EXHIBIT B EXECUTION COPY
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
BY AND AMONG
FOHP, INC.,
FIRST OPTION HEALTH PLAN OF NEW JERSEY, INC.
AND
HEALTH SYSTEMS INTERNATIONAL, INC.
February 10, 1997
TABLE OF CONTENTS
Page
ARTICLE I
SALE AND PURCHASE OF SECURITIES . . . . . . . . . . . . . . . . . . . . . . .
1.1 Purchase of Debentures . . . . . . . . . . . . . . . . . . . . . .
1.2 Closings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FOHP-NJ . . . . . . . . . .
2.1 Organization; Subsidiaries; and Good Standing . . . . . . . . . . .
2.2 Power; Authorization; Binding Agreements . . . . . . . . . . . . .
2.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . .
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . . . .
2.5 Absence of Certain Developments . . . . . . . . . . . . . . . . . .
2.6 Noncontravention . . . . . . . . . . . . . . . . . . . . . . . . .
2.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.8 No Governmental Proceeding or Litigation . . . . . . . . . . . . .
2.9 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . .
2.10 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . .
2.11 Consents, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . .
2.12 Licenses, Permits and Governmental Approvals . . . . . . . . . . .
2.13 Securities Exchange Act Reports Supplied to Purchaser . . . . . . .
2.14 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . .
2.15 Title to Properties and Assets . . . . . . . . . . . . . . . . . .
2.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.17 DOI Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.18 Information Supplied . . . . . . . . . . . . . . . . . . . . . . .
2.19 Certain Business Practices and Regulations . . . . . . . . . . . .
2.20 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.21 Labor Issues . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.22 Employment/Severance Matters . . . . . . . . . . . . . . . . . . .
2.23 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . .
2.24 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . .
2.25 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . .
2.26 Brokerage and Other Fees . . . . . . . . . . . . . . . . . . . . .
2.27 Accuracy of Information . . . . . . . . . . . . . . . . . . . . . .
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER . . . . . . . . . . . . . . .
3.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . .
3.2 Authorization; Power . . . . . . . . . . . . . . . . . . . . . . .
3.3 Purchase for Investment . . . . . . . . . . . . . . . . . . . . . .
3.4 Unregistered Securities; Legend . . . . . . . . . . . . . . . . . .
3.5 Access to Data; Experience; Investment Decision . . . . . . . . . .
3.6 Brokerage and Other Fees . . . . . . . . . . . . . . . . . . . . .
3.7 No Financing Required . . . . . . . . . . . . . . . . . . . . . . .
3.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.9 Claims Processing System . . . . . . . . . . . . . . . . . . . . .
3.10 Securities Exchange Act Reports Supplied to the Company . . . . . .
ARTICLE IV
PRE-CLOSING COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . .
4.1 Fulfillment of Obligations . . . . . . . . . . . . . . . . . . . .
4.2 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4.3 Conduct of Businesses . . . . . . . . . . . . . . . . . . . . . . .
4.4 No Solicitation of Other Offers . . . . . . . . . . . . . . . . . .
4.5 Interim Financial Statements . . . . . . . . . . . . . . . . . . .
4.6 Updated Disclosure; Breaches . . . . . . . . . . . . . . . . . . .
4.7 Consummation of Amended Agreement . . . . . . . . . . . . . . . . .
4.8 Approvals of Third Parties . . . . . . . . . . . . . . . . . . . .
4.9 Restated Certificates and By-laws . . . . . . . . . . . . . . . . .
4.10 Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . .
4.11 Provider Contracts . . . . . . . . . . . . . . . . . . . . . . . .
4.12 Letters of Credit; Guarantees . . . . . . . . . . . . . . . . . . .
4.13 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE V
COVENANTS OF THE PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . .
5.1 Consummation of Agreement . . . . . . . . . . . . . . . . . . . . .
5.2 Claims Processing System . . . . . . . . . . . . . . . . . . . . .
5.3 Updated Disclosure; Breaches . . . . . . . . . . . . . . . . . . .
5.4 Standstill . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VI
OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.1 Provider Contracts . . . . . . . . . . . . . . . . . . . . . . . .
6.2 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . .
6.3 New York Subsidiary . . . . . . . . . . . . . . . . . . . . . . . .
6.4 Post-Closing Acquisition . . . . . . . . . . . . . . . . . . . . .
(a) Exchange/Cash Offer for Shares. . . . . . . . . . . . . . . .
(b) Post-Closing Merger. . . . . . . . . . . . . . . . . . . . . .
6.5 Additional HSR Act Filings . . . . . . . . . . . . . . . . . . . .
6.6 Liability Insurance . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS . . . . . . . . . . . . .
7.1 Conditions Precedent to Initial Closing . . . . . . . . . . . . . .
7.2 Conditions Precedent to each Additional Debenture Advance
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.3 Additional Debenture Advance Elections and Adjustment . . . . . . .
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS . . . . . . . . . . . . . .
