A) of the attached Permits Schedule. Section (A) of the attached
Permits Schedule sets forth a list of all of such material permits, licenses,
bonds, approvals, certificates, registrations, accreditations and other
authorizations. No notices have been received by the Company or any of its
Subsidiaries alleging the failure to hold any of the foregoing. Except as set
forth on Section (B) of the attached Permits Schedule, all of such permits,
licenses, bonds, approvals, accreditations, certificates, registrations and
authorizations will be available for use by the Company and its Subsidiaries
immediately after the Closing.
(c) The Company, each of the Company's Subsidiaries, and each health
plan maintained by the Company and each of the Company's Subsidiaries, that is a
covered entity within the meaning of the regulations implementing the
Administrative Simplification title of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") (each a "Covered Plan") is receiving and
transmitting, or is prepared to receive and transmit, directly or through third
parties, those standard transactions as defined in the HIPAA regulations
regarding electronic transactions and code sets (45 CFR Parts 160 and 162) or,
consistent with the statements of the Centers for Medicare and Medicaid Services
("CMS"), is testing with its trading partners (as such term is used in the HIPAA
regulations) such reception and transmissions. Each Covered Plan (that is not a
"small plan") has, since April 14, 2003, been distributing notices of privacy
practices in the appropriate form, obtaining acknowledgments of receipt,
training its workforce, administering a complaint system, and offering covered
persons the records access, disclosure accounting and other rights each as
required by the privacy rule (45 CFR Parts 160 and 164). To the knowledge of
Sellers and the Company, the use and disclosure of protected health information
relating to each Covered Plan, as that term is defined in the privacy rule has,
in all material respects, been in conformance with applicable notices of privacy
practices and the privacy rule and its maintenance and transmission of
electronic protected health information will, by April 15, 2005, be in
conformance with the requirements of 45 CFR Part 164, Subpart C.
(d) Each of the HMO Subsidiaries has a valid contract with the Centers
for Medicare and Medicaid Services under the Medicare Advantage Program that is
in full force and effect and is not subject to any restriction or modification.
The only HMO Subsidiaries are HealthSpring, Inc., Texas HealthSpring I, LLC, and
HealthSpring of Alabama, Inc.
38
(e) None of the Company, any Subsidiary of the Company, or any of
their officers or directors (in their capacity as such) has engaged in any
activities which are prohibited under federal or state "fraud and abuse"
statutes or regulations (including but not limited to 42 USC Sections 1320a-7,
1320 ▇-▇▇, ▇▇▇▇▇-▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇. Sections 3729-33, 18 USC Sections 1892,
1341, 1343, 1961-63, 286, 1001, 664, 666, 1510, 1516, 1347, 669, 1035, 1518,
3730) that would have a Material Adverse Effect including but not limited to any
of the following: (i) making or causing to be made a false statement, false
claim, or representation of material fact in any application for any benefit or
payment, (ii) making or causing to be made any false statement, false claim, or
representation of a material fact for use in determining rights to any benefit
or payment; (iii) failing to disclose knowledge by a claimant of the occurrence
of any event affecting the initial or continued right to any benefit or payment
on its behalf or on the behalf of another, with intent to fraudulently secure
such benefit or payment; (iv) knowingly, willfully and unlawfully soliciting or
receiving any remuneration (including kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind or offering to pay such
remuneration (a) in return for referring an individual to a person for the
furnishing or arranging for the furnishing of any item or service for which
payment may be made in whole or in part by any federal health benefits program,
or (b) in return for purchasing, leasing, or ordering or arranging for or
recommending the purchasing, leasing, or ordering or arranging for or
recommending the purchasing, leasing or ordering of any good, facility, service
or item for which payment may be made in whole or in part by a federal health
care program (as defined in 42 USC Section 1320a-7(b)(f)).
(f) Each of the Company's Subsidiaries maintains a compliance program
that meets the regulatory requirements of 42 CFR Section 422.501(b)(3)(vi) and
applicable compliance program guidance issued by the Department of Health and
Human Services Office of Inspector General in all material respects.
(g) Each HMO Subsidiary and any other Subsidiary of the Company which
is licensed to conduct the business of health insurance is in current compliance
with applicable deposit, reserve, risk based or other capital requirements
imposed by each applicable state department of insurance and, except as
disclosed on Section (c) of the Compliance Schedule, has no knowledge of an
impending increase in the funds required to satisfy such requirements. Each HMO
Subsidiary currently maintains (i) all cash, marketable securities or other
assets required to be retained by the Company or any of its Subsidiaries
pursuant to any applicable laws, ordinances, codes, rules, requirements,
policies, demands and regulations of any Person, including any capital reserve
requirements, and (ii) except as disclosed on Section (c) of the Compliance
Schedule, a level of capital reserve requirements that meets 200% of the risk
based capital requirements set forth in the applicable provisions of the
National Association of Insurance Commissioners Model Insurance Laws and
Regulations. The Compliance Schedule sets forth as of the date hereof (i) each
state where any HMO Subsidiary is required to maintain a level of capital
reserve requirements, (ii) the capital reserve requirements required to be
maintained in such state, (iii) the current level of capital reserve
requirements for each HMO Subsidiary and (iv) in the event that any HMO
Subsidiary is not required to maintain a level of capital reserve requirements
that meet 200% of the risk based capital requirements set forth in the
applicable provisions of the National Association of Insurance Commissioners
Model Insurance Laws and Regulations, the amount of capital reserves which would
have been required to have been maintained by such HMO Subsidiary if such HMO
Subsidiary was required to maintain a level of capital reserve requirements that
meet 200% of the risk based capital requirements set forth in the applicable
provisions of the National Association of Insurance Commissioners Model
Insurance Laws and Regulations. As of the date hereof, the HMO Subsidiaries
collectively hold Cash in excess of $66 million.
(h) None of the Sellers, the Company, any of the Company's
Subsidiaries, any officer or director, or to the knowledge of the Company any
holders of any Minority Investments, has received notice of an, or is currently
under, investigation for any violation of the various provisions of
39
laws and regulations governing Medicare, Medicaid, any federally funded health
care benefit program which would reasonably be expected to lead to exclusion
from such programs, nor have the Sellers, the Company, any Subsidiary of the
Company or, to the Company's Knowledge, any officer or director been required to
pay any civil monetary penalty regarding false, fraudulent, or impermissible
claims under, or payments to induce a reduction or limitation of health care
services to beneficiaries of, any state or federal health care or health care
benefit program.
(i) With respect to Medicare, Medicaid, or any other federally funded
program, none of the Sellers, the Company, any Subsidiary of the Company, any
officer or director, or to the knowledge of the Company any holders of any
Minority Investments, has ever been excluded from participation in any such
program, nor convicted of (A) any offense related to the delivery of an item or
service under such program, (B) any offense related to such program; (C) a
criminal offense relating to neglect or abuse of patients in connection with the
delivery of a health care item or service; (D) fraud, theft, embezzlement, or
other financial misconduct in connection with the delivery of a health care item
or service; (E) obstructing an investigation of any crime referred to in (A) or
(C) above; and/or (F) unlawful manufacturing, distributing, prescribing, or
dispensing of a controlled substance.
6.15 Environmental and Safety Matters. The Company and each of its
Subsidiaries has complied and is in compliance, in each case in all material
respects, with all Environmental and Safety Requirements (including without
limitation all material permits and licenses required thereunder). None of the
Company or any of its Subsidiaries has received any written or, to the Company's
knowledge, other notice of any violation of, or any liability (contingent or
otherwise) or corrective or remedial obligation under, any Environmental and
Safety Requirements. Neither the Company nor any Subsidiary has manufactured,
treated , stored, disposed of, arranged for or permitted the disposal of,
transported, handled or released, or permitted persons be exposed to, any
hazardous substance, waste, pollutant, contaminant, noise, odor or radiation in
a manner that has given or will give rise to material liabilities under
Environmental Laws.
6.16 Employees. The attached Employees Schedule correctly sets forth the
name and current annual salary of each of the Company's and any of its
Subsidiaries' employees receiving more than $200,000 in annual compensation and
whether any such employees are absent from active employment, including, but not
limited to, leave of absence or disability.
(a) The Employees Schedule sets forth the bonuses paid and reasonably
expected to be paid to the Company's and its Subsidiaries' officers and key
employees (including all employees receiving more than $200,000 in annual
compensation) for the fiscal year ended December 31, 2003 and the fiscal year
ending December 31, 2004.
(b) Except as set forth on the attached Employees Schedule:
(i) neither the Company nor any of its Subsidiaries is party to
any collective bargaining agreement or relationship;
(ii) neither the Company or any of its Subsidiaries nor, to the
Company's knowledge, any of their respective employees are subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreements relating to, affecting or in conflict with the present or proposed
business activities of the Company or any of its Subsidiaries;
(iii) the Company and each of its Subsidiaries have complied in
all material respects with all laws relating to the employment of labor
(including, but not limited to, provisions
40
thereof relating to wages, hours, equal opportunity, collective bargaining,
immigration, layoffs and the payment of social security and other Taxes);
(iv) there is no material employment-related charge, complaint,
grievance, investigation, inquiry or obligation of any kind pending or, to the
Company's knowledge, threatened in any forum relating to an alleged violation or
breach by the Company or any of its Subsidiaries (or its or their officers or
directors) of any law, regulation or contract; and
(v) to the Company's knowledge, there are no material labor
relations problems (including any union organization threatened or actual
strikes or work stoppages or material employee grievances) relating to the
Company or any of its Subsidiaries.
6.17 Employee Benefit Plans.
(a) The attached Employee Benefits Schedule sets forth an accurate and
complete list of each "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) and each other employee benefit plan, program or
arrangement providing benefits to current or former employees (including any
bonus plan, plan for deferred compensation, retirement, severance, sick leave,
employee health or other welfare benefit plan or other arrangement), either (x)
currently maintained, sponsored, or contributed to by the Company or (y) with
respect to which the Company has any material liability or potential liability.
Each such item listed on the attached Employee Benefits Schedule is referred to
herein as a "Plan."
(b) The Company does not have any obligation to contribute to (or any
other liability, including current or potential withdrawal liability, with
respect to) any "multiemployer plan" (as defined in Section 3(37) of ERISA) or
any employee benefit plan which is a "defined benefit plan" (as defined in
Section 3(35) of ERISA), whether or not terminated.
(c) The Company does not have any obligation under any Plan or
otherwise to provide medical, health, life insurance or other welfare-type
benefits to current or future retired or terminated employees (except for
limited continued medical benefit coverage required to be provided under Section
4980B of the Code or as required under applicable state law).
(d) Except as set forth on the Defined Contribution Plans Schedule
under the heading "Profit Sharing Plans," the Company does not maintain,
contribute to or have any liability or potential liability under (or with
respect to) any employee benefit plan which is a "defined contribution plan" (as
defined in Section 3(34) of ERISA), whether or not terminated.
(e) For purposes of this Section 6.17, the term "Company" includes all
entities treated as a single employer with the Company or with any Subsidiary of
the Company pursuant to Section 414 of the Code.
(f) With respect to the Plans, all required or recommended (in
accordance with historical practices) payments, premiums, contributions,
reimbursements or accruals for all periods ending prior to or as of the Closing
shall have been made or properly accrued on the Latest Balance Sheet. None of
the Plans has any unfunded liabilities which are not reflected on the Latest
Balance Sheet.
(g) The Plans and all related trusts, insurance contracts and funds
have been maintained, funded and administered in compliance in all material
respects with their terms and with the applicable provisions of ERISA, the Code
and other applicable laws. Neither the Company nor any trustee or administrator
of any Plan has engaged in any transaction with respect to the Plans which would
41
subject the Company or any trustee or administrator of the Plans, or any party
dealing with any such Plan, nor do the transactions contemplated by this
Agreement constitute transactions which would subject any such party, to either
a material civil penalty assessed pursuant to Section 502(i) of ERISA or a
material tax or penalty on prohibited transactions imposed by Section 4975 of
the Code. No actions, suits or claims with respect to the assets of the Plans
(other than routine claims for benefits) are pending or, to the Company's or
Sellers' knowledge, threatened which could result in or subject the Company to
any liability and there are no circumstances which would give rise to or be
expected to give rise to any such actions, suits or claims. No liability to the
Pension Benefit Guaranty Corporation or otherwise under Title IV of ERISA has
been or could be incurred by the Company.
(h) Each of the Plans which is intended to be qualified under Section
401(a) of the Code has received a favorable determination from the Internal
Revenue Service that such plan is qualified under Section 401(a) of the Code,
and there are no circumstances which would adversely affect the qualified status
of any such Plan.
(i) The Company has provided Buyer with true and complete copies of
all documents pursuant to which the Plans are maintained, funded and
administered, and the most recent annual reports (Form 5500 and attachments) for
the Plans.
6.18 Insurance. The attached Insurance Schedule contains a description of
each insurance policy maintained by the Company and its Subsidiaries with
respect to its properties, assets and businesses setting forth the type of
coverage, the annual premiums, deductibles and coverage amounts therefor and an
indication whether such policy is on a "claims made" or "occurrence" basis, and
each such policy is in full force and effect as of the Closing. Except as set
forth on the attached Insurance Schedule, all such insurance policies are valid,
binding and enforceable in accordance with their respective terms and shall be
in full force and effect without penalty in accordance with their terms upon
consummation of the transactions contemplated by this Agreement. Neither the
Company nor any of its Subsidiaries is in material default with respect to its
obligations under any insurance policy maintained by it, and neither the Company
nor any of its Subsidiaries has been denied insurance coverage. Except as set
forth on the Insurance Schedule, neither the Company nor any of its Subsidiaries
have any self-insurance or co-insurance programs, and the reserves set forth on
the Latest Balance Sheet are adequate (and the reserves to be set forth on the
Closing Balance Sheet will be adequate) to cover all anticipated liabilities
with respect to any such self-insurance or co-insurance programs.
6.19 Tax Matters.
(a) The Company and each Subsidiary have filed all Tax Returns that
they were required to file. All such Tax Returns are correct and complete in all
material respects. All Taxes due and payable by the Company and its Subsidiaries
(whether or not shown or required to be shown or any Tax Return) have been paid
and the Company and its Subsidiaries have withheld and paid over to the
appropriate taxing authority all Taxes which they are required to withhold from
amounts paid or owing to any employee, stockholder, unitholder, creditor or
other Person.
(b) Except as set forth on the attached Taxes Schedule:
(i) neither the Company nor any of its Subsidiaries has requested
or been granted an extension of the time for filing any Tax Return which has not
yet been filed;
(ii) neither the Company nor any of its Subsidiaries has
consented to extend to a date later than the date hereof the time in which any
Tax may be assessed or collected by any taxing authority;
42
(iii) with respect to each taxable period of the Company and its
Subsidiaries ending on or before December 31, 1999, either such taxable period
has been audited by the relevant taxing authority or the time for assessing or
collecting income Tax with respect to each such taxable period has closed and
such taxable period is not subject to review by any relevant taxing authority;
(iv) no deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been proposed, asserted
or assessed by any taxing authority against the Company or any Subsidiary;
(v) there is no dispute or claim concerning any Tax liability of
the Company or any Subsidiary either (A) claimed or raised by any taxing
authority in writing or (B) as to which the Company has knowledge based upon
personal contact with any agent of such taxing authority;
(vi) no claim has ever been made by a taxing authority in a
jurisdiction where the Company or any Subsidiary, respectively, does not file
Tax Returns claiming that the Company or any Subsidiary, respectively, is or may
be subject to Taxes assessed by such jurisdiction;
(vii) there are no Liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company or any of its
Subsidiaries;
(viii) neither the Company nor any of its Subsidiaries is a party
to or bound by any Tax allocation sharing or similar agreement and has no
current or potential contractual obligation to indemnify any other Person with
respect to Taxes other than pursuant to agreements not primarily related to
Taxes in the ordinary course of business; and
(ix) Neither Holdings nor Buyer will be required to deduct and
withhold any amount pursuant to Section 1445(a) of the Code upon the transfer of
any cash or property pursuant to this Agreement.
