EXHIBIT 10.28
MERGER AGREEMENT
DATED AS OF MARCH 3, 2004
BY AND AMONG
WELLCARE HEALTH PLANS, INC.,
ZEPHYR ACQUISITION SUB, INC.,
HARMONY HEALTH SYSTEMS, INC.,
AND
THE OTHER PARTIES NAMED HEREIN
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS 1
1.1 Definitions 1
1.2 Other Defined Terms 11
1.3 Accounting Principles 11
1.4 Construction 12
ARTICLE II THE MERGER 12
2.1 The Merger 12
2.2 Effect of the Merger 12
2.3 Charter and Bylaws 13
2.4 Directors and Officers 13
2.5 Effect on Capital Stock 13
2.6 Pre-Closing Distributions 13
2.7 Adjustment of Purchase Price 14
2.8 Disputes Regarding the IBNR Adjustment 14
2.9 Time and Place of Closing 15
2.10 Exchange of Certificates 15
2.11 Cancellation of Options 16
ARTICLE III REPRESENTATIONS AND WARRANTIES 16
3.1 General Statement 16
3.2 Representations and Warranties of Purchaser 17
3.3 Representations and Warranties of Sellers and the Company 18
3.4 Individual Representations and Warranties of Sellers 36
ARTICLE IV CONDUCT PRIOR TO THE CLOSING 37
4.1 General 37
4.2 The Company's and Sellers' Obligations 37
4.3 Purchaser's Obligations 43
4.4 Joint Obligations 43
ARTICLE V CONDITIONS TO CLOSING 43
5.1 Conditions to the Company's and Sellers' Obligations 43
5.2 Conditions to Purchaser's Obligations 44
ARTICLE VI CLOSING 45
6.1 Form of Documents 45
6.2 Purchaser's Deliveries 45
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6.3 Sellers' Deliveries 46
ARTICLE VII POST-CLOSING AGREEMENTS 48
7.1 Post-Closing Agreements 48
7.2 Use of Trademarks 48
7.3 Third Party Claims 48
7.4 Medical Claims 48
ARTICLE VIII OTHER AGREEMENTS 49
8.1 Confidentiality 49
8.2 Publicity 49
8.3 Employee Matters 49
8.4 Further Assurances 50
ARTICLE IX INDEMNIFICATION 50
9.1 Indemnification of the Purchaser 50
9.2 Limitation on the Purchaser's Indemnification Rights 51
9.3 Indemnification of the Equityholders 52
9.4 Limitation on the Equityholders' Indemnification Rights 52
9.5 Cooperation 52
9.6 Third Party Claims 52
9.7 No Contribution 54
ARTICLE X EFFECT OF TERMINATION 54
10.1 Right to Terminate 54
10.2 Certain Effects of Termination 55
10.3 Remedies 55
10.4 Termination Fee 56
ARTICLE XI STOCKHOLDERS' COMMITTEE 56
11.1 Appointment of Stockholders' Committee 56
11.2 Authority 57
11.3 Reliance 58
11.4 Indemnification of Purchaser and Its Affiliates 59
11.5 Indemnification of Stockholders' Committee 59
ARTICLE XII MISCELLANEOUS 59
12.1 Notices 59
12.2 Expenses; Transfer Taxes 61
12.3 Entire Agreement 61
12.4 Non-Waiver 61
12.5 Counterparts 62
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12.6 Severability 62
12.7 Applicable Law 62
12.8 Binding Effect; Benefit 62
12.9 Assignability 62
12.10 Rule of Construction 62
12.11 Waiver of Trial by Jury 62
12.12 Consent to Jurisdiction 62
12.13 Amendments 63
12.14 Headings 63
TABLE OF EXHIBITS AND ANNEXES
Exhibit A-1 - Form of Certificate of Merger
Exhibit A-2 - Form of Plan of Merger
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Stockholder Release
Exhibit D - Form of Restrictive Covenant Agreement for Certain Equityholders
Annex A - Certain Employees
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MERGER AGREEMENT
This MERGER AGREEMENT (This "AGREEMENT") is made as of March 3, 2004,
among WellCare Health Plans, Inc., a Delaware corporation ("PURCHASER"), Zephyr
Acquisition Sub, Inc., a New Jersey corporation ("MERGER SUB"), Harmony Health
Systems, Inc., a New Jersey corporation (the "COMPANY"), and each of the
stockholders and option holders of the Company listed on the signature pages to
this Agreement under the caption "Principal Stockholders" (individually a
"PRINCIPAL STOCKHOLDER" and collectively the "PRINCIPAL STOCKHOLDERS").
RECITALS
A. The Principal Stockholders collectively own a majority of the
outstanding Shares (as defined herein) of the Company.
B. Merger Sub is an indirect wholly-owned subsidiary of Purchaser.
C. The Company is a holding company that owns all of the outstanding
shares of capital stock of each of Harmony Health Plan of Illinois, Inc., an
Illinois corporation ("HMO SUBSIDIARY"), and Harmony Health Management, Inc., a
New Jersey corporation ("MANAGEMENT SUBSIDIARY" and, together with HMO
Subsidiary, the "SUBSIDIARIES"). The Subsidiaries are engaged in the business of
operating a Medicaid managed care organization in the states of Illinois and
Indiana, and providing certain related services (the "BUSINESS").
D. The boards of directors of Purchaser, Merger Sub and the Company have
each approved this Agreement and the transactions contemplated hereby and have
determined that it is in the best interests of their respective stockholders for
Merger Sub to merge with and into the Company (the "MERGER") upon the terms and
subject to the conditions set forth in this Agreement.
E. Concurrently with the execution of this Agreement and as an inducement
to Purchaser and Merger Sub to enter into this Agreement, certain of the
Principal Stockholders have on the date hereof entered into a voting agreement
(each, a "VOTING AGREEMENT" and collectively the "VOTING AGREEMENTS") to, among
other things, vote the Shares owned by such Persons to approve the Merger and
against any competing proposals.
AGREEMENTS
Therefore, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. For purposes of this Agreement, the following terms have
the meanings set forth below.
"2003 AUDITED FINANCIAL STATEMENTS" means (1) the statutory basis balance
sheet as of December 31, 2003 and the related statements of income - statutory
basis, changes in surplus - statutory basis and cash flows - statutory basis for
the year ended December 31, 2003, including the notes thereto, of HMO
Subsidiary, audited by the Company Accountants and prepared in accordance with
SAP, and (2) the consolidated balance sheet, consolidated statement of income
and retained earnings, consolidated statement of stockholders' equity,
consolidated statement of cash flows and notes to financial statements of the
Company and the Subsidiaries as of and for the year ended December 31, 2003,
audited by the Company Accountants and prepared in accordance with GAAP.
"2003 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS" means the consolidated
balance sheet, consolidated statement of income and retained earnings,
consolidated statement of stockholders' equity, consolidated statement of cash
flows and notes to financial statements of the Company and the Subsidiaries as
of and for the year ended December 31, 2003, prepared by the Company in
accordance with GAAP.
"2003 UNAUDITED FINANCIAL STATEMENTS" means the 2003 Unaudited
Consolidated Financial Statements and the 2003 Unaudited HMO Financial
Statements.
"2003 UNAUDITED HMO FINANCIAL STATEMENTS" means the statutory basis
balance sheet as of December 31, 2003 and the related statements of income -
statutory basis, changes in surplus - statutory basis and cash flows - statutory
basis for the year ended December 31, 2003, including the notes thereto, of HMO
Subsidiary, prepared by the Company in accordance with SAP.
"ACCOUNTS RECEIVABLE" means all of the Company's and the Subsidiaries'
accounts receivable, notes receivable, negotiable instruments and chattel paper.
"ACQUISITION PROPOSAL" means any inquiry, proposal or offer, whether oral
or written, relating to a Competing Transaction.
"AFFILIATE" with respect to any Person means any other Person who directly
or indirectly Controls, is Controlled by, or is under common Control with such
Person including in the case of any Person who is an individual, his or her
spouse, any of his or her descendants (lineal or adopted) or ancestors, and any
of their spouses.
"AGGREGATE CLOSING AMOUNT" means $57,400,000 minus (1) the aggregate
amount of Pre-Closing Distributions, if any, and (2) the amount required at
Closing to discharge in full the Transaction Expenses.
"ARBITRATING ACCOUNTANTS" means the Chicago, Illinois office of
PriceWaterhouseCoopers or, if such accounting firm is unable or unwilling to
serve as Arbitrating Accountants, the accounting firm selected by Purchaser and
the Stockholders' Committee pursuant to Section 2.8.1.
"BASKET" means $350,000.
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"BENEFIT PLAN" means each Plan, Multiemployer Plan, Welfare Plan and Other
Benefit Plan described in the Disclosure Schedule.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on which
banks located in the State of Florida are authorized or obligated to close.
"CERCLA" means Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERTIFICATE OF MERGER" means a certificate of merger in the form of
Exhibit A attached hereto.
"CLAIMS" means all options, proxies, voting trusts, voting agreements,
judgments, pledges, charges, escrows, rights of first refusal or first offer,
mortgages, indentures, claims, transfer restrictions, liens, equities, security
interests and other encumbrances of every kind and nature whatsoever, whether
arising by agreement, operation of law or otherwise.
"CLOSING" means the consummation of the transactions contemplated by this
Agreement.
"CLOSING DATE" means the date on which the Closing occurs.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON SHARES" means the Company's Common Stock, no par value per share.
"COMPANY ACCOUNTANTS" means Ernst & Young LLP.
"COMPANY GROUP" means the Company and the Subsidiaries, collectively.
"COMPETING TRANSACTION" means any or all of the following, other than the
Excluded Transactions: (1) a sale, transfer or other disposition of all or a
substantial portion of the Company's assets in a single transaction or a series
of related transactions; (2) a sale, transfer or assignment of more than 50% of
the outstanding Shares (including by means of a merger); and (3) a public
announcement of a proposal, plan, intention or agreement to do any of the
foregoing.
"CONSOLIDATED AUDITED FINANCIAL STATEMENTS" means consolidated balance
sheets, consolidated statements of income and retained earnings, consolidated
statements of stockholders' equity, consolidated statements of cash flows and
notes to financial statements (together with any supplementary information
thereto) of the Company and the Subsidiaries as of and for the years ended
December 31, 2002 and December 31, 2001, prepared in accordance with GAAP and
audited by the Company Accountants.
"CONTRACT" means any contract, agreement, arrangement, understanding or
instrument, whether oral or written.
"CONTROL" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through ownership of securities, by contract or otherwise.
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"CORPORATION CODE" means the New Jersey Business Corporation Act, as
amended.
"DAMAGES" means all actions, lawsuits, proceedings, hearings,
investigations, charges, complaints, Third Party Claims, demands, injunctions,
judgments, orders, decrees, rulings, dues, liabilities, obligations, Taxes,
liens, assessments, levies, losses, fines, penalties, damages, costs, fees and
expenses, including reasonable attorneys', accountants', investigators', and
experts' fees and expenses incurred in investigating or defending any of the
foregoing.
"DELIVERY DATE" means the date on which the IBNR Certificate has been
delivered to the Stockholders' Committee.
"DESIGNATED CONTRACTS" means all of the Contracts listed or required to be
listed in Schedule 3.3.21 of the Disclosure Schedule.
"DISCLOSURE SCHEDULE" means the schedules delivered by the Company to
Purchaser concurrently herewith and identified by the parties as the Disclosure
Schedule.
"DISPUTE" means any dispute regarding the calculation of the IBNR
Adjustment.
"DISPUTE NOTICE" means a written notice of a Dispute presented to the
Purchaser within the Dispute Period.
"DISPUTE PERIOD" means the period beginning on the Delivery Date and
ending at 5:00 p.m., Eastern time, on the date 30 days after the Delivery Date.
"DOI" means, together, the Illinois Department of Insurance and the
Indiana Department of Insurance.
"EFFECTIVE TIME" means such time as the Certificate of Merger is duly
filed with the New Jersey Secretary of State, or such other time as Purchaser
and the Company shall agree in writing should be specified in the Certificate of
Merger.
"ENVIRONMENTAL CLAIM" means any and all administrative, regulatory or
judicial actions, suits, demands, demand letters, directives, claims, liens,
investigations, proceedings or notices of noncompliance or violation (written or
oral) by any Person alleging potential liability (including potential liability
for enforcement, investigation costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or resulting
from: (1) the presence or Release into the environment of any Hazardous
Substance at any location, whether or not owned by the Company; or (2)
circumstances forming the basis of any violation or alleged violation of any
Environmental Law; or (3) any and all claims by any Person seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Substances.
"ENVIRONMENTAL LAWS" means all federal, state or local statutes, laws,
rules, ordinances, codes, rule of common law, regulations, judgments and orders
in effect on the Closing Date and relating to protection of human health or the
environment (including ambient air, surface water, ground water, drinking water,
wildlife, plants, land surface or subsurface strata), including laws
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and regulations relating to Releases or threatened Releases of Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.
"ENVIRONMENTAL PERMITS" means all environmental, health and safety
permits, licenses, registrations, and governmental approvals and authorizations.
"EQUITYHOLDERS" means, collectively, all holders of Shares and/or Options
as of the date of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any affiliate of the Company as determined under
Code section 414(b), (c), (m) or (o).
"ESCROW AGENT" means such national banking association or other Person as
may be selected by Purchaser and the Company to serve as Escrow Agent under the
Escrow Agreement.
"ESCROW AGREEMENT" means an Escrow Agreement in the form of Exhibit B
attached hereto (with such changes thereto as may be required by the Escrow
Agent).
"ESCROW AMOUNT" means $8,000,000.
"ESCROW BALANCE" means any portion of the Escrow Amount to be released to
the Stockholders' Committee for the benefit of the Equityholders upon the
expiration of the Escrow Agreement pursuant to the provisions thereof.
"EXCLUDED TRANSACTION" means the transactions described in this Agreement
or any other transaction with Purchaser.
"EXTENDED REPRESENTATIONS AND WARRANTIES" means the representations and
warranties contained in Section 3.4 (Individual Representations and Warranties
of the Principal Stockholders).
"FINANCIAL STATEMENT DATE" means December 31, 2002.
"FINANCIAL STATEMENTS" means the 2003 Unaudited Financial Statements, the
Consolidated Audited Financial Statements and the HMO Audited Financial
Statements.
"FIRPTA" means the Foreign Investment in Real Property Tax Act, as
amended.
"GAAP" means generally accepted accounting principles.
"GOVERNMENTAL OR REGULATORY AUTHORITY" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department, official
or other instrumentality of the United States, any state thereof, any foreign
country or any domestic or foreign state, county, city or other political
subdivision, and shall include all self regulatory organizations and insurance
and
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health care authorities. The foregoing shall include, but shall not be limited
to, DOI, the IDPA and the IFSSA.
"HAZARDOUS SUBSTANCES" means: (1) any petroleum or petroleum products,
radioactive materials, asbestos in any form, mold, mildew, urea formaldehyde
foam insulation, transformers or other equipment that contain dielectric fluid
containing regulated levels of polychlorinated biphenyls (PCBs) and radon gas;
and (2) any chemicals, materials or substances which are now or ever have been
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials," "extremely hazardous wastes," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," or other words of
similar import, under any Environmental Law.
"HIPAA" means the Health Insurance Portability and Accountability Act of
1996.
"HMO" means health maintenance organization.
"HMO AUDITED FINANCIAL STATEMENTS" means statements of admitted assets,
liabilities and surplus - statutory basis and the related statements of income -
statutory basis, changes in surplus - statutory basis and cash flows - statutory
basis of HMO Subsidiary as of and for the years ended December 31, 2002 and
December 31, 2001, including the notes thereto, prepared in accordance with SAP
and audited by the Company Accountants.
"HSR ACT" means the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976,
as amended.
"IBNR" means claims incurred but not reported.
"IBNR ADJUSTMENT" means the positive or negative amount calculated as (1)
the amount of reserves for Medical Claims, as shown on the line item titled
"Claims payable" or comparable line item(s) on the balance sheet of HMO
Subsidiary as of December 31, 2003 included as part of the 2003 Unaudited
Consolidated Financial Statements, minus (2) actual Medical Claims as of
December 31, 2003, as re-calculated following the Closing pursuant to Section
2.7.
"IBNR CERTIFICATE" means a certificate prepared by Purchaser, setting
forth Purchaser's calculation of the IBNR Adjustment.
"IDPA" means the Illinois Department of Public Aid, or any successor
agency.
"IFSSA" means the Indiana Family and Social Services Administration, or
any successor agency.
"INDEBTEDNESS" of any Person means all obligations of such Person (1) for
borrowed money evidenced by notes, bonds, debentures or similar instruments, (2)
for the deferred purchase price of goods or services (other than Provider
claims, rent payments and trade payables or accruals incurred in the ordinary
course of business), (3) under capital leases, and (4) in the nature of
guarantees of the obligations described in clauses (1) through (3) above of any
other Person.
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"INDEMNIFICATION CAP" means (1) in the case of claims for indemnification
by the Purchaser Indemnitees under Section 9.1, the Escrow Amount and any
earnings thereon pursuant to the Escrow Agreement, and (2) in the case of claims
for indemnification by the Equityholders under Section 9.3, $8,000,000.
"INDEMNIFIED PARTY" means, with respect to a particular matter, a Person
who is entitled to indemnification from another party hereto pursuant to ARTICLE
IX.
"INDEMNIFYING PARTY" means, with respect to a particular matter, a party
hereto who is required to provide indemnification under ARTICLE IX to another
Person.
"INTELLECTUAL PROPERTY" means all of the Company's and the Subsidiaries'
intellectual property rights, including all patents, trademarks, service marks,
copyrights, designs, Internet domain names and web sites, trade or business
names, trade dress and slogans (and all registrations of, and all applications
for registration of, any of the foregoing), Software, and all goodwill
associated with such intellectual property rights.
"INTELLECTUAL PROPERTY LICENSES" means all agreements (other than
agreements with respect to Software that have been purchased "off the shelf")
between the Company or either of the Subsidiaries, on the one hand, and any
Person, on the other hand, granting any right to use or practice any rights
under any of the Intellectual Property owned either by the Company or either of
the Subsidiaries or by any other Person.
"INTERIM FINANCIAL STATEMENT DATE" means December 31, 2003.
"IRS" means the Internal Revenue Service.
"KNOWLEDGE OF THE COMPANY" means (1) the actual knowledge of the directors
and officers of the Company and/or the Subsidiaries, and (2) the knowledge of
facts that such directors and officers should have after due inquiry of any
employees of and advisors to the Company and/or the Subsidiaries who have
principal responsibility for the matter in question or are otherwise likely to
have information relevant to the matter, or after due examination of any
documents, correspondence or other items contained in the files of the Company
or the Subsidiaries.
"LAW" means any law, statute, order, decree, consent decree, judgment,
rule, regulation, ordinance or other pronouncement having the effect of law,
whether in the United States, any foreign country, or any domestic or foreign
state, county, city or other political subdivision or of any Governmental or
Regulatory Authority.
"LEASED REAL ESTATE" means all real property leased or subleased by the
Company or either of the Subsidiaries.
"LIABILITIES" means all Indebtedness, obligations and other liabilities of
the Company or either of the Subsidiaries of any nature whatsoever, whether
direct or indirect, matured or unmatured, absolute, accrued, contingent (or
based on any contingency), known or unknown, fixed or otherwise, or whether due
or to become due.
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"LIBOR RATE" means the variable rate of interest published in The Wall
Street Journal on December 31, 2004 (or, if the rate is not so published on such
date, the most recent date of publication of such rate as of December 31, 2004)
as the one-month London Interbank Offered Rate under the heading "Money Rates"
(or such other heading as may be used at such time).
"MATERIAL ACCOUNTING CHANGES" means a material change in the method of
calculation of any of the financial covenants, restrictions or standards used in
the Financial Statements.