8.1 Receipt of Payment . . . . . . . . . . . . . . . . . . . . . . . .
8.2 Representations and Warranties . . . . . . . . . . . . . . . . . .
8.3 Proceedings and Documents . . . . . . . . . . . . . . . . . . . . .
8.4 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.5 Injunction, Etc . . . . . . . . . . . . . . . . . . . . . . . . . .
8.6 Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.7 Investors Agreement . . . . . . . . . . . . . . . . . . . . . . . .
8.8 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE IX
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9.1 Indemnification by the Company . . . . . . . . . . . . . . . . . .
9.2 Indemnification by the Purchaser . . . . . . . . . . . . . . . . .
9.3 Conditions of Indemnification . . . . . . . . . . . . . . . . . . .
9.4 Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . .
ARTICLE X
SURVIVAL OF REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XI
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.1 (a) Termination Events . . . . . . . . . . . . . . . . . . . . . .
(b) Termination Fees . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE XII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.1 Entire Agreement; Amendments and Waivers . . . . . . . . . . . . .
12.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.4 Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . .
12.5 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.6 Confidentiality; Publicity and Disclosures . . . . . . . . . . . .
12.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.8 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . .
12.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . .
12.11 Effectiveness of Amended Agreement . . . . . . . . . . . . . .
EXHIBITS
Exhibit A Form of Debentures
Exhibit B-1 Form of Amended and Restated Certificate of Incorporation of
FOHP, Inc.
Exhibit B-2 Form of By-laws of FOHP, Inc.
Exhibit B-3 Form of Amended and Restated Certificate of Incorporation of
FOHP-NJ.
Exhibit B-4 Form of By-laws of FOHP-NJ
Exhibit C-1 Form of Exclusive Plan Hospital Provider Agreement
Exhibit C-2 Forms of Non-Exclusive Plan Hospital Provider Agreements
Exhibit D-1 Form of General Administrative Services Management Agreement
Exhibit D-2 Form of Management Information Systems and Claims Processing
Services Agreement
Exhibit E Form of Investors Agreement
Exhibit F Form of Opinion of Outside Counsel of FOHP, Inc. and FOHP-NJ
Exhibit G Form of Officer's Certificate
Exhibit H Form of Opinion of Outside Counsel of Health Systems International,
Inc.
SCHEDULES
Schedule 2.1A Subsidiaries
Schedule 2.1B Good Standing
Schedule 2.3 Rights of First Refusal
Schedule 2.4(a) SEC Reports
Schedule 2.4(b) Unreported Liabilities and Obligations
Schedule 2.5 Company's Reports
Schedule 2.6 Noncontravention
Schedule 2.7 Litigation
Schedule 2.9 Compliance with Law
Schedule 2.10 Certain Material Contracts and Defaults
Schedule 2.11 Consents
Schedule 2.12 Licenses, Permits and Governmental Approvals
Schedule 2.14 Environmental Matters
Schedule 2.15 Properties and Assets
Schedule 2.16 Taxes
Schedule 2.20 Insurance
Schedule 2.22 Employment/Severance Matters
Schedule 2.25 Employee Benefit Plans
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
This Amended and Restated Securities Purchase Agreement (this "Amended
Agreement"), dated February 10, 1997, is executed by and among FOHP, Inc., a New
Jersey corporation (the "Company"), First Option Health Plan of New Jersey,
Inc., a New Jersey corporation ("FOHP-NJ"), and Health Systems International,
Inc., a Delaware corporation (the "Purchaser"), and shall be effective as of the
Effective Date (as such term is defined in Section 12.11 hereof).
WITNESSETH:
WHEREAS, the Company, FOHP-NJ and the Purchaser are parties to a Securities
Purchase Agreement, dated as of October 24, 1996 (the "Original Agreement"),
pursuant to which, among other things, the Company would issue and sell to the
Purchaser, and the Purchaser would purchase from the Company, convertible
subordinated surplus debentures in the initial aggregate principal amount of
$30,000,000; and
WHEREAS, each of the Company, FOHP-NJ and the Purchaser believe it
necessary and appropriate to amend and restate the Original Agreement to modify
various agreements and terms and conditions, including an increase in the
aggregate principal amount of convertible subordinated surplus debentures (the
"Debentures") committed to be purchased by the Purchaser to the sum of
$50,000,000 (subject to adjustment as set forth herein), plus the Phase-In
Period Management Fee Amount (as such term is defined in Section 4.4 of the
General Administrative Services Management Agreement the form of which is
attached hereto as Exhibit D-1);
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and undertakings hereunder and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF SECURITIES
1.1 Purchase of Debentures. In reliance upon the representations,
warranties and covenants contained in this Amended Agreement, (a) the Purchaser
agrees to purchase from the Company, and the Company agrees to issue and sell to
the Purchaser at the Initial Closing (as such term is defined in Section 1.2(a)
hereof), Debentures, in the form attached hereto as Exhibit A, in aggregate
principal amount equal to the sum of (i) $41,600,000 and (ii) the Phase-In
Period Management Fee Amount (referred to herein as the "Initial Debenture
Advance Amount") and (b) during the remainder of the 1997 calendar year (and in
no event later than December 31, 1997), the Purchaser shall loan and advance to
the Company additional principal amounts (the principal amount of each such loan
and advance being referred to herein as an "Additional Debenture Advance
Amount"), from time to time and in Additional Debenture Advance Amounts as
determined, in each case, by the Purchaser in its sole discretion; provided,
however, that all such Additional Debenture Advance Amounts shall, in the
aggregate, taken together with the Initial Principal Advance Amount, equal the
amount of (i) the sum of (A) $50,000,000 and (B) the Phase-In Period Management
Fee Amount less (ii) the amount of all Additional Debenture Advance Adjustments
(as defined in Section 7.3 hereof) (such net amount referred to as the
"Debentures Commitment Amount").