(c) None of the Company and its Subsidiaries has made any payments, is
obligated to make any payments, or is a party to any agreement (excluding any
agreement with Holdings or Buyer) that under certain circumstances could
obligate it to make any payments that may not be deductible under Code Section
280G. None of the Company and its Subsidiaries has been a United States real
property holding corporation within the meaning of Code Section 897(c)(2) during
the applicable period specified in Code Section 897(c)(1)(A)(ii). None of the
Company and its Subsidiaries (A) has been a member of an Affiliated Group filing
a consolidated federal income Tax Return or (B) has any liability for the Taxes
of any Person (other than any of the Company and its Subsidiaries) under Reg.
Section 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract, or otherwise.
(d) The unpaid Taxes of the Company and its Subsidiaries (A) did not,
as of the date of the Latest Balance Sheet, exceed the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) set forth on the face of the Latest
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company and its Subsidiaries
in filing their Tax Returns.
(e) Neither the Company nor any Subsidiary will be required to include
any item of income in, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date as a
result of any: (A) change in method of accounting for a taxable period ending on
or prior to the Closing Date; (B) "closing agreement" as described in Code
Section 7121 (or any corresponding or similar provision of state, local or
foreign income Tax law) executed on or prior to
43
the Closing Date; (C) intercompany transactions occurring at or prior to the
Closing or any excess loss account in existence at Closing described in Treasury
Regulations under Code Section 1502 (or any corresponding or similar provision
of state, local or foreign income Tax law); (D) installment sale or open
transaction disposition made on or prior to the Closing Date; or (E) prepaid
amount received on or prior to the Closing Date.
(f) Neither the Company nor any Subsidiary has distributed stock of
another Person, or has had its stock distributed by another Person, in a
transaction that was purported or intended to be governed in whole or in part by
Code Section 355 or Section 361.
(g) None of the Company or its Subsidiaries has participated in any
"reportable transaction" within the meaning of Treasury Regulation Section
1.6011-4.
6.20 Brokerage and Transaction Bonuses. There are no claims by any Person
other than Brentwood Capital Advisors LLC for brokerage commissions, finders'
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement binding upon Sellers, the
Company or any of its Subsidiaries. Except as set forth on the attached
Transaction Bonuses Schedule or pursuant to the employment agreements executed
in connection with this Agreement, there are no special bonuses or other similar
compensation payable to any employee of the Company or any of its Subsidiaries
in connection with the transactions contemplated hereby.
6.21 Bank Accounts. The Bank Account Schedule attached hereto lists all of
the Company's and its Subsidiaries' bank accounts (designating each authorized
signatory).
6.22 Names and Locations. Except as set forth on the attached Names and
Locations Schedule, during the five-year period prior to the execution and
delivery of this Agreement, neither the Company nor any of its Subsidiaries or
their respective predecessors has used any name or names under which it has
invoiced account debtors, maintained records concerning its assets or otherwise
conducted business. All of the tangible assets and properties of the Company and
its Subsidiaries (other than goods in transit in the ordinary course of
business) are located at the locations set forth on the Names and Locations
Schedule.
6.23 Affiliate Transactions. Except as set forth on the attached Affiliated
Transactions Schedule, no officer, director, equityholder, employee or
Subsidiary or Affiliate of the Company, including Sellers, or any of its
Subsidiaries or, to the Company's or Sellers' knowledge, any individual related
by blood, marriage or adoption to any such individual or any entity in which any
such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with the Company or any of its
Subsidiaries or has any interest in any property used by the Company or any of
its Subsidiaries (including any Intellectual Property Rights). The attached
Affiliated Transactions Schedule sets forth the amount and general description
of each loan, advance, distribution or payment of any kind or character
(excluding compensation paid to the Company's officers, managers and employees
in the ordinary course of business) made by the Company since December 31, 2003
to any of the Sellers, any Affiliate of the Company or Sellers and any of their
respective directors and officers. Neither the Company nor any of its
Subsidiaries has paid any Sellers' Expenses, except with payments made out of
Company Unregulated Cash which would reduce the Total Value and the Cash
Purchase Price.
6.24 Customers and Providers. The Customers and Providers Schedule attached
hereto sets forth (a) a list of the top ten commercial customers (i.e.,
commercial groups and employer groups) of each of the HMO Subsidiaries (by
revenues generated from such customers) for the fiscal years ended December 31,
2002 and December 31, 2003 and the nine-month period ended September 30, 2004,
in each case indicating with which of the HMO Subsidiaries such customers are
conducting business, the
44
revenues generated from such customer during such periods, whether such
customers are broker-mediated accounts and, if such customers are
broker-mediated accounts, the identity of the broker; and (b) a list of the top
ten providers (i.e., hospital systems and physicians groups) for each of the HMO
Subsidiaries (based on expenses incurred to such providers) for the fiscal years
ended December 31, 2002 and December 31, 2003 and the nine-month period ended
September 30, 2004, in each case indicating with which of the HMO Subsidiaries
such providers are conducting business and the expenses incurred to such
providers during such periods. Neither the Company nor any of its Subsidiaries
has received any written notice from any material customer (including any
customer of management services) or provider of the Company or any of its
Subsidiaries to the effect that, and the Company has no knowledge that, such
customer will stop, materially decrease the rate of, or materially change the
terms (whether related to payment, price or otherwise) with respect to, products
or services from the Company or any of its Subsidiaries (whether as a result of
the consummation of the transactions contemplated hereby or otherwise). Neither
the Company nor any of its Subsidiaries has received any written notice from any
material provider or supplier to the Company or any of its Subsidiaries to the
effect that, and the Company has no knowledge that, such provider or supplier
will stop, materially decrease the rate of, or materially change the terms
(whether related to payment, price or otherwise) with respect to, supplying
materials, products or services to the Company or any of its Subsidiaries
(whether as a result of the consummation of the transactions contemplated hereby
or otherwise).
6.25 Real Property.
(a) None of the Company or any of its Subsidiaries has any Owned Real
Property.
(b) The Real Property Schedule sets forth the address of each parcel
of Leased Real Property, and a true and complete list of all Leases for each
such Leased Real Property (including the date and name of the parties to such
Lease document). Each of the Company and its Subsidiaries has delivered to
Holdings and Buyer a true and complete copy of each such Lease document, and in
the case of any oral Lease, a written summary of the material terms of such
Lease. Except as set forth on the Real Property Schedule, all the Leased Real
Property is held pursuant to valid, binding leases therefor which are in full
force and effect and enforceable by the Company or a Subsidiary, as appropriate,
in accordance with their respective terms (except as enforceability may be
limited by bankruptcy laws, other laws affecting creditor's rights and general
equitable principles affecting the availability of specific performance and
other equitable remedies). There are no existing material defaults by the
Company or any of its Subsidiaries under any of the leases to which any Leased
Real Property is subject.
6.26 Disclosure; Knowledge of Breach of Representations of Buyer and
Holdings. To the Knowledge of the Company, neither this Article VI or any of the
Schedules attached hereto nor any of the certificates or other items delivered
to Buyer or Holdings by the Company, any of the Sellers or the Sellers'
Representative pursuant to the terms of this Agreement, when taken together as a
whole, contain any untrue statement of a material fact or omit a material fact
necessary to make each statement contained herein or therein, in light of the
circumstances in which they were made, not misleading. The Company does not have
any Knowledge (without any duty to investigate) of any material facts or
circumstances which (x) are not known to the Buyer, (y) to the Company's
Knowledge (without any duty to investigate) would actually constitute a breach
of any of the representations and warranties set forth in Article VII hereto and
(z) the Company has not previously disclosed to Buyer with the intent to induce
Buyer or Holdings to make a misrepresentation in this Agreement for purposes of
recovering such Losses pursuant to Section 9.2 below (without giving effect to
any disclosures pursuant to Section 4.7 with respect to any breaches of
representations or warranties as of the date of this Agreement but after giving
effect to any disclosures pursuant to Section 4.7 with respect to any breaches
of representations or warranties after the date of this Agreement).
45
6.27 Closing Date. The representations and warranties of the Company
contained in this Article VI and elsewhere in this Agreement and in any schedule
(as updated pursuant to Section 4.7), attachment or exhibit hereto or in any
certificate delivered by the Sellers' Representative or the Company to Buyer or
Holdings shall be true and correct in all material respects on the Closing Date
as though then made and as though the Closing Date was substituted for the date
of this Agreement throughout such representations and warranties, except those
representations and warranties as of a specific date, which shall be true and
correct in all material respects as of such date.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF BUYER AND HOLDINGS
As a material inducement to Sellers and the Company to enter into this
Agreement and consummate the transactions contemplated hereby, each of Buyer and
Holdings hereby represents and warrants, jointly and severally, to Sellers and
the Company as follows:
7.1 Organization and Power. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Holdings
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Each of Holdings and Buyer has all requisite
corporate power and authority to execute and deliver this Agreement and, at
Closing, will have all requisite corporate power and authority to perform its
respective obligations hereunder and under the Transaction Documents, and to
otherwise consummate the transactions contemplated hereunder and thereunder, as
the case may be.
7.2 Holdings Capital Stock. Immediately subsequent to the Closing (and
after giving effect to the transactions contemplated by this Agreement), the
entire authorized capital stock of Holdings will consist of 1,000,000 shares of
Holdings Preferred Stock and 74,000,000 shares of Holdings Common Stock. The
Holdings Securities issued to the Sellers will have been, at or before the
Closing, duly authorized and, when issued to the Sellers in accordance with this
Agreement, will be validly issued, fully paid, and nonassessable and not subject
to (except pursuant to the Shareholders Agreement), nor will they be issued in
violation of, any preemptive rights or rights of first refusal. At the Closing,
Holdings shall deliver to the applicable Sellers good and marketable title to
the Holdings Securities, free and clear of all Encumbrances other than
restrictions on transfer under the Securities Act and applicable state
securities laws and Encumbrances pursuant to this Agreement, any other
Transaction Document or any of the transactions contemplated by any of the
Transaction Documents. Except as set forth in Holding's certificate of
incorporation and in the Transaction Documents, Holdings (after giving effect to
the transactions contemplated by this Agreement) is not subject to any option or
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any equity securities or any warrants, options or other rights to acquire
its equity securities, and there are no agreements with respect to the voting or
transfer of Holdings' equity securities or with respect to any other aspect of
Holdings' affairs. Holdings owns all of the issued and outstanding capital stock
of Buyer, and there are not outstanding any other securities or securities
convertible or exchangeable for any equity securities or containing any profit
participation features, nor any rights or options to subscribe for or to
purchase Buyer's equity securities or any securities or securities convertible
into or exchangeable for Buyer's equity securities or any equity appreciation
rights or phantom interests. Each share of Holdings Securities to be issued at
or prior to Closing to GTCR Fund VIII or any of its Affiliates shall be sold to
such Persons pursuant to the GTCR and Cash Purchaser Purchase Agreement.
7.3 No Operations. Since the date of incorporation of Holdings, Holdings
has not conducted any business or operations of kind or nature or acquired any
assets or become subject to any liabilities or obligations of any kind or
nature, except as expressly contemplated by this Agreement. Since the date of
46
incorporation of Buyer, Buyer has not conducted any business or operations of
any kind or nature or acquired any assets or become subject to any liabilities
or obligations of any kind or nature, except as expressly contemplated by this
Agreement.
7.4 Authorization. The execution, delivery and performance by Buyer and
Holdings of this Agreement and all of the other agreements and instruments
contemplated hereby to which Buyer or Holdings is a party and the consummation
of the transactions contemplated hereby have been duly and validly authorized by
Buyer or Holdings, respectively, and no other corporate act or proceeding on the
part of Buyer, Holdings, either of their respective board of directors or
stockholders is necessary to authorize the execution, delivery or performance of
this Agreement and all of the other agreements and instruments contemplated
hereby to which Buyer or Holdings is a party and the consummation of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Buyer and Holdings and constitutes a valid and binding obligation
of Buyer and Holdings, enforceable in accordance with its terms (except as
enforceability may be limited by bankruptcy laws, other laws affecting
creditor's rights and general equitable principles affecting the availability of
specific performance and other equitable remedies) and each of the other
agreements and instruments contemplated hereby to which Buyer or Holdings is a
party, when executed and delivered by Buyer or Holdings, as applicable, in
accordance with the terms hereof, shall each constitute a valid and binding
obligation of Buyer or Holdings, as applicable, enforceable with its respective
terms (except as enforceability may be limited by bankruptcy laws, other laws
affecting creditor's rights and general equitable principles affecting the
availability of specific performance and other equitable remedies).
7.5 No Violation. Except as may be required under the HSR Act, neither
Holdings nor Buyer is subject to nor obligated under its certificate of
incorporation or by-laws, or any applicable law, rule or regulation of any
governmental authority, or any agreement, instrument, license or permit, or
subject to any order, writ, injunction or decree, which would be breached or
violated by its execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
7.6 Governmental Authorities and Consents. Except as required pursuant to
the HSR Act or as set forth on the Holdings Governmental Approval Schedule
attached hereto, no permit, consent, approval or authorization of, or
declaration to or filing with, any governmental or regulatory authority or any
other Person is required in connection with the execution, delivery or
performance of this Agreement by Holdings and Buyer or the consummation by
Holdings and Buyer of the transactions contemplated hereby.
7.7 Litigation. There are no actions, suits, proceedings, orders or
investigations pending or, to Buyer's knowledge, threatened against or affecting
Holdings or Buyer, at law or in equity, or before or by any foreign, federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which would adversely affect
Holdings' or Buyer's performance under this Agreement or the consummation of the
transactions contemplated hereby.
7.8 Brokerage. Except as set forth on the Buyer Brokerage Schedule attached
hereto, there are no claims for brokerage commissions, finders' fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of Buyer or Holdings.
7.9 Availability of Funds. Assuming consummation of the Debt Transactions,
Buyer will at the Closing have sufficient immediately available funds, in cash,
to pay the Estimated Cash Purchase Price and to pay any other amounts payable by
Buyer pursuant to this Agreement.
47
7.10 Closing Date. The representations and warranties of Holdings and Buyer
contained in this Article VII and elsewhere in this Agreement and in any
schedule (as updated pursuant to Section 4.7), attachment or exhibit hereto or
in any certificate delivered by Holdings and Buyer to the Sellers'
Representative, on behalf of the Sellers, shall be true and correct in all
material respects on the Closing Date as though then made and as though the
Closing Date was substituted for the date of this Agreement throughout such
representations and warranties, except those representations and warranties as
of a specific date, which shall be true and correct in all material respects as
of such date.