"MATERIAL ADVERSE EFFECT" means any event, occurrence, circumstance,
change or other matter that, individually or in the aggregate with any other
events, occurrences, circumstances, changes or other matters, has, or is
reasonably likely to have, a material adverse effect on (1) the business,
operations (including results of operations), assets, liabilities, financial
condition, membership, Provider relationships or prospects of the Company or
either of the Subsidiaries (including, without limitation, any matter involving
greater than $500,000 in amount other than Medical Claims), or (2) the ability
of any party hereto to consummate the Merger or any of the other transactions
contemplated hereby.
"MEDICAID" means the applicable provision of Title XIX of the Social
Security Act of the United States, as amended, and the regulations promulgated
thereunder and the state Laws implementing the Medicaid program.
"MEDICAL CLAIMS" means any and all medical claim liabilities of HMO
Subsidiary for services to Members, including, without limitation, IBNR.
"MEMBER" means an individual enrolled in any of HMO Subsidiary's health
plans.
"MULTIEMPLOYER PLAN" means any multiemployer plan as defined in Section
3(37) of ERISA.
"NAIC" means the National Association of Insurance Commissioners.
"NET CLOSING AMOUNT" means the Aggregate Closing Amount less the Escrow
Amount.
"OPTIONS" means options to purchase Common Shares under the Company's 1996
Stock Option Plan.
"OTHER BENEFIT PLAN" means any bonus, deferred compensation, stock
purchase, stock option, stock appreciation rights, phantom stock rights,
severance, salary continuation, vacation, sick leave, fringe benefit, incentive,
insurance, welfare or similar plan or arrangement other than a Plan,
Multiemployer Plan and Welfare Plan.
"OUTSTANDING COMPANY SHARES" means the aggregate number of (1) Shares
outstanding immediately prior to the Effective Time and (2) Shares subject to
issuance upon exercise under Options outstanding immediately prior to the
Effective Time (prior to giving effect to the cancellation of Options pursuant
to Section 2.11).
"PBGC" means the Pension Benefit Guaranty Corporation.
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"PER SHARE ESCROW AMOUNT" means an amount equal to the Escrow Balance
divided by the Outstanding Company Shares.
"PER SHARE NET CLOSING AMOUNT" means an amount equal to the Net Closing
Amount divided by the Outstanding Company Shares.
"PERMITS" means all licenses, permits, franchises, authorizations,
registrations, certificates of authority and government approvals other than the
Environmental Permits.
"PERMITTED LIENS" means all (1) statutory liens for Taxes not yet due; (2)
statutory liens of landlords, carriers, warehousemen, mechanics and materialmen
incurred in the ordinary course of business for sums not yet due; and (3) liens
incurred or deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, association, bank, trust company, trust or other entity,
whether or not legal entities, or any governmental entity, agency or political
subdivision.
"PLAN" means any employee pension benefit plan as defined in Section 3(2)
of ERISA.
"PRE-CLOSING DISTRIBUTIONS" means the gross amount of any and all
payments, whether of cash or other assets or property, to any Equityholders on
account of capital stock of the Company, in any form whatsoever, including
dividends, distributions, redemptions, exchanges, reclassifications or otherwise
(without giving effect to any deductions or withholdings from any such payments
on account of Taxes, including any withholding, payroll, employment or similar
Taxes).
"PREFERRED SHARES" means the Company's Series A Preferred Stock, $.01 par
value per share.
"PROPRIETARY SOFTWARE" means Software which is owned by the Company or
either of the Subsidiaries.
"PROVIDER" means any physician, hospital, pharmacy or other health care
professional, facility or supplier that has contracted with the Company or
either of the Subsidiaries to provide services, prescription drugs or supplies
to Members.
"PROVIDER AGREEMENTS" means each of the contracts of the Company or either
of the Subsidiaries with a Provider.
"PURCHASE PRICE" means the aggregate merger consideration payable by
Purchaser under this Agreement.
"PURCHASER ACCOUNTANTS" means Deloitte & Touche LLP.
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"PURCHASER INDEMNITEES" means Purchaser and its Affiliates, and their
respective directors, managers, officers, members, shareholders, partners,
agents, representatives, successors and assigns.
"REGULATORY STATEMENTS" means the HMO Subsidiary's quarterly and annual
reports as filed with DOI for the periods ended December 31, 2002, March 31,
2003, June 30, 2003, September 30, 2003 and December 31, 2003.
"RELATED PARTIES" means the Company's and the Subsidiaries' respective
present and former directors, managers, officers, members, stockholders,
partners, and their respective Affiliates.
"RELEASE" means any release, spill, emission, emptying, leaking,
injection, deposit, disposal, discharge, dispersal, leaching, pumping, pouring,
or migration into the atmosphere, soil, surface water, groundwater or property.
"REPRESENTATIVES" means, with respect to any Person, any director,
officer, employee, agent, lender, partner or representative, including any
accountant, consultant, attorney or financial advisor, of such Person.
"RETURNS" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes.
"SAP" means statutory accounting principles, including but not limited to
the accounting standards as codified by the NAIC, as may be modified by
applicable Laws of the States of Illinois or Indiana.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHARES" means, collectively, the Common Shares and Preferred Shares.
"SOFTWARE" means any and all: (1) computer programs, including any and all
software implementation of algorithms, models and methodologies whether in
source code or object code; (2) databases and computations, including any and
all data and collections of data; (3) all documentation, including user manuals
and training materials, relating to any of the foregoing; and (4) the content
and information contained in any Web site.
"STOCKHOLDER RELEASE" means a release in the form of Exhibit C attached
hereto.
"STOCKHOLDERS' COMMITTEE" means the Equityholders' attorneys-in-fact and
agents in connection with the execution and performance of this Agreement.
"SUBSIDIARY" means either one of the Subsidiaries.
"SURVIVAL DATE" means (1) for claims made based on an alleged breach of
the Extended Representations and Warranties, the date on which the applicable
statute of limitations would bar such claim, (2) for claims made based on an
alleged breach of Sections 7.2 (Use of Trademarks)
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or 8.1 (confidentiality), the date on which such covenants expire as set forth
in such sections, and (3) for all other claims, the date that is 12 months after
the Closing Date.
"SURVIVING CORPORATION" means the Company as the surviving corporation
after the consummation of the Merger.
"TAXES" means all federal, state, local, foreign and other income, sales,
use, ad valorem, transfer or other taxes, fees, assessments or charges of any
kind, together with any interest and any penalties with respect thereto.
"THIRD PARTY CLAIM" means any action, lawsuit, proceeding, investigation,
hearing, or like matter which is asserted or overtly threatened by a Person
other than the parties hereto, their successors and permitted assigns, against
any Indemnified Party or to which any Indemnified Party is subject.
"TRANSACTION EXPENSES" means all of the Company's and the Principal
Stockholders' expenses incurred in connection with the preparation, execution
and consummation of this Agreement, the Closing and the transactions
contemplated hereby, including attorneys', accountants' and other advisors' fees
and expenses payable by the Company or the Principal Stockholders which have not
been paid as of the Closing.
"WELFARE PLAN" means any employee welfare benefit plan as defined in
Section 3(1) of ERISA.
"WORKING CAPITAL" means the positive or negative number calculated as (1)
the assets of the Company (on a standalone basis) which are treated under GAAP
as current assets minus (2) the liabilities of the Company (on a standalone
basis) which are treated under GAAP as current liabilities.
1.2 Other Defined Terms. The following terms are defined in this Agreement
in the Sections referenced below:
TERM SECTION
---- -------
Agreement Introductory Paragraph
Business Recital C
Company Introductory Paragraph
HMO Subsidiary Recital C
Management Subsidiary Recital C
Merger Recital D
Merger Sub Introductory Paragraph
Principal Stockholder(s) Introductory Paragraph
Purchaser Introductory Paragraph
Subsidiaries Recital C
Voting Agreement(s) Recital E
1.3 Accounting Principles. The classification, character and amount of all
assets, liabilities, capital accounts and reserves and of all items of income
and expense to be determined,
11
and any consolidation or other accounting computations to be made, and the
interpretation of any definition containing any financial term, pursuant to this
Agreement shall be determined and made in accordance with GAAP or SAP, as
applicable; provided, however, that if during the period beginning as of the
date of this Agreement and continuing through the Closing Date any changes in
GAAP or SAP, as applicable, are hereafter required or permitted and are adopted
by the Company with the agreement of the Company Accountants and such changes
result in one or more Material Accounting Changes, the parties hereto agree to
enter into negotiations, in good faith, in order to amend such provisions in a
credit neutral manner so as to reflect equitably such changes with the desired
result that the criteria for evaluating the Company's financial condition shall
be the same after such changes as if such changes had not been made; provided,
further, that no Material Accounting Change shall be given effect in such
calculations until such provisions are amended in a manner reasonably
satisfactory to Purchaser and the Company. If such amendment is entered into,
all references in this Agreement to GAAP or SAP shall mean GAAP or SAP as of the
date of such amendment together with any changes in GAAP or SAP after the date
hereof which are not Material Accounting Changes. All references to "dollars" or
"$" in this Agreement shall mean United States dollars.
1.4 Construction. Unless the context of this Agreement otherwise requires,
(a) words of any gender include each other gender, (b) words using the singular
or plural number also include the plural or singular number, respectively, (c)
references to Sections and Articles refer to the applicable Sections and
Articles of this Agreement, (d) the words "include," "includes" and "including"
shall be deemed to be followed by the phrase "without limitation," and (e) the
predicate of any noun or pronoun shall be the immediately preceding prior noun.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Corporation Code, Merger Sub shall be
merged with and into the Company at the Effective Time. Following the Effective
Time, the separate corporate existence of Merger Sub shall cease and the Company
shall continue as the Surviving Corporation. At the election of Purchaser, any
direct or indirect wholly owned subsidiary of Purchaser may be substituted for
Merger Sub as a constituent corporation in the Merger. In such event, the
parties agree to execute an appropriate amendment to this Agreement in order to
reflect the foregoing.
2.2 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of the Corporation Code. Without limiting the generality
of the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
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2.3 Charter and Bylaws.
2.3.1 At the Effective Time, the Certificate of Incorporation of
Merger Sub shall be the Certificate of Incorporation of the Surviving
Corporation until thereafter amended as provided by the Corporation Code and
such Certificate of Incorporation, except that the name of the corporation set
forth therein shall be changed to the name of the Company.
2.3.2 At the Effective Time, the Bylaws of Merger Sub shall be the
Bylaws of the Surviving Corporation until thereafter amended.
2.4 Directors and Officers. The directors of Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation until
the earlier of their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be. The officers of Merger Sub
immediately prior to the Effective Time and such other persons as Purchaser
shall designate shall be the officers of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
2.5 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of the
outstanding capital of the Company or Merger Sub:
2.5.1 Each issued and outstanding share of common stock of Merger
Sub shall be converted into and become one fully paid and nonassessable share of
common stock of the Surviving Corporation.
2.5.2 Each Share that is held in the treasury of the Company shall
automatically be canceled and returned and shall cease to exist and no
consideration shall be delivered in exchange therefor.
2.5.3 Each Outstanding Company Share (other than Shares to be
canceled in accordance with Section 2.5.2) shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such Outstanding Company Share shall
cease to have any rights with respect thereto, except the right to receive (a)
an amount of cash per Outstanding Company Share equal to the Per Share Net
Closing Amount, and (b) a conditional amount of cash per Outstanding Company
Share equal to the Per Share Escrow Amount.
2.6 Pre-Closing Distributions. The Company shall, prior to the Closing
Date, make Pre-Closing Distributions to the Equityholders in such amount or
amounts as may be designated in writing by Purchaser at any time or from time to
time prior to the Closing Date, subject in each case to the consent of the
Company, which approval shall not be unreasonably withheld or delayed. Any such
Pre-Closing Distributions shall be distributed to the Equityholders promptly
(and in any event within five Business Days or prior to the Closing Date,
whichever occurs sooner) after Purchaser designates any such amount. Any such
Pre-Closing Distributions shall be paid pro-rata to all Equityholders on a
fully-diluted basis, as though all holders of Options were the holders of the
number of Shares issuable upon exercise in full of their Options (including any
unvested portion thereof). Any such Pre-Closing Distributions made to the
13
holders of Options will be considered compensation income to the holders of such
Options, and shall occur prior to the payments to the holders of Options set
forth in Section 2.11. The Company shall withhold from all amounts payable
pursuant to this 2.6 all applicable Taxes, including any withholding, payroll,
employment or similar Taxes.
2.7 Adjustment of Purchase Price. Following the Closing, the Purchase
Price shall be adjusted based on the amount of the IBNR Adjustment, if any, as
provided in this Section 2.7. The Company shall, on or prior to December 31,
2004, re-calculate the Medical Claims as of December 31, 2003, giving effect to
the experience of HMO Subsidiary with such Medical Claims after such date and
through such date of calculation, based upon the books and records of HMO
Subsidiary and actual operating and financial information currently available at
the time of such calculation. The Purchaser shall cause the Surviving
Corporation to pay such Medical Claims consistent with industry practice and in
compliance with the terms of the applicable Provider Agreement and the
requirements of any applicable Laws. For purposes of this Section 2.7, (a)
consistent with GAAP, any regulatory penalties incurred as a result of the
operation of HMO Subsidiary following the Closing Date shall not be included in
the calculation of Medical Claims, and (b) any remaining IBNR as of the time of
the re-calculation of Medical Claims pursuant hereto shall not be included in
the calculation of Medical Claims. By no later than December 31, 2004, Purchaser
shall deliver to the Stockholders' Committee the IBNR Certificate. Any increase
in the Purchase Price as a result of the IBNR Adjustment, together with interest
on the IBNR Adjustment as set forth below, shall be paid by the Purchaser to the
Stockholders' Committee on behalf of the Equityholders within five Business Days
following the final determination of the IBNR Adjustment pursuant to Section
2.8. Any decrease in the Purchase Price as a result of the IBNR Adjustment,
together with interest on the IBNR Adjustment as set forth below, shall be paid
by the Escrow Agent out of the Escrow Amount to Purchaser within five Business
Days following the final determination of the IBNR Adjustment pursuant to
Section 2.8, in accordance with the terms of the Escrow Agreement. Interest on
the IBNR Adjustment shall accrue at a rate per annum equal to the LIBOR Rate
plus 21/2%, calculated based on the period from the Closing Date through and
including the date of the final determination of the IBNR Adjustment pursuant to
Section 2.8, and shall be paid together with the increase or decrease, as
applicable, to the Purchase Price resulting from the IBNR Adjustment pursuant to
this Section 2.7.
2.8 Disputes Regarding the IBNR Adjustment. Disputes with respect to the
IBNR Adjustment shall be resolved as follows:
2.8.1 The Stockholders' Committee shall have the Dispute Period to
bring a Dispute, but only on the basis that the IBNR Adjustment is inaccurate.
If the Stockholders' Committee does not give a Dispute Notice, the IBNR
Adjustment, as set forth in the IBNR Certificate as delivered by Purchaser,
shall be deemed to have been accepted and agreed to by the Stockholders'
Committee, and shall be final and binding upon the parties hereto. If the
Stockholders' Committee has a Dispute, the Stockholders' Committee shall give
Purchaser a Dispute Notice within the Dispute Period, setting forth in
reasonable detail the elements and amounts with which it disagrees. In the event
any such Dispute, as described in the Dispute Notice, applies only to a portion
of the IBNR Adjustment, any undisputed portion of the IBNR Adjustment (together
with interest thereon as set forth in Section 2.7) shall be paid by Purchaser or
the Escrow Agent, as applicable, within five Business Days following the
delivery of such
14
Dispute Notice. Within 30 days after delivery of such Dispute Notice, Purchaser
and the Stockholders' Committee shall attempt to resolve such Dispute and agree
in writing upon the final calculation and amount of the IBNR Adjustment.
2.8.2 If Purchaser and the Stockholders' Committee are unable to
resolve any Dispute within the 30 day period after Purchaser's receipt of a
Dispute Notice, the Stockholders' Committee and Purchaser shall jointly engage
the Arbitrating Accountants as arbitrator, so long as the Arbitrating
Accountants has not performed accounting, tax or auditing services for
Purchaser, the Company or any of their respective Affiliates during the
then-prior three year period. The Purchaser and the Stockholders' Committee
shall each pay the Arbitrating Accountants one-half of the retainer or initial
fee required, subject to reimbursement based on the determination of the
Arbitrating Accountants pursuant to the last sentence of this Section 2.8.2. If
the Arbitrating Accountants is unable or unwilling to serve as Arbitrating
Accountants, the Arbitrating Accountants shall be a nationally recognized
accounting firm selected promptly by agreement of Purchaser and the
Stockholders' Committee or, if they are unable to agree, by lot conducted
jointly by the Company Accountants and the Purchaser Accountants. In connection
with the resolution of any Dispute, the Arbitrating Accountants shall have
access to all documents, records, work papers, facilities and personnel it deems
necessary to perform its function as arbitrator. The Arbitrating Accountants'
function shall be to calculate the IBNR Adjustment, based upon the applicable
requirements of this Agreement. The Arbitrating Accountants shall allow
Purchaser and the Stockholders' Committee to present their respective positions
regarding the Dispute. The Arbitrating Accountants may, at its discretion,
conduct a conference concerning the Dispute, at which conference each party
shall have the right to present additional documents, materials and other
information and to have present its advisors, counsel and accountants. In
connection with such process, there shall be no other hearings or any oral
examinations, testimony, depositions, discovery or other similar proceedings.
The Arbitrating Accountants shall promptly, and in any event within 60 days
after the date of its appointment, render its decision on the question in
writing and finalize the IBNR Adjustment. Such written determination shall be
final and binding upon the parties hereto, and judgment may be entered on the
award. The Arbitrating Accountants shall determine the proportion of its fees
and expenses to be paid by each of the Stockholders' Committee and Purchaser,
based primarily on the degree to which the Arbitrating Accountants has accepted
the positions of the respective parties.
2.9 Time and Place of Closing. The Closing shall be at 10:00 a.m., at the
offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, LLP, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇ within five Business Days after the satisfaction or waiver of all of the
conditions to the obligations of the parties set forth in ARTICLE V, or on such
other date, or at such other time or place, as shall be mutually agreed upon by
the Company and Purchaser. Subject to the provisions of this Agreement, on or
promptly after the Closing Date, the parties shall file the Certificate of
Merger executed in accordance with the relevant provisions of the Corporation
Code and shall make all other filings or recordings required under the
Corporation Code.
2.10 Exchange of Certificates. At the Closing, (a) the Stockholders'
Committee shall deliver to Purchaser certificates evidencing the Shares held by
the Principal Stockholders duly endorsed in blank, or accompanied by valid stock
powers duly executed in blank, and (b) Purchaser shall deliver (i) to the
Stockholders' Committee for the benefit of the Equityholders, by wire transfer
of immediately available funds to such bank account as the Stockholders'
15
Committee shall specify by written notice to Purchaser delivered before the
Closing Date, the Net Closing Amount, and (ii) to the Escrow Agent the Escrow
Amount, which shall secure the payment of the Principal Stockholders'
indemnification obligations hereunder and which shall be held in escrow and
disbursed in accordance with the terms of the Escrow Agreement. No interest will
be paid or accrued on any sums payable to holders of certificates representing
Shares. Until surrendered in accordance with the provisions of this Section
2.10, each stock certificate representing a Share shall represent for all
purposes only the right to receive the merger consideration described in Section
2.5, without interest. Other than the payments to the Stockholders' Committee of
the Net Closing Amount and to the Escrow Agent of the Escrow Amount pursuant to
this Section 2.10, and the payment to the Stockholders' Committee of the IBNR
Adjustment pursuant to Section 2.7, if applicable, Purchaser shall have no
liability or obligation whatsoever with respect to the payment to Equityholders
for such Equityholders' allocated share of the Net Closing Amount, the Escrow
Amount or the IBNR Adjustment.