1.2 Closings.
(a) The closing of the purchase and sale of the Debentures (the
"Initial Closing") shall occur on (i) the date that is two business days after
the satisfaction or waiver of all conditions set forth in Section 7.1 or
Article VIII hereof or (ii) such other date as shall be agreed upon by the
Company and the Purchaser (the "Initial Closing Date"). The Initial Closing
shall be held at 10:00 a.m., New York time, at the offices of ▇▇▇▇▇▇▇▇▇, Will &
▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ or such other
place as the parties may mutually agree upon in writing. At the Initial
Closing, the Company shall deliver to the Purchaser the Debentures purchased by
the Purchaser (which Debentures shall be registered in the Purchaser's name),
and the Purchaser shall deliver to the Company a sum equal to the Initial
Debenture Advance Amount (the "Initial Debenture Purchase Price") by certified
check or wire transfer of immediately available funds in accordance with wire
transfer instructions provided by the Company, denominated in United States
dollars.
(b) The closing (each such closing being referred to herein as an
"Additional Debenture Advance Closing") of any loan and advance by the Purchaser
to the Company of any Additional Debenture Advance Amount shall occur on (i) the
later of (A) such date during the 1997 calendar year as shall be determined by
the Purchaser in its sole discretion (but in no event later than December 31,
1997) or (B) two business days after the satisfaction or waiver of all
conditions set forth in Section 7.2 hereof with respect to such advance of an
Additional Debenture Advance Amount or (ii) such other date as shall be agreed
upon by the Company and the Purchaser (the "Additional Debenture Advance Closing
Date"). The Purchaser shall provide to the Company at least 10 days' prior
notice of an Additional Debenture Advance Closing, including in such notice the
Additional Debenture Advance Amount to be advanced by the Purchaser to the
Company at such Additional Debenture Advance Closing (along with a description
of any Additional Debenture Advance Adjustment used to arrive at such Additional
Debenture Advance Amount as described in Section 7.3 hereof). At each
Additional Debenture Advance Closing, the Purchaser shall deliver to the Company
a sum equal to the Additional Debenture Advance Amount to be advanced by the
Purchaser to the Company at such Additional Debenture Advance Closing by
certified check or wire transfer of immediately available funds in accordance
with wire transfer instructions provided by the Company, denominated in United
States dollars, and such Additional Debenture Advance Amount shall be added to
the Debentures as Principal Amount (as such term is defined in the Debentures)
which the Company is obligated to pay to the Purchaser pursuant to the terms of
the Debentures.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND FOHP-NJ
The Company and FOHP-NJ (with respect to matters relating to itself)
represent and warrant to the Purchaser as follows:
2.1 Organization; Subsidiaries; and Good Standing.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey. The Company has all
necessary power and authority under applicable law and its organizational
documents to own or lease its properties and to carry on its business as
presently conducted. All of the subsidiaries of the Company are identified on
Schedule 2.1A (each a "Subsidiary," and collectively the "Subsidiaries"). There
are no subsidiaries of the Subsidiaries. Each of the Subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has all necessary power and authority
under applicable law to own or lease its properties and to carry on its business
as presently conducted.
(b) Except as set forth on Schedule 2.1B, each of the Company and
each of the Subsidiaries, to the extent conducting business as a health
maintenance organization ("HMO"), insurance company, managed care organization,
third-party administrator or otherwise requiring any form of governmental
licensure, qualification or authorization, is duly licensed, qualified or
authorized and in good standing under the applicable laws and regulations,
respectively, of each state or territory in which the conduct of such business
so requires, except where the failure would not have a material adverse effect
on the business, conditions, prospects, properties or results of operations of
the Company and the Subsidiaries taken as a whole (a "Material Adverse
Effect"). Except as set forth on Schedule 2.1B, the conduct of the
respective businesses of the Company, FOHP-NJ and the other Subsidiaries is
in conformity with all applicable federal, state and other governmental and
regulatory requirements and the forms, procedures and practices of the
Company and each of the Subsidiaries in the conduct of their respective
businesses are also in compliance with all such requirements, to the extent
applicable, except where nonconformity or noncompliance would not constitute
a Material Adverse Effect.