7.11 Investment Representations; Access to Information.
(a) Buyer is acquiring the Purchased Securities pursuant to this
Agreement (the "NewQuest Securities") for its own account with the present
intention of holding such securities for purposes of investment, and does not
have any intention of selling such securities in a public distribution in
violation of the federal securities laws or any applicable state securities
laws. Buyer understands that the NewQuest Securities have not been registered
under the Securities Act, or any state or foreign securities laws and that the
NewQuest Securities may not be sold, transferred, offered for sale, pledged
hypothecated or otherwise disposed of unless such transfer, sale, assignment,
pledge, hypothecation or other disposition is pursuant to the terms of an
effective registration statement under the Securities Act and are registered
under any applicable state or foreign securities laws or pursuant to an
exemption from registration under the Securities Act and any applicable state or
foreign securities laws.
(b) Buyer has received and reviewed carefully information regarding
the Company, its Subsidiaries and the Sellers and has, to the extent it has
deemed necessary or advisable, reviewed the aforementioned information and this
Agreement with its investment, tax, accounting and legal advisors who are
unaffiliated with and who are not compensated by the Company, its Subsidiaries
and the Sellers. Buyer and/or its advisors and representatives have been given a
full opportunity to ask questions of and to receive answers from the Company and
each Subsidiary concerning the transactions contemplated hereby and the
business, operations and financial condition of the Company and each Subsidiary
and, to the Buyer's knowledge, have received or been given access to such
information and documents as are necessary to verify the accuracy of the
information furnished (including the schedules hereto, and any representations
and warranties set forth in Article V and Article VI) to the Buyer as the Buyer
or its representatives have requested. Notwithstanding the foregoing or any
other provision to the contrary in this Agreement, Buyer and Holdings shall be
entitled to rely upon the representations and warranties of the Company, the
Sellers' Representative and any of the Sellers in this Agreement or any of the
other Transaction Documents.
7.12 Acknowledgment. Buyer and Holdings hereby acknowledge and agree that
the representations and warranties by the Company and the Sellers in Article V
and Article VI constitute the sole and exclusive representations and warranties
(express or implied) of the Company and the Sellers in connection with the
transactions contemplated by this Agreement (other than expressly set forth in a
Transaction Document or in any certificate delivered to Buyer or Holdings
pursuant thereto), and that neither Buyer nor Holdings has been induced, or
relied upon, any representations, warranties, statements or information not
expressly set forth herein or in the Transaction Documents. Buyer and Holdings
agree that no claim shall be brought or maintained by the Buyer or Holdings or
their respective successors or permitted assigns against any officer, director
or employee (present or former) of the Company, any Subsidiary, the Sellers or
any affiliates thereof, and no recourse shall be brought or granted against any
of them, by virtue of or based upon any alleged misrepresentation or inaccuracy
in, or breach of any of the representations, warranties or covenants of the
Company or Sellers set forth or contained in, this Agreement or any agreement
delivered hereunder, except to the extent provided in Article IX hereof (absent
intentional misstatement, fraudulent misrepresentation or deceit).
48
7.13 Knowledge of Buyer. Buyer does not have any Knowledge of any material
facts or circumstances which (x) are not known to the Company or any of the
Sellers, (y) to Buyer's Knowledge would actually constitute a breach of any of
the representations and warranties set forth in Article V or Article VI hereto
and (z) Buyer has not previously disclosed to the Company with the intent to
induce the Company and the Sellers to make a misrepresentation in this Agreement
for purposes of recovering such Losses pursuant to Section 9.2 below (without
giving effect to any disclosures pursuant to Section 4.7 with respect to any
breaches of representations or warranties as of the date of this Agreement but
after giving effect to any disclosures pursuant to Section 4.7 with respect to
any breaches of representations or warranties after the date of this Agreement).
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to the
Closing only as follows:
(a) by the mutual written consent of Buyer and Holdings, on the one
hand, and Sellers' Representative, on the other hand;
(b) by Buyer if there has been a material breach of (i) a
representation or warranty by any of the Sellers or the Company in the
representations and warranties set forth in this Agreement or the Schedules or
Exhibits thereto (without taking into account any disclosures made by Holdings
or Buyer to Sellers pursuant to Section 4.7 above except pursuant to Section
4.13 above) which individually or in the aggregate has had, or could reasonably
be expected to have, a Material Adverse Effect or (ii) a covenant by any of the
Sellers, the Sellers' Representative or the Company set forth in this Agreement,
which in the case of any breach of covenant which is curable has not been cured
within twenty (20) days after written notification thereof by Buyer to Sellers'
Representative (specifying in reasonable detail such breach or failure);
(c) by the Sellers' Representative if there has been a material breach
of (i) a representation or warranty by Holdings or Buyer in the representations
and warranties set forth in this Agreement or the Schedules and Exhibits hereto
(without taking into account any disclosures made by Holdings or Buyer to
Sellers pursuant to Section 4.7 above except pursuant to Section 4.13 above)
which individually or in the aggregate has had, or could reasonably be expected
to have, a Buyer MAE or (ii) a covenant by Holdings or Buyer set forth in this
Agreement, which in the case of any breach of covenant which is curable has not
been cured within twenty (20) days after written notification thereof by the
Company to Holdings or Buyer, as applicable (specifying in reasonable detail
such breach or failure); or
(d) by either Buyer, on the one hand, or the Sellers' Representative,
on the other hand, upon 10 days written notice if the transactions contemplated
hereby have not been consummated by February 28, 2005;
(e) by either the Sellers' Representative or Buyer if a governmental
entity, body or authority shall have issued a final judgment, decree or order or
taken any other action which permanently restrains, enjoins or otherwise
prohibits the transactions contemplated by this Agreement; or
(f) by Buyer upon written notice to the Sellers' Representative after
the Sellers' Representative has delivered a MAE Notice pursuant to Section 4.7.
49
provided that (i) if the party electing termination pursuant to clause (b),
(c), (d) or (e) of this Section 8.1 is Holdings or Buyer, neither Holdings nor
Buyer are in material breach of any of their respective representations,
warranties, covenants or agreements contained in this Agreement and (ii) if the
party electing termination pursuant to clause (b), (c), (d) or (e) of this
Section 8.1 is the Sellers' Representative, none of the Company, the Sellers'
Representative or any of the Sellers are in material breach of any of their
respective representations, warranties, covenants or agreements contained in
this Agreement. In the event of termination by Holdings or Buyer pursuant to
this Section 8.1, written notice thereof (describing in reasonable detail the
basis therefor) shall forthwith be delivered to the Company and the Sellers'
Representative. In the event of termination by the Sellers' Representative
pursuant to this Section 8.1, written notice thereof (describing in reasonable
detail the basis therefor) shall forthwith be delivered to Buyer and Holdings.
8.2 Effect of Termination.
(a) In the event of termination of this Agreement by any of Buyer,
Holdings, the Company or the Sellers' Representative as provided above, this
Agreement shall forthwith terminate and have no further force and effect, except
that (x) the covenants and agreements set forth in this Section 8.2 and Sections
9.6 (Expenses), 9.7 (Specific Performance), Article X and the last two sentences
of Section 4.8 shall survive such termination indefinitely, and (y) subject to
Section 8.2(b) below, nothing in Section 8.1 or this Section 8.2 shall be deemed
to release any party from any Losses arising out of any fraudulent, willful or
intentional breach by such party of the terms and provisions of this Agreement
or to impair the right of any party to compel specific performance by another
party of its obligations under this Agreement pursuant to Section 9.7 or
otherwise.
(b) Notwithstanding any provision herein to the contrary, in the event
that (a) all of the conditions to Holdings' and Buyer's obligations to
consummate the transactions contemplated by this Agreement pursuant to Section
3.1 above are fully satisfied at or prior to the Closing and (b) this Agreement
is terminated and the transactions contemplated by this Agreement are not
consummated solely as a result of Buyer's breach of this Agreement (clauses (a)
and (b) above collectively, the "Liquidated Damages Conditions"), Buyer agrees
to promptly pay, or cause to be paid to, the Company an amount equal to Five
Million Dollars ($5,000,000) in the aggregate (the "Liquidated Damages Amount").
For purposes of this Section 8.2(b) only, (a) the conditions to Holdings' and
Buyer's obligations to consummate the transactions contemplated by this
Agreement shall assume that Buyer and Holdings have executed and delivered all
Transaction Documents required to be executed or delivered by Buyer or Holdings
at the Closing, (b) the conditions set forth in Section 3.1(f) shall be deemed
to have been fully satisfied if all lenders with respect to the Debt
Transactions are ready, willing and able to consummate the Debt Transactions on
substantially the terms set forth in the Debt Financing Commitment Letters,
including any flex provisions contained in the Debt Financing Commitment Letters
or in any fee letter attached thereto, subject only to satisfaction of all other
conditions to Buyer's and Holdings' obligations to consummate the transactions
contemplated by this Agreement set forth in Section 3.1 (provided that all such
other conditions have been fully satisfied) and (c) the conditions set forth in
Section 3.1(r) shall be deemed to have been fully satisfied if the Company's
insurance carrier is ready, willing and able to issue the Run-Off Insurance
Policies (subject only to receipt of the premium with respect to the Run-Off
Insurance Policies) and the Company and Sellers are ready, willing and able to
pay the premium with respect to the Run-Off Insurance Policies. The Liquidated
Damages Amount shall be the sole and exclusive remedy of the Company, the
Sellers and their respective Affiliates in the event that the Liquidated Damages
Conditions are satisfied. The parties hereto acknowledge that the Liquidated
Damages Amount has been negotiated by the parties hereto not as a penalty but as
a good faith attempt by the parties hereto to arrive at a reasonable estimate of
the damages to the Company, the Sellers and their Affiliates in the event that
the Liquidated Damages Conditions have been satisfied. In any
50
action for the payment of the Liquidated Damages Amount, the reasonableness of
such amount shall be presumed.
ARTICLE IX
ADDITIONAL AGREEMENTS; COVENANTS AFTER CLOSING
9.1 Survival of Representations and Warranties. The representations and
warranties in this Agreement and the Schedules and Exhibits attached hereto or
in any writing delivered by any party to another party in connection with this
Agreement shall survive the Closing as follows:
(a) the representations and warranties in Article V (Representations
and Warranties of Sellers), Section 6.1 (Capacity, Organization, Etc.), Section
6.2 (Equity Securities and Related Matters; Title to Units), the first three
sentences and the last sentence of Section 6.3 (Authorization), Section 6.4
(Subsidiaries), Section 6.14 (Compliance with Laws), Section 6.17 (Employee
Benefits Plans), Section 6.19 (Tax Matters), Section 6.20 (Brokerage and
Transaction Bonuses), Section 6.23 (Affiliated Transactions), Section 6.27
(Closing Date) with respect to Sections 6.1, 6.2, 6.3, 6.4, 6.14, 6.17, 6.19,
6.20 and 6.23, Section 7.1 (Organization and Power), Section 7.2 (Holdings
Capital Stock), Section 7.4 (Authorization), Section 7.8 (Brokerage), Section
7.11 (Investment Representations) and Section 7.10 (Closing Date) with respect
to Sections 7.1, 7.2, 7.4, 7.8 and 7.11 shall terminate ninety (90) days
following the expiration of the applicable statutes of limitations in respect of
such matters (after giving effect to any extensions or waivers thereof); and
(b) all other representations and warranties in this Agreement and the
Schedules and Exhibits attached hereto or in any writing delivered by any party
to another party in connection with this Agreement shall terminate on the date
which is eighteen (18) months after the Closing Date;
provided that any representation or warranty in respect of which indemnity may
be sought under Section 9.2 below, and the indemnity with respect thereto, shall
survive the time at which it would otherwise terminate pursuant to this Section
9.1 if notice of the inaccuracy or breach or potential inaccuracy or breach
thereof giving rise to such right or potential right of indemnity shall have
been given to the party against whom such indemnity may be sought prior to such
time (regardless of when the Losses in respect thereof may actually be
incurred). The representations and warranties in this Agreement and the
Schedules and Exhibits attached hereto or in any writing delivered by any party
to another party in connection with this Agreement shall survive for the periods
set forth in this Section 9.1 and shall in no event be affected by any
investigation, inquiry or examination made for or on behalf of any party, or the
knowledge of any party's officers, directors, stockholders, employees or agents
or the acceptance by any party of any certificate or opinion hereunder (except
to the extent of any breach of the Company's representations and warranties
pursuant to the second sentence of Section 6.26 or any breach of the Buyer's
representations and warranties pursuant to Section 7.13). The parties
acknowledge that indemnification hereunder with respect to the breach of any
post-Closing covenant or agreement contained herein, including any breach of any
post-Closing covenant or agreement contained in this Article IX, shall not be
subject to any time or other limitations (other than those imposed under any
applicable statute of limitations).