2.11 Cancellation of Options.
2.11.1 Prior to the Closing, the Company's Board of Directors shall
adopt appropriate resolutions and the Company shall take all other actions
necessary or appropriate to provide for (a) the cancellation, effective at the
Closing, of all Options, whether vested or unvested, without any payment
therefor except as otherwise provided herein, and (b) the termination and
cancellation, effective at the Closing, of the Company's 1996 Stock Option Plan.
In consideration of the cancellation of each Option, as of the Effective Time
the holder thereof shall be entitled (subject to such holder having first
executed and delivered a Stockholder Release) to receive, subject to the
reduction in the cash payments specified in Section 2.11.2, (i) an amount of
cash per Share subject to such Option equal to (A) the Per Share Closing Amount
minus (B) the exercise price per Share applicable to such Option, (ii) a
conditional amount of cash per Share subject to such Option equal to the Per
Share Escrow Amount, and (iii) a conditional amount of cash per Share subject to
such Option equal to (A) the increase, if any, in the Purchase Price as a result
of the IBNR Adjustment divided by (B) the Outstanding Company Shares.
2.11.2 The Company and/or Purchaser, as applicable, shall withhold
from all amounts payable pursuant to 2.11.1 all applicable Taxes, including any
withholding, payroll, employment or similar Taxes, in the amounts and in the
manner as Purchaser directs. The Company shall, prior to the Closing, prepare
and deliver to Purchaser a schedule setting forth the amounts payable at the
Closing to the holders of Options under this Section 2.11 (giving effect to all
Taxes required to be withheld from such payments). The Company and the
Stockholders' Committee shall provide Purchaser with such information as it may
reasonably require in order to calculate any such Taxes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 General Statement. The parties make the representations and warranties
to each other which are set forth in this ARTICLE III. All such representations
and warranties and all representations and warranties which are set forth
elsewhere in this Agreement and in any financial statement, exhibit, certificate
or other document delivered by a party hereto to any other
16
party pursuant to this Agreement or in connection herewith shall survive the
Closing (and none shall merge into any instrument of conveyance), regardless of
any investigation or lack of investigation by any of the parties to this
Agreement. No specific representation or warranty shall limit the generality or
applicability of a more general representation or warranty. All representations
and warranties of the Company and the Principal Stockholders are made subject to
the exceptions noted in the Disclosure Schedule. Each section of the Disclosure
Schedule shall be numbered to correspond to the subsection of Section 3.3 or 3.4
to which such section relates.
3.2 Representations and Warranties of Purchaser. Purchaser represents and
warrants to the Company and the Equityholders as follows:
3.2.1 Organization, Existence and Good Standing. Each of Purchaser
and Merger Sub is a corporation duly organized, validly existing and in good
standing under the Laws of its state of incorporation.
3.2.2 Power and Authority. Each of Purchaser and Merger Sub has the
corporate power and authority to execute, deliver and perform this Agreement and
each of the documents and instruments required to be entered into pursuant to
this Agreement, and to consummate the transactions contemplated hereby and
thereby. The execution, delivery and performance by Purchaser and Merger Sub of
this Agreement and each of the documents and instruments required to be entered
into pursuant to this Agreement, and the consummation by Purchaser and Merger
Sub of the transactions contemplated hereby and thereby, has been duly and
validly authorized by all necessary corporate action and such authorization has
not been withdrawn or amended in any manner. In this regard, the requisite
approval of the Purchaser's Board of Directors was obtained at a Board of
Directors' meeting held on February 27, 2004.
3.2.3 Enforceability. Assuming due and valid authorization,
execution and delivery of this Agreement by the Company and the Principal
Stockholders, this Agreement is or will be the legal, valid and binding
obligations of Purchaser and Merger Sub, enforceable against Purchaser and
Merger Sub in accordance with its terms, except that (a) such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar Laws, now or hereafter in effect, affecting creditors' rights
generally, and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
3.2.4 Consents. No consent, authorization, order or approval of, or
filing or registration with, any Governmental or Regulatory Authority is
required for or in connection with the consummation by Purchaser or Merger Sub
of the transactions contemplated hereby, other than (a) such filings as may be
required under the HSR Act and (b) such Permits as may be required from any
Governmental or Regulatory Authority under the Laws of any state.
3.2.5 Conflicts Under Constituent Documents or Laws. Neither the
execution and delivery of this Agreement by Purchaser or Merger Sub, nor the
consummation by Purchaser or Merger Sub of the transactions contemplated hereby,
will conflict with or result in a breach of any of the terms, conditions or
provisions of its Certificate of Incorporation or by-laws, or of any statute or
administrative regulation, or of any order, writ, injunction, judgment or decree
of any
17
Governmental or Regulatory Authority or of any arbitration award to which
Purchaser or Merger Sub is a party or by which Purchaser or Merger Sub is bound.
3.2.6 Conflicts Under Contracts. Except as set forth in Schedule
3.2.6, neither Purchaser nor Merger Sub is a party to, or bound by, any
unexpired, undischarged or unsatisfied Contract the terms of which performance
by Purchaser or Merger Sub according to the terms of this Agreement will be a
default or an event of acceleration, or grounds for termination, modification or
cancellation, or whereby timely performance by Purchaser or Merger Sub according
to the terms of this Agreement may be prohibited, prevented or delayed.
3.2.7 Brokers. Neither Purchaser nor any of its Affiliates has dealt
with any Person who is entitled to a broker's commission, finder's fee,
investment banker's fee or similar payment from the Principal Stockholders, the
Company or either of the Subsidiaries for arranging the transactions
contemplated hereby or introducing the parties to each other.
3.3 Representations and Warranties of the Company. The Company represents
and warrants to Purchaser that, except as set forth in the Disclosure Schedule:
3.3.1 Organization, Existence and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under the Laws
of New Jersey.
3.3.2 Foreign Good Standing. The Company has qualified as a foreign
corporation, and is in good standing, under the Laws of all jurisdictions where
the nature of its business or the nature or location of its assets requires such
qualification and where the failure to so qualify would have a Material Adverse
Effect.
3.3.3 Power and Authority. The Company has all necessary corporate
power and authority to carry on its business as such business is now being
conducted. The Company has the corporate power and authority to execute, deliver
and perform this Agreement and each of the documents and instruments required to
be entered into pursuant to this Agreement, and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance by the
Company of this Agreement and each of the documents and instruments required to
be entered into pursuant to this Agreement, and the consummation by the Company
of the transactions contemplated hereby and thereby, have been duly and validly
authorized by all necessary corporate action and such authorization has not been
withdrawn or amended in any manner. In this regard, the requisite approval of
the Company's Board of Directors was obtained at a Board of Directors meeting
held on March 1, 2004 and the Voting Agreements constitute the requisite
approval of the Company's stockholders.
3.3.4 Enforceability. This Agreement has been duly executed and
delivered by the Company. Assuming due and valid authorization, execution and
delivery of this Agreement by Purchaser, this Agreement is or will be the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with its terms, except that (1) such enforcement may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
Laws, now or hereafter in effect, affecting creditors' rights generally; and (2)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject
18
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
3.3.5 Consents. No consent, authorization, order or approval of, or
filing or registration with, any Governmental or Regulatory Authority is
required for or in connection with the execution of this Agreement by the
Company or the Principal Stockholders or the consummation by the Company or the
Principal Stockholders of the transactions contemplated hereby.
3.3.6 Conflicts Under Constituent Documents or Laws. Neither the
execution and delivery of this Agreement by the Company or the Principal
Stockholders, nor the consummation by the Company or the Principal Stockholders
of the transactions contemplated hereby, will conflict with or result in a
breach of any of the terms, conditions or provisions of the Company's or either
of the Subsidiaries' Certificate of Incorporation or by-laws, or of any statute
or administrative regulation, or of any order, writ, injunction, judgment or
decree of any Governmental or Regulatory Authority or of any arbitration award
to which the Company or either of the Subsidiaries is a party or by which the
Company or any of the Subsidiaries is bound.
3.3.7 Conflicts Under Contracts. Neither the Company nor any of the
Subsidiaries is a party to, or bound by, any unexpired, undischarged or
unsatisfied Contract under the terms of which performance by the Company or the
Principal Stockholders according to the terms of this Agreement will be a
default or an event of acceleration, or grounds for termination, modification or
cancellation, or whereby timely performance by the Company or the Principal
Stockholders according to the terms of this Agreement may be prohibited,
prevented or delayed.
3.3.8 Subsidiaries. HMO Subsidiary is a corporation duly organized,
validly existing and in good standing under the Laws of Illinois and Management
Subsidiary is a corporation duly organized, validly existing and in good
standing under the Laws of New Jersey. Each of the Subsidiaries has full
corporate power to own all of its properties and assets and to carry on its
business as it is now conducted, and is qualified as a foreign corporation and
is in good standing in all jurisdictions where the nature of its business or the
nature and location of its assets requires such qualification and where the
failure to so qualify may have a Material Adverse Effect. Other than the
Subsidiaries, the Company does not hold or beneficially own any other direct or
indirect interest (whether it be common or preferred stock or any comparable
ownership interest in any Person that is not a corporation), or any
subscriptions, options, warrants, rights, calls, convertible securities or other
agreements or commitments for any interest in any Person.
3.3.9 Officers and Directors. The name of each director and officer
of the Company and each of the Subsidiaries on the date hereof, and his or her
position(s) with the Company and/or the Subsidiaries, are listed on Section
3.3.9 of the Disclosure Schedule.
3.3.10 Constituent Documents. True and complete copies of the
certificate or articles of incorporation and all amendments thereto, the by-laws
as amended and currently in force, all stock records, and corporate minute books
and records, of the Company and the Subsidiaries, have been made available for
inspection by Purchaser. Such stock records
19
accurately reflect all Share transactions and the current stock ownership of the
Company and the Subsidiaries. The corporate minute books and records of the
Company and the Subsidiaries contain true and complete copies of all resolutions
adopted by the stockholders and the boards of directors of the Company and the
Subsidiaries.
3.3.11 Capitalization.
(a) The authorized capital stock of the Company consists
solely of 700,000 Preferred Shares and 1,300,000 Common Shares. The outstanding
capital stock of the Company consists solely of 159,330 Preferred Shares and
960,305 Common Shares. There are no shares of capital stock of the Company of
any other class authorized, issued or outstanding. All of the issued and
outstanding Shares have been validly issued and are fully paid and
nonassessable. Except for the Options (all of which are described in Section
3.3.11 of the Disclosure Schedule), there are no outstanding subscriptions,
options, warrants, rights (including preemptive rights), calls, convertible
securities, contractual obligations to repurchase, redeem or otherwise acquire
any capital stock of the Company, voting trusts, stockholders' agreements or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Company or obligating the
Company to issue any securities of any kind. Section 3.3.11 of the Disclosure
Schedule sets forth a true, accurate and complete list of each holder of Shares
or Options and the number of Shares or Options held by such Person.
(b) The authorized capital stock of HMO Subsidiary consists of
a single class of 200,000 shares of common stock, without par value, of which
1,000 shares are issued and outstanding. There are no shares of capital stock of
HMO Subsidiary of any other class authorized, issued or outstanding. All of the
issued and outstanding shares of capital stock of HMO Subsidiary have been
validly issued, are fully paid and nonassessable, and are owned beneficially and
of record by the Company, free and clear of all Claims. There are no outstanding
subscriptions, options, warrants, rights (including preemptive rights), calls,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of HMO
Subsidiary obligating HMO Subsidiary to issue any securities of any kind.
(c) The authorized capital stock of Management Subsidiary
consists of a single class of 10,000 shares of common stock, without par value,
of which 1,000 shares are issued and outstanding. There are no shares of capital
stock of Management Subsidiary of any other class authorized, issued or
outstanding. All of the issued and outstanding shares of capital stock of
Management Subsidiary have been validly issued, are fully paid and
nonassessable, and are owned beneficially and of record by the Company, free and
clear of all Claims. There are no outstanding subscriptions, options, warrants,
rights (including preemptive rights), calls, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock or other securities of Management Subsidiary obligating Management
Subsidiary to issue any securities of any kind.
3.3.12 Financial Statements. Complete and accurate copies of the
Financial Statements are contained in Section 3.3.12 of the Disclosure Schedule.
The Consolidated Audited Financial Statements and the 2003 Unaudited
Consolidated Financial Statements present fairly, in all material respects, the
consolidated financial position of the Company Group as of
20
the dates thereof and the consolidated results of operations and cash flows of
the Company Group for the periods covered by said statements, in accordance with
GAAP consistently applied through the periods covered thereby, except for, in
the case of the 2003 Unaudited Consolidated Financial Statements, (a) normal
year-end adjustments, which adjustments will not be material in amount or
significance, and (b) the omission of footnote disclosures. The HMO Audited
Financial Statements and the 2003 Unaudited HMO Financial Statements present
fairly, in all material respects, the financial position of HMO Subsidiary as of
the dates thereof and the results of operations and cash flows of HMO Subsidiary
for the periods covered by said statements, in accordance with SAP consistently
applied through the periods covered thereby, except for, in the case of the 2003
Unaudited HMO Financial Statements, (a) normal year-end adjustments, which
adjustments will not be material in amount or significance, and (b) the omission
of footnote disclosures. The books and records of the Company and the
Subsidiaries have been maintained in accordance with GAAP or SAP, as applicable,
and properly reflect all of the transactions entered into by the Company and the
Subsidiaries, as applicable. The Company has furnished to Purchaser complete and
correct copies of all attorney's responses to audit inquiry letters with respect
to the Company and the Subsidiaries and all management letters from the
Company's and the Subsidiaries' accountants for the last five fiscal years. The
Company has also furnished to Purchaser copies of the Regulatory Statements. The
Regulatory Statements have been prepared, in all material respects, in
accordance with SAP consistently applied.
3.3.13 Conduct of Business. Since the Financial Statement Date, (a)
the Company Group has conducted the Business only in the ordinary course, (b)
there has not been any Material Adverse Effect, (c) there has been no
non-renewal or material amendment of any of the Permits held by or granted to
the Company or either Subsidiary, and the Company and each Subsidiary has used
commercially reasonable efforts to maintain such Permits, (d) there has been no
physical damage, destruction or other casualty loss (whether or not covered by
insurance) affecting any of the real or personal property or equipment of the
Company Group in an amount exceeding $50,000, individually or in the aggregate,
(e) the Company has not made any Pre-Closing Distribution, and (f) neither the
Company nor either of the Subsidiaries has taken or permitted to be taken any
action which, if proposed to be taken on or after the date of this Agreement,
would require the consent of Purchaser pursuant to Section 4.2.4.
3.3.14 Undisclosed Liabilities. Neither the Company nor either of
the Subsidiaries has any Liabilities except for (a) Liabilities provided for or
reserved against in the Financial Statements and not discharged subsequent to
the dates of the Financial Statements, and (b) Liabilities which have been
incurred by the Company and the Subsidiaries subsequent to the Interim Financial
Statement Date in the ordinary course of the Company's and the Subsidiaries'
respective Businesses and not discharged since the Interim Financial Statement
Date. Neither the Company nor either of the Subsidiaries has any Liability that
relates to or has arisen out of a breach of contract, breach of warranty, tort,
or infringement by or against the Company or either of the Subsidiaries or any
claim or lawsuit involving the Company or either of the Subsidiaries.
3.3.15 Working Capital. At the Effective Time, (a) the Company shall
have positive Working Capital, and (b) HMO Subsidiary shall be in full
compliance with all Laws applicable to the adequacy and maintenance of its
statutory surplus, including the applicable required risk-based capital amount.
21
3.3.16 Assets. The Company and the Subsidiaries have good title to
their respective assets, free and clear of any Claims, except for Permitted
Liens. No unreleased mortgage, trust deed, chattel mortgage, security agreement,
financing statement or other instrument encumbering any of the Company's or
either of the Subsidiaries' assets has been recorded, filed, executed or
delivered. The Company's and the Subsidiaries' assets are adequate to conduct
the Business as it is presently being conducted, and will be adequate to enable
Purchaser to continue to conduct the Business as it is presently being
conducted. The Company's and the Subsidiaries' assets are in good operating
condition and repair, normal wear and tear excepted, and are suitable for the
uses intended therefor.
3.3.17 Accounts Receivable. All of the Accounts Receivable reflected
on the 2003 Unaudited Financial Statements or incurred in the normal course of
business since the Interim Financial Statement Date have arisen from bona fide
transactions in the ordinary course of business and, to the extent not
previously collected, are fully collectible, net of any allowance for doubtful
accounts shown on the 2003 Unaudited Financial Statements, in the ordinary
course of business in accordance with their terms and assuming that the methods
of collection practices and procedures used in collection of the accounts
receivable are consistent with those historically used by the Company and the
Subsidiaries. None of the Accounts Receivable is or will be at the Closing Date
subject to any counterclaim or set-off. All reserves, allowances and discounts
with respect to the Accounts Receivable were and are adequate and consistent in
extent with reserves, allowances and discounts previously maintained by the
Company and the Subsidiaries in the ordinary course of business.
3.3.18 Insurance. The Disclosure Schedule contains a true and
correct list and description (including insurer, coverages, annual premium,
deductibles, material limitations and exclusions (but not including usual and
customary limitations and exclusions), and expiration dates) of all insurance
policies (including fire and casualty, general liability, theft, life, workers'
compensation, directors and officers, business interruption, reinsurance and all
other forms of insurance) which are owned by the Company or either of the
Subsidiaries or which name the Company or either of the Subsidiaries as an
insured (or loss payee), including without limitation those which pertain to the
Company's and the Subsidiaries' respective assets, employees or operations. All
such insurance policies are in full force and effect, all premiums have been
paid thereunder and none of the coverage provided by such policies will
terminate or lapse by reason of any of the transactions contemplated by this
Agreement. In the three year period ending on the date hereof, neither the
Company nor either of the Subsidiaries has received any notice from or on behalf
of any insurance carrier issuing such insurance policies to the effect that
insurance rates will thereafter be substantially increased, that there will
thereafter be no renewal of an existing policy, or that material alteration of
any owned or leased personal or real property, purchase of additional equipment,
or material modification of the Company's or either Subsidiaries' methods of
doing business, will be required or is suggested. There are no pending claims
that have been denied insurance coverage. Neither the Company nor either
Subsidiary has failed to give any notice or present any claim under any
insurance policy in due and timely fashion or as required by any insurance
policy. Section 3.3.18 of the Disclosure Schedule sets forth a list of all
claims made under any insurance policies covering the Company or either of the
Subsidiaries in the last three years. Neither the Company or either of the
Subsidiaries has received notice that any insurer under any policy is denying,
disputing or questioning liability with respect to a claim thereunder or
defending under a reservation of rights clause.
22
3.3.19 Bank Accounts. Section 3.3.19 of the Disclosure Schedule
contains a list showing: (a) the name of each bank, safe deposit company or
other financial institution in which the Company or either of the Subsidiaries
has an account, lock box or safe deposit box, (b) the names of all Persons
authorized to draw thereon or to have access thereto and the names of all
Persons, if any, holding powers of attorney from the Company or either of the
Subsidiaries, and (c) all instruments or agreements to which the Company or
either of the Subsidiaries is a party as an endorser, surety or guarantor, other
than checks endorsed for collection or deposit in the ordinary course of
business.
3.3.20 Taxes.
(a) The Company and the Subsidiaries have properly completed
and filed on a timely basis all Returns required to be filed. Such Returns are
accurate and complete in all material respects. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status and other matters of or information
regarding the Company and the Subsidiaries required to be shown thereon, and no
extension of time within which to file any such Return has been requested or
granted.