(c) Complete and accurate copies of the certificate of incorporation
(the "Certificate") and by-laws of the Company and the certificates of
incorporation and by-laws of each of the Subsidiaries have been delivered to the
Purchaser.
2.2 Power; Authorization; Binding Agreements. The Company has the power
and authority to enter into this Amended Agreement and to perform fully its
obligations hereunder (other than the issuance and sale of the Debentures and
the issuance of the shares of common stock of the Company (the "Conversion
Shares") issuable upon conversion of the Debentures) and, upon approval of the
shareholders of the Company as described in Section 2.11 hereof, to issue and
sell the Debentures and to issue the Conversion Shares. FOHP-NJ has the power
and authority to enter into this Amended Agreement and to perform fully its
obligations hereunder. The execution and delivery of this Amended Agreement,
the issuance and sale of the Debentures, the issuance of the Conversion Shares
upon conversion of the Debentures and the consummation of the other transactions
contemplated hereunder and thereunder have been duly authorized by all necessary
corporate action of the Company (except as disclosed in Section 2.11 and Section
12.11 hereof). This Amended Agreement has been duly and validly executed and
delivered by, and constitutes the valid and binding obligations of, the Company
and FOHP-NJ and is enforceable in accordance with its terms. The Debentures,
the Management Agreements (as such term is defined in Section 7.1(g) hereof) and
the other agreements required to consummate the transactions contemplated
thereunder and under this Amended Agreement will be, on or prior to the Initial
Closing Date, duly and validly executed and delivered by, and constitute valid
and binding obligations of, the Company and are enforceable in accordance with
their terms. As of the Initial Closing Date neither the Debentures nor the
Conversion Shares (issuable upon conversion of the Debentures) will be subject
to any preemptive right or right of first refusal.
2.3 Capitalization. The authorized capital stock of the Company consists
of 100,000,000 shares of common stock, par value $.01 per share ("Common
Stock"). The authorized Common Stock is divided into five classes: 15,000,000
shares of Common Stock-NJ ("Common Stock-NJ"), 15,000,000 shares of Common
Stock-NY, 15,000,000 shares of Common Stock-PA, 15,000,000 shares of Common
Stock-DE and 40,000,000 shares of Unclassified Capital Stock, of which 2,100,173
shares of Common Stock-NJ are issued and outstanding on the date hereof. No
shares of preferred stock of the Company are authorized. All of the presently
outstanding shares of Common Stock have been duly and validly authorized and
issued, are fully paid and non-assessable, and except as set forth on Schedule
2.3 hereto are not subject to and were not issued in violation of any preemptive
rights or rights of first refusal. The relative rights, preferences,
restrictions and other matters relating to the Common Stock are as reflected in
the Certificate and on Schedule 2.3 hereto. There are no outstanding
subscriptions, warrants, options, calls, commitments or other rights to purchase
or acquire, or securities convertible into or exchangeable for, any capital
stock of, or any stock appreciation rights, phantom stock or similar securities
or instruments issued by, the Company or any of the Subsidiaries. Except as
expressly contemplated by this Amended Agreement, as of the Initial Closing Date
there will be no preemptive rights or rights of first refusal with respect to
the issuance or sale of capital stock of the Company or any Subsidiary. Except
as set forth in the Certificate and as expressly contemplated by this Amended
Agreement, there are no outstanding contractual or other obligations of the
Company or any of the Subsidiaries to purchase, redeem or otherwise acquire any
shares of its capital stock. Except as set forth in the Certificate and as
contemplated by this Amended Agreement, there is currently not, and as of the
Initial Closing there will not be, any stockholders' agreement, voting trust or
other agreement or understanding to which the Company or any of the Subsidiaries
is a party or bound relating to the voting of any shares of capital stock of the
Company or any of such Subsidiaries. The maximum number of Conversion Shares
issuable upon conversion of the Debentures in the amount of the Debenture
Commitment Amount will, as of the Initial Closing, be duly and validly reserved
and, when issued upon conversion of the Debentures, will be duly and validly
issued, fully paid and non-assessable. At the Initial Closing, the Purchaser
will receive good title to the Debentures and, at the time of the issuance of
the Conversion Shares upon the conversion of the Debentures, the Purchaser will
receive good title to the Conversion Shares free and clear of all liens, claims
or encumbrances except those created by the Purchaser. All of the outstanding
shares of capital stock of each Subsidiary are validly issued, fully paid and
nonassessable and are owned beneficially and of record by the Company, free and
clear of any liens, claims or encumbrances.