9.2 Indemnification.
(a) Indemnification by Sellers for Company Breaches. Subject to the
terms, conditions and exceptions set forth in this Section 9.2(a) and elsewhere
in this Article IX, Sellers, through the Escrow Account and thereafter
severally, but not jointly, shall indemnify Buyer and Holdings and their
respective Affiliates (including the Company after the Closing), stockholders,
officers, directors,
51
employees, agents, partners, representatives, successors and assigns
(collectively, the "Buyer Parties") and save and hold each of them harmless
against and pay on behalf of or reimburse such Buyer Parties as and when
incurred for any loss, liability, demand, claim, action, cause of action, cost,
damage, deficiency, Tax, penalty, fine or expense, whether or not arising out of
third-party claims (including any interest, penalties, reasonable attorneys'
fees and expenses and all reasonable amounts paid in investigation, defense or
settlement of any of the foregoing, but excluding any exemplary or punitive
damages which would cause the Buyer Parties to recover more than the actual
amount of such loss, cost or expense sustained or suffered by the Buyer Parties,
other than awards for exemplary or punitive damages paid or payable or otherwise
incurred by any Buyer Party arising out of any third-party claim (provided that
this exclusion is not intended to limit recovery for lost profits, consequential
damages or any other liabilities or damages to the extent actually sustained or
suffered by any of the Buyer Parties)) (collectively, "Losses"), which any such
Buyer Party may suffer, sustain or become subject to, as a result of, in
connection with, or relating to: (i) any breach by the Company or the Sellers'
Representative of any representation or warranty made by the Company in this
Agreement or any of the Schedules or Exhibits attached hereto, or in any of the
certificates or other instruments or documents furnished by the Company or the
Sellers' Representative pursuant to this Agreement (without regard and without
giving effect to (x) any materiality or Material Adverse Effect standard or
qualification contained in such provision which has the effect of making such
provision in this Agreement less restrictive or (y) any disclosures pursuant to
Section 4.7 (other than any disclosure pursuant to Section 4.13) with respect to
the representations and warranties set forth in Section 5.6 (Closing Date) or
Section 6.27 (Closing Date) (as if such standards or qualifications were deleted
from such other provision contained in this Agreement)); (ii) any nonfulfillment
or breach of any covenant, agreement or other provision by the Company or
Sellers' Representative under this Agreement or any of the Schedules and
Exhibits attached hereto (without regard and without giving effect to (x) any
materiality or Material Adverse Effect standard or qualification contained in
such provision which has the effect of making such provision in this Agreement
less restrictive or (y) any disclosures pursuant to Section 4.7 (other than any
disclosure pursuant to Section 4.13) with respect to the representations and
warranties set forth in Section 5.6 (Closing Date) or Section 6.27 (Closing
Date) (as if such standards or qualifications were deleted from such other
provision contained in this Agreement)); (iii) except to the extent of the Taxes
included in the Closing Tax Liability and taken into account in determining the
final and binding Total Value, all Taxes (or the non-payment thereof) of the
Company and its Subsidiaries for all Taxable periods ending on or before the
Closing Date and the portion through the end of the Closing Date for any Taxable
period that includes (but does not end on) the Closing Date ("Pre-Closing Tax
Period"), (iv) all Taxes of any member of an Affiliated Group attributable to a
Pre-Closing Tax Period of which the Company or any Subsidiary (or any
predecessor of the foregoing) is or was a member on or prior to the Closing
Date, including pursuant to Treasury Regulation Section 1.1502-6 (or any
analogous or similar state, local, or foreign law or regulation), (v) any and
all Taxes of any Person imposed on the Company or any Subsidiary as a transferee
or successor, by contract or pursuant to any law, rule, or regulation, which
Taxes relate to an event or transaction occurring before the Closing; (vi) any
Tax liability (which shall include any decrease to any past, present, or future
Tax asset or attribute of the Company or its Subsidiaries or Buyer Parties
including, but not limited to, any decrease in Tax basis or change in the timing
of the utilization of any Tax asset or attribute or the Tax effect of any item
which increases any amounts paid or payable with respect to Taxes) resulting
from any distribution, assignment or other transfer of all or any portion of the
assets or business operated by any Subsidiary of the Company to any other
Subsidiary of the Company; (vii) any of the matters set forth on the
Indemnification Schedule attached hereto or (viii) any Pre-Closing D&O
Liability; provided that: (A) Sellers shall not have any liability under this
Section 9.2(a), other than pursuant to clause (ii) (as the same relates to
post-Closing covenants and agreements of the Sellers' Representative), clause
(vi), clause (vii) or clause (viii) above, unless the aggregate of all such
Losses under this Section 9.2(a) for which Sellers would, but for this proviso,
be liable exceeds on a cumulative basis an amount equal to $500,000 (and then
Sellers shall be liable only to the extent such Losses exceed the $500,000
threshold amount); (B) no Buyer Party may make any claim for indemnification for
any
52
single claim or series of related claims, other than pursuant to clause (viii)
above, unless the Losses are in excess of $100,000 (and any Buyer Party may
thereafter recover the entire amount of any such Losses (subject to clause (A)
above)); (C) the Escrow Amount shall be the primary source for Losses under
Section 9.2(a) until its exhaustion or disbursement pursuant to the terms of the
Escrow Agreement; (D) except as set forth below, each Seller's indemnification
obligations shall be limited to their pro rata portion of the indemnifiable
amounts hereunder (based on such Seller's Indemnification Share); (E) no Seller
shall be liable under Section 9.2(a) and/or (b) for an aggregate amount in
excess of the Cash Purchase Price received hereunder (absent intentional
misstatement, fraudulent misrepresentation or deceit); and (F) for the avoidance
of doubt, Sellers shall not have any liability under this Agreement for Taxes to
the extent taken into account in determining the Closing Tax Liability and taken
into account in determining the final and binding Total Value. Notwithstanding
anything to the contrary contained in this Agreement (including in this Section
9.2), in the event the Escrow Funds which are not subject to any claims are not
sufficient to indemnify the Buyer Parties for any Loss pursuant to clause (vi)
above, the Buyer Parties shall recover directly from each of the Contributing
Sellers in cash, on a several but not joint basis on the basis of each Seller's
Indemnification Share. If Buyer is unable to recover cash from a Seller pursuant
to the preceding sentence within 10 days after delivery of written notice to the
Sellers' Representative (and to the extent practicable a confirmatory phone call
to the Sellers' Representative to confirm receipt of such notice), Buyer may (in
addition to any other rights Buyer may have to recover such Losses pursuant to
Section 9.2(d) below), but shall not be required to, recover any out-of-pocket
Tax liability (including, without limitation, any interest or penalties)
included in such Losses jointly and severally from ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇, ▇▇., ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇.
▇▇▇▇▇▇, S. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ Family Enterprises, Ltd. Without
limiting the foregoing, as between the Sellers, each Seller agrees that it shall
be liable for and contribute to the amount of any Loss recovered pursuant to the
immediately preceding sentence on a several, but not joint, basis on the basis
of each Seller's Indemnification Share. Notwithstanding any provision to the
contrary, nothing in this Agreement (including this Section 9.2(a)) shall limit
or restrict any of the Buyer Parties' right to maintain or recover any amounts
in connection with any action or claim based upon intentional misstatement,
fraudulent misrepresentation or deceit.
(b) Indemnification by Sellers for Individual Seller Breaches. Subject
to Section 9.2(d) below, each Seller individually and not jointly and severally,
shall indemnify and hold harmless the Buyer Parties from and against any and all
Losses which any of the Buyer Parties sustains, or to which any of the Buyer
Parties is subjected, arising out of any misrepresentation, breach or
non-fulfillment by such Seller under any of the individual representations,
warranties, covenants, agreements or other provisions of this Agreement,
including such Seller's representations and warranties set forth in Article V
above, or any other agreement or document executed in connection herewith with
respect to such Seller (collectively, the "Individual Obligations").
(c) Indemnification by Buyer. Buyer agrees to and shall indemnify
Sellers and their respective Affiliates, stockholders, officers, directors,
employees, agents, partners, representatives, successors and assigns
(collectively, the "Seller Parties") and hold them harmless against any Losses
which they may suffer, sustain or become subject to, as the result of, in
connection with, relating or incidental to or by virtue of: (i) the breach or
non-fulfillment by Buyer or Holdings of any representation, warranty, covenant
or agreement made by Buyer or Holdings in this Agreement or any other agreement
or document executed in connection herewith with respect to Buyer or Holdings
(without regard and without giving effect to any materiality or Material Adverse
Effect standard or qualification contained in such provision which has the
effect of making such provision in this Agreement less restrictive (as if such
standards or qualifications were deleted from such other provision contained in
this Agreement)) or (ii) all Taxes (or the non-payment thereof) of the Company
and its Subsidiaries for all Taxable periods ending after the Closing Date and
the portion from and after the Closing Date for any Taxable period that includes
(but does not end on) the Closing Date; provided that: (A) Buyer, Holdings and
their respective
53
Subsidiaries shall not have any liability under this Section 9.2(c) unless the
aggregate of all such Losses under this Section 9.2(c) for which Buyer and
Holdings would, but for this proviso, be liable exceeds on a cumulative basis an
amount equal to $500,000 (and then Buyer and Holdings, jointly and severally,
shall be liable only to the extent such Losses exceed the $500,000 threshold
amount); and (B) Sellers may not make any claim for indemnification for any
single claim or series of related claims unless the Losses are in excess of
$100,000 (and the Seller Parties may thereafter recover the entire amount of any
such Losses (subject to clause (A) above)).
(d) Manner of Payment. Except as otherwise provided herein, any
indemnification payments to the Buyer Parties pursuant to Section 9.2(a) above
shall first be made to the extent possible from the Escrow Funds in the Escrow
Account (as defined in the Escrow Agreement) and thereafter shall be made
directly by Contributing Sellers in cash, on a several but not joint basis on
the basis of each Seller's Indemnification Share. If Buyer or Holdings is unable
to recover cash from any Seller as described in the preceding sentence within 10
days after delivery of written notice to the Sellers' Representative (and to the
extent practicable a confirmatory phone call to the Sellers' Representative to
confirm receipt of such notice), Buyer or Holdings may recover directly from
that Seller through surrendering shares or portions of shares of Holdings
Securities held by such Seller or such Seller's transferees with a value equal
to the amount of any such unsatisfied portion of such Loss. Except as otherwise
provided herein, any indemnification payments to any of the Buyer Parties
pursuant to Section 9.2(b) above shall be made by check or wire transfer of
immediately available funds from such Seller to an account designated by the
applicable Buyer Party. If Buyer or Holdings is unable to recover cash from such
Seller as described in the preceding sentence within 10 days after delivery of
written notice to the Sellers' Representative (and to the extent practicable a
confirmatory phone call to the Sellers' Representative to confirm receipt of
such notice), Buyer or Holdings may, at their option, recover the amount of such
portion of such Loss (i) from the Escrow Funds in the Escrow Account and/or (ii)
directly from such Seller through surrendering shares or portions of shares of
Holdings Securities held by such Seller or such Seller's transferees with a
value equal to the amount of any such unsatisfied portion of such Loss. Except
as otherwise provided herein, any indemnification payments of the Buyer Parties
pursuant to Section 9.2(c) above shall be effected by check or wire transfer of
immediately available funds from Buyer to the Sellers' Representative, on behalf
of the Sellers. In the event any Seller (or such Seller's transferee(s)) is
required to surrender any shares (or portions thereof) of Holdings Securities,
the number of shares (or portions thereof) of Holdings Securities to be
surrendered by any such Seller (or such Seller's transferee(s)) shall have an
aggregate value equal to (x) the amount of the indemnification payment required
to be made by such Seller divided by (y) the fair market value of such Holdings
Securities as determined by Holdings' board of directors in its reasonable
discretion. Any shares of Holdings Securities surrendered pursuant to this
Section 9.2(d) shall be in the ratio of one (1) share of Holdings Preferred
Stock to the number of shares of Holdings Common Stock equal to (A) the Holdings
Common Percentage divided by (B) the Holdings Preferred Percentage multiplied by
10,000. Any Seller required to surrender shares (or portions thereof) of
Holdings Securities pursuant to this paragraph (d) shall promptly deliver (but
in no event more than 10 days after valid demand for delivery of such
certificates has been given to the Sellers' Representative) (or cause to be
delivered by such Seller's transferee(s)) to Holdings (or if held by Holdings as
custodian on behalf of such Seller pursuant to the Stockholders Agreement shall
request that Holdings release for surrender) the stock certificate(s)
representing such Seller's shares (or such Seller's transferee(s) shares) of
Holdings Securities for cancellation, together with duly executed forms of
assignment sufficient to transfer title thereto to Holdings or Buyer. Upon
receipt of such stock certificate(s) from such Seller or such Seller's
transferee(s), Holdings shall issue a new stock certificate to such Seller or
its permitted transferee evidencing the number of shares of each class of
Holdings Securities delivered to Buyer on behalf of such Seller pursuant to the
preceding sentence less the number of shares of each class of Holdings
Securities to be surrendered to Buyer pursuant to this paragraph (d). All
indemnification payments under this Section 9.2 shall be deemed adjustments to
the Total Value and the Cash Purchase Price set forth in Section 2.3(a)
54
above. Any payments pursuant to this Section 9.2(d) shall be made no later than
ten business days after the date such amount is determined by a court of
competent jurisdiction or as otherwise agreed upon by Buyer and the Sellers'
Representative. If the Buyer Parties may recover a Loss under both Section
9.2(a) and Section 9.2(b), Buyer agrees to seek recovery for such Loss pursuant
to Section 9.2(b) prior to recovery of such Loss under Section 9.2(a) unless
such Buyer Party reasonably believes that all or substantially all of the
Sellers are in breach of any particular representation, warranty or covenant.
(e) Defense of Third-Party Claims. Any Person making a claim for
indemnification under this Section 9.2 (an "Indemnitee") shall notify the
indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided that
notwithstanding any provision in this Agreement, if any Sellers are the
Indemnitor (other than with respect to Individual Obligations), then the
Indemnitor shall be the Sellers' Representative, on behalf of all of the
Sellers, with respect to any notice requirements or rights to defend against any
claim pursuant to this Section 9.2. Notwithstanding any provision in this
Section 9.2, the failure to so notify an Indemnitor shall not relieve the
Indemnitor of its obligations hereunder except to the extent that (and only to
the extent that) such failure shall have materially prejudiced the defense of
the related claim. Any Indemnitor shall be entitled to participate in the
defense of such action, lawsuit, proceeding, investigation or other claim giving
rise to an Indemnitee's claim for indemnification at such Indemnitor's expense,
and at its option (subject to the limitations set forth below) shall be entitled
to assume the defense thereof by appointing a counsel reasonably acceptable to
the Indemnitee to be the lead counsel in connection with such defense (which
approval shall not be unreasonably withheld, conditioned or delayed and it being
specifically agreed that each of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP and Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
shall be deemed reasonably acceptable to the Indemnitee); provided that prior to
the Indemnitor assuming control of such defense it shall first (i) verify to the
Indemnitee in writing that such Indemnitor shall be fully responsible for all
liabilities and obligations, excluding any deductibles under Run-Off Insurance
Policies or other limitations on the Indemnitor's indemnification obligations
provided in this Agreement, relating to such claim for indemnification based on
the facts and circumstances of such claim known or which would reasonably be
expected to have been known at such time and that it reasonably believes that
Indemnitor would reasonably be expected to incur a majority of any Loss in
excess of any deductible with respect to such claim and (ii) enter into an
agreement with the Indemnitee in form and substance reasonably satisfactory to
the Indemnitee which agreement unconditionally guarantees the payment and
performance of any liability or obligation which may arise with respect to such
action, lawsuit, proceeding, investigation or facts giving rise to such claim
for indemnification hereunder, excluding any deductibles under Run-Off Insurance
Policies or other limitations on the Indemnitor's indemnification obligations
provided in this Agreement; and provided further, that:
(i) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ one counsel of its choice for such purpose;
provided that the reasonable fees and expenses of such separate counsel shall be
borne by the Indemnitee (other than any reasonable fees and expenses of such
separate counsel that are incurred prior to the date the Indemnitor effectively
assumes control of such defense which, notwithstanding the foregoing, shall be
borne by the Indemnitor, and except that the Indemnitor shall pay all of the
reasonable fees and expenses of such separate counsel if the Indemnitee has been
advised by counsel that a reasonable likelihood exists of a conflict of interest
between the Indemnitor and the Indemnitee);
(ii) the Indemnitor shall not be entitled to assume control of
such defense (unless otherwise agreed to in writing by the Indemnitee) and shall
pay the fees and expenses of counsel retained by the Indemnitee if (1) the claim
for indemnification relates to or arises in connection with any criminal or
quasi-criminal proceeding, action, indictment, allegation or investigation; (2)
the Indemnitee
55
reasonably believes an adverse determination with respect to the action,
lawsuit, investigation, proceeding or other claim giving rise to such claim for
indemnification would be materially detrimental to or injure the Indemnitee's
reputation or future business prospects; (3) the claim seeks an injunction or
equitable relief against the Indemnitee; (4) the Indemnitee has been advised by
counsel that a reasonable likelihood exists of a conflict of interest between
the Indemnitor and the Indemnitee; or (5) upon good faith petition by the
Indemnitee under the appropriate court rules that the Indemnitor failed or is
failing to vigorously prosecute or defend such claim;
(iii) if the Indemnitor shall control the defense of any such
claim, the Indemnitor shall obtain the prior written consent of the Indemnitee
(not to be unreasonably withheld, conditioned or delayed with respect to clause
(B) below) before entering into any settlement of a claim or ceasing to defend
such claim if, (A) pursuant to or as a result of such settlement or cessation,
injunctive or other equitable relief will be imposed against the Indemnitee, (B)
such settlement does not expressly and unconditionally release the Indemnitee
from all liabilities and obligations with respect to such claim, excluding any
deductibles under ▇▇▇-Off Insurance Policies provided in this Agreement, without
prejudice, or (C) if it is reasonably likely that such settlement will result in
a material increase in the Tax liability of Holdings, Buyer or any of their
respective Affiliates, or the Company or its Subsidiaries for any taxable period
(or portion thereof) ending after the Closing Date; and
(iv) if the Indemnitee shall control the defense of any
indemnifiable claim, the Indemnitee shall obtain the prior written consent of
the Indemnitor before entering into any settlement of such claim (which shall
not be unreasonably withheld, conditioned or delayed) and shall not cease to
defend such claim without prior notice to the Indemnitor of the Indemnitee's
intention to cease to defend such claim; provided that no such consent shall be
required with respect to any portion of the claim that requires no monetary
payment and provided further that if such consent is withheld by the Indemnitor,
the Indemnitor shall assume the defense of such claim and shall fully indemnify
the Indemnitee for all incremental or additional Losses relating to such claim
(i.e. in excess of the amount of Losses which would have been incurred if the
parties entered into such settlement).