(b) With respect to all amounts in respect of Taxes imposed
upon the Company or either of the Subsidiaries or for which the Company or
either of the Subsidiaries is or could be liable, whether to taxing authorities
or to other Persons (as, for example, under tax allocation agreements), with
respect to all taxable periods or portions of periods ending on or before the
Closing Date, all applicable Tax Laws have been complied with and all amounts
required to be paid on or prior to the Closing Date by the Company or either of
the Subsidiaries (as the case may be) to Taxing authorities have been paid.
(c) No issues have been raised and are currently pending by
any taxing authority in connection with any of the Returns. No waivers of
statutes of limitation with respect to the Returns have been given by or
requested from the Company or either of the Subsidiaries. The Disclosure
Schedule sets forth the taxable years of the Company and the Subsidiaries as to
which the respective statutes of limitations with respect to Taxes have not
expired, and with respect to such taxable years, the years for which
examinations have been completed, the years for which examinations are presently
being conducted, the years for which examinations have not been initiated, and
the years for which required Returns have not yet been files. All deficiencies
asserted or assessments made as a result of any examinations of Returns
previously filed by the Company or either of the Subsidiaries have been fully
paid, or are fully reflected as a liability in the Financial Statements and the
2003 Unaudited Financial Statements, or are being contested and an adequate
reserve therefor has been established and is fully reflected as a liability in
the Financial Statements and the 2003 Unaudited Financial Statements.
(d) Neither the Company nor either of the Subsidiaries is a
party to or bound by any tax indemnity, tax sharing or tax allocation agreement.
(e) The Company and the Subsidiaries are a part of the same
affiliated group of corporations, within the meaning of Section 1504 of the
Code, with the Company as the common parent corporation. Neither the Company nor
either of the Subsidiaries has ever been a
23
member of another affiliated group of corporations within the meaning of Section
1504 of the Code.
(f) All material elections with respect to Taxes affecting the
Company or either of the Subsidiaries are set forth in the Disclosure Schedule.
(g) Neither the Company nor either of the Subsidiaries has
filed a consent pursuant to the collapsible corporation provisions of section
341(f) of the Code (or any corresponding provision of state, local or foreign
income Tax Law) or agreed to have section 341(f)(2) of the Code (or any
corresponding provision of state, local or foreign income Tax Law) apply to any
disposition of any asset owned by it.
(h) None of the assets of the Company or either of the
Subsidiaries is "tax-exempt use property" within the meaning of Section 168(h)
of the Code.
(i) Neither the Company nor either of the Subsidiaries has
agreed to make, nor is either of them required to make, any adjustment under
section 481(a) of the Code by reason of a change in accounting method or
otherwise.
(j) Neither the Company nor either of the Subsidiaries is a
party to any agreement, contract, arrangement or plan that has resulted or would
result, separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of section 280G of the Code.
(k) No Principal Stockholder is a Person other than a United
States person within the meaning of the Code and the transactions contemplated
hereby is not subject to the withholding provisions of section 3406 or
subchapter A of Chapter 3 of the Code.
(l) The Company and the Subsidiaries have disclosed on their
Returns all positions taken therein that could reasonably give rise to a
substantial understatement of Tax within the meaning of section 6662 of the
Code.
(m) None of the assets of the Company or either of the
Subsidiaries is property that the Company or either of the Subsidiaries is
required to treat as being owned by any other Person pursuant to the "safe
harbor lease" provisions of former section 168(f)(8) of the Code.
(n) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax-exempt under section 103(a) of the
Code.
(o) Neither the Company nor either of the Subsidiaries has
made a deemed dividend election under Regulations Section 1.1502-32(f)(2) or a
consent dividend election under section 565 of the Code.
(p) Neither the Company nor either of the Subsidiaries has
participated in an international boycott within the meaning of section 999 of
the Code.
24
(q) Neither the Company nor either of the Subsidiaries has
been a United States real property holding corporation (as defined in section
897(c)(2) of the Code) during the applicable period specified in section
897(c)(1)(A)(ii) of the Code.
(r) Neither the Company nor either of the Subsidiaries has had
a permanent establishment in any foreign country, as defined in any applicable
Tax treaty or convention between the United States and such foreign country.
(s) The unpaid Taxes of the Company and the Subsidiaries do
not exceed the reserve for Tax liability (excluding any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) set
forth or included in the 2003 Unaudited Financial Statements, as adjusted for
the passage of time through the Closing Date, in accordance with the past
practices of the Company and the Subsidiaries.
3.3.21 Contracts. The Disclosure Schedule contains a true and
correct list of the following undischarged Contracts (including all amendments
thereto) to which the Company or either of the Subsidiaries is a party:
(a) agreements with any Governmental or Regulatory Authority;
(b) Provider Agreements;
(c) agreements for the employment for any period of time
whatsoever, or in regard to the employment, or restricting the employment, of
any employee of the Company or either of the Subsidiaries;
(d) consulting agreements;
(e) collective bargaining agreements;
(f) agreements for the payment of severance benefits,
retention bonuses or sale bonuses to any employee;
(g) plans or contracts or arrangements with respect to Benefit
Plans;
(h) contracts for the purchase of equipment or other materials
having a purchase price under any such contract in excess of $10,000;
(i) contracts for the sale of any equipment or other assets;
(j) leases or subleases, either as lessee or sublessee, lessor
or sublessor, of personal property or intangibles, where the lease or sublease
provides for an annual rent in excess of $50,000 and has an unexpired term as of
the Closing Date in excess of one year;
(k) agreements restricting in any manner the Company's or
either of the Subsidiaries' right to compete with any other Person, restricting
the Company's or either of the Subsidiaries' right to sell to or purchase from
any other Person, restricting the right of any other
25
party to compete with the Company or either Subsidiaries or the ability of such
Person to employ any of the Company's or any of the Subsidiaries' employees;
(l) agreements between the Company or either of the
Subsidiaries and any of its Affiliates with respect to the purchase of goods or
the performance of services;
(m) agreements of agency, representation, distribution, or
franchise which cannot be canceled by the Company or either of the Subsidiaries
without payment or penalty upon notice of thirty (30) days or less;
(n) service agreements affecting any of the Company's or
either of the Subsidiaries' assets where the annual service charge is in excess
of $10,000 and has an unexpired term as of the Closing Date in excess of one
year;
(o) secrecy or confidentiality agreements;
(p) contracts for the advertisement, display or promotion of
any products or services, which cannot be canceled by the Company or either of
the Subsidiaries without payment or penalty upon notice of 30 days or less;
(q) contracts or order for the sale of goods or the
performance of services which, if performed by the Company or either of the
Subsidiaries in accordance with its terms, could only be performed by the
Company or either of the Subsidiaries with a gross profit margin of 25% or less,
or which could not be performed within the time limits or other terms therein
provided, or which, when actually performed, would result in an obligation
(contractual or otherwise) to pay damages or penalties;
(r) loan or credit agreements, pledge agreements, notes,
security agreements, mortgages, debentures, indentures, factoring agreements or
letters of credit;
(s) guaranties, performance, bid or completion bonds, or
surety or indemnification agreements;
(t) partnership agreements or joint venture agreements or
other contracts (however named) involving a sharing of profits, losses, costs,
or liabilities by the Company or any of the Subsidiaries and another Person; or
(u) any other agreements which provide for the receipt or
expenditure of more than $100,000 or which expire, or may be renewed at the
option of any Person other than the Company or either Subsidiary so as to
expire, more than one year after the date of this Agreement.
All of the Designated Contracts are in full force and effect and are valid and
enforceable in accordance with their terms. The Company or one of the
Subsidiaries (as the case may be) is, in all material respects, in compliance
with all terms and requirements of each Designated Contract and, to the
Knowledge of the Company, each other Person that is party to a Designated
Contract is in material compliance with the terms and requirements of such
Contract. No event has occurred or circumstance existing that (with or without
notice or lapse of time) may contravene,
26
conflict with or result in a violation or breach of, or give the Company or
either of the Subsidiaries or any other Person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate or modify any Designated Contract. There are no
renegotiations, attempts to renegotiate or outstanding rights to negotiate any
amount to be paid or payable to or by the Company or either of the Subsidiaries
under any Designated Contract other than with respect to non-material amounts in
the ordinary course of business, and no Person has made a written demand for
such renegotiation. Neither the Company nor either of the Subsidiaries has
released or waived any of its rights under any Designated Contract.
3.3.22 Providers and Provider Agreements. A true and complete copy
of each Provider Agreement for each hospital and ancillary Provider, the form(s)
of physician or physician group Provider Agreement, and any physician or
physician group Provider Agreements that differ from such form(s) have been made
available to Purchaser. Except as indicated on Section 3.3.22 of the Disclosure
Schedule (but without descriptions of the exceptions), none of the Provider
Agreements (a) has a term of more than one year, (b) obligates the Company Group
to purchase reinsurance for the Provider or otherwise adjusts the compensation
payable to such Provider based on claims experience, (c) requires the Company
Group to pay the Provider on a most-favored Provider basis, (d) obligates the
Company Group to pay access or administrative fees, (e) has a profit-sharing or
risk sharing component, (f) delegates to the Provider medical management duties
and/or payment of claims, (g) requires the Company Group to provide stop loss
protection to a Provider, or (h) includes any provision for rate escalation
based upon the consumer price index, inflation rates or other economic
indicators. The Company Group has compensated and currently compensates each
Provider for services to Members in accordance with the rates and fees set forth
in the applicable Provider Agreement and in a timely manner given the
requirements of such Provider Agreement and applicable Law. Since January 1,
2002, the Company Group has not received any written complaint regarding any
matter in excess of $10,000 from a Provider concerning any aspect of the
Business. None of the Providers who or which is a "physician" or "physician
group" (as such terms are defined at 42 C.F.R. Section 418.479 et seq. are
placed at "substantial financial risk" (as such term is also defined therein).
3.3.23 Membership. Section 3.3.23 of the Disclosure Schedule sets
forth the true and accurate number of all Members as of January 31, 2004, by
state and region.
3.3.24 Premiums. All premiums and other payments received by the
Company Group since January 1, 2001 from any Governmental or Regulatory
Authority were bona fide payments received from such Governmental or Regulatory
Authority without subsequent setoff, overpayment, disgorgement or recoupment.
3.3.25 Medical Claims. Attached to Section 3.3.25 of the Disclosure
Schedule are copies of lag reports setting forth the Companies' payment of
Medical Claims during the 12-month period ended December 31, 2003. Subject to
customary lags, consistent with the attached lag reports, all Medical Claims
made by any parties under any and all products, lines of business or other
medical plans offered by the Company or either Subsidiary have been paid within
the applicable statutory time limit. To the Knowledge of the Company, all
claims, capitated payments and other payments to Providers made by any parties
under any and all products, lines
27
of business or other medical plans offered by the Company or either Subsidiary
have been paid accurately and completely in accordance with the applicable
Provider's Provider Agreement, and there has been no allegation of insufficient,
untimely or otherwise inadequate payment or handling of Medical Claims. All such
payments have been made in material compliance with any and all Contracts
between the Company or either Subsidiary, and each Member, beneficiary, patient
or Provider to whom or to which payment is or was due, and there is no
legitimate basis for any allegation of noncompliance with respect to the payment
of any Medical Claims under any such Contract.
3.3.26 Material Adverse Effect. Neither the Company nor either of
the Subsidiaries has suffered or been threatened with, and to the Knowledge of
the Company no facts exist which may cause or result in, any Material Adverse
Effect including, without limiting the generality of the foregoing, the
existence or threat of any labor dispute, or any changes that are reasonably
likely to have a Material Adverse Effect on any relationship between the Company
or either of the Subsidiaries and any of their key Providers or employees.
3.3.27 Suppliers. Set forth in Section 3.3.27 of the Disclosure
Schedule are the names and addresses of all the suppliers from which the Company
or either Subsidiary ordered supplies, software and other goods or services with
an aggregate purchase price of $50,000 or more during the twelve-month period
ended January 31, 2004 and the amount for which each such supplier invoiced the
Company or such Subsidiary during such period. The Company Group has not
received any notice or has any reason to believe that any such supplier will not
sell supplies, merchandise and other goods to the Company Group at any time
after the Closing Date on terms and conditions substantially similar to those
used in its current sales to the Company Group, subject only to general and
customary price increases and decreases.
3.3.28 Related Party Transactions. Neither the Company nor either of
the Subsidiaries has entered into any Contracts, arrangements or other business
relationships with any of the Related Parties other than normal employment
arrangements and Benefit Plans (all of which are disclosed in the Disclosure
Schedule). Neither the Company nor either of the Subsidiaries is owed or owes
any amount from or to the Related Parties (excluding employee compensation and
other ordinary incidents of employment). No property or interest in any property
which relates to and is or will be necessary or useful in the present or
currently contemplated future operation of the Business, is presently owned by
or leased by or to any Related Party. Neither the Company, either of the
Subsidiaries nor any Related Party has an interest, directly or indirectly, in
any business, corporate or otherwise, which is in competition with the Business.
3.3.29 Permits. The Disclosure Schedule contains a true and correct
list of, and the Company and the Subsidiaries possess, all Permits (other than
Environmental Permits, which are addressed in Section 3.3.35) which are required
in order for the Company and the Subsidiaries to conduct their Business as
presently conducted or proposed to be conducted. The Company has delivered
complete and accurate copies of each Permit to Purchaser. HMO Subsidiary is
licensed by DOI to operate as an HMO in the States of Illinois and Indiana. The
operations of HMO Subsidiary comply in all material respects with the Illinois
Health Maintenance Organization Act, codified at Section 215-125 of the Illinois
Code, the Illinois Managed Care Patient Rights Act, codified at Section 215-134
of the Illinois Code, and with
28
Section 27-13 of the Indiana Code, the rules promulgated by DOI, the IDPA and
the IFSSA and the terms and requirements of each Medicaid Contract held by it,
as applicable. Since January 1, 2001, HMO Subsidiary has not received from DOI,
the IDPA or the IFSSA any citation, suspension, revocation, limitation, warning
or similar notice. The Company Group does not have health plan or other
operations outside of the States of Illinois and Indiana. HMO Subsidiary has no
business other than HMO operations and functions related thereto.
3.3.30 Employee Benefit Plans. With respect to the Benefit Plans of
the Company and the Subsidiaries:
(a) Neither the Company nor any ERISA Affiliate maintains,
administers, contributes to or has any fixed or contingent Liability under any
Benefit Plan other than those Plans, Multiemployer Plans, Welfare Plans and
Other Benefit Plans listed in the Disclosure Schedule.
(b) Except as required by section 4980B of the Code, Part 6 of
Subtitle B of Title I of ERISA, or applicable state Law, neither the Company nor
any ERISA Affiliate has promised any former employee or other individual not
employed by the Company or any ERISA Affiliate medical or life insurance
coverage. Neither the Company nor any ERISA Affiliate maintains, contributes to
or has any fixed or continent Liability under any plan or arrangement providing
medical or life insurance benefits to former employees or their dependents,
other than benefits provided in the event of disability and conversion
privileges.
(c) Each Benefit Plan complies, in form and operation, in all
material respects, with all applicable Laws, including ERISA and the Code.
(d) The funds available under each Benefit Plan intended to be
a funded Benefit Plan equal or exceed the amounts required to be paid, or which
would be required to be paid, if such Benefit Plan were terminated as of the
Closing Date.
(e) Any Benefit Plan intended to qualify under section 401(a)
of the Code meets in all material respects all requirements for qualification
under section 401(a) of the Code and the regulations thereunder. A favorable
determination as to the qualification under the Code of each of the Benefit
Plans intended to comply with section 401(a) of the Code has been made by the
IRS. The Company has made available to Purchaser a copy of the most recent
favorable determination letter issued by the IRS concerning each such Benefit
Plan's qualification. Each such Benefit Plan has been administered in all
material respects in accordance with its terms and the applicable provisions of
ERISA and the Code and the regulations thereunder, and no matter exists which
would adversely affect the qualified tax-exempt status of such Benefit Plan and
any related trust.
(f) All reports and information relating to each Benefit Plan
required to be filed with any governmental entity have been timely filed and are
accurate in all material respects. All reports and information relating to each
Benefit Plan required to be disclosed or provided to participants or their
beneficiaries have been timely disclosed or provided. To the Knowledge of the
Company, no fiduciary of any Benefit Plan has committed a breach of any
29
responsibility or obligation imposed upon fiduciaries under Title I of ERISA
with respect to such Benefit Plan.
(g) With respect to each Benefit Plan there has been made
available to Purchaser the following: a copy of the annual report (if required
under ERISA) with respect to each such Benefit Plan for the last three years
(including all schedules and attachments); a copy of the summary plan
description, together with each summary of material modifications, required
under ERISA with respect to such Benefit Plan; a true and complete copy of such
Benefit Plan; all trust agreements, insurance contracts, accounts or other
documents which establish the funding vehicle for any Benefit Plan and the
latest financial statements thereof; and any investment management agreements,
administrative services contracts, or other agreements and documents relating to
the ongoing administration and investment of any Benefit Plan.
(h) There are no actions, suits, proceedings, investigations
or hearings pending or, to the Knowledge of the Company, overtly threatened with
respect to any Benefit Plan or any fiduciary or assets thereof, other than
claims for benefits arising in the ordinary course of any Benefit Plan.
(i) Each Welfare Plan which is a group health plan (within the
meaning of section 5000(b)(1) of the Code) complies in all material respects
with and has been maintained and operated in all material respects in accordance
with each of the requirements of section 4980B of the Code and Part 6 of
Subtitle B of Title I of ERISA.
(j) No withdrawals have occurred so as to cause any Plan to
become subject to the provisions of Section 4063 of ERISA, nor has the Company
or any ERISA Affiliate ceased making contributions to any Benefit Plan subject
to Section 4064(a) of ERISA to which the Company or any ERISA Affiliate made
contributions during the six (6) years prior to the date hereof.
(k) Neither the Company nor any ERISA Affiliate has incurred
any liability to the PBGC as a result of the voluntary or involuntary
termination of any Plan which is subject to Title IV of ERISA. There is
currently no active filing by the Company or any ERISA Affiliate with the PBGC,
and no proceeding has been commenced by the PBGC, to terminate any Plan which is
subject to Title IV of ERISA and which has been maintained or funded, in whole
or in part, by the Company or any ERISA Affiliate.
(l) Neither any Benefit Plan fiduciary nor any Benefit Plan
has engaged in any transaction in violation of Section 406 of ERISA or any
"prohibited transaction" (as defined in section 4975(c)(1) of the Code), and
there has been no "reportable event" (as defined in Section 4043 of ERISA) with
respect to any Benefit Plan. Neither the Company nor any ERISA Affiliate has
failed to make any contributions or to pay any amounts due and owing as required
by the terms of any Benefit Plan or collective bargaining agreement or ERISA or
any other applicable Law. Full payment has been made of all amounts which the
Company or any ERISA Affiliate is required or committed to pay to the Benefit
Plans as of the Interim Financial Statement Date.
30
(m) Neither the Company nor any ERISA Affiliate contributes or
has ever contributed to, or has any fixed or contingent Liability with respect
to, any Multiemployer Plan or any other Benefit Plan subject to Title IV of
ERISA.
3.3.31 Employee Relations. With respect to the employees of the
Company and the Subsidiaries:
(a) No employee of the Company or either of the Subsidiaries
is a party to, or is otherwise bound by, any Contract, including any
confidentiality, non-competition or proprietary rights agreement, between such
employee and the Company or either of the Subsidiaries or, to the Knowledge of
the Company, any other Person that materially adversely affects or will affect
the performance of that employee's duties as an employee of the Company or
either of the Subsidiaries following the Closing. To the Knowledge of the
Company, no officer or other key employee of the Company or either of the
Subsidiaries intends to terminate employment with the Company or either of the
Subsidiaries prior to or following the Closing.