2.4 Financial Statements.
(a) Each of the sets of financial statements (including, in each
case, any related notes thereto) contained in the SEC Reports (as such term is
hereinafter defined), a list of which SEC Reports is attached as Schedule 2.4(a)
hereto, and the Company's balance sheet as of September 30, 1996 and the related
income statement for the fiscal quarter then ended (referred to herein,
collectively, as the "September 30 Statement" and together with such financial
statements contained in the SEC Reports as the "Past Financial Statements") was
prepared in accordance with GAAP applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto) and fairly
presents the consolidated financial position of the Company and the Subsidiaries
as of the respective dates thereof and the consolidated results of operations
and cash flows for the periods indicated of the Company and the Subsidiaries,
except that the September 30 Statement included in the Past Financial Statements
(i) was or is subject to normal year-end audit adjustments which were not or are
not expected to be material in amount and (ii) does not contain footnotes.
(b) Except as reflected or disclosed in the Past Financial Statements
and on Schedule 2.4(b) (including any related notes and schedules), other than
liabilities incurred since September 30, 1996 in the ordinary course of their
respective businesses or liabilities incurred in connection with the proposed
issuance of the Debentures expressly contemplated or permitted by this Amended
Agreement, neither the Company nor any of the Subsidiaries is subject to any
liabilities or obligations (whether accrued, absolute, contingent or otherwise)
that would have a Material Adverse Effect.
(c) As of January 3, 1997, the claims backlog of the Company and
FOHP-NJ consisted of 35,775 claims received but not reflected in the claims
processing system thereof and 102,485 claims received and reflected in such
claims processing system but not yet adjudicated. For purposes of this Section
2.4(c), the term "claims" means hospital, physician and ancillary provider
claims on full-risk business and does not include claims submitted for pharmacy,
dental or mental health and substance abuse.
2.5 Absence of Certain Developments. Except for this Amended Agreement or
as described on Schedule 2.5 hereto or as disclosed on any of the Quarterly
Reports on Form 10-Q of the Company for the quarters ended March 31, 1996, June
30, 1996, or September 30, 1996, respectively, or the Company's Reports on Form
8-K listed on Schedule 2.5 hereto filed with the Securities and Exchange
Commission (the "SEC"), since December 31, 1995 (a) there has not been, and the
Company is not aware of any events, facts or circumstances which individually or
in the aggregate could cause, any (i) Material Adverse Effect or (ii) material
obligation, contingent or otherwise, to be directly or indirectly incurred by
the Company or any Subsidiary and (b) there has not been, and the Company is not
contemplating, any (i) transaction which is material to the Company and the
Subsidiaries on a consolidated basis or (ii) payment of dividends or
distributions of any kind.
2.6 Noncontravention. Neither the Company nor any of the Subsidiaries is
in violation or default of any provision of (a) its certificate of incorporation
or by-laws or (b) any contract, agreement, obligation, commitment, license,
indenture, mortgage, deed of trust, loan or credit agreement or any other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or any of their assets are bound, except for violations with respect to
this clause (b) as are set forth on Schedule 2.6 hereto or that would not have a
Material Adverse Effect. The execution and delivery of this Amended Agreement
do not, and the consummation of the transactions contemplated hereby will not,
with or without notice or the lapse of time, conflict with or result in a breach
or default or any material modification of, or result in the creation of a lien
or encumbrance on any of the assets of the Company or any of the Subsidiaries
pursuant to (i) any provision of the certificate of incorporation or by-laws of
the Company or any of the Subsidiaries except as set forth on Schedule 2.6, or
(ii) the terms of any material contract, agreement, obligation, commitment,
license, indenture, mortgage, deed of trust, loan or credit agreement, pledge
agreement, lease, permit, franchise, evidence of indebtedness or any other
agreement or instrument to which the Company or any of the Subsidiaries is a
party or any of their assets are bound (except as set forth on Schedule 2.6), or
the creation of any lien, charge or encumbrance of any nature upon any of the
properties or assets of the Company or any of the Subsidiaries or result in the
revocation of any licenses owned by the Company or any of the Subsidiaries. The
execution and delivery of this Amended Agreement do not, and the execution and
delivery of the Debentures and the Management Agreements and the consummation of
the transactions contemplated hereby will not (A) violate or conflict with any
judgment, decree, order, writ, injunction, statute, rule or regulation of any
federal, state or local government or agency applicable to the Company or any of
the Subsidiaries or any of their respective properties or assets or (B) result
in any adverse change in any employee benefit plan of the Company, FOHP-NJ or
any of the other Subsidiaries.