(f) Insurance Proceeds. Notwithstanding anything to the contrary in
this Agreement, to the extent that an Indemnitee receives insurance proceeds as
a result of any Loss, the Indemnitee shall pay the amount of such insurance
proceeds or recovery to the Indemnitor promptly after such insurance proceeds
are actually received by the Indemnitee; provided that (i) Indemnitor shall not
be entitled to any such insurance proceeds in excess of the indemnification
payment or payments actually received from the Indemnitor by Indemnitee with
respect to such Loss, and (ii) Indemnitor shall only be entitled to such
insurance proceeds to the extent that (x) the amount of any payment actually
received from the Indemnitor by Indemnitee with respect to such Loss plus the
amount of any insurance proceeds with respect to such Loss is greater than (y)
the amount of such Loss to the Indemnitee. The Indemnittee shall use
commercially reasonable efforts to recover under any Run-Off Insurance Policies
covering any Loss to the same extent as they would if such Loss were not subject
to indemnification hereunder.
(g) Other Exclusions. The amount of any Loss subject to
indemnification under Section 9.2 shall initially be calculated without regard
to any Tax Benefit. If the Indemnitee receives a Tax Benefit on account of such
Loss, the Indemnitee shall promptly pay to the Person or Persons that made such
indemnification payment the amount of such Tax Benefit at such time or times as
and to the extent that such Tax Benefit is actually realized by the Indemnitee.
For purposes hereof, "Tax Benefit" shall mean any refund of Taxes paid or
reduction in the amount of Taxes which are paid or otherwise would have been
paid, if such Loss had not been incurred, calculated by computing the amount of
Taxes before and after inclusion of any Tax items attributable to such Loss for
which indemnification was made and treating such Tax items as the last items
claimed for any taxable year. In addition, the Buyer Parties shall not be
entitled to indemnification for any deductibles paid with respect to the Run-Off
Insurance
56
Policies (which deductibles shall be paid, or caused to be paid, by Holdings
when and as incurred (subject to any rights to indemnification pursuant to this
Section 9.2).
(h) No Duplication. Buyer shall not be entitled to recover any Losses
relating to any matter arising under one provision of this Agreement to the
extent that Buyer had already recovered such Losses pursuant to other provisions
of this Agreement (including any amounts paid under Section 2.3(c)).
(i) Exclusive Remedy. The remedies provided for in this Section 9.2
shall constitute the sole and exclusive remedy for any post-Closing claims made
for breach of the representations and warranties and pre-Closing covenants or
other agreements to be fully performed or satisfied prior to the Closing
contained in this Agreement or in any of the certificates furnished by any party
hereto pursuant to this Agreement, except in the case of intentional
misstatement, fraudulent misrepresentation or deceit.
(j) Certain Waivers; etc. Each Seller hereby agrees that such Seller
shall not make any claim for indemnification against Holdings, Buyer, the
Company or any of their respective Affiliates by reason of the fact that such
Seller is or was a equityholder, employee, manager, director or agent of the
Company or any of its Subsidiaries or Affiliates or is or was serving at the
request of the Company or any of its Affiliates as a partner, trustee or agent
of another entity (whether such claim is for judgments, damages, penalties,
fines, costs, amounts paid in settlement, losses, expenses or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw,
agreement or otherwise) with respect to any action, suit, proceeding, complaint,
claim or demand brought by any of the Buyer Parties against Sellers pursuant to
this Agreement or applicable law or otherwise, and each Seller hereby
acknowledges and agrees that such Seller shall not have any claim or right to
contribution or indemnity from the Company or any of its Affiliates with respect
to any amounts paid by it pursuant to this Agreement or otherwise. Effective
upon the Closing, each Seller hereby irrevocably waives, releases and discharges
the Company and its Affiliates from any and all liabilities and obligations to
him or her of any kind or nature whatsoever which are related to any facts,
circumstances, events or conditions prior to the Closing, whether in his or her
capacity as a unitholder of the Company or any of its Subsidiaries or Affiliates
or otherwise (including in respect of any rights of contribution or
indemnification), in each case whether absolute or contingent, liquidated or
unliquidated, known or unknown, and whether arising under any agreement or
understanding (other than this Agreement and any of the other agreements
executed and delivered in connection herewith and other than compensation paid
to the Sellers in the ordinary course of business) or otherwise at law or
equity, and each Seller agrees that such Seller shall not seek to recover any
amounts in connection therewith or thereunder from the Company or any of its
Affiliates. Notwithstanding the foregoing, Sellers who were directors, officers
or managers of the Company or any of its Subsidiaries at any time prior to the
Closing shall not release the Company with respect to any deductibles to be paid
under any of the Run-Off Insurance Policies or any Pre-Closing D&O Liability.
The Buyer Parties shall not be entitled to indemnification for any deductibles
paid by Buyer or any of its Affiliates under any of the Run-Off Insurance
Policies. In no event after the Closing shall the Company or any of its
Affiliates have any liability whatsoever to any of the Sellers for any breaches
of the representations, warranties, agreements or covenants of the Company
hereunder, and in any event none of the Sellers may seek contribution from the
Company or any of its Subsidiaries or Affiliates in respect of any payments
required to be made after the Closing by any of the Sellers pursuant to this
Agreement.
9.3 Mutual Assistance. Holdings, Buyer, the Company, the Sellers'
Representative and Sellers agree that they will mutually cooperate in the
expeditious filing of all notices, reports and other filings with any
governmental authority required to be submitted jointly by the Company and Buyer
or Holdings in connection with the execution and delivery of this Agreement
and/or the other agreements contemplated hereby and the consummation of the
transactions contemplated hereby or thereby.
9.4 Non-Competition; Non-Solicitation.
57
(a) Each Seller hereby acknowledges that such Seller is familiar with
the Company's and its Subsidiaries' trade secrets and with other Confidential
Information. Each Seller acknowledges and agrees that the Company and its
Subsidiaries would be irreparably damaged if such Seller were to provide
services to or otherwise participate in the business of any Person competing
with the Company in a similar business and that any such competition by such
Seller would result in a significant loss of goodwill by the Company and its
Subsidiaries. Each Seller further acknowledges and agrees that the covenants and
agreements set forth in this Section 9.4 were a material inducement to Buyer and
Holdings to enter into this Agreement and to perform their obligations
hereunder, and that none of Buyer, Holdings or its stockholders would obtain the
benefit of the bargain set forth in this Agreement as specifically negotiated by
the parties hereto if such Seller breached the provisions of this Section 9.4.
Therefore, each Seller agrees, in further consideration of the amounts to be
paid hereunder for such Seller's Purchased Units and the goodwill of the Company
sold by Sellers and the Holding Securities to be issued in exchange for such
Seller's Contributed Units, that (x) until the fifth anniversary of the Closing,
each Other Seller shall not (and shall cause such Seller's Subsidiaries and use
commercially reasonable efforts to cause such Seller's other Affiliates not to)
directly or indirectly own any interest in, manage, control, participate in
(whether as an officer, director, employee, partner, agent, representative or
otherwise), consult with, render services for, or in any other manner engage
anywhere in the Restricted Territories in any business engaged directly or
indirectly in providing health plans and (y) until the third anniversary of the
Closing, each Select Seller shall not (and shall cause such Seller's
Subsidiaries and use commercially reasonable efforts to cause such Seller's
other Affiliates not to) directly or indirectly commence operations, manage or
control anywhere in the Restricted Territories any business engaged directly or
indirectly in providing Medicare health plans to individual or employer groups
(the "Restricted Business"); provided that nothing herein shall prohibit any
Seller or any Seller's Affiliate from (i) being a passive owner of not more than
2% of the outstanding stock of any class of a corporation which is publicly
traded so long as none of such Persons has any active participation in the
business of such corporation, (ii) becoming employed, engaged, associated or
otherwise participating with a separately managed division or Subsidiary of a
competitive business that does not engage in the Restricted Business (provided
that services are provided only to such division or Subsidiary), or (iii) with
respect to any particular Select Seller, from engaging in any activities set
forth on the Select Seller Permitted Activity Schedule. For purposes of this
Agreement, "Restricted Territories" shall mean the States of Alabama, Illinois,
Mississippi, Tennessee and Texas. Each Seller acknowledges that the Company's
business has been conducted or is presently proposed to be conducted throughout
the Restricted Territories and that the geographic restrictions set forth above
are reasonable and necessary to protect the goodwill of the Company's and its
Subsidiaries' business being sold by Sellers pursuant to this Agreement.
(b) Each Other Seller agrees that until the fifth anniversary of the
Closing such Seller shall not (and shall cause such Seller's Subsidiaries and
use commercially reasonable efforts to cause such Seller's other Affiliates not
to) and each Select Seller agrees that until the third anniversary of the
Closing such Seller shall not (and each Select Seller shall cause such Seller's
Subsidiaries and use commercially reasonable efforts to cause such Seller's
other Affiliates not to) directly, or indirectly through another Person, (i)
induce or attempt to induce any employee of the Company or any of its
Subsidiaries or Affiliates to leave the employ of the Company or any of its
Subsidiaries or Affiliates, or in any way interfere with the relationship
between the Company or any of its Subsidiaries or Affiliates and any employee
thereof, (ii) hire any person who was an employee of the Company or any of its
Subsidiaries or Affiliates at any time during the one-year period immediately
prior to the date on which such hiring would take place (it being conclusively
presumed by the parties so as to avoid any disputes under this Section 9.4(b)
that any such hiring within such one-year period is in violation of clause (i)
above), or (iii) for so long as such Seller has continuing obligations under
Section 9.4(a) above, induce or attempt to induce any customer, supplier,
licensee, licensor or other business relation of the Company or any of its
Subsidiaries or Affiliates (including any Person that was a customer, supplier
or other business relation of the Company or any of Subsidiaries or Affiliates
at any time during the 12-month period immediately
58
prior to such inducement or attempt to induce) to cease doing business with the
Company or any of its Subsidiaries or Affiliates, or in any way interfere with
or adversely modify the relationship between any such customer, supplier,
licensee or business relation and the Company or any of its Subsidiaries or
Affiliates. Notwithstanding the foregoing, nothing in this Section 9.4 shall
prohibit any Sellers or their Affiliates from employing an individual (i) with
the consent of Buyer or (ii) who responded to general solicitations in
publications or on websites, or through the use of search firms, so long as such
general solicitations or search firm activities are not targeted specifically at
an employee of Holdings, Buyer, the Company or any of their respective
Subsidiaries.
(c) Each Seller agrees that such Seller shall not (and each Seller
shall cause such Seller's Subsidiaries and use commercially reasonable efforts
to cause such Seller's other Affiliates not to) (i) make any negative or
derogatory statement or communication regarding Buyer, Holdings, the Company or
any of their respective Affiliates or employees with the intent to harm the
Company, Holdings or Buyer or (ii) make any disparaging statement or
communication regarding Buyer, Holdings, the Company or any of their respective
Affiliates or employees. Buyer and Holdings shall not (and shall cause the
Company's Subsidiaries and use commercially reasonable efforts to cause their
respective officers, directors and employees not to) make any derogatory or
disparaging statement or communication regarding any Seller or, to the knowledge
of such Person, any Seller's Affiliates, with the intent to harm such Person.
Nothing in this Section 9.4(c) will prohibit the making of any truthful
statements made by any Person in response to a lawful subpoena or legal
proceeding or to enforce such Person's rights under this Agreement and the other
Transaction Documents.
(d) If, at the time of enforcement of the covenants contained in this
Section 9.4 (the "Restrictive Covenants"), a court shall hold that the duration,
scope or area restrictions stated herein are unreasonable under circumstances
then existing, the parties agree that the maximum duration, scope or area
reasonable under such circumstances shall be substituted for the stated
duration, scope or area and that the court shall be allowed and directed to
revise the restrictions contained herein to cover the maximum period, scope and
area permitted by law. Each Seller has determined and hereby acknowledges that
the Restrictive Covenants are reasonable in terms of duration, scope and area
restrictions and are necessary to protect the goodwill of the Company's and its
Subsidiaries' business and the substantial investment in the Company and its
Subsidiaries made by Buyer hereunder. Each Seller further acknowledges and
agrees that the Restrictive Covenants are being entered into by it in connection
with the sale by such Seller of such Seller's Purchased Units and the goodwill
of the Company's business and the contribution by such Seller of such Seller's
Contributed Units pursuant to this Agreement and not directly or indirectly in
connection with such Seller's employment or other relationship with the Company.
(e) If any Seller or an Affiliate or Subsidiary of any Seller
breaches, or threatens to commit a breach of, any of the Restrictive Covenants,
the Company shall have the following rights and remedies, each of which rights
and remedies shall be independent of the others and severally enforceable, and
each of which is in addition to, and not in lieu of, any other rights and
remedies available to Buyer, Holdings, the Company or any of their respective
Affiliates at law or in equity:
(i) the right and remedy to have the Restrictive Covenants
specifically enforced by any court of competent jurisdiction, it being agreed
that any breach or threatened breach of the Restrictive Covenants would cause
irreparable injury to the Company and that money damages would not provide an
adequate remedy to the Company; and
(ii) the right and remedy to require such Seller to account for
and pay over to the Company any profits, monies, accruals, increments or other
benefits derived or received by such Person as the result of any transactions
constituting a breach of the Restrictive Covenants from the date
59
such Seller was actually aware or was notified that such Seller was in breach of
any of the Restrictive Covenants.
In the event of any breach or violation by Sellers of any of the Restrictive
Covenants, the time period of such covenant shall be tolled until such breach or
violation is resolved.
9.5 Press Release and Announcements. Unless required by law (in which case,
each of Holdings and Buyer agrees to consult with the Sellers' Representative,
and each of the Company and the Sellers' Representative agrees to consult with
Holdings and Buyer prior to any such disclosure as to the form and content of
such disclosure to the extent permitted by law), after the date hereof and
through and including the Closing Date, no press releases, announcements to the
employees, customers or suppliers of the Company or any of its Subsidiaries or
other releases of information related to this Agreement or the transactions
contemplated hereby will be issued or released without the consent of each of
the Company, Holdings or Buyer and Sellers' Representative. After the Closing,
Holdings, Buyer and the Company may issue any such releases of information
without the consent of any other party hereto.
9.6 Expenses. Except as otherwise provided herein, Sellers and Buyer shall
pay all of their own respective fees, costs and expenses (including transaction
fees and any fees, costs and expenses of legal counsel, investment bankers,
brokers and other representatives and consultants) incurred in connection with
the negotiation of this Agreement, the performance of its obligations hereunder
and the consummation of the transactions contemplated hereby; provided, that,
for avoidance of doubt, Buyer shall pay all HSR Act filing fees with respect to
the acquisition by Holdings and Buyer of the equity interests of the Company but
not HSR Act filing fees included as Sellers' Expenses. Without limiting the
foregoing, the Company or Sellers shall pay all fees, costs and expenses of the
Company incurred in connection with the negotiation of this Agreement, the
performance of its obligations hereunder and the consummation of the
transactions contemplated hereby, provided, however, that Buyer shall pay any
Sellers' Expenses at Closing (pursuant to Section 2.2(c)(v)) to the extent such
Sellers' Expenses have not been paid by the Sellers or the Company at or prior
to the Closing out of Company Unregulated Cash. Any such Sellers' Expenses would
reduce the Total Value and the Cash Purchase Price pursuant to Section 2.3.