(b) There is not presently pending or, to the Knowledge of the
Company, overtly threatened any: (i) strike, slowdown, picketing, work stoppage
or employee grievance process; (ii) charge, grievance proceeding or other claim
against or affecting the Company or either of the Subsidiaries relating to the
alleged violation of any Law pertaining to labor relations or employment
matters, including any charge or complaint filed by an employee or union with
the National Labor Relations Board, the Equal Employment Opportunity Commission
or any comparable Governmental or Regulatory Authority; (iii) union
organizational activity or other labor or employment dispute against or
affecting the Company or either of the Subsidiaries; or (iv) application for
certification of a collective bargaining agent.
(c) To the Knowledge of the Company, no event has occurred or
circumstances exist that could provide the basis for any work stoppage or other
labor dispute with respect to the Company or either of the Subsidiaries. There
is no lockout of any employees of the Company or either of the Subsidiaries, and
no such action is contemplated by the Company or either of the Subsidiaries.
(d) No employee of the Company or either of the Subsidiaries
has any claim against the Company or either of the Subsidiaries (whether under
Law, any employment agreement or otherwise) on account of or for: (i) overtime
pay, other than overtime pay for the current payroll period, (ii) wages or
salaries, other than wages or salaries for the current payroll period, or (iii)
vacations, sick leave, time off or pay in lieu of vacation, sick leave or time
off, other than vacation, sick leave or time off (or pay in lieu thereof) earned
in the 12 month period immediately prior to the date of this Agreement. The
Company and the Subsidiaries have made all required payments to the relevant
unemployment compensation reserve account with the appropriate governmental
departments with respect to their employees and such accounts have positive
balances.
(e) Section 3.3.31 of the Disclosure Schedule contains a true
and correct list of all employees of the Company and the Subsidiaries as of the
date of this Agreement, together with their respective base salaries, bonuses
and positions, and all bonuses or similar payments paid to any employees after
December 31, 2003. The Disclosure Schedule correctly
31
states the number of employees laid off by the Company and the Subsidiaries in
the 90 days preceding the date hereof. To the Knowledge of the Company, no
employee of the Company or either of the Subsidiaries is an undocumented alien.
(f) The employees and former employees of the Company and the
Subsidiaries who have (or have had) access to confidential or proprietary
information of the Company and the Subsidiaries have executed confidentiality
and assignment of inventions forms which, to the Knowledge of the Company, are
adequate to protect the Company's and the Subsidiaries' proprietary interest
therein.
(g) The employment of each of the Company's and the
Subsidiaries' employees is terminable at will without cost to the Company or
either of the Subsidiaries except for payments required under the Benefit Plans
and the payment of accrued salaries or wages and vacation pay. No employee or
former employee has any right to be rehired by the Company or either of the
Subsidiaries prior to their hiring a Person not previously employed by the
Company or either of the Subsidiaries.
3.3.32 Litigation and Claims.
(a) There is no litigation or proceeding, at law or in equity,
and there are no proceedings or governmental investigations before any
commission or other Governmental or Regulatory Authority, pending or, to the
Knowledge of the Company, overtly threatened against the Company, the
Subsidiaries, or either of the Company's or Subsidiaries' officers, directors or
Affiliates, with respect to or affecting the Company's or either of the
Subsidiaries' operations, Business or assets, or with respect to the
consummation of the transactions contemplated hereby, nor is there any basis for
any of the foregoing.
(b) Section 3.3.32 of the Disclosure Schedule contains (i) a
list of the dates of all surveys performed by any Governmental or Regulatory
Authority to which the Company or either Subsidiary was a party at any time
since January 1, 2001, and any deficiencies for which a plan of correction was
required and (ii) a list of all notices of noncompliance, requests for remedial
action, return of overpayment or imposition of fines (whether ultimately paid or
otherwise resolved) by any Governmental or Regulatory Authority or as a result
of the Company's or either Subsidiary's participation in any Medicaid program at
any time since January 1, 2001.
3.3.33 Decrees, Orders or Arbitration Awards. Neither the Company
nor either of the Subsidiaries is a party to, or bound by, any decree, order or
arbitration award (or agreement entered into in any administrative, judicial or
arbitration proceeding with any Governmental or Regulatory Authority) with
respect to or affecting the Company's or either Subsidiary's operations,
Business or assets.
3.3.34 Compliance with Laws. Neither the Company nor either of the
Subsidiaries is in violation of, or delinquent in respect to, any decree, order
or arbitration award or Law of or agreement with, or any Permit from, any
Governmental or Regulatory Authority to which the property, assets, personnel or
Business activities of the Company or either of the Subsidiaries are subject,
including Laws relating to equal employment opportunities, fair
32
employment practices, occupational health and safety, wages and hours, and
discrimination. Without limiting the generality of the foregoing, the Company
Group is currently in material compliance with the medical privacy provisions
and electronic data transmission standards of HIPAA. During the last six years,
neither the Company nor either of the Subsidiaries has received from any
Governmental or Regulatory Authority any written notification with respect to
possible noncompliance of any decree, order, writ, judgment or arbitration award
or any Law.
3.3.35 Environmental Matters.
(a) The Company and the Subsidiaries are in compliance with
all applicable Environmental Laws and Environmental Permits.
(b) The Company and the Subsidiaries possess all Environmental
Permits which are required for the operation of their respective Businesses.
(c) Neither the Company nor either of the Subsidiaries has
received any communication alleging that the Company or either of the
Subsidiaries is not, or at any time has not been, in compliance with any
applicable Environmental Laws or Environmental Permits.
(d) There is no Environmental Claim pending or, to the
Knowledge of the Company, threatened against the Company or either of the
Subsidiaries.
(e) No Leased Real Estate is currently listed on the National
Priorities List or the Comprehensive Environmental Response, Compensation and
Liability Information System, both promulgated under the CERCLA or any
comparable state list.
(f) Neither the Company nor either of the Subsidiaries has
received any written notice from any Person with respect to any Leased Real
Estate of potential or actual liability or a written request for information
from any Person under or relating to CERCLA or any comparable state or local
Law.
(g) There is no and has not been any Hazardous Substances
used, generated, treated, stored, transported, disposed of, handled or otherwise
existing on, under or about any Leased Real Estate in violation of Environmental
Laws.
(h) There are no underground or above-ground storage tanks
located on any Leased Real Estate. All underground or above-ground storage tanks
previously located at any such real property and not present thereat as of the
date hereof were removed in accordance with all Environmental Laws.
3.3.36 Real Estate.
(a) Neither the Company nor either of the Subsidiaries owns
any real estate.
(b) 3.3.36 of the Disclosure Schedule contains a true and
complete list of all street addresses and legal descriptions of the Leased Real
Estate. All Leased Real Estate is leased to the Company or one of the
Subsidiaries pursuant to written leases, complete and
33
accurate copies of which have been previously delivered to Purchaser, and all of
which are in full force and effect. Neither the Company nor either of the
Subsidiaries has subleased any Leased Real Estate. The Leased Real Estate is not
subject to any leases or tenancies of any kind, except for the Company's and the
Subsidiaries' leases. All options in favor of the Company or one of the
Subsidiaries to purchase any of the Leased Real Estate, if any, are in full
force and effect. The Leased Real Estate constitutes all real property and
improvements leased by the Company and the Subsidiaries.
(c) The Leased Real Estate is not in possession of any adverse
possessors, is used in a manner which is consistent and permitted by applicable
zoning ordinances and other Laws without special use approvals or permits, are
served by all water, sewer, electrical, telephone, drainage and other utilities
required for normal operations of the Business, is in good condition and repair,
and requires no work or improvements to bring it into compliance with any
applicable Law or to repair or maintenance the improvements thereon.
(d) None of the utility companies serving any of the Leased
Real Estate has threatened the Company or either of the Subsidiaries with any
reduction in service.
(e) There are no challenges or appeals pending regarding the
amount of the real estate Taxes on, or the assessed valuation of, the Leased
Real Estate, and no special arrangements or agreements exist with any
Governmental or Regulatory Authority with respect thereto.
(f) There are no condemnation proceedings pending or, to the
Knowledge of the Company, threatened with respect to any portion of the Leased
Real Estate.
(g) There is no tax assessment (in addition to the normal,
annual general real estate tax assessment) pending or, to the Knowledge of the
Company, threatened with respect to any portion of the Leased Real Estate.
3.3.37 Intellectual Property.
(a) The Disclosure Schedule sets forth a complete and accurate
list of all U.S. and foreign copyright registrations, copyright applications,
patents and patent applications, trademark and service ▇▇▇▇ registrations
(including Internet domain name registrations), trademark and service ▇▇▇▇
applications and material unregistered trademarks and service marks included
within the Intellectual Property.
(b) Section 3.3.37 of the Disclosure Schedule sets forth a
complete and accurate list of all Proprietary Software and Software which is
licensed, leased or otherwise used by the Company or the Subsidiaries (other
than "off-the-shelf" Software), and identifies which Software is owned,
licensed, leased or otherwise used, as the case may be.
(c) The Disclosure Schedule sets forth a complete and accurate
list of all Intellectual Property Licenses.
34
(d) The Company or one of the Subsidiaries (as indicated in
the Disclosure Schedule) is the owner of, or has exclusive rights to use, all of
the Intellectual Property.
(e) The conduct of the Company's and the Subsidiaries'
respective Businesses and the exercise of their respective rights relating to
the Intellectual Property does not infringe upon or otherwise violate
intellectual property rights of any Person.
(f) To the Knowledge of the Company, no Person is infringing
upon or otherwise violating any of the Intellectual Property.
(g) Neither the Company nor either of the Subsidiaries has
received notice of any claims, and, to the Knowledge of the Company, there are
no pending claims, of any Persons relating to the scope, ownership or use of any
of the Intellectual Property.
(h) Except with respect to unregistered trademarks and service
marks, each owner listed on the Disclosure Schedule is listed in the records of
the appropriate governmental entity as the sole owner of record of the
Intellectual Property.
(i) Each copyright registration, patent and registered
trademark and application therefor listed on the Disclosure Schedule is in
proper form, not disclaimed and has been duly maintained, including the
submission of all necessary filings in accordance with the legal and
administrative requirements of the appropriate jurisdictions.
(j) Neither the Company nor either of the Subsidiaries has
licensed or sublicensed its rights in any of the Intellectual Property or
received or granted any such rights, other than pursuant to Intellectual
Property Licenses.
(k) All Proprietary Software was either developed by employees
of the Company or one of the Subsidiaries within the scope of their employment;
or by independent contractors who have assigned their right to the Company or
one of the Subsidiaries pursuant to written agreements.
3.3.38 Commercial Bribery. Neither the Company, the Subsidiaries,
nor, to the Knowledge of the Company, any of their respective former or current
officers, directors, employees, agents or representatives has made, directly or
indirectly, with respect to the Business, any bribes or kickbacks, illegal
political contributions, payments from corporate funds not recorded on the books
and records of the Company and the Subsidiaries, payments from corporate funds
to governmental officials, in their individual capacities, for the purpose of
affecting their action or the action of the government they represent, to obtain
favorable treatment in securing business or licenses or to obtain special
concessions, or illegal payments from corporate funds to obtain or retain
business. Without limiting the generality of the foregoing, neither the Company
nor any of the Subsidiaries has directly or indirectly made or agreed to make
(whether or not said payment is lawful) any payment to obtain, or with respect
to, sales other than usual and regular compensation to its employees and sales
representatives with respect to such sales.
35
3.3.39 No Omissions. The representations and warranties of the
Company in this Agreement, and all representations, warranties and statements of
the Company contained in any schedule, financial statement, exhibit, list,
certificate or other document delivered pursuant hereto or in connection
herewith, do not omit to state a material fact necessary in order to make the
representations, warranties or statements contained herein or therein not
misleading.
3.3.40 Disclosure. The Company has furnished to Purchaser complete
and accurate copies of all documents and information requested by Purchaser.
3.3.41 Brokers. Except as set forth in Section 3.3.41 of the
Disclosure Schedule, neither the Principal Stockholders, any of their
Affiliates, the Company nor any of the Subsidiaries have dealt with any Person
who is entitled to a broker's commission, finder's fee, investment banker's fee
or similar payment from Purchaser, the Company or any of the Subsidiaries for
arranging the transactions contemplated hereby or introducing the parties to
each other.
3.4 Individual Representations and Warranties of the Principal
Stockholders. Each of the Principal Stockholders, individually and not jointly
and severally, represents and warrants to Purchaser with respect to such
Principal Stockholder (and only such Principal Stockholder) as follows:
3.4.1 Organization, Existence and Good Standing. If such Principal
Stockholder is a corporation, limited partnership, limited liability company,
bank, trust company, trust or other entity, such Principal Stockholder is duly
organized, existing and in good standing under the Laws of its jurisdiction of
incorporation or formation.
3.4.2 Power and Authority. Such Principal Stockholder has full power
and authority to execute and perform this Agreement. If such Principal
Stockholder is a corporation, limited partnership, limited liability company,
bank, trust company, trust or other entity, the execution and delivery of this
Agreement by such Principal Stockholder and the performance by it of all of its
obligations under this Agreement have been duly approved prior to the date of
this Agreement by all requisite action of its board of directors, general
partners, managers, trustees or the like, as the case may be. The approval of
such Principal Stockholder's shareholders, members, limited partners,
beneficiaries or the like (as the case may be), for it to execute this Agreement
or consummate the transactions contemplated hereby is either not required or has
been duly given.
3.4.3 Enforceability. This Agreement has been duly executed and
delivered by such Principal Stockholder and constitutes a legal, valid and
binding agreement of such Principal Stockholder, enforceable against such
Principal Stockholder in accordance with its terms.
3.4.4 Consents. No consent, authorization, order or approval of, or
filing or registration with, any Governmental or Regulatory Authority is
required for or in connection with the consummation by such Principal
Stockholder of the transactions contemplated hereby.
3.4.5 Conflicts Under Constituent Documents or Laws. If such
Principal Stockholder is a corporation, limited partnership, limited liability
company, bank, trust company, trust or other entity, neither the execution and
delivery of this Agreement by such Principal
36
Stockholder, nor the consummation by it of the transactions contemplated hereby
will conflict with or constitute a breach of any of the terms, conditions or
provisions of its certificate or articles of incorporation or formation,
by-laws, agreement of limited partnership, operating agreement, trust agreement
or declaration of trust, or other organizational documents, as the case may be.
Neither the execution and delivery of this Agreement by such Principal
Stockholder, nor the consummation by him, her or it of the transactions
contemplated hereby will conflict with or constitute a breach of any of the
terms, conditions or provisions of any statute or administrative regulation, or
of any order, writ, injunction, judgment or decree of any Governmental or
Regulatory Authority or of any arbitration award, to which such Principal
Stockholder is a party or by which such Principal Stockholder is bound.
3.4.6 Conflicts Under Contracts. Such Principal Stockholder is not a
party to, or bound by, any unexpired, undischarged or unsatisfied Contract under
the terms of which the execution, delivery and performance by such Principal
Stockholder of this Agreement and the consummation of the transactions
contemplated hereby by such Principal Stockholder will require a consent,
approval, or notice or result in a lien on the Shares owned by such Principal
Stockholder.
3.4.7 Title to Shares. Such Principal Stockholder owns the number of
Shares and Options listed opposite such Principal Stockholder's name on Section
3.3.11 of the Disclosure Schedule, free and clear of all Claims, other than
agreements between the Company and the Principal Stockholders which will be
terminated as of the Closing.
3.4.8 Brokers. Neither such Principal Stockholders nor any of its
Affiliates has dealt with any Person who is entitled to a broker's commission,
finder's fee, investment banker's fee or similar payment from Purchaser, the
Company or any of the Subsidiaries for arranging the transactions contemplated
hereby or introducing the parties to each other.
ARTICLE IV
CONDUCT PRIOR TO THE CLOSING
4.1 General. The Company, Purchaser and Merger Sub have the rights and
obligations with respect to the period between the date hereof and the Closing
Date which are set forth in the remainder of this ARTICLE IV.
4.2 The Company's Obligations.
4.2.1 Full Access. The Company and the Subsidiaries shall give to
Purchaser's officers, employees, agents, attorneys, consultants, accountants and
lenders full access to all of the properties, books, Contracts, documents,
insurance policies, records and personnel of or with respect to the Company and
the Subsidiaries and shall furnish to Purchaser and such Persons as Purchaser
shall designate to the Company such information as Purchaser or such Persons may
at any time and from time to time reasonably request.
4.2.2 Pre-Integration Planning. The Company shall (a) make available
reasonable office space and accommodations, and provide full access to the
Company's facilities, so as to permit at least two employees or other
representatives of Purchaser to maintain a full-time presence at the Company
Group's offices, (b) confer with Purchaser and its
37
representatives and obtain Purchaser's written approval, which approval shall
not be unreasonably withheld or delayed, concerning any and all material
operational matters relating to the Company or either Subsidiary, (c) report not
less than weekly to Purchaser concerning the business, operations and finances
of the Company Group, (d) review with Purchaser and obtain Purchaser's written
approval concerning any material disbursements or payments (excluding payments
to Providers in the ordinary course of business), (e) cooperate with Purchaser
as may be reasonably requested by Purchaser from time to time to develop and
implement an integration plan for the Company Group, (f) cause the officers of
the Company Group to furnish Purchaser and its employees and representatives
such financial, operating, technical, actuarial and cost data and other
information with respect to the Business and the assets and properties of the
Company Group as Purchaser and its representatives may from time to time
reasonably request, and (g) use commercially reasonable efforts to orient,
educate and otherwise train Purchaser and permit Purchaser's employees and
representatives to work with the employees of the Company Group regarding (i)
the Company Group's current operating policies and procedures, (ii) the health
plan benefits and services offered by the Company Group to Members, including
member services, member outreach and education and preventative medicine
programs, (iii) the Providers and Providers Agreements, (iv) the Company Group's
medical management policies and procedures and (v) the operation of the
Business. Purchaser shall maintain an employee or other representative at the
Company, or shall otherwise make available for consultation with the Company an
employee or other representative, who shall have the authority to provide the
Company with prompt written approval of such actions under this Section 4.2.2
which require such approval. Further, Purchaser's employees and representatives
will conduct themselves appropriately so as not to disrupt or interfere with the
Company's operations or the ability of the Company's management or employees to
carry out their duties in a timely manner.
4.2.3 Consents and Permits. The Company shall use its commercially
reasonable efforts and make every good faith attempt to obtain all consents to
the assignment of, or alternative arrangements satisfactory to Purchaser with
respect to, any Contract, Permit or Environmental Permit required to be listed
on the Disclosure Schedule pursuant to Section 3.3.7. The Company shall use
commercially reasonable efforts to assist and cooperate with Purchaser, as may
be requested by Purchaser, in obtaining such Permits as may be necessary in
connection with the consummation of the transactions contemplated hereby or the
operation of the Business following the Closing.