2.7 Litigation. Except as set forth on Schedule 2.7, there is, to the
knowledge of the Company or FOHP-NJ, no examination, audit, review, arbitration,
litigation, action, suit, claim, proceeding or investigation pending or
threatened by or before any court, governmental authority or arbitral tribunal
to which the Company or any of the Subsidiaries is a party or otherwise involved
or to which any of the business or assets of the Company or any of the
Subsidiaries is subject which has or would reasonably be expected to have a
Material Adverse Effect. There is no action pending seeking to enjoin or
restrain the issuance and sale of the Debentures by the Company or any of the
transactions contemplated by this Amended Agreement. Except as set forth on
Schedule 2.7, neither the Company nor any of the Subsidiaries is subject to any
continuing order of, consent decree, settlement agreement or other similar
written agreement with, or, to the knowledge of the Company or FOHP-NJ, pending
or proposed investigation by, any governmental entity, or any judgment, order,
writ, injunction, decree or award of any governmental entity or arbitrator,
including, without limitation, cease-and-desist or other orders. As used in
this Amended Agreement, the terms "to the best of the knowledge of the Company
or FOHP-NJ" and "to the knowledge of the Company or FOHP-NJ" shall mean the
actual knowledge of any of the executive officers of the Company or any of the
executive officers of FOHP-NJ.
2.8 No Governmental Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any governmental body or other
person or legal or administrative proceeding has been instituted against the
Company or, to the Company's knowledge, threatened which questions the validity
or legality of the transactions contemplated hereby.
2.9 Compliance with Laws. Except as set forth on Schedule 2.9, neither
the Company nor any of the Subsidiaries is or has at any time since June 30,
1996 been in violation of, or delinquent in respect to, any decree, order or
arbitration award or law, statute or regulation of, or agreement with, or any
license or permit from, any governmental authority to which any of its
properties, assets, personnel or business activities are subject or to which any
of them is subject, including laws, rules and regulations relating to the
environment, insurance companies, HMOs, third-party administrators or other
businesses required to be licensed under Section 2.1(b) hereof, occupational
health and safety, employee benefits, wages, workplace safety, equal employment
opportunity and race, religious, sex and age discrimination which has had or
would reasonably be expected to have a Material Adverse Effect.
2.10 Material Contracts.
(a) For purposes of this Amended Agreement, "Material Contracts"
shall mean (i) each contract, agreement or other arrangement of or involving the
Company or any of the Subsidiaries with respect to indebtedness for money
borrowed in excess of $50,000 (other than trade payables in the ordinary and
usual course of business), including, without limitation, letters of credit,
guaranties and swap and similar agreements, (ii) each contract, agreement or
other arrangement which limits or restricts the right or ability of the Company
or any of the Subsidiaries to engage in, or compete with any person in, any
business (including each contract, agreement or arrangement containing
exclusivity provisions restricting the geographical area in which, or the method
by which, any business may be conducted by the Company or any such Subsidiary),
or to otherwise conduct its business in any manner or place which materially
affects the Company or any Subsidiary, (iii) each contract, agreement or other
arrangement between the Company or any of the Subsidiaries, on the one hand, and
any director or executive officer (or any affiliate of a director or executive
officer) of the Company or any of the Subsidiaries, on the other hand (other
than health care provider contracts entered into in the ordinary course of
business of the Company or such Subsidiary, as the case may be, and containing
terms and conditions standard in the industry), (iv) each mortgage, contract,
license, lease, indenture or other agreement of the Company or any of the
Subsidiaries (A) which would be required by Rule 601(b)(10) of SEC Regulation
S-K to be filed as an exhibit to an Annual Report on Form 10-K or (B) which
constitutes any other liability (including, without limitation, any guarantee,
surety contract or similar instrument), obligation or transaction and, in the
case of any item referred to in this clause, is material to the Company and the
Subsidiaries or their businesses or prospects taken as a whole, (v) for each
state in which the Company or any Subsidiary conducts business as an HMO,
insurance company, third-party administrator or otherwise requiring licensure as
set forth in Section 2.1(b) hereof, (A) the material contracts (based on gross
revenues generated thereunder) of the Company or any Subsidiary with government
agencies or employer or other groups, (B) the material contracts (based on
payments made thereunder) of the Company or any Subsidiary with physician
providers of health care services, (C) the material contracts (based on payments
made thereunder) of the Company or any Subsidiary with providers of hospital
services, (D) the material contracts (based on payments made thereunder) of the
Company or any Subsidiary with providers of non-hospital, non-physician health-
care services, and (E) the material contracts of the Company or any Subsidiary
with other customers of or vendors to the Company or any of the Subsidiaries,
(vi) each contract or agreement of the Company or any of the Subsidiaries
concerning a partnership or joint venture with, or equity or ownership
investment in, another person and (vii) each contract or agreement of the
Company or any of the Subsidiaries pursuant to which any of the business affairs
thereof are managed by a third party. Schedule 2.10 attached hereto lists each
Material Contract which is not (I) provided as an exhibit to the Annual Report
on Form 10-K of the Company for the year ended December 31, 1995 or (II)
expressly called for to be executed in this Amended Agreement. True and
complete copies of all Material Contracts have been delivered to Purchaser.