Notwithstanding the foregoing, the fees and expenses of the Escrow Agent shall
be paid 50% by the Sellers (which amounts shall constitute Sellers' Expenses if
payable at or prior to Closing and shall offset against any amounts released
from the portion of the Escrow Amount released to the Sellers thereafter) and
50% by the Buyer.
9.7 Specific Performance. Each of the Company, Sellers and Buyer
acknowledge and agree that the other parties would be damaged irreparably in the
event any of the provisions of this Agreement is not performed in accordance
with its specific terms or is otherwise breached. Accordingly, each of the
Company, Sellers and Buyer agree that the other parties shall be entitled to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in any court in the United States or
in any state having jurisdiction over the parties and the matter in addition to
any other remedy to which they may be entitled pursuant hereto.
9.8 Further Assurances. In the event that at any time after the Closing any
further action is necessary or desirable to carry out the purposes of this
Agreement, each of the parties hereto will take such further action (including
the execution and delivery of such further instruments and documents) as any
other party hereto reasonably may request. Each Seller acknowledges and agrees
that, from and after the Closing, Buyer will be entitled to possession of all
documents, books, records (including Tax records), agreements and financial data
of any sort relating to the Company and its Subsidiaries. Without limiting the
foregoing, Sellers agree to reasonably cooperate with Holdings, Buyer and their
respective Affiliates
60
with any post-Closing notification requirements and shall provide such
information to Holdings, Buyer and their Affiliates as such Persons may
reasonably require to complete such notification.
9.9 Confidentiality. Each Seller agrees not to disclose or use at any time
(and each Seller shall cause each of such Seller's Subsidiaries and use
commercially reasonable efforts to cause each of such Seller's other Affiliates
not to use or disclose at any time) any Confidential Information, except to the
extent that such disclosure or use is directly related to and required by such
Seller's performance of duties assigned to such Seller by Buyer in such Seller's
capacity as an employee of Buyer or any of its Subsidiaries. Each Seller further
agrees use reasonable best efforts to take all appropriate steps (and each
Seller shall cause each of such Seller's Subsidiaries and use commercially
reasonable efforts to cause each of such Seller's other Affiliates to take all
appropriate steps) to safeguard such Confidential Information and to protect it
against disclosure. In the event any Seller or any Affiliate of any Seller is
required by law to disclose any Confidential Information, such Seller shall
promptly notify Buyer in writing, which notification shall include the nature of
the legal requirement and the extent of the required disclosure, and such Seller
and its Affiliates shall reasonably cooperate with Buyer and the Company at the
Company's expense to preserve the confidentiality of such information consistent
with applicable law.
9.10 Tax Matters.
(a) Straddle Period. With respect to the indemnification for Taxes in
Section 9.2(a), in the case of any Taxable period that includes (but does not
end on) the Closing Date (a "Straddle Period"), the amount of any Taxes based on
or measured by income or receipts for the Pre-Closing Tax Period shall be
determined based on an interim closing of the books as of the close of business
on the Closing Date (and for such purpose, the Taxable period of any partnership
or other pass-through entity in which the Company or any Subsidiary holds a
beneficial interest shall be deemed to terminate at such time) and the amount of
other Taxes for a Straddle Period which relates to the Pre-Closing Tax Period
shall be deemed to be the amount of such Tax for the entire Taxable period
multiplied by a fraction the numerator of which is the number of days in the
Taxable period ending on the Closing Date and the denominator of which is the
number of days in such Straddle Period; provided that for purposes of
calculating the foregoing Taxes, any exemptions, allowances or deductions that
are calculated on an annual basis shall be allocated between the period ending
on the Closing Date and the period after the Closing Date in proportion to the
number of days in each period.
(b) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement, shall be paid 50% by Buyer
and 50% by the Contributing Sellers (on the basis of such Sellers'
Indemnification Share), and the Sellers will file all necessary Tax Returns and
other documentation with respect to such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
law, Buyer will, and will cause the Company to, join in the execution, and
otherwise use commercially reasonable efforts to cooperate in the preparation
of, any such Tax Returns and documentation. Notwithstanding the foregoing, any
amounts owing from Sellers pursuant to this Section may, at the option of
Holdings or Buyer (but shall not be required to), be made from the Escrow Funds
(as defined in the Escrow Agreement) in the Escrow Account.
(c) Refunds and Tax Benefits. Except with respect to any Tax refunds
arising from the carryback of any post-Closing Tax loss, deduction or credit and
any Tax refund included in the final Closing Net Working Capital Amount (which
refunds and/or credits against Tax shall be for the account of Buyer), any Tax
refunds of the Unregulated Subsidiaries that are received by Buyer, Holdings or
the Company and its Subsidiaries, and any amounts credited against Taxes to
which Buyer, Holdings or the Company and its Subsidiaries become entitled in a
tax period beginning after the Closing Date, that relate to Tax periods or
portions thereof ending on or before the Closing Date shall be for the account
of Sellers,
61
and Buyer shall pay over to Sellers any such refund or the amount of any such
credit within fifteen (15) days after receipt or entitlement thereto.
(d) Cooperation on Tax Matters.
(i) Sellers, the Company and Buyer shall cooperate fully, as and
to the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section 9.10 and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include signing
any Tax Return, amended Tax Returns, claims or other documents necessary to
settle any Tax controversy, the retention and (upon the other party's request)
the provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and explanation of
any material provided hereunder. Sellers agree to retain all books and records
with respect to Tax matters pertinent to the Company relating to any taxable
period beginning before the Closing Date until the expiration of the statute of
limitations (and, to the extent notified by Buyer, any extensions thereof) of
the respective taxable periods, and to abide by all record retention agreements
entered into with any taxing authority and to give Buyer reasonable written
notice prior to transferring, destroying or discarding any such books and
records.
(ii) If a notice of deficiency, proposed adjustment, assessment,
audit, examination or other administrative or court proceeding, suit, dispute or
other claim (a "Tax Claim") shall be delivered, sent, commenced, or initiated to
or against Buyer, the Company or any of its Subsidiaries by any Taxing authority
with respect to Taxes that results in or may result in a Loss for which
indemnification may be claimed from the Sellers under this Agreement, Buyer
shall promptly notify Sellers' Representative in writing of such Tax Claim, and
provided that the amount of the Tax Claim does not exceed (when combined with
all other claims for indemnification asserted against the Sellers) the amount
for which Sellers are liable under this Agreement (taking into account the
limits on indemnification set forth in this Agreement), Sellers' Representative
shall have the right to represent the Company and its the Subsidiaries'
interests and to employ counsel of its choice at its expense with respect to any
such Tax Claim; provided that Buyer shall have the right to participate in such
proceedings related to such Tax Claim at its own expense. Sellers'
Representative shall not settle or otherwise dispose of any Tax Claim related to
a pre-Closing tax period for Buyer, the Company or its Subsidiaries may have a
liability under this Agreement or that may have the effect of increasing Buyer's
or the Company's (or its Subsidiaries') Tax liability for any Tax period ending
after the Closing Date without the prior written consent of such Buyer, which
consent may not be unreasonably withheld, conditioned or delayed.
(iii) After the Closing, the Buyer shall not, and shall not
permit the Company and its Subsidiaries to, amend any Tax Return filed prior to
the Closing unless required by applicable law or that is necessary for the
carryback of any post-Closing Tax item without the consent of the Sellers'
Representative.
(iv) Buyer and Sellers further agree, upon request by the other,
to use their commercially reasonable efforts to obtain any certificate or other
document from any governmental authority or any other Person as may be necessary
to mitigate, reduce or eliminate any Tax that could be imposed (including, but
not limited to, with respect to the transactions contemplated hereby).
(v) The Company shall make an election under Section 754 of the
Code with respect to the acquisition of Units in connection with this Agreement.
9.11 Appointment of Sellers' Representative. The Sellers hereby authorize,
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇ (the "Sellers' Representative") as the attorney-in-fact
of each of the Sellers, with full power
62
and authority to administer the transactions contemplated by this Agreement and
the Escrow Agreement, including (i) delivering the Total Value Certificate, (ii)
executing the Escrow Agreement and amending or waiving, on behalf of each
Seller, any provision of this Agreement and the Escrow Agreement, (iii)
resolving and defending, on behalf of each Seller, any dispute with respect to
Sellers' indemnification obligations under Section 9.2(a), and entering into any
agreement to effectuate any of the foregoing which shall have the effect of
binding such Seller as if the Seller had personally entered into such an
agreement, (iv) taking all other actions expressly contemplated to be taken by
the Sellers' Representative in this Agreement or the Escrow Agreement and (v)
taking all other action under or related to this Agreement or any of the other
Transaction Documents, including the Escrow Agreement which, in his discretion,
he may consider necessary or proper to effectuate the transactions contemplated
by this Agreement and related documents and to resolve any dispute, on behalf of
each Seller with Holdings, Buyer or the Company, as appropriate, over any aspect
of this Agreement or any of the other Transaction Documents, including the
Escrow Agreement, and, on behalf of each Seller, to enter into any agreement to
effectuate any of the foregoing which shall have the effect of binding such
Seller as if the Seller had personally entered into such an agreement; provided,
however, (i) that the Sellers' Representative shall have no obligation to make
any amendments to this or any related agreement and (ii) that all actions taken
or decisions made by the Sellers' Representative on behalf of the Sellers shall
be taken or made in a manner which is ratably and equitably amongst all Sellers.
Holdings, Buyer and the Company shall be able to rely conclusively on the
actions, instructions and decisions of the Sellers' Representative as to the
final determination of the Total Value, Cash Purchase Price and other matters
set forth on the Total Value Certificate, the defense or settlement of any
claims for indemnification by any Buyer Party pursuant to Section 9.2(a) hereof
or with respect to any other actions required to be taken or expressly permitted
to be taken by the Sellers' Representative hereunder in any of the other
Transaction Documents, including the Escrow Agreement. None of Holdings, Buyer
or the Company shall be liable to any Seller for any Losses or other damages
resulting from reliance on the actions, instructions and decisions of the
Sellers' Representative. Each Seller shall hold the Sellers' Representative
harmless from any and all Loss, damage, or liability and expense (including
legal fees) which such Seller may sustain as a result of any action taken in
good faith by the Sellers' Representative. The Sellers' Representative shall
incur no liability to the Sellers with respect to any action taken, omitted or
suffered by the Sellers' Representative in reliance upon any notice, direction,
instruction, consent, statement or other document believed by him to be genuine
and duly authorized, nor for any action or inaction required or permitted to be
taken or omitted or suffered by him hereunder or in the Escrow Agreement, except
to the extent resulting from the Sellers' Representative's own willful
misconduct. The Sellers shall hold the Sellers' Representative harmless from any
and all Losses that the Sellers' Representative may sustain as a result of any
action taken in good faith by the Sellers' Representative in accordance with
this Agreement or the Escrow Agreement. The Sellers' Representative shall be
able to conclusively rely on advice of counsel in the performance of his duties
hereunder and shall incur no liability to the Sellers for such reliance in good
faith. Each Contributing Seller shall be responsible for its Indemnification
Share of any indemnification and holding harmless of the Escrow Agent that may
be or become the responsibility of the Sellers pursuant to the Escrow Agreement.
Notwithstanding any provision to the contrary in this Agreement, in the event
funds are distributed from the Escrow Account to the Sellers' Representative and
certain Escrow Funds have been recovered by any of the Buyer Parties pursuant to
claims made against the Escrow Account pursuant to Section 9.2(b) above or
Section 9.2(a) above which could have been made against an individual Seller
pursuant to Section 9.2(b) above, then the Sellers' Representative may
reallocate the distribution of such proceeds received from the Escrow Funds in
good faith to deduct any amounts which any of the Buyer Parties received from
the Escrow Funds with respect to a claim which was made or could have been made
pursuant to Section 9.2(b) above from the Seller which caused such Loss as a
result of any breach of such Seller's representations, warranties, covenants or
other agreements set forth herein. Contributing Sellers representing an
aggregate Indemnification Share in excess of 50%, in the aggregate, may vote to
remove the Sellers' Representative with or without cause and appoint a
successor. Upon the death, permanent disability, resignation or removal of the
Sellers' Representative, a
63
successor Sellers' Representative who shall be reasonably acceptable to Holdings
and Buyer shall be elected by Contributing Sellers representing an aggregate
Indemnification Share in excess of 50%, in the aggregate. This appointment and
power of attorney shall be deemed as coupled with an interest and all authority
conferred hereby shall be irrevocable and shall not be subject to termination by
operation of law, whether by the death, incapacity, liquidation or dissolution
of each Seller or the occurrence of any other event or events, and the Sellers'
Representative may not terminate this power of attorney with respect to any
Seller or any Seller's successors or assigns without the consent of Holdings and
Buyer.
9.12 Employee Benefits. For a period of 12 months from the Closing Date,
Buyer shall cause the Company to either provide a continuation of, or provide
benefits substantially equivalent to, the Company's welfare and retirement
benefits in existence immediately prior to Closing, to the employees of the
Company who are employed by the Company or one of its Subsidiaries after the
Closing Date (the "Continuing Employees"); provided, however, that such benefits
may be modified by the Company during such 12 month period pursuant to a
unanimous written consent or resolution of the Company's board of directors. To
the extent that any such employees are terminated for a reason other than
"cause" during such period, Buyer shall cause the Company to provide such
employees with severance in an amount that is no less than such employees would
have received under the severance policy of the Company or applicable Subsidiary
prior to the Closing except pursuant to a unanimous written consent or
resolution of the Company's board of directors; provided, however, that the
foregoing provision shall not apply in respect of any employee who at the time
of termination is a party to an individual employment agreement, severance
agreement, or offer letter that provides for severance following termination of
employment with the Company or a Subsidiary. For purposes of eligibility to
participate and vesting under any benefit plan maintained or implemented after
the Closing, each employee who is as of the Closing Date an employee of a
Company or a Subsidiary shall be credited with his or her years of service with
such Company or Subsidiary, as applicable, before the Closing Date, to the same
extent as such employee was entitled, before the Closing Date, to credit for
such service under any similar plans. The Company and applicable Subsidiaries
shall also provide Continuing Employees and their eligible dependents with
credit for any co-payments and deductibles paid under Company's medical, dental
and vision plans for the year in which the Closing occurs under any substituted
medical, dental and vision plans of the Company or its Subsidiaries for the
purposes of satisfying any applicable co-payments and deductibles in the year in
which the Closing occurs.
9.13 Use of Names. Each Seller agrees that from and after the Closing such
Seller will not (and such Seller will cause such Seller's Subsidiaries or will
use commercially reasonable efforts to cause such Seller's other Affiliates not
to) use the names "NewQuest," "HealthSpring," "GulfQuest" or "Signature Health
Alliance" or any derivation thereof or any other name used by the Company or its
Subsidiaries or any name deceptively similar to such names in any business
enterprise or in any commercial relationship other than with respect to the
business conducted by Buyer and its Subsidiaries.