4.2.4 Conduct of Business. The Company and the Subsidiaries shall
carry on their respective businesses in the usual and ordinary course of
business, consistent with past practices, and shall, without limitation, pay all
of their respective payables, Taxes and other Liabilities when due, pay and
perform all of their other respective obligations when due, collect receivables
in the ordinary course of business, consistent with past practice, and use
commercially reasonable efforts to preserve intact the Company's and the
Subsidiaries' respective business organizations, keep available the services of
the present officers and key employees of the Company Group, preserve their
respective relationships with Providers, Members, suppliers, licensors,
licensees, independent contractors and other Persons having business dealings
with them, maintain their respective Permits, and otherwise preserve the
goodwill of those having business relationships with the Company Group. Without
limiting the generality of the foregoing, without the prior written consent of
Purchaser, the Company and the Subsidiaries shall not:
38
(a) amend the Company's or either of the Subsidiaries'
certificate or articles of incorporation or by-laws;
(b) split, combine or reclassify the Shares, or make any
change in the Company's or either of the Subsidiaries' authorized capital stock
or issue any shares of stock of any class or issue or become a party to any
subscriptions, warrants, rights, options, convertible securities or other
agreements or commitments of any character relating to the issued or unissued
capital stock of the Company or either of the Subsidiaries, or to other equity
securities of the Company or either of the Subsidiaries, or grant any stock
appreciation or similar rights;
(c) enter into any Contract or commitment, or amend or
otherwise modify any of the terms of any of its Contracts, other than (i)
Provider Agreements entered into in the ordinary course of business that have a
term of not more than one year and which involve total obligations of less than
$50,000 per annum, and (ii) Contracts (excluding Provider Agreements and
Contracts with consultants) which involve total obligations of less than $50,000
per annum and which are not otherwise material to the Business; provided that
the Company shall notify Purchaser prior to the Company Group entering into any
Provider Agreement that involves total obligations of $100,000 or more per
annum;
(d) increase the compensation payable to any employee, except
in the ordinary course of business consistent with past practices as described
in the Disclosure Schedule;
(e) establish or modify any targets, goals, bonuses, pools or
similar provisions under any Benefit Plan, employment Contract or other employee
compensation arrangement, independent contractor Contract or other compensation
arrangement, or pay any bonus or similar payment other than as expressly set
forth in the Disclosure Schedule;
(f) incur or commit to incur any capital expenditures not set
forth in the Disclosure Schedule in excess of $50,000 in any instance or
$100,000 in the aggregate;
(g) sell, transfer or otherwise dispose of any asset or
property, including any Intellectual Property, except for transfers of cash in
payment of the Company's and the Subsidiaries' liabilities, all in the usual and
ordinary course of business in accordance with past practices;
(h) acquire any assets or properties from any other Person,
other than acquisitions in the ordinary course of business, consistent with past
practice, not to exceed $50,000 in the aggregate during any month;
(i) incur, assume or guarantee any long-term or short-term
Indebtedness;
(j) enter into (i) any operating lease, other than in the
ordinary course of business, consistent with past practice, and providing for
payments of not greater than $50,000 over the term of the lease in any instance
or $100,000 in the aggregate during any month, or (ii) any lease for real
property;
39
(k) pay, discharge or satisfy any claim, obligation or
Liability arising other than in the ordinary course of business, other than the
payment, discharge or satisfaction of Liabilities reflected or reserved against
in the 2003 Unaudited Financial Statements and reasonable expenses incurred in
connection with the transactions contemplated by this Agreement;
(l) fail to pay or delay payment of any Medical Claim or other
Indebtedness when due (unless being contested in good faith);
(m) commence a lawsuit other than (i) for the routine
collection of bills or (ii) for a breach of this Agreement;
(n) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof;
(o) make or change any election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any Tax return or any
amendment to a Tax return, enter into any closing agreement, settle any claim or
assessment in respect of Taxes, or consent to any extension or waiver of the
limitation period applicable to any claim or assessment in respect of Taxes;
(p) reduce the amount of any insurance coverage provided by
existing insurance policies, or fail to renew any such insurance policy;
(q) do any act or omit to do any act, or permit any act or
omission to occur, which will cause a breach by the Company or either of the
Subsidiaries of any of the Designated Contracts;
(r) institute or amend any employee benefit program or fringe
benefit program with respect to the employees of the Company or either of the
Subsidiaries, or make any loan to any employee;
(s) enter into or modify any written employment Contract with
any Person;
(t) fail to maintain or renew any Permits or fail to comply
with any applicable Law;
(u) make any change to the Company's and the Subsidiaries'
accounting methods, principles or practices;
(v) revalue any of its assets, including writing off notes or
accounts receivable or writing down any other assets;
(w) terminate or waive any right of substantial value;
40
(x) pay or declare any dividend or make any distribution on
its securities of any class or purchase or redeem any of its securities of any
class, other than any Pre-Closing Distribution expressly directed by Purchaser
to be paid pursuant to Section 2.6;
(y) enter into any Contract with any Affiliate, or otherwise
make any payment or incur any obligation to any Affiliate;
(z) alter the conduct or operations of the Business in any
material respect; or
(aa) take or agree in writing or otherwise to take any of the
actions described in Sections 4.2.4(a) through 4.2.4(y).
4.2.5 2003 Audited Financial Statements. As soon as reasonably
possible following the date hereof (and in any event prior to April 15, 2004, or
such earlier date as may be (1) required or appropriate to comply with
applicable Law or (2) reasonably requested by the managing underwriter of
Purchaser's planned initial public offering), the Company shall deliver to
Purchaser (a) the 2003 Audited Financial Statements, which shall be prepared in
consultation with, and subject to the reasonable approval of, Purchaser, and (b)
a certificate, signed by the Stockholders' Committee and by the President and
Chief Financial Officer of the Company, certifying that (1) the 2003 Audited
Financial Statements fairly present in all material respects the financial
position of both HMO Subsidiary, on a stand-alone basis, and the Company Group,
on a consolidated basis, as of December 31, 2003 and the results of operations
of both HMO Subsidiary, on a stand-alone basis, and the Company Group, on a
consolidated basis, for the year ended December 31, 2003, and (2) the 2003
Audited Financial Statements have been prepared in accordance with SAP or GAAP,
as applicable, applied on a basis consistent with the past practices of HMO
Subsidiary or the Company, as applicable, the 2003 Unaudited Financial
Statements and with the HMO Audited Financial Statements or the Consolidated
Audited Financial Statements, as applicable.
4.2.6 No Solicitation. The Company and the Subsidiaries shall not,
and shall cause all of their respective Affiliates (including any investment
banker, attorney or accountant retained or engaged by that party) to not,
directly or indirectly: (a) initiate, solicit or encourage any inquiries
concerning an Acquisition Proposal or a Competing Transaction; (b) engage in any
negotiations concerning, or provide any information or data to, or have any
discussions with, any Person relating to an Acquisition Proposal or a Competing
Transaction; (c) facilitate any effort or attempt to make or implement an
Acquisition Proposal; or (d) consummate, agree or commit to consummate an
Acquisition Proposal or a Competing Transaction. The Company shall immediately
cease or cause to be terminated any existing activities, discussions or
negotiations with any Person relating to any of the foregoing activities, and
shall promptly notify in writing (the form of which written notice shall be
subject to Purchaser's prior review and approval) any Person with whom the
Company has entered into any confidentiality agreement in connection with any
Acquisition Proposal or Competing Transaction proposed or contemplated prior to
the date hereof that any information provided to the Company or any of its
Affiliates after the date of such notice is not subject to such confidentiality
agreement. In addition, the Company shall notify Purchaser immediately of any
Acquisition Proposal, of any inquiry received by the Company or any of its
Affiliates from any Person concerning an Acquisition Proposal, of any
41
request from any Person for confidential information concerning the Company,
either of the Subsidiaries, the Business, or both, and if any Person seeks to
initiate or continue any discussions or negotiations with the Company concerning
a Competing Transaction or an Acquisition Proposal. In any such event, the
Company shall provide Purchaser with the details thereof, including the identity
of the Person or Persons making such offer or proposal, and shall keep Purchaser
fully informed on a current basis of the status and details thereof and of any
modifications to the terms thereof; provided, however, that the preceding two
sentences shall not in any way be deemed to limit the obligations of the Company
set forth in the first sentence of this Section. The Company acknowledges that
this Section was a significant inducement for Purchaser to enter into this
Agreement and the absence of such provision would have resulted in either (i) a
material reduction in the Purchase Price or (ii) a failure to induce Purchaser
to enter into this Agreement.
4.2.7 Monthly Financial Statements. The Company shall furnish
promptly to Purchaser all separate monthly financial statements, budgets,
analyses and schedules of the Company and the Subsidiaries (as prepared in
accordance with normal accounting procedures) promptly after such financial
statements, budgets, analyses and schedules are available, and all other
material information concerning the operations, properties and personnel of the
Company and the Subsidiaries as Purchaser may reasonably request.
4.2.8 Working Capital. The Company shall use commercially reasonable
efforts to ensure that the Company has positive Working Capital as of the
Closing.
4.2.9 Non-Competition; Non-Solicitation. In order to induce
Purchaser to enter into this Agreement, the Company shall cause each of the
individuals designated on Annex A attached hereto to sign a Restrictive Covenant
Agreement in substantially the form of Exhibit D attached hereto. In addition,
between the date of this Agreement and the Closing Date, the Company shall
cooperate with Purchaser in good faith, as may be requested by Purchaser, to
develop appropriate non-competition restrictions applicable to such other
employees of the Company as may be identified by Purchaser; provided that any
costs associated with obtaining any such additional non-competition restrictions
shall be borne by Purchaser.
4.2.10 Stockholder Approval. The Company shall take all actions in
accordance with applicable Law and its Certificate of Incorporation and by-laws
to duly call, give notice of, convene and hold, as promptly as practicable after
the date hereof, a meeting of the stockholders of the Company for the purpose of
considering and voting upon this Agreement, the Merger and the transactions
described herein. The Company's Board of Directors shall recommend approval of
this Agreement and the Merger by the stockholders of the Company and shall not
withdraw or modify such recommendation. The Company shall take all lawful action
to solicit from its stockholders proxies in favor of this Agreement and the
Merger and shall take all other action necessary or advisable to secure the vote
or consent of the Company's stockholders to approve this Agreement and the
Merger. The Company shall ensure that any disclosure documents provided to its
stockholders in connection with the approval of this Agreement and the Merger do
not contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading. Any such disclosure
documents shall be subject to the prior approval of Purchaser, which approval
shall not be unreasonably withheld or delayed.
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4.2.11 Employment Agreement. The Company and ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall
cause that certain Employment Agreement, dated February 12, 1996, to which they
are parties (including any subsequent amendments thereto) to be terminated as of
or prior to the Effective Time, such termination to be in form and substance
satisfactory to Purchaser.
4.3 Purchaser's Obligations. Purchaser shall use commercially reasonable
efforts to obtain all Permits from Governmental or Regulatory Authorities as may
be required in connection with the Acquisition, and Purchaser shall promptly
disclose to the Company the results of such efforts. Without limiting the
generality of the foregoing, Purchaser shall make any filings required to be
made by it with any Governmental or Regulatory Authority by no later than March
31, 2004.
4.4 Joint Obligations.
4.4.1 Consummation of Transactions. Each of the parties hereto shall
use all commercially reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate the transactions contemplated hereby as soon as
practicable. Each party shall use commercially reasonable efforts to cause the
conditions to its obligations to consummate the transactions described herein to
be satisfied.
4.4.2 Notification of Certain Matters. Each party shall promptly
give the other party written notice of the existence or occurrence of any
condition which would make any representation or warranty herein contained of
either party untrue, or which might reasonably be expected to prevent the timely
consummation of the transactions described herein.
4.4.3 Certain Actions. No party shall intentionally perform any act
which, if performed, or intentionally omit to perform any act which, if omitted
to be performed, would prevent or excuse the performance of this Agreement by
any party hereto or which would result in any representation or warranty herein
contained of said party being untrue in any material respect as if originally
made on and as of the Closing Date.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions to the Company's Obligations. The obligation of the Company
to close the transactions contemplated hereby is subject to the fulfillment of
all of the following conditions (any of which may be waived, in writing, by the
Company) on or prior to the Closing Date, upon the non-fulfillment of any of
which, this Agreement may, at the Company's option, be terminated pursuant to
and with the effect set forth in ARTICLE X:
5.1.1 The representations and warranties made by Purchaser shall be
true and correct in all material respects as if originally made on and as of the
Closing Date.
5.1.2 All obligations of Purchaser and Merger Sub to be performed
hereunder through, and including on, the Closing Date (including all obligations
which Purchaser and Merger Sub would be required to perform at the Closing if
the transactions contemplated hereby were consummated) shall have been fully
performed.
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5.1.3 No lawsuit, proceeding or investigation shall have been
commenced by any Governmental or Regulatory Authority on any grounds to
restrain, enjoin or hinder the consummation of the transactions contemplated
hereby.
5.1.4 Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated.
5.1.5 Purchaser and the Escrow Agent shall have executed and
delivered to the Company the Escrow Agreement.
5.1.6 Purchaser shall have delivered to the Company all of the
documents set forth in Section 6.2.
5.2 Conditions to Purchaser's Obligations. The obligation of Purchaser to
close the transactions contemplated hereby is subject to the fulfillment of all
of the following conditions (any of which may be waived, in writing by
Purchaser) on or prior to the Closing Date, upon the non-fulfillment of any of
which, this Agreement may, at Purchaser's option, be terminated pursuant to and
with the effect set forth in ARTICLE X:
5.2.1 The representations and warranties made by the Company and/or
the Principal Stockholders shall be true and correct in all material respects as
if originally made on and as of the Closing Date.
5.2.2 All obligations of the Company and/or the Principal
Stockholders to be performed hereunder through, and including on, the Closing
Date (including all obligations which the Company and the Principal Stockholders
would be required to perform at the Closing if the transactions contemplated
hereby were consummated) shall have been fully performed.
5.2.3 All of the consents to the assignment of, or alternate
arrangements satisfactory to Purchaser with respect to, any Contract, Permit or
Environmental Permit required to be listed on the Disclosure Scheduled pursuant
to Section 3.3.7 shall have been obtained, and all approvals or consents of any
Governmental or Regulatory Authority required to permit the consummation of the
transactions described herein shall have been obtained and be in full force and
effect. To the extent Permits or Environmental Permits held by the Company or
either of the Subsidiaries are not assignable, Purchaser shall have either
obtained licenses and permits on substantially the same terms as the Permits and
Environmental Permits have been issued to the Company and either of the
Subsidiaries, or shall have obtained binding commitments from the applicable
governmental authorities to issue such licenses and permits to Purchaser
following the Closing.
5.2.4 During the period from the date of this Agreement to the
Closing Date, there shall not have occurred, and there shall not exist on the
Closing Date, any condition or fact which, individually or in the aggregate, has
or reasonably may be expected to result in a Material Adverse Effect.
Additionally, during the period from the date of this Agreement to the Closing
Date, neither the Company nor either of the Subsidiaries, nor their respective
assets shall have been materially and adversely affected by reason of any loss,
condemnation, destruction or damage, whether or not insured against.
44
5.2.5 No lawsuit, proceeding or investigation shall have been
commenced by any Governmental or Regulatory Authority on any grounds to
restrain, enjoin or hinder the consummation of the transactions contemplated
hereby.
5.2.6 Any waiting period applicable to the consummation of the
transactions contemplated hereby under the HSR Act shall have expired or been
terminated.
5.2.7 Purchaser shall be satisfied, in its reasonable discretion,
that the Company has positive Working Capital at the time of the Closing.
5.2.8 The Stockholders' Committee shall have executed and delivered
to Purchaser the Escrow Agreement.
5.2.9 The Company shall have delivered to Purchaser all of the
documents set forth in Section 6.3.
ARTICLE VI
CLOSING
6.1 Form of Documents. At the Closing, the parties shall deliver the
documents, and shall perform the acts, which are set forth in this ARTICLE VI.
All documents which the Company or the Principal Stockholders shall deliver
shall be in form and substance reasonably satisfactory to Purchaser and
Purchaser's counsel. All documents which Purchaser shall deliver shall be in
form and substance reasonably satisfactory to the Company and the Company's
counsel.
6.2 Purchaser's Deliveries. Purchaser and/or Merger Sub, as applicable,
shall execute and/or deliver to the Stockholders' Committee all of the
following:
6.2.1 the Net Closing Amount;
6.2.2 certified copies of Purchaser's and Merger Sub's certificate
or articles of incorporation issued by the secretaries of state of Purchaser's
or Merger Sub's respective state of incorporation;
6.2.3 certificates of good standing of Purchaser and Merger Sub,
issued not earlier than ten days prior to the Closing Date by the secretaries of
state of Purchaser's or Merger Sub's respective state of incorporation;
6.2.4 a certificate of the secretary of Purchaser and Merger Sub
certifying as true and correct the following: (a) the incumbency and specimen
signature of each officer of Purchaser and Merger Sub executing this Agreement
and any other document delivered hereunder on behalf of Purchaser; (b) a copy of
Purchaser's and Merger Sub's by-laws; and (c) a copy of the resolutions of
Purchaser's and Merger Sub's board of directors authorizing the execution,
delivery and performance of this Agreement and any other documents delivered by
Purchaser hereunder;
45
6.2.5 a closing certificate executed by the President of Purchaser
(or any other officer of Purchaser specifically authorized to do so), on behalf
of Purchaser, pursuant to which Purchaser certifies to the Company and the
Principal Stockholders that: (a) Purchaser's representations and warranties to
the Company and the Principal Stockholders are true and correct as of the
Closing Date as if then originally made (or, if any such representation or
warranty is untrue in any respect, specifying the respect in which the same is
untrue); (b) all covenants required by the terms hereof to be performed by
Purchaser or Merger Sub on or before the Closing Date, to the extent not waived
by the Company in writing, have been so performed (or, if any such covenant has
not been so performed, indicating that such covenant has not been performed);
and (c) all documents to be executed and delivered by Purchaser at the Closing
have been executed by duly authorized officers of Purchaser;
6.2.6 the Escrow Agreement;
6.2.7 the Certificate of Merger;
6.2.8 the written opinion of ▇▇▇▇▇▇▇▇▇ Traurig, LLP, counsel for
Purchaser, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Company; and
6.2.9 without limitation by specific enumeration of the foregoing,
all other documents reasonably required from Purchaser to consummate the
transactions contemplated hereby.
6.3 The Company's and Principal Stockholders' Deliveries. The Company and,
as applicable, the Principal Stockholders shall execute and/or deliver to
Purchaser all of the following:
6.3.1 certificates representing all outstanding Shares owned by the
Principal Stockholders;
6.3.2 physical possession of all records, tangible assets, licenses,
policies, contracts, plans, leases or other instruments owned by or pertaining
to the Company and the Subsidiaries which are in the possession of the Company;
6.3.3 the minute books and stock records of the Company and the
Subsidiaries;
6.3.4 a certificate in compliance with the FIRPTA certifying that no
Equityholder is a person or entity subject to withholding under FIRPTA, executed
by the Company and the Principal Stockholders;
6.3.5 landlord waivers with respect to all property of the Company
and the Subsidiaries located at the Leased Real Estate, such waivers to be in
form and substance reasonably satisfactory to Purchaser and Purchaser's lenders;
6.3.6 copies of all consents to the assignment of, or alternative
arrangements satisfactory to Purchaser with respect to, any Contract, Permit or
Environmental Permit required to be listed on the Disclosure Schedule pursuant
to Sections 3.3.5 or 3.3.7;
46
6.3.7 payoff letters, issued by the holders of Indebtedness not
earlier than five days prior to the Closing Date, setting forth the amounts
required to repay all Indebtedness in full on the Closing Date;
6.3.8 releases of all liens and other encumbrances and security
interests held by the holders of Indebtedness in any of the Company's and the
Subsidiaries' assets, including UCC-3 termination statements;
6.3.9 evidence of the termination, as of the Closing, of all
shareholders agreements and registration rights agreement to which any of the
Equityholders is a party and which affect any of the Shares;
6.3.10 a Stockholder Release duly executed by each Principal
Stockholder and each holder of any Option outstanding as of the date of this
Agreement;
6.3.11 the written resignations effective as of the Closing Date of
such directors and officers of the Company and the Subsidiaries as requested by
Purchaser to resign;
6.3.12 certified copies of the Company's and each Subsidiary's
certificate or articles of incorporation issued by the secretary of state of the
Company's or the Subsidiary's respective state of incorporation;
6.3.13 certificates of good standing of the Company and the
Subsidiaries issued not earlier than ten days prior to the Closing Date by the
secretaries of state of each state in which the Company and the Subsidiaries are
either incorporated or qualified to do business as a foreign corporation;
6.3.14 a certificate of the secretary of the Company certifying as
true and correct the following: (a) the incumbency and specimen signature of
each member of the Stockholders' Committee executing this Agreement and any
other document delivered hereunder on behalf of the Equityholders; (b) a copy of
the Company's and each Subsidiaries' by-laws; and (c) a copy of the resolutions
of the Company's board of directors and shareholders authorizing the execution,
delivery and performance of this Agreement and any other documents delivered by
the Company hereunder;
6.3.15 a closing certificate duly executed by the President of the
Company, on behalf of the Company, and by the Stockholders' Committee, pursuant
to which the Company and the Stockholders' Committee certifies to Purchaser
that: (a) the Company's and the Principal Stockholders' representations and
warranties to Purchaser are true and correct as of the Closing Date as if then
originally made, except for changes in the ordinary course of business which do
not have a Material Adverse Effect (or if any such representation or warranty is
untrue in any respect, specifying the respect in which the same is untrue); (b)
all covenants required by the terms hereof to be performed by the Company and/or
the Principal Stockholders on or before the Closing Date, to the extent not
waived in writing by Purchaser, have been so performed (or if any such covenant
has not been so performed, indicating that such covenant has not been
performed); and (c) all documents to be executed by the Company and/or the
Principal Stockholders and delivered at the Closing have been executed by duly
authorized officers of the Company and/or the Principal Stockholders, as
applicable;
47
6.3.16 the Escrow Agreement;
6.3.17 the Restrictive Covenant Agreements to be delivered pursuant
to Section 4.2.9;
6.3.18 the Certificate of Merger;
6.3.19 evidence reasonably satisfactory to Purchaser that the
Employment Agreement between the Company and ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ shall have been
terminated in accordance with the terms of Section 4.2.11.