(b) Each of the Material Contracts is in full force and effect and is
binding upon the Company or a Subsidiary, as the case may be, and, to the
Company's knowledge, is binding on the other parties thereto, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally or by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law). Except as set forth on Schedule 2.10, no
material default by the Company or, to the knowledge of the Company or FOHP-NJ,
any of the Subsidiaries has occurred under any of the Material Contracts and
(i) to the knowledge of the Company or FOHP-NJ, no material default by any of
the other parties to such Material Contracts has occurred thereunder and (ii) no
event has occurred which with the giving of notice or the lapse of time, or
both, would constitute a material default by the Company or, to the knowledge of
the Company or FOHP-NJ, any of the Subsidiaries or any of the other parties to
such Material Contracts. There is no fact or circumstance, including, without
limitation, any pending or, to the knowledge of the Company or FOHP-NJ,
threatened termination, indicating that any Material Contract (including,
without limitation, any relationship with any customer currently accounting for
five percent or more of the consolidated revenue of the Company) will terminate
(or, to the knowledge of the Company or FOHP-NJ, will not be renewed), except
for those Material Contracts described in Sections 2.10(a)(v)(B), (C) and (D)
hereof, the termination or failure to renew of which would not in the aggregate
have a Material Adverse Effect on the Company or any of the Subsidiaries.
(c) The Company's New York contract with Sierra Health Services, Inc.
("Sierra") has been terminated by the Company without requiring payment by the
Company or any Subsidiary in connection therewith and without the incurrence of
any further obligations by the Company or any Subsidiary.
2.11 Consents, Etc. Except as set forth on Schedule 2.11 hereto or as may
be required by the laws governing insurance companies, HMOs, and third-party
administrators or other businesses operated by the Company or the Subsidiaries
requiring licensure, qualification or authorization and, except for the approval
of the Company's shareholders of the transactions contemplated by this Amended
Agreement, there is no requirement applicable to the Company or any of the
Subsidiaries to make any filing with, or to obtain any permit, authorization,
consent or approval of, any federal, state or local governmental or regulatory
agency, department, commission or other authority or any third party, except for
such filings, permits, authorizations, consents or approvals the failure of
which to make or obtain, as the case may be (a) would not have a Material
Adverse Effect and (b) would not adversely impact the ability of the Company to
consummate the transactions contemplated hereunder or otherwise hinder or delay
the consummation of such transactions.
2.12 Licenses, Permits and Governmental Approvals. Schedule 2.12 hereto
sets forth as to the Company and the Subsidiaries a true and complete list of
(a) all licenses, permits, franchises, authorizations and approvals (except for
those which, if not possessed, would not have a Material Adverse Effect) issued
or granted to the Company and the Subsidiaries by the United States, any state
or local government or any department, agency, board, commission, bureau or
instrumentality of any of the foregoing (the "Licenses"), and all pending
applications therefor, and (b) all contracts, agreements and other documents
containing agreements of the Company or any Subsidiary with, or undertakings of
the Company or any Subsidiary with, the United States, any state or local
government or any department, agency, board, commission, bureau or
instrumentality. Each License has been duly obtained, is valid and in full
force and effect, and is not subject to any pending or, to the Company's
knowledge, threatened administrative or judicial proceeding to revoke, cancel or
declare such License invalid in any respect except as set forth on Schedule
2.12. The Licenses are sufficient to permit the continued lawful conduct of
each of the Company's and the Subsidiaries' respective businesses in the manner
now conducted, and none of the Company's or any Subsidiary's operations are
being conducted in any manner which violates any of the terms or conditions
under which any such License was granted except as set forth on Schedule 2.12.
No License by its terms will terminate or lapse by reason of the transactions
contemplated by this Amended Agreement.
2.13 Securities Exchange Act Reports Supplied to Purchaser. The Company
has delivered to the Purchaser a complete and accurate copy of each report,
schedule, registration statement and definitive proxy statement filed by the
Company with the SEC on or after January 1, 1995 (the "SEC Reports"), which are
all the forms, reports and documents required to be filed by the Company with
the SEC since January 1, 1995. The SEC Reports (a) complied in all material
respects with the requirements of the Securities Act of 1933, as amended (the
"Securities Act") or the Securities Exchange of 1934, as amended (the "Exchange
Act"), as the case may be, in each case including the rules and regulations
promulgated thereunder, at and as of the times they were filed (or, if amended
or superseded by a filing prior to the date of this Amended Agreement, then on
the date of such filing), (b) were filed with the SEC during the 12 months
preceding the date hereof on a timely basis, and (c) did not at and as of the
time they were filed (or, if amended or superseded by a filing prior to the date
of this Amended Agreement, then on the date of such filing) contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.14 Environmental Matters. Except as set forth on Schedule 2.14, the
premises owned or leased by the Company and the Subsidiaries for their
operations (the "Premises") and all operations conducted thereon, are now and
since the Company or any Subsidiary, as applicable, began to use such Premises,
always have been, in compliance with all federal, state and local statutes,
ordinances, regulations, rules and standards concerning or relating to the
protection of health and the environment (collectively, the "Environmental
Laws") which, if not complied with, would have a Material Adverse Effect. To
the Company's knowledge, there are no conditions on, about, beneath or arising
from the Premises which might give rise to liability, the imposition of a
statutory lien or require "Response," "Removal" or "Remedial Action" as defined
herein, under any of the Environmental Laws, which would have a Material Adverse
Effect. In addition, and without limiting the generality of the foregoing,
except for matters that would not have a Material Adverse Effect, the Company
has not received notice nor does it have knowledge of:
(i) any claim, demand, suit or other action, investigation or
regulatory action instituted or threatened against it or the Premises
relating to any Environmental Laws;
(ii) any communication to or from any governmental or regulatory
agency arising out of or in connection with Hazardous Substances or
Hazardous Materials (as defined by applicable Environmental Laws) on,
about, beneath, arising from or generated at the Premises, including,
without limitation, any notice of violation, citation, complaint, order,
directive, request for information or response thereto, notice letter,
demand letter or compliance schedule. As used herein, the terms
"Response," "Removal" or "Remedial Action" shall be defined with reference
to Sections 101(23)-101(25) of the Comprehensive Environmental Response,
Compensation and Liability Act, as amended by the Superfund Amendments and
Reauthorization Act, 42 U.S.C. Section 9601(23)-9601(25); or
(iii) an existing or potential claim or enforcement action under
Environmental Laws for any cleanup costs, removal or remedial work, damage
to natural resources or personal injury related to an off-site location
where Hazardous Substances or Hazardous Materials generated, transported,
recycled or stored by the Company or any Subsidiary have been disposed.