ARTICLE X
MISCELLANEOUS
10.1 Amendment and Waiver. This Agreement may be amended, and any provision
of this Agreement may be waived; provided that any such amendment or waiver will
be binding upon the Company, prior to the Closing, and Sellers only if such
amendment or waiver is set forth in a writing executed by the Sellers'
Representative, and any such amendment or waiver will be binding upon the
Company, after the Closing, and Holdings and Buyer only if such amendment or
waiver is set forth in a writing executed by Holdings, Buyer or the Company, as
the case may be. No course of dealing between or among any Persons having any
interest in this Agreement shall be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any Person
under or by reason of
64
this Agreement. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions, whether or not
similar, nor shall any waiver constitute a continuing waiver.
10.2 Notices. All notices, demands and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given (i) when personally delivered,
sent by telecopy (with hard copy to follow); (ii) one day after sent by
reputable overnight express courier (charges prepaid), or (iii) five days
following mailing by certified or registered mail, postage prepaid and return
receipt requested. Unless another address is specified in writing, notices,
demands and communications (a) to Sellers shall be sent to the addresses set
forth on the Schedule of Sellers attached hereto and (b) to the Sellers'
Representative, the Company, Holdings and Buyer shall be sent to the addresses
indicated below:
Notices to the Company (prior to the Closing):
NewQuest, LLC
▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice to the Company):
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Jr., Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices to the Sellers' Representative and the Sellers:
c/o NewQuest, LLC
▇▇ ▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice to the Sellers' Representative
or the Sellers):
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇▇ ▇▇▇▇▇▇▇, Jr., Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Notices to the Company (after the Closing), Holdings and Buyer:
65
NewQuest Holdings, Inc.
c/o GTCR ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇, L.L.C.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to (which shall not constitute notice to the Company, Holdings or
Buyer):
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, P.C.
▇▇▇▇▇▇▇ ▇. Fine, Esq.
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
10.3 Successors and Assigns. This Agreement and all of the covenants and
agreements contained herein and rights, interests or obligations hereunder, by
or on behalf of any of the parties hereto, shall bind and inure to the benefit
of the respective heirs, successors and assigns of the parties hereto whether so
expressed or not, except that (i) neither this Agreement nor any of the
covenants and agreements herein or rights, interests or obligations hereunder
may be assigned or delegated by Sellers prior to or after the Closing, or
assigned or delegated by the Company prior to the Closing, without the prior
written consent of Holdings and Buyer and (ii) prior to Closing, Holdings and
Buyer may not assign or delegate their rights and obligations hereunder, in
whole or in part, except to any of its Affiliates without the consent of any of
the other parties hereto; provided, however, that Holdings and Buyer shall
remain primarily liable with respect to any obligations delegated to their
respective Affiliates. In addition, after the Closing, Holdings and Buyer may
assign their respective rights and obligations pursuant to this Agreement,
including their respective rights and obligations under the Escrow Agreement, in
whole or in part, in connection with any disposition or transfer of all or
substantially all of such Person's assets or their respective businesses in any
form of transaction without the consent of any of the other parties hereto.
Holdings, Buyer and, following the Closing, the Company and its Subsidiaries may
assign any or all of its rights pursuant to this Agreement, including its rights
to proceeds from any indemnification claims, to any of its lenders as collateral
security.
10.4 Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
10.5 Interpretation. The headings and captions used in this Agreement, in
any Schedule or Exhibit hereto, in the table of contents or in any index hereto
are for convenience of reference only and do not constitute a part of this
Agreement and shall not be deemed to limit, characterize or in any way affect
any provision of this Agreement or any Schedule or Exhibit hereto, and all
provisions of this Agreement and the Schedules and Exhibits hereto shall be
enforced and construed as if no caption or heading had been used herein or
therein. Any capitalized terms used in any Schedule or Exhibit attached hereto
and not otherwise defined therein shall have the meanings set forth in this
Agreement. Each defined term used in this Agreement shall have a comparable
meaning when used in its plural or singular form. The use of the word
"including" herein shall mean "including without limitation" and, unless the
context otherwise required, "neither," "nor," "any," "either" and "or" shall not
be exclusive. The parties hereto
66
intend that each representation, warranty and covenant contained herein shall
have independent significance. If any party has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which such party has not
breached shall not detract from or mitigate the fact that such party is in
breach of the first representation, warranty or covenant. The parties have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or 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 of the provisions of this Agreement.
10.6 No Third-Party Beneficiaries. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any Person other than
the parties hereto and their respective permitted successors and assigns, any
rights or remedies under or by reason of this Agreement, such third parties
specifically including employees and creditors of the Company.
10.7 Complete Agreement. This Agreement and the agreements and documents
referred to herein contain the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, whether written or oral, relating to such subject
matter in any way, excluding, however, the Confidentiality Agreement, which
shall remain in full force and effect until the Closing and shall thereafter
immediately terminate and be of no further force or effect without any
additional action by any party. Notwithstanding any provision to the contrary in
the Confidentiality Agreement, Buyer and Holdings and their respective
representatives may take all actions (including disclosure of any information
upon reasonable prior notice to the Company to the extent practicable) expressly
contemplated by this Agreement or for the purpose of effectuating the
transactions contemplated by this Agreement; provided that such Persons inform
any third parties of the confidentiality of any such Confidential Information
and use commercially reasonable efforts to protect any information so disclosed.
10.8 Counterparts. This Agreement may be executed in one or more
counterparts (including by means of telecopied signature pages), all of which
taken together shall constitute one and the same instrument. In addition, upon
conversion of all phantom equity interests in the Company into Units pursuant to
Section 4.13 above, the Phantom Members may become a party to this Agreement and
succeed to all of the rights and obligations of a "Seller" under this Agreement
by executing a Joinder and, upon such execution, such Person shall for all
purposes be a party to this Agreement as a Seller.
10.9 Delivery by Facsimile. This Agreement and any signed agreement or
instrument entered into in connection with this Agreement, and any amendments
hereto or thereto, to the extent signed and delivered by means of a facsimile
machine, shall be treated in all manner and respects as an original agreement or
instrument and shall be considered to have the same binding legal effect as if
it were the original signed version thereof delivered in person. At the request
of any party hereto or to any such agreement or instrument, each other party
hereto or thereto shall re-execute original forms thereof and deliver them to
all other parties. No party hereto or to any such agreement or instrument shall
raise the use of a facsimile machine to deliver a signature or the fact that any
signature or agreement or instrument was transmitted or communicated through the
use of a facsimile machine as a defense to the formation of a contract and each
such party forever waives any such defense.
10.10 Governing Law; Jurisdiction. All questions concerning the
construction, validity, enforcement and interpretation of this Agreement shall
be governed by the internal law of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware. Each of the parties
hereto submits to the jurisdiction of any
67
state or federal court sitting in Chicago, Illinois, in any action or proceeding
arising out of or relating to this Agreement or the transactions contemplated
herein and agrees that all claims in respect of such action or proceeding may be
heard and determined in any such court. Each of the parties hereto waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety or other security that might be required of
any other party with respect thereto. Any party may make service on any other
party by sending or delivering a copy of the process (i) to the party to be
served at the address and in the manner provided for the giving of notices in
Section 10.2 above, or (ii) to the party to be served in care of such party's
registered agent in the manner provided for the giving of notices in Section
10.2 above. Nothing in this Section 10.10 however shall affect the right of any
party to serve legal process in any other manner permitted by law. Each party
agrees that a final judgment (after giving effect to any timely appeals) in any
action or proceeding so brought shall be conclusive and may be enforced by suit
on the judgment or in any other manner provided by law.
10.11 Waiver of Jury Trial. The parties hereto hereby irrevocably waive any
and all right to trial by jury in any legal proceeding arising out of or related
to this Agreement or the transactions contemplated hereby, whether now existing
or hereafter arising, and whether sounding in contract, tort or otherwise. The
parties agree that any of them may file a copy of this paragraph with any court
as written evidence of the knowing, voluntary and bargained-for agreement among
the parties irrevocably to waive trial by jury and that any action or proceeding
whatsoever between them relating to this Agreement or the transactions
contemplated hereby shall instead be tried in a court of competent jurisdiction
by a judge sitting without a jury.
10.12 Holdings Securities Legend. Each certificate or instrument
representing Restricted Securities shall be imprinted with a legend in
substantially the following form:
"The securities represented by this certificate were originally issued
on _______ ___, 2004, have not been registered under the Securities
Act of 1933, as amended (the "Act"), and may not be sold or
transferred in the absence of an effective registration statement
under the Act or an exemption from registration thereunder.
The securities represented by this certificate are subject to certain
rights of set-off as set forth in that certain Purchase and Exchange
Agreement, dated as of November 10, 2004, and as amended and modified
from time to time, among the issuer (the "Company") and certain other
Persons. A copy of such set-off rights shall be furnished by the
Company to the holder hereof upon written request and without charge.
The Company will furnish without charge to each stockholder who so
requests, a full statement of all of the powers, designations,
preferences and relative, participating, optional or other special
rights of each class of stock or series thereof authorized to be
issued by the Company and the qualifications, limitations or
restrictions of such preferences and/or rights."
10.13 Amendment; Waivers of Company LLC Agreement. Without any further
action, effective as of the Closing, each of the undersigned Sellers and the
Company hereby waives any provisions of, consents to enact any amendments to and
hereby amends, the Company LLC Agreement as necessary to effect the intent of,
or that would or might prohibit, delay or otherwise hinder the transactions
contemplated by this Agreement, including, without limitation, to (i) remove the
right of first refusal in the Company LLC Agreement with respect to the
transactions contemplated by this Agreement,
68
(ii) transfer to Holdings and Buyer all of the outstanding Units pursuant to the
terms of this Agreement at the Closing, (iii) admit each of Holdings and Buyer
as a member of the Company at Closing, (iv) effect the withdrawal of the Sellers
as members of the Company at Closing, and (v) remove any provision which would
cause a liquidation under the Company LLC Agreement resulting from the
transactions contemplated by this Agreement. Each Seller hereby agrees to take
any further action reasonably necessary or, at Buyer's expense otherwise
desirable, to carry out the purposes of this Section, including all actions
necessary to transfer all outstanding Units to Buyer and Holdings.
10.14 Schedules. Nothing in any schedule attached hereto shall be adequate
to disclose an exception to a representation or warranty made in this Agreement
unless such schedule identifies the exception and describes the relevant facts,
in each case, in reasonable detail. Without limiting the generality of the
foregoing, the mere listing (or inclusion of a copy) of a document or other item
shall not be adequate to disclose an exception to a representation or warranty
made in this Agreement, unless the representation or warranty has to do with the
existence of the document or other item itself. No exceptions to any
representations or warranties disclosed on one schedule shall constitute an
exception to any other representations or warranties made in this Agreement
unless the exception is disclosed as provided herein on each such other
applicable schedule or cross-referenced in such other applicable section or
schedule. Notwithstanding the foregoing, any disclosures made on a Schedule
shall be deemed to modify or otherwise affect any representation or warranty
contained in this Agreement where such disclosure's application to such
representation or warranty is reasonably apparent to Buyer and Holdings.
10.15 Understanding Among the Sellers. Each of the Sellers acknowledges and
agrees that Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC has acted as legal counsel to the Company in
connection with the transactions contemplated by this Agreement and has not
acted as legal counsel to any Seller individually.
* * * * *
69
IN WITNESS WHEREOF, the parties hereto have executed this Purchase and
Exchange Agreement on the date first written above.
NEWQUEST, LLC
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST HOLDINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SELLERS' REPRESENTATIVE:
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as Sellers'
Representative
AMENDMENT NO. 1 TO
PURCHASE AND EXCHANGE AGREEMENT
THIS AMENDMENT NO. 1 TO PURCHASE AND EXCHANGE AGREEMENT (this "Amendment"),
dated as of January 31, 2005, is made by and among NewQuest, LLC, a Texas
limited liability company (the "Company"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as the
Sellers' Representative ("Sellers' Representative"), NewQuest Holdings, Inc., a
Delaware corporation ("Holdings"), and NewQuest, Inc., a Delaware corporation
("Buyer").
RECITALS
WHEREAS, the Company, the Sellers' Representative, Holdings, Buyer and
certain other persons entered into a Purchase and Exchange Agreement, dated as
of November 10, 2004 (the "Purchase and Exchange Agreement"); and
WHEREAS, as set forth herein, the Company, Sellers' Representative, on
behalf of himself and each of the other Sellers, Holdings and Buyer, desire to
amend the Agreement as set forth herein pursuant to Section 10.1 of the Purchase
and Exchange Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals, which shall
constitute a part of this Amendment, and the mutual promises contained in this
Amendment, and intending to be legally bound thereby, the parties agree as
follows:
1. Termination. Section 8.1(d) of the Purchase and Exchange Agreement is
hereby deleted in its entirety and replaced with the following clause:
"by either Buyer, on the one hand, or the Sellers' Representative, on
the other hand, upon 10 days written notice if the transactions
contemplated hereby have not been consummated by April 15, 2005;"
2. Ratification. All other paragraphs, provisions, and clauses in the
Purchase and Exchange Agreement not so modified remain in full force and effect
as originally written.
3. Defined Terms. Certain capitalized terms not defined herein shall have
the meanings given to such terms in the Purchase and Exchange Agreement.
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.
5. Governing Law; Binding Agreement. All questions concerning the
construction, validity, enforcement and interpretation of this Amendment shall
be governed by the internal law of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
NEWQUEST, LLC
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST HOLDINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SELLERS' REPRESENTATIVE:
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as Sellers'
Representative
AMENDMENT NO. 2 TO
PURCHASE AND EXCHANGE AGREEMENT
THIS AMENDMENT NO. 2 TO PURCHASE AND EXCHANGE AGREEMENT (this "Amendment"),
dated as of March 1, 2005, is made by and among NewQuest, LLC, a Texas limited
liability company (the "Company"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as the Sellers'
Representative ("Sellers' Representative"), NewQuest Holdings, Inc., a Delaware
corporation ("Holdings"), and NewQuest, Inc., a Delaware corporation ("Buyer").
RECITALS
WHEREAS, the Company, the Sellers' Representative, Holdings, Buyer and
certain other Persons entered into a Purchase and Exchange Agreement, dated as
of November 10, 2004 and amended as of January 31, 2005 (the "Purchase and
Exchange Agreement"); and
WHEREAS, as set forth herein, the Company, Sellers' Representative, on
behalf of himself and each of the other Sellers, Holdings and Buyer, desire to
amend the Agreement as set forth herein pursuant to Section 10.1 of the Purchase
and Exchange Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals, which shall
constitute a part of this Amendment, and the mutual promises contained in this
Amendment, and intending to be legally bound hereby, the parties agree as
follows:
1. Whereas Clauses.
(a) The second Whereas clause is hereby amended by deleting the
defined term "Units".
(b) The fourth Whereas clause is hereby deleted in its entirety and
replaced with the following clause:
"WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, at the Closing, certain Sellers shall contribute to Holdings the
number and type of Units set forth opposite such Seller's name on the
attached Schedule of Sellers (the "Contributed Units") in exchange for
Holdings Preferred Stock and Holdings Common Stock in a transaction
intended to be treated as an exchange under Section 351 of the Code and
each of the Other Cash Purchasers shall invest cash to acquire Holdings
Preferred Stock and Holdings Common Stock;"
2. Certain Exhibits.
(a) Stockholders Agreement. Exhibit C to the Purchase and Exchange
Agreement is hereby deleted in its entirety and replaced with Exhibit C attached
hereto.
(b) 2005 Stock Option Plan of Holdings. Exhibit K to the Purchase and
Exchange Agreement is hereby deleted in its entirety and replaced with Exhibit K
attached hereto.