6.3.20 the written opinion of ▇▇▇▇▇▇▇ & ▇▇▇, P.C., counsel to the
Company, dated as of the Closing Date, in form and substance reasonably
satisfactory to Purchaser; and
6.3.21 without limitation by specific enumeration of the foregoing,
all other documents reasonably required from the Company or the Equityholders to
consummate the transactions contemplated hereby.
ARTICLE VII
POST-CLOSING AGREEMENTS
7.1 Post-Closing Agreements. From and after the Closing, the parties shall
have the respective rights and obligations which are set forth in the remainder
of this ARTICLE VII.
7.2 Use of Trademarks. The Principal Stockholders shall not use and shall
not license or permit any third party to use, any name, slogan, logo or
trademark which is deceptively similar to any of the names or trademarks used in
connection with the Business of the Company and the Subsidiaries.
7.3 Third Party Claims. The parties shall cooperate with each other with
respect to the defense of any Third Party Claims subsequent to the Closing Date
which are not subject to the indemnification provisions contained in Article
VIII, provided that the party requesting cooperation shall reimburse the other
party for the other party's reasonable out-of-pocket costs and expenses of
furnishing such cooperation.
7.4 Medical Claims. During the period beginning on the Closing Date and
continuing through December 31, 2004, Purchaser shall provide the Stockholders'
Committee, within 30 days following the end of each calendar quarter (beginning
with the calendar quarter following the Closing) with a quarterly lag report, in
such form as may be prepared by the Company in the ordinary course of business
following the Closing, with respect to payments of Medical Claims related to
periods on and prior to December 31, 2003. Purchaser will meet and confer with
the Stockholders' Committee, on an advisory, non-binding basis, as may be
reasonably requested from time to time by the Stockholders' Committee to review
any concerns the Stockholders' Committee may have with respect to such lag
reports.
48
ARTICLE VIII
OTHER AGREEMENTS
8.1 Confidentiality. Each of the parties hereto hereby agrees to keep the
existence and terms of this Agreement (except to the extent contemplated
hereby), and such information or knowledge obtained pursuant to the negotiation
and execution of this Agreement or the effectuation of the transactions
described herein, confidential; provided, however, that the foregoing shall not
apply to information or knowledge which (a) a party can demonstrate was already
lawfully in its possession prior to the disclosure thereof by the other party,
(b) is or becomes generally known to the public and did not become so known
through any violation of Law, or a confidentiality agreement or other
contractual, legal or fiduciary obligation of confidentiality of the disclosing
party or any other party with respect to such information, (c) is later lawfully
acquired by such party without confidentiality restrictions from other sources
not bound by applicable confidentiality restrictions, or (d) is required to be
disclosed by order of court or Governmental or Regulatory Authority with
subpoena powers (provided that such party shall have provided the other party
with prior notice of such order and an opportunity to object or seek a
protective order and take any other available action), under applicable Law or
the rules of any stock exchange, or in connection with any lawsuit or
arbitration proceeding between the parties hereto (and in such event only to the
extent such disclosure is required). Notwithstanding the foregoing, each party
may disclose any such information to those of its Representatives as are
assisting it in connection with the evaluation, negotiations or consummation of
the transactions described herein, provided that such party first informs each
of its Representatives receiving information of the confidential nature thereof
and of the foregoing obligations of confidentiality, and directs its
Representatives to treat such information confidentially and in accordance with
the foregoing obligations. In the event that this Agreement is terminated for
any reason prior to the Closing, each party shall, and shall cause its
Representatives to, destroy (or at their option, return to the applicable party)
all such information which has been provided in tangible form, together with all
copies thereof, as well as all summaries, analyses and similar items (whether in
tangible, electronic or similar form) prepared based in material part upon such
information, except that each party may retain one copy of all such information
for archival purposes.
8.2 Publicity. Except as otherwise required by Law or applicable stock
exchange rules, press releases and other publicity concerning this transaction
shall be made only with the prior agreement of (a) the Company (prior to the
Closing) or the Stockholders' Committee (after the Closing) and (b) Purchaser
(and in any event, the parties shall use all reasonable efforts to consult and
agree with each other with respect to the content of any such required press
release or other publicity).
8.3 Employee Matters. In the event that the employment of any employees of
the Company is terminated by Purchaser within 180 days following the Closing
Date (other than as a result of such employee's misconduct or performance
deficiencies), the Purchaser shall pay severance to each such employee in an
amount equal to (a) in the case of any employee at the manager level or above,
not less than two weeks' of his or her then-current salary for each year of
service with the Company (including years of service with the Company prior to
the Closing Date), and (b) in the case of any employee below the level of
manager, not less than one week of his or her then-current salary for each year
of service with the Company (including years of
49
service with the Company prior to the Closing Date), but, in either case, in no
event less than a total of two weeks' of his or her then-current salary.
8.4 Further Assurances. The parties shall execute and deliver such further
documents, and perform such further acts, as may be necessary or desirable to
comply with the terms of this Agreement and consummate the transactions
described herein, including by making available such books and records relating
to the Company and the Subsidiaries, for reasonable business purposes and at
reasonable times, as may be reasonably requested by any other party hereto.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification of the Purchaser. Subject to the provisions of
Sections 9.2 and 9.6, the Company and the Principal Stockholders, individually
and only to the extent of their respective obligations hereunder, shall
indemnify, save and hold harmless each Purchaser Indemnitee against and from all
Damages sustained or incurred by any Purchaser Indemnitee, as a result of, or
arising out of or by virtue of:
9.1.1 any inaccuracy in or breach of any representation and warranty
made by the Company or the Principal Stockholders to Purchaser herein or in any
certificate or closing document delivered to Purchaser in connection herewith;
9.1.2 the breach by the Company or any Principal Stockholder of, or
failure of the Company or any Principal Stockholder to comply with, any of the
covenants or obligations under this Agreement to be performed by the Company or
the Principal Stockholders (including their obligations under this ARTICLE IX);
9.1.3 acts or omissions of the Company and the Subsidiaries, or of
any former subsidiaries of the Company, on or before the Closing Date, including
the operation of the Business before the Closing Date;
9.1.4 Taxes which are unpaid as of the Closing Date and which are
imposed on the Company or any of the Subsidiaries with respect to (a) any
taxable period ending on or before the Closing Date, or (b) the pre-Closing
portion of any taxable period which begins before, and ends after, the Closing
Date, to the extent the liability for such Taxes exceeds the accrual for Taxes
contained on the Closing Balance Sheet; or
9.1.5 without being limited by Sections 9.1.1 through 9.1.4 above
and without regard to the fact that any one or more of the items referred to in
this Section 9.1.5 may be disclosed in the Disclosure Schedule or in any
documents included or referred to therein: (a) any Plan or Welfare Plan which
either the Company, one of the Subsidiaries or an ERISA Affiliate has at any
time maintained or administered or to which the Company, one of the Subsidiaries
or any ERISA Affiliate has at any time contributed (including any liability for
health continuation requirements under Code Section 4980B or Part 6 of Subtitle
B of Title I of ERISA and any liability arising pursuant to Title IV of ERISA
for plan termination, withdrawal or partial withdrawal from any Multiemployer
Plan, or any lien to enforce any Title IV liability); any benefits accrued
pursuant to any Welfare Plan or Employee Benefit Plan at or prior to the
Closing; or any action or failure to act, in whole or in part, at or prior to
the Closing with respect
50
to any Plan, Welfare Plan or Employee Benefit Plan; or (b) any violation of, or
delinquency in respect to, any decree, order or arbitration award or Law in
effect on or prior to the Closing Date of or agreement of either the Company or
one of the Subsidiaries with, or any license or Permit granted to the Company or
one of the Subsidiaries from, any Governmental or Regulatory Authority to which
the Company or one of the Subsidiaries is subject.
Notwithstanding the foregoing, the Company's obligation to indemnify Purchaser
under this Section 9.1 shall terminate at the Closing.
9.2 Limitation on the Purchaser's Indemnification Rights. The Purchaser
Indemnitees' rights pursuant to the provisions of Section 9.1 are subject to the
following limitations:
9.2.1 The Purchaser Indemnitees shall not be entitled to recover
under Section 9.1.1 until the total amount which the Purchaser Indemnitees would
recover under Section 9.1.1, but for this Section 9.2.1, exceeds the Basket, in
which event the Purchaser Indemnitees shall be entitled to recover for all
Damages recoverable under Section 9.1.1, including the amount less than the
Basket. The foregoing limitation shall not apply to recovery under Section 9.1.1
for breaches of one or more of the Extended Representations and Warranties.
9.2.2 The Purchaser Indemnitees shall not be entitled to recover
under Section 9.1 unless a claim has been asserted by written notice, delivered
to the Stockholders' Committee on or prior to the Survival Date.
9.2.3 The Purchaser Indemnitees shall not be entitled to recover
under Section 9.1.1 for the amount of Damages in excess of the Indemnification
Cap, and following the Closing the Purchaser Indemnitees' exclusive source of
recovery pursuant to this ARTICLE IX shall be the Escrow Amount, in each case
other than in the event of:
(a) Damages arising from any inaccuracy in or breach of any
Extended Representation and Warranty;
(b) Damages arising from any fraudulent acts of any of the
Principal Stockholders; and
(c) Damages arising from any fraudulent acts of the Company;
provided, however, that in the case of any fraudulent acts of the Company that
are not directly related to the negotiation or execution of this Agreement or
the transactions described herein, the aggregate liability of each Principal
Stockholder on account of such Damages shall in no event exceed (i) the
aggregate amount of the Purchase Price received by such Principal Stockholder or
(ii) any lesser amount found appropriate by a court of competent jurisdiction,
in each case unless such Principal Stockholder perpetrated, participated in or
had knowledge of the fraudulent acts (in which case such aggregate liability
limitations shall not apply), it being understood that, except as expressly
modified by the foregoing, Purchaser shall retain all of its common law rights
and remedies and nothing contained in this Section 9.2.3 shall be construed as
expanding Purchaser's rights and remedies beyond those available at common law;
provided that in each of clauses (a), (b) and (c) above the liability of the
Principal Stockholders shall be several but not joint.
51
9.3 Indemnification of the Equityholders. Subject to the provisions of
Sections 9.4 and 9.6, Purchaser, to the extent of its obligations hereunder,
shall indemnify, save and hold harmless each Equityholder against and from all
Damages sustained or incurred by any Equityholder, as a result of, or arising
out of or by virtue of:
9.3.1 any inaccuracy in or breach of any representation and warranty
made by Purchaser to the Company herein or in any certificate or closing
document delivered to the Stockholders' Committee in connection herewith; or
9.3.2 any breach by Purchaser of, or failure by Purchaser to comply
with, any of the covenants or obligations under this Agreement to be performed
by Purchaser (including without limitation its obligations under this ARTICLE
IX).
9.4 Limitation on the Equityholders' Indemnification Rights. The
Equityholders' rights pursuant to the provisions of Section 9.3 are subject to
the following limitations:
9.4.1 The Equityholders shall not be entitled to recover under
Section 9.3.1 until the total amount which the Equityholders would recover under
Section 9.3.1, but for this Section 9.4.1, exceeds the Basket, in which event
the Equityholders shall be entitled to recover for all Damages recoverable under
Section 9.3.1, including the amount less than the Basket. The foregoing
limitation shall not apply to recovery under Section 9.3.1 for breaches of one
or more of the Extended Representations and Warranties.
9.4.2 The Equityholders shall not be entitled to recover under
Section 9.3 unless a claim has been asserted by written notice, delivered to
Purchaser on or prior to the Survival Date.
9.4.3 The Equityholders shall not be entitled to recover under
Section 9.3.1 for the amount of Damages in excess of the Indemnification Cap,
other than in the case of Damages arising from any fraudulent acts of Purchaser.
9.5 Cooperation. Subject to the provisions of Section 9.6, the
Indemnifying Party shall have the right, at its own expense, to participate in
the defense of any Third Party Claim, and if said right is exercised, the
parties shall cooperate in the investigation and defense of said Third Party
Claim.
9.6 Third Party Claims. Promptly after the receipt of written notice of a
Third Party Claim, the party receiving the notice of the Third Party Claim shall
notify the other party of its existence setting forth with reasonable
specificity the facts and circumstances of which such party has received notice,
and if the party giving such notice is an Indemnified Party, specifying the
basis hereunder upon which the Indemnified Party's claim for indemnification is
asserted; provided, however, that the failure to provide such notice shall not
release the Indemnifying Party from any of its obligations under this ARTICLE IX
except to the extent the Indemnifying Party is materially prejudiced by such
failure. The Indemnified Party may, upon reasonable notice, tender the defense
of a Third Party Claim to the Indemnifying Party. If
9.6.1 the defense of a Third Party Claim is so tendered and within
thirty (30) days thereafter such tender is accepted without qualification by the
Indemnifying Party; or
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9.6.2 within 30 days after the date on which written notice of a
Third Party Claim has been given pursuant to this Section 9.6, the Indemnifying
Party shall acknowledge without qualification its indemnification obligations as
provided in this ARTICLE IX in writing to the Indemnified Party and accept the
defense thereof;
then, except as herein provided, the Indemnified Party shall not, and the
Indemnifying Party shall, have the right to contest, defend, litigate or settle
such Third Party Claim. The Indemnified Party shall have the right to be
represented by counsel at its own expense in any such contest, defense,
litigation or settlement conducted by the Indemnifying Party, provided that the
Indemnified Party shall be entitled to reimbursement therefor if the
Indemnifying Party shall not be entitled, or shall lose its right, to contest,
defend, litigate and settle the Third Party Claim as herein provided. The
Indemnifying Party shall not be entitled, or shall lose its right, as
applicable, to contest, defend, litigate and settle a Third Party Claim if (a)
there exists or is reasonably likely to exist a conflict of interest that would
make it inappropriate in the reasonable judgment of the Indemnified Party for
the same counsel to represent both the Indemnifying Party and the Indemnified
Party, (b) the Indemnifying Party shall fail to diligently contest the Third
Party Claim, (c) such Third Party Claim involves remedies or disputes other than
claims for monetary damages, or (d) such Third Party Claim or the resolution
thereof could impair ongoing business relationships with any material Provider,
any Governmental or Regulatory Authority, or any other Person doing business
with the Indemnified Party or any of its Affiliates. So long as the Indemnifying
Party is entitled and has not lost its right and/or obligation to contest,
defend, litigate and settle as herein provided, the Indemnifying Party shall
have the exclusive right to contest, defend and litigate the Third Party Claim
and shall have the exclusive right, in its discretion exercised in good faith,
and upon the advice of counsel, to settle any such matter, either before or
after the initiation of litigation, at such time and upon such terms as it deems
fair and reasonable, provided that (i) at least ten days prior to any such
settlement, written notice of its intention to settle shall be given to the
Indemnified Party, (ii) such settlement includes as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnified Party of
a release from all Liabilities in respect of such Third Party Claim, (iii) such
settlement does not impose any obligations of any kind upon the Indemnified
Party and (iv) such settlement does not otherwise impair ongoing business
relationships with any material Provider, any Governmental or Regulatory
Authority, or any other Person doing business with the Indemnified Party or any
of its Affiliates. All expenses (including without limitation attorneys' fees)
incurred by the Indemnifying Party in connection with the foregoing shall be
paid by the Indemnifying Party. No failure by an Indemnifying Party to
acknowledge in writing its indemnification obligations under this ARTICLE IX
shall relieve it of such obligations to the extent they exist. If an Indemnified
Party is entitled to indemnification against a Third Party Claim, and the
Indemnifying Party fails to accept a tender of, or assume, the defense of a
Third Party Claim pursuant to this Section 9.6, or if, in accordance with the
foregoing, the Indemnifying Party shall not be entitled or shall lose its right
to contest, defend, litigate and settle such a Third Party Claim, the
Indemnified Party shall have the right, without prejudice to its right of
indemnification hereunder, in its discretion exercised in good faith and upon
the advice of counsel, to contest, defend and litigate such Third Party Claim,
and may settle such Third Party Claim, either before or after the initiation of
litigation, at such time and upon such terms as the Indemnified Party deems fair
and reasonable. If, pursuant to this Section 9.6, the Indemnified Party so
contests, defends, litigates or settles a Third Party Cl aim for which it is
entitled to indemnification hereunder, the Indemnified Party shall be reimbursed
by the Indemnifying Party
53
for the reasonable attorneys' fees and other expenses of contesting, defending,
litigating and/or settling the Third Party Claim which are incurred from time to
time, forthwith following the presentation to the Indemnifying Party of itemized
bills for said attorneys' fees and other expenses.
9.7 No Contribution. Each of the Principal Stockholders hereby waives any
right to contribution or any similar rights it may have against the Company or
either of the Subsidiaries arising out of the Principal Stockholders' agreement
to indemnify Purchaser pursuant to this ARTICLE IX.