2.15 Title to Properties and Assets. Except as set forth on Schedule 2.15
and as reflected in the September 30 Statement, the Company and the Subsidiaries
have sole and exclusive possession of, and good and marketable title to, all of
their properties and assets and such properties and assets are held by the
Company and the Subsidiaries free and clear of all mortgages, liens, claims, or
encumbrances. With respect to the real property it leases, the Company is in
compliance with such leases and holds a valid leasehold interest, free of any
liens, claims, or encumbrances.
2.16 Taxes.
(a) Except as set forth on Schedule 2.16, each of the Company,
FOHP-NJ and the other Subsidiaries has filed all federal, state, county, local
and foreign income, franchise and other tax returns required to be filed thereby
through the date hereof and has paid or adequately accrued for all taxes
reflected as due thereon, other than those tax returns or taxes that, if not
filed or paid, would not have a Material Adverse Effect. There are no
outstanding agreements or waivers extending the statutory period of limitations
applicable to any Federal income tax return for any period.
(b) There is no pending dispute, audit or investigation with any
taxing authority, and neither the Company nor FOHP-NJ has any knowledge of any
proposed dispute, audit or investigation or any proposed liability for any tax
to be imposed upon any of the properties or assets of the Company or any of the
Subsidiaries for which there is not an adequate reserve reflected in the
September 30 Statement. There does not exist any issue that, if raised by any
taxing authority with respect to any fiscal period, would, individually or in
the aggregate, be expected to result in an assessment against the Company or the
Subsidiaries that would have, or is reasonably likely to have, a Material
Adverse Effect.
(c) Except as set forth in Schedule 2.16, neither the Company nor any
of the Subsidiaries is a party to any contract arrangement that has or will
result in the payment of any "excess parachute payments" within the meaning of
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code").
2.17 DOI Reports. The Company has made available to Purchaser at the
Company's offices a true and complete copy of all material reports filed by the
Company or any of the Subsidiaries regarding the activities of the Company and
the Subsidiaries in the State of New Jersey and the license application filed by
the Company in the State of New York with, and all material correspondence
regarding such activities and license application sent by the Company or FOHP-NJ
or First Option Health Plan of New York, Inc., a New York corporation and a
wholly-owned subsidiary of the Company ("FOHP-NY"), to, or received by the
Company or FOHP-NY or FOHP-NJ from, applicable insurance and HMO regulatory
bodies since January 1, 1994. Each material report required to be filed by the
Company or any of the Subsidiaries with applicable insurance and HMO regulatory
bodies since January 1, 1994 (as such documents have since the time of their
filing been amended, the "DOI Reports") has been filed. As of their respective
dates, the DOI Reports complied in all material respects with the requirements
of the laws, rules and regulations applicable to such DOI Reports, and none of
the DOI Reports contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except for such statements, if any, as have been modified by
subsequent filings prior to the date hereof.
2.18 Information Supplied. All information supplied or to be supplied by
the Company or the Subsidiaries (a) soliciting approval from the shareholders of
the Company for either the issuance and sale of the Debentures or for any act of
the Company to be taken in connection with the transactions contemplated under
this Amended Agreement will not, either at the date mailed (or otherwise
disseminated) to such shareholders or at the time of the meeting of shareholders
of the Company to be held in connection with the transactions contemplated by
this Amended Agreement, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading or (b) disclosed in any report or document filed with
the SEC as required under the Exchange Act or the Securities Act in connection
with the transactions contemplated hereunder will not, either at the time such
report or document (or any amendment thereto) is filed with