(c) GTCR and Cash Purchaser Purchase Agreement. Exhibit L to the
Purchase and Exchange Agreement is hereby deleted in its entirety and replaced
with Exhibit L attached hereto.
(d) Form of Conversion Agreement. Exhibit N to the Purchase and
Exchange Agreement is hereby deleted in its entirety and replaced with Exhibit N
attached hereto.
3. Certain Schedules.
(a) The Indemnification Schedule to the Purchase and Exchange
Agreement is hereby deleted in its entirety and replaced with the
Indemnification Schedule attached hereto.
(b) The Schedule of Sellers to the Purchase and Exchange Agreement is
hereby deleted in its entirety and replaced with the Schedule of Sellers
attached hereto.
(c) The Phantom Members Schedule to the Purchase and Exchange
Agreement and the Capitalization Schedule to the Purchase and Exchange Agreement
are hereby updated solely to reflect changes to such Schedules as a result of
the Conversion as set forth on the updated Schedules to the Purchase and
Exchange Agreement attached hereto. The updated Schedules shall not be deemed to
constitute a waiver of any breaches of any representations or warranties of the
Sellers or the Company in the Purchase and Exchange Agreement.
(d) The Select Phantom Member Schedule to the Purchase and Exchange
Agreement is hereby deleted in its entirety and replaced with the Select Phantom
Member Schedule attached hereto.
4. Definitions.
(a) Section 1.1 is hereby amended by adding the following defined
terms:
"Conversion Agreement" means a Conversion Agreement in the form of Exhibit
N hereto, pursuant to which, among other things, each Person who is party
to a NewQuest LLC Phantom Membership Agreement terminated their respective
phantom membership agreement and Phantom Membership Cancellation Agreement,
converted all of such Person's phantom membership interests in the Company
into Series D Units of the Company, and became a party to this Agreement as
a Seller in the same manner as if such Person were an original signatory to
this Agreement as a Seller.
"Secured Promissory Notes" means the secured promissory notes issued by
holders of Series D Units as contemplated by the Conversion Agreements."
"Series D Additional Consideration" means any additional proceeds to be
paid to any Phantom Member pursuant to a Conversion Agreement and any other
amounts to be paid to any Phantom Member, including any distribution by the
Company to any Phantom Member with respect to the Company's fiscal year
2004.
"Series D Interest Gross-Up" means the gross amount of any cash bonus or
other obligation or liability of the Company or any of its Affiliates to
the Phantom Members with respect to such Phantom Member's obligations under
their respective Secured Promissory Notes, including without limitation any
interest payments paid by such Phantom Members and any amounts paid to such
Phantom Members to gross-up such Phantom Members for any Tax liabilities
incurred by such Phantom Members as a result thereof.
"Units" means, collectively, the Founders' Units, the Series A Units, the
Series B Units, the Series C Units and the Series D Units of the Company.
(b) The definition of "Cash Purchasers" in Section 1.1 is hereby
deleted in its entirety and replaced with the following clause:
"Cash Purchasers" means, collectively, the Other Cash Purchasers and each
of the other Persons acquiring Holdings Securities pursuant to the GTCR and
Cash Purchaser Purchase Agreement.
(c) The definition of "Company LLC Agreement" in Section 1.1 is hereby
deleted in its entirety and replaced with the following clause:
"Company LLC Agreement" means the Amended and Restated Regulations of the
Company dated as of September 1, 2000, as amended by the First Amendment to
the Amended and Restated Regulations of the Company dated as of September,
2001 and supplemented by the (i) Certificate of Designation of Preferences,
Limitations, and Relative Rights of the Company's Series A Preferred Units
dated as of September, 2000, (ii) Certificate of Designation of
Preferences, Limitations, and Relative Rights of the Company's Series B
Preferred Units dated as of December 15, 2000, (iii) Certificate of
Designation of Preferences, Limitations, and Relative Rights of the
Company's Series C Preferred Units dated as of September, 2001, and (iv)
Certificate of Designation of Preferences, Limitations, and Relative Rights
of the Company's Series D Preferred Units dated as of December 16, 2004.
(d) The definition of "Joinder" in Section 1.1 is hereby deleted in
its entirety and replaced with the following clause:
"Joinder" means a joinder to this Agreement pursuant to the terms of
Section 3 of a Conversion Agreement, pursuant to which a Phantom Member who
becomes a Seller pursuant to Section 4.13 below shall become party to this
Agreement as a Seller in the same manner as if the undersigned were an
original signatory to this Agreement as a Seller.
(e) The definition of "Rollover Phantom Member" in Section 1.1 is
hereby deleted in its entirety.
(f) Clause (b) of the definition of "Sellers Expenses" in Section 1.1
is hereby deleted in its entirety and replaced with the following clause:
"(b) other than the issuance of Series D Units upon conversion of phantom
equity pursuant to the terms of the Conversion Agreements, the pre-tax
value of all consideration required to terminate all agreements or plans of
the Company or any of its Subsidiaries with respect to phantom equity or
the equivalent, including all amounts required to terminate all NewQuest,
LLC Phantom Membership Agreements with the Phantom Members with respect to
the conversion of such phantom equity into Series D Units pursuant to the
Conversion Agreements, including all Series D Additional Consideration and
the aggregate amount of all Series D Interest Gross-Up, and all special
bonuses, change in control payments, sale bonus or other similar
compensation payable to any Person in connection with the transactions
contemplated hereby,"
(g) The definition of "Sellers Expenses" in Section 1.1 is modified by
adding the following provision to the end of such definition:
"Notwithstanding any provision to the contrary, all Series D Additional
Consideration shall by paid by the Company solely with Company Unregulated
Cash at or prior to the Closing and all such amounts will reduce the Total
Value and the Cash Purchase Price."
(h) The definition of "Transaction Documents" in Section 1.1 is hereby
deleted in its entirety and replaced with the following clause:
"Transaction Documents" means this Agreement and all other agreements
executed and delivered by Holdings, Buyer, the Company, the Sellers'
Representative or any of the Sellers under this Agreement or in any
instrument, certificate or document delivered by any such Person pursuant
to this Agreement or any other Transaction Document, including the Escrow
Agreement, the Stockholders Agreement, the Registration Agreement, the
Phantom Membership Cancellation Agreements and the Conversion Agreements.
5. Closing Transactions.
(a) Section 2.2(b)(ii) is hereby deleted in its entirety and replaced
with the following clause:
"(ii) (a) the portion of the Series D Additional Consideration to be issued
to each holder of Series D Units, (b) the aggregate amount of Indebtedness
of each holder of Series D Units to the Company as of the Closing,
including all Indebtedness pursuant to Secured Promissory Notes (including
all interest due through the Closing), and (c) the aggregate amount of
Series D Interest Gross-Up payable to the holders of Series D Units as
contemplated by the Conversion Agreements;"
(b) Section 2.2(b)(iii) is hereby deleted in its entirety and replaced
with the following clause:
"(iii) the number of shares of Holdings Preferred Stock and Holdings Common
Stock to be issued to each Other Cash Purchaser and the gross cash proceeds
to be paid to each Other Cash Purchaser with respect to the transactions
contemplated by this Agreement pursuant to any agreement with such Other
Cash Purchaser;"
(c) Notwithstanding any provision to the contrary in this Agreement,
for purposes of determining Company Unregulated Cash as of the Closing and the
Closing Net Working Capital, all Indebtedness of the holders of Series D Units
pursuant to Secured Promissory Notes (including all interest due through the
Closing) shall be deemed to have been repaid immediately prior to the Closing.
Therefore, (x) the aggregate amount of Company Unregulated Cash shall be
increased by the aggregate amount of all Indebtedness of the holders of Series D
Units pursuant to Secured Promissory Notes (including all interest due through
the Closing) and (y) the aggregate amount of the Closing Net Working Capital
shall be reduced by the aggregate amount of all Indebtedness of the holders of
Series D Units pursuant to Secured Promissory Notes (including all interest due
through the Closing).
(d) Notwithstanding any provision to the contrary in this Agreement,
Buyer may issue a demand note in form and substance reasonably acceptable to the
Sellers' Representative, on behalf of the Sellers, in lieu of all or any portion
of the Closing Payment; provided that the principal amount under such demand
note shall be paid in full immediately after the Closing.
6. Conditions to Holding's and Buyer' Obligations.
(a) Section 3.1(i) is hereby deleted in its entirety and replaced with
the following clause:
"Each of the Phantom Members shall (A) have converted such phantom equity
interests into Series D Units pursuant to a Conversion Agreement and (b)
executed a Joinder pursuant to a Conversion Agreement, and such Joinder
shall be in full force and effect as of the Closing and shall not have been
amended or modified;"
(b) Section 3.1(t) is hereby deleted in its entirety and replaced with
the following clause:
"Each of the Cash Purchasers shall have entered into a stock purchase
agreement in substantially the form of Exhibit L attached hereto ("GTCR and
Cash Purchaser Purchase Agreement") and each of the Other Cash Purchasers
shall have acquired Holdings Securities with an Aggregate Value equal to
the value of any proceeds to be invested in Holdings pursuant to the GTCR
and Cash Purchaser Purchase Agreement as set forth on the Other Cash
Purchasers Schedule; and"
7. Conditions to the Company's and Sellers' Obligations.
(a) Section 3.2(i) is hereby deleted in its entirety and replaced with
the following clause:
"Holdings shall have duly authorized the 2005 Stock Option Plan of
Holdings, in the form of Exhibit K attached hereto;"
8. Notice of Material Developments. The marked changes to the Schedules
attached to this Amendment shall constitute updates to the Schedules as provided
in Section 4.7. No such updates shall be deemed to cure any inaccuracy of any
representation or warranty made in the Purchase and Exchange Agreement as of
November 10, 2004. None of the updates shall constitute an MAE Notice.
9. Reallocation of Contributed Units. Section 4.14 is hereby deleted in its
entirety.
10. Representations and Warranties Concerning the Company.
(a) Section 6.2 is hereby modified by deleting the first sentence in
its entirety and replacing such sentence with the following:
"As of the date hereof, the entire authorized equity securities of the
Company consists of 20,000,000 membership units, of which 2,000,000 are
authorized as Founders Units, of which 700,000 are issued and outstanding,
3,500,000 are authorized as Series A Units, of which 3,055,000 are issued
and outstanding, 232,000 are authorized as Series B Units, all of which are
issued and outstanding, and 625,000 are authorized as Series C Units, of
which 591,176.47 are issued and outstanding. As of the Closing Date, the
entire authorized equity securities of the Company shall consist of
20,000,000 membership units, of which (i) 2,000,000 shall be authorized as
Founders Units, of which 700,000 shall be issued and outstanding, (ii)
3,500,000 shall be authorized as Series A Units, of which 3,055,000 shall
be issued and outstanding, (iii) 232,000 shall be authorized as Series B
Units, all of which shall be issued and outstanding, (iv) 625,000 shall be
authorized as Series C Units, of which 591,176.47 shall be issued and
outstanding, and (v) of 500,000 shall be authorized as Series D Units, of
which 306,025.28 shall be issued and outstanding."
(b) Section 6.2 is hereby modified by deleting the fifth, sixth and
seventh sentences in their entirety and replacing such sentences with the
following:
"Except as set forth on the attached Capitalization Schedule, the Company
does not have outstanding any units or securities convertible or
exchangeable for any equity securities or containing any profit
participation features, nor any rights or options to subscribe for or to
purchase its equity securities or any units or securities convertible into
or exchangeable for its equity securities or any equity appreciation rights
or phantom equity plan or agreements (other than the phantom equity
interests issued to the Phantom Members as set forth on the Phantom Members
Schedule which are to be converted on or prior to December 31, 2004
pursuant to the Conversion Agreements). The Phantom Members Schedule
identifies all Persons who have been granted phantom equity interests in
the Company and the amount and type of phantom equity interests issued to
such Persons (including exercise price). As of December 31, 2004, all
Phantom Members have executed Conversion Agreements and all rights of
Phantom Members shall be terminated pursuant to such Conversion Agreements.
From and after December 31, 2004, all Phantom Members are bound by the
terms of this Agreement as Sellers."
11. Ratification. All other paragraphs, provisions, and clauses in the
Purchase and Exchange Agreement not so modified remain in full force and effect
as originally written.
12. Defined Terms; Section References. Certain capitalized terms not
defined herein shall have the meanings given to such terms in the Purchase and
Exchange Agreement. Section references in this Amendment refer to the
corresponding section in the Purchase and Exchange Agreement unless otherwise
indicated.
13. Counterparts. This Amendment may be executed in one or more
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.
14. Governing Law; Binding Agreement. All questions concerning the
construction, validity, enforcement and interpretation of this Amendment shall
be governed by the internal law of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
NEWQUEST, LLC
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST HOLDINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SELLERS' REPRESENTATIVE:
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as Sellers'
Representative
AMENDMENT NO. 3 TO
PURCHASE AND EXCHANGE AGREEMENT
THIS AMENDMENT NO. 3 TO PURCHASE AND EXCHANGE AGREEMENT (this "Amendment"),
dated as of May 27, 2005, is made by and among NewQuest, LLC, a Texas limited
liability company (the "Company"), ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as the Sellers'
Representative ("Sellers' Representative"), NewQuest Holdings, Inc., a Delaware
corporation ("Holdings"), and NewQuest, Inc., a Delaware corporation ("Buyer").
RECITALS
WHEREAS, the Company, the Sellers' Representative, Holdings, Buyer and
certain other Persons entered into a Purchase and Exchange Agreement, dated as
of November 10, 2004, as amended on January 31, 2005 and March 1, 2005 (as
amended, the "Purchase and Exchange Agreement"); and
WHEREAS, as set forth herein, the Company, Sellers' Representative, on
behalf of himself and each of the other Sellers, Holdings and Buyer, desire to
amend the Agreement as set forth herein pursuant to Section 10.1 of the Purchase
and Exchange Agreement;
NOW, THEREFORE, in consideration of the foregoing recitals, which shall
constitute a part of this Amendment, and the mutual promises contained in this
Amendment, and intending to be legally bound hereby, the parties agree as
follows:
1. Total Value and Cash Purchase Price.
(a) Section 2.3(c) of the Purchase and Exchange Agreement is hereby
modified by deleting the first sentence in its entirety and replacing such
sentence with the following:
"On or prior to June 13, 2005, Buyer shall deliver to Sellers'
Representative a balance sheet of the Company as of the Closing Date (in
its final and binding form, the "Closing Balance Sheet"), prepared in good
faith and setting forth, in reasonable detail, the Total Value Components
and a certificate setting forth, in reasonable detail, the resulting Total
Value and Cash Purchase Price calculated with reference to such amounts (in
its final and binding form, together with the Closing Balance Sheet, the
"Total Value Calculation")."
2. Ratification. All other paragraphs, provisions, and clauses in the
Purchase and Exchange Agreement not so modified remain in full force and effect
as originally written.
3. Defined Terms; Section References. Certain capitalized terms not defined
herein shall have the meanings given to such terms in the Purchase and Exchange
Agreement. Section references in this Amendment refer to the corresponding
section in the Purchase and Exchange Agreement unless otherwise indicated.
4. Counterparts. This Amendment may be executed in one or more
counterparts, each of which is an original, but all of which together constitute
one and the same instrument.
5. Governing Law; Binding Agreement. All questions concerning the
construction, validity, enforcement and interpretation of this Amendment shall
be governed by the internal law of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
NEWQUEST, LLC
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST HOLDINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
NEWQUEST, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SELLERS' REPRESENTATIVE:
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, as Sellers'
Representative