ARTICLE X
EFFECT OF TERMINATION
10.1 Right to Terminate. Anything to the contrary herein notwithstanding,
this Agreement and the transactions contemplated hereby may be terminated at any
time prior to the Closing:
10.1.1 by the mutual written consent of Purchaser and the Company;
10.1.2 by prompt notice by either of such parties if (a) the Closing
shall not have occurred at or before 11:59 p.m. Eastern Time on July 30, 2004;
provided, however, that the right to terminate this Agreement under this Section
10.1.2 shall not be available to any party whose failure to fulfill any of its
obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur on or prior to the aforesaid date, (b) there
shall be a final nonappealable order of a federal or state court in effect
preventing consummation of the transactions contemplated hereby; (c) there shall
be any statute, rule, regulation or order enacted, promulgated or issued or
deemed applicable to the consummation of the transactions contemplated hereby by
any Governmental or Regulatory Authority that would make consummation of the
transactions contemplated hereby illegal; or (d) any of the Permits required to
be obtained from any Governmental or Regulatory Authority to permit the
consummation of the transactions contemplated hereby shall be denied, or shall
be granted with conditions or requirements that are materially adverse to the
terminating party, and any applicable periods to appeal such decision shall have
expired (provided, however, that the right to terminate this Agreement under
this Section 10.1.2(d) shall not be available to any party whose failure to
fulfill any obligation hereunder has been the cause of, or resulted in, the
failure to obtain such Permit);
10.1.3 by Purchaser if there shall be any action taken, or any Law
or order enacted, promulgated or issued or deemed applicable to the consummation
of the transactions contemplated hereby, by any Governmental or Regulatory
Authority, which would: (a) prohibit Purchaser's ownership or operation of all
or any material portion of the business of the Company Group, (b) compel
Purchaser to dispose of or hold separate all or any portion of the assets and
properties of the Company Group as a result of the consummation of the
transactions contemplated hereby, or (c) prevent or impair Purchaser's ability
to operate the Company Group in a manner substantially similar to the operations
of the Company Group prior to the date of this Agreement;
54
10.1.4 by Purchaser if (a) any representation or warranty of the
Company or the Principal Stockholders is not true and correct in any material
respect either on the date of this Agreement or at the Closing, such that the
conditions set forth in Sections 5.2.1 or 5.2.4 would not be satisfied, and, if
such breach of a representation or warranty is capable of being cured, such
breach shall not have been fully cured within 15 days following delivery by
Purchaser to the Stockholders' Committee of written notice of such breach, or
(b) the Company or the Principal Stockholders shall not have complied in full
with any covenant or agreement contained in this Agreement, and, if such failure
to comply is capable of being cured, such non-compliance shall not have been
fully cured within 15 days following delivery by Purchaser to the Stockholders'
Committee of written notice of such non-compliance, or (c) the Company or either
Subsidiary makes a general assignment for the benefit of creditors, or any
proceeding shall be instituted by or against the Company or either Subsidiary
seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation,
winding up or reorganization, arrangement, adjustment, protection, relief or
composition of any Indebtedness under any applicable Laws; or
10.1.5 by the Company if (a) any representation or warranty of
Purchaser is not true and correct in any material respect either on the date of
this Agreement or at the Closing, such that the conditions set forth in Section
5.1.1 would not be satisfied, and, if such breach of a representation or
warranty is capable of being cured, such breach shall not have been fully cured
within 15 days following delivery by the Stockholders' Committee to Purchaser of
written notice of such breach, or (b) Purchaser shall not have complied in full
with any covenant or agreement contained in this Agreement, and, if such failure
to comply is capable of being cured, such non-compliance shall not have been
fully cured within 15 days following delivery by the Stockholders' Committee to
Purchaser of written notice of such non-compliance, or (c) Purchaser makes a
general assignment for the benefit of creditors, or any proceeding shall be
instituted by or against Purchaser seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, winding up or reorganization, arrangement,
adjustment, protection, relief or composition of any Indebtedness under any
applicable Laws.
10.2 Certain Effects of Termination. In the event of the termination of
this Agreement by either the Company or Purchaser as provided in Section 10.1,
this Agreement shall forthwith become void and there shall be no liability or
obligation on the part of the Company, Merger Sub, the Principal Stockholders or
Purchaser, or their respective officers, directors, managers, members,
stockholders or Affiliates; provided, however, that termination of this
Agreement shall be without prejudice to any rights any party may have hereunder
against any other party for any breaches of this Agreement prior to its
termination; and provided, further, that the provisions of ARTICLE VIII, ARTICLE
IX, this Section 10.2 , Section 10.4, ARTICLE XI, ARTICLE XII and the applicable
definitions set forth in ARTICLE I, of this Agreement shall remain in full force
and effect and survive any termination of this Agreement.
10.3 Remedies. Notwithstanding any termination right granted in Section
10.1, in the event of the non-fulfillment of any condition to a party's closing
obligations, in the alternative, such party may elect to do one of the
following:
10.3.1 proceed to close despite the non-fulfillment of any closing
condition, it being understood that consummation of the Closing shall not be
deemed a waiver of a breach of
55
any representation, warranty or covenant or of such party's rights and remedies
with respect thereto;
10.3.2 decline to close, terminate this Agreement as provided in
Section 10.1, and thereafter seek damages under law or equity (in addition to
any fee payable pursuant to Section 10.4); or
10.3.3 seek specific performance of the obligations of the other
party. Each party hereby agrees that in the event of any breach by such party of
this Agreement, the remedies available to the other party at law would be
inadequate and that such party's obligations under this Agreement may be
specifically enforced.
10.4 Termination Fee.
10.4.1 Without limiting any other rights or remedies available to
the Company, in the event that (a) the Company shall terminate this Agreement
pursuant to Section 10.1.2(a), and the failure of the Closing to occur on or
prior to the date set forth in such Section shall have resulted from the failure
of Purchaser or Merger Sub to fulfill any of its obligations under this
Agreement, (b) the Company shall terminate this Agreement pursuant to Section
10.1.2(d), and the failure to obtain a Permit as set forth in such Section shall
have resulted from the failure of Purchaser or Merger Sub to fulfill any of its
obligations under this Agreement, or (c) the Company shall terminate this
Agreement pursuant to Section 10.1.5, provided in each such case that the
Company shall not at such time be in breach of any representation, warranty,
covenant or other provision of this Agreement, then Purchaser shall pay to the
Company, in same day funds within three Business Days of the date of
termination, the sum of $1,000,000.
10.4.2 Without limiting any other rights or remedies available to
Purchaser, in the event that (a) Purchaser shall terminate this Agreement
pursuant to Section 10.1.2(a), and the failure of the Closing to occur on or
prior to the date set forth in such Section shall have resulted from the failure
of the Company or any of the Principal Stockholders to fulfill any of its
obligations under this Agreement, (b) Purchaser shall terminate this Agreement
pursuant to Section 10.1.2(d), and the failure to obtain a Permit as set forth
in such Section shall have resulted from the failure of the Company or any of
the Principal Stockholders to fulfill any of its obligations under this
Agreement, or (c) Purchaser shall terminate this Agreement pursuant to Section
10.1.4, provided in each such case that Purchaser shall not at such time be in
breach of any representation, warranty, covenant or other provision of this
Agreement, then the Company shall pay to Purchaser, in same day funds within
three Business Days of the date of termination, the sum of $1,000,000.
ARTICLE XI
STOCKHOLDERS' COMMITTEE
11.1 Appointment of Stockholders' Committee. The parties hereto agree that
the Equityholders are third-party beneficiaries under this Agreement to the
extent expressly set forth herein. Each of the Principal Stockholders and each
of the other Equityholders hereby irrevocably constitutes and appoints
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ as the Stockholders' Committee
to represent the interests of the Equityholders. This power is
56
irrevocable and coupled with an interest, and shall not be affected by the
death, incapacity, illness, dissolution or other inability to act of any of the
Equityholders.
11.2 Authority. Each of the Principal Stockholders and each of the other
Equityholders hereby irrevocably grants the Stockholders' Committee full power
and authority:
11.2.1 to execute and deliver, on behalf of such Principal
Stockholder or other Equityholder, and to accept delivery of, on behalf of such
Principal Stockholder or other Equityholder, such documents as may be deemed by
the Stockholders' Committee, in their sole discretion, to be appropriate to
consummate this Agreement, the Merger and the other transactions contemplated
hereby, including the Escrow Agreement;
11.2.2 to endorse and to deliver on behalf of such Principal
Stockholder or other Equityholder, certificates representing the Shares to be
exchanged by such Principal Stockholder at the Closing;
11.2.3 to acknowledge receipt at the Closing of the Net Closing
Amount, to designate the manner of payment of the Net Closing Amount, the Escrow
Balance and the IBNR Adjustment, if applicable, and to certify, on behalf of
such Principal Stockholder or other Equityholder, as to the accuracy of the
representations and warranties of such Principal Stockholder or other
Equityholder under, or pursuant to the terms of, this Agreement;
11.2.4 to (a) dispute or refrain from disputing, on behalf of such
Principal Stockholder or other Equityholder, any claim made by Purchaser under
this Agreement; (b) negotiate and compromise, on behalf of such Principal
Stockholder or other Equityholder, any dispute that may arise under, and to
exercise or refrain from exercising any remedies available under, this Agreement
or the Escrow Agreement; and (c) execute, on behalf of such Principal
Stockholder or other Equityholder, any settlement agreement, release or other
document with respect to such dispute or remedy;
11.2.5 to waive, on behalf of such Principal Stockholder or other
Equityholder, any closing condition contained in ARTICLE V of this Agreement and
to give or agree to, on behalf of such Principal Stockholder or other
Equityholder, any and all consents, waivers, amendments or modifications, deemed
by the Stockholders' Committee, in their sole discretion, to be necessary or
appropriate, under this Agreement or the Escrow Agreement, and, in each case, to
execute and deliver any documents that may be necessary or appropriate in
connection therewith;
11.2.6 to enforce, on behalf of such Principal Stockholder or other
Equityholder, any claim against Purchaser arising under this Agreement or the
Escrow Agreement;
11.2.7 to engage attorneys, accountants and agents at the expense of
the Principal Stockholders;
11.2.8 to retain $390,000 of the Purchase Price as a fund for the
payment of expenses (including attorneys' fees) payable by the Principal
Stockholders pursuant to the provisions hereof, adjustments to the Purchase
Price, and potential claims for indemnification by Purchaser, and to invest such
retained portion for the benefit of the Equityholders;
57
11.2.9 to amend this Agreement (other than this ARTICLE XI), the
Escrow Agreement or any of the instruments to be delivered to Purchaser by such
Principal Stockholder or other Equityholder pursuant to this Agreement; and
11.2.10 to give such instructions and to take such action or refrain
from taking such action, on behalf of such Principal Stockholder or other
Equityholder, as the Stockholders' Committee deems, in their sole discretion,
necessary or appropriate to carry out the provisions of this Agreement or the
Escrow Agreement.
11.3 Reliance. Each Principal Stockholder and each other Equityholder
hereby agrees that:
11.3.1 in all matters in which action by the Stockholders' Committee
is required or permitted, a majority of the members of the Stockholders'
Committee is authorized to act on behalf of such Principal Stockholder or other
Equityholder, notwithstanding any dispute or disagreement among Principal
Stockholders or other Equityholders, among the members of the Stockholders'
Committee, or between any Principal Stockholder or other Equityholder and the
Stockholders' Committee, and Purchaser shall be entitled to rely on any and all
action taken by the Stockholders' Committee, or a majority of the members
thereof, under this Agreement or the Escrow Agreement without any liability to,
or obligation to inquire of, any of Principal Stockholders or the other members
of the Stockholders' Committee, notwithstanding any knowledge on the part of
Purchaser of any such dispute or disagreement;
11.3.2 notice to any member of the Stockholders' Committee,
delivered in the manner provided in Section 12.1, shall be deemed to be notice
to all of the members of the Stockholders' Committee and to all Principal
Stockholders and other Equityholders for the purposes of this Agreement;
11.3.3 the power and authority of the Stockholders' Committee, as
described in this Agreement, shall continue in force until all rights and
obligations of the Principal Stockholders and other Equityholders under this
Agreement shall have terminated, expired or been fully performed;
11.3.4 a majority in interest of Principal Stockholders shall have
the right, exercisable from time to time upon written notice delivered to the
Stockholders' Committee and Purchaser: (a) to remove any member or members of
the Stockholders' Committee, with or without cause; (b) to appoint a Principal
Stockholder (or, in the case of a Principal Stockholder which is a corporation,
partnership, limited liability company or trust, an officer, manager, employee
or partner of such Principal Stockholder) to fill a vacancy caused by the death,
resignation or removal of a member of the Stockholders' Committee; and (c)
subject to Section 11.3.6, to expand the number of members of the Stockholders'
Committee and to appoint Principal Stockholders (or officers, managers,
employees or partners as aforesaid) to fill the vacancies created thereby;
11.3.5 if any member of the Stockholders' Committee resigns or is
removed or otherwise ceases to function in his capacity as such for any reason
whatsoever, and no successor is appointed pursuant Section 11.3.4 within thirty
(30) days, the Stockholders' Committee shall
58
consist solely of the remaining members of the Stockholders' Committee. If, as a
result of such resignation, removal or cessation, there are no remaining members
of the Stockholders' Committee and no successor is appointed by a majority in
interest of Principal Stockholders within thirty (30) days, then Purchaser shall
have the right to appoint a Principal Stockholder to act as the sole member of
the Stockholders' Committee, to serve as described in this Agreement; and
11.3.6 there shall at no time be more than three members of the
Stockholders' Committee.
11.4 Indemnification of Purchaser and Its Affiliates. Principal
Stockholders, jointly and severally, shall indemnify the Purchaser Indemnitees
against, and agree to hold the Purchaser Indemnitees harmless from, any and all
Damages incurred or suffered by any Purchaser Indemnitee arising out of, with
respect to or incident to the operation of, or any breach of any covenant or
agreement pursuant to, this ARTICLE XI, or the designation, appointment and
actions of the Stockholders' Committee pursuant to the provisions hereof,
including without limitation, with respect to (a) actions taken by the
Stockholders' Committee or any member thereof; and (b) reliance by any Purchaser
Indemnitee on, and actions taken by any Purchaser Indemnitee in response to or
in reliance on, the instructions of, notice given by or any other action taken
by the Stockholders' Committee.
11.5 Indemnification of Stockholders' Committee. Each Principal
Stockholder shall severally indemnify each member of the Stockholders' Committee
against any Damages (except such Damages as result from such member's gross
negligence or willful misconduct) that such member may suffer or incur in
connection with any action or omission of such member as a member of the
Stockholders' Committee. Each Principal Stockholder shall bear its pro-rata
portion of such Damages. No member of the Stockholders' Committee shall be
liable to any Principal Stockholder with respect to any action or omission taken
or omitted to be taken by the Stockholders' Committee pursuant to this ARTICLE
XI, except for such member's gross negligence or willful misconduct.
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices required or permitted to be given hereunder
shall be in writing and may be delivered by hand, by facsimile, by nationally
recognized private courier, or by United States mail. Notices delivered by mail
shall be deemed given three Business Days after being deposited in the United
States mail, postage prepaid, registered or certified mail, return receipt
requested. Notices delivered by hand, by facsimile, or by nationally recognized
private courier shall be deemed given on the first business day following
receipt; provided, however, that a notice delivered by facsimile shall only be
effective if such notice is also delivered by hand, or deposited in the United
States mail, postage prepaid, registered or certified mail, on or before two
Business Days after its delivery by facsimile. All notices shall be addressed as
follows:
59
If to the Company (prior to the Closing):
Harmony Health Systems, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇ ▇▇▇▇▇, President & Chief Executive
Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Stockholders' Committee:
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇
Richland Ventures, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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If to Purchaser:
WellCare Health Plans, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇ Traurig, LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and/or to such other respective addresses and/or addressees as may be designated
by notice given in accordance with the provisions of this Section 12.1.
12.2 Expenses; Transfer Taxes. Each party hereto shall bear all fees and
expenses incurred by such party in connection with, relating to or arising out
of the negotiation, preparation, execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby,
including financial advisors', attorneys', accountants' and other professional
fees and expenses. The Principal Stockholders shall pay the cost of all sales,
use, stamp, documentary, excise and transfer Taxes which may be payable in
connection with the transactions contemplated hereby.
12.3 Entire Agreement. This Agreement, together with the Voting Agreements
and the instruments and other documents to be delivered by the parties pursuant
to the provisions hereof constitute the entire agreement between the parties and
shall be binding upon and inure to the benefit of the parties hereto and their
respective legal representatives, successors and permitted assigns. Each
Exhibit, schedule and the Disclosure Schedule, shall be considered incorporated
into this Agreement. Any amendments, or alternative or supplementary provisions,
to this Agreement, must be made in writing and duly executed by an authorized
representative or agent of each of the parties hereto.
12.4 Non-Waiver. The failure in any one or more instances of a party to
insist upon performance of any of the terms, covenants or conditions of this
Agreement, to exercise any right or privilege in this Agreement conferred, or
the waiver by said party of any breach of any of the terms, covenants or
conditions of this Agreement, shall not be construed as a subsequent waiver of
any such terms, covenants, conditions, rights or privileges, but the same shall
continue and remain in full force and effect as if no such forbearance or waiver
had occurred. No waiver shall be effective unless it is in writing and signed by
an authorized representative of the waiving party.
61
12.5 Counterparts. This Agreement may be executed in multiple counterparts
and by facsimile, each of which shall be deemed to be an original, and all such
counterparts shall constitute but one instrument.
12.6 Severability. Whenever possible, each provision of this Agreement
shall 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 invalid,
illegal or unenforceable in any respect under any applicable Law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, and, for purposes of such
jurisdiction, such provision or portion thereof shall be struck from the
remainder of this Agreement, which shall remain in full force and effect. This
Agreement shall be reformed, construed and enforced in such jurisdiction so as
to best give effect to the intent of the parties under this Agreement.
12.7 Applicable Law. This Agreement shall be governed and controlled as to
validity, enforcement, interpretation, construction, effect and in all other
respects by the internal Laws of the State of Illinois applicable to contracts
made in that state, without giving effect to any choice of law or conflict of
law provision or rule that would cause the application of the Laws of any
jurisdiction other than the State of Illinois.
12.8 Binding Effect; Benefit. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, and their successors and permitted
assigns. Nothing in this Agreement, express or implied, shall confer on any
Person other than the parties hereto, and their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement, including third party beneficiary rights.
12.9 Assignability. This Agreement shall not be assignable by the Company
or any Principal Stockholder without the prior written consent of Purchaser.
12.10 Rule of Construction. The parties acknowledge and agree that each
has negotiated and reviewed the terms of this Agreement, assisted by such legal
and tax counsel as they desired, and has contributed to its revisions. The
parties further agree that the rule of construction that any ambiguities are
resolved against the drafting party will be subordinated to the principle that
the terms and provisions of this Agreement will be construed fairly as to all
parties and not in favor of or against any party.
12.11 Waiver of Trial by Jury. EACH OF THE PARTIES HERETO WAIVES THE RIGHT
TO A JURY TRIAL IN CONNECTION WITH ANY LAWSUIT, ACTION OR PROCEEDING SEEKING
ENFORCEMENT OF SUCH PARTY'S RIGHTS UNDER THIS AGREEMENT.
12.12 Consent to Jurisdiction. This Agreement has been executed and
delivered in and shall be deemed to have been made in Illinois. The Company, the
Principal Stockholders and Purchaser each agree to the exclusive jurisdiction of
any state or Federal court within the city of Chicago, Illinois, with respect to
any claim or cause of action arising under or relating to this Agreement, and
waives personal service of any and all process upon it, and consents that all
services of process be made by registered or certified mail, return receipt
requested, directed to it at its address as set forth in Section 12.1, and
service so made shall be deemed to be completed
62
when received. The Company, the Principal Stockholders and Purchaser each waive
any objection based on forum non conveniens and waive any objection to venue of
any action instituted hereunder. Nothing in this paragraph shall affect the
right of the Company, the Principal Stockholders or Purchaser to serve legal
process in any other manner permitted by Law.
12.13 Amendments. This Agreement shall not be modified or amended except
pursuant to an instrument in writing executed and delivered on behalf of
Purchaser, the Stockholders' Committee and, prior to the Closing, the Company.
12.14 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect the meaning or interpretation
of this Agreement.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the date first
above written.
PURCHASER:
WELLCARE HEALTH PLANS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: President & Chief Executive Officer
MERGER SUB:
ZEPHYR ACQUISITION SUB, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: President & Chief Executive Officer
THE COMPANY:
HARMONY HEALTH SYSTEMS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
PRINCIPAL STOCKHOLDERS:
/s/ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
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▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
RICHLAND VENTURES, L.P.
By: /s/ ▇. ▇. ▇▇▇▇▇▇ III
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Name: ▇. ▇. ▇▇▇▇▇▇ III
Title: General Partner
CALVER FUND, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇
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/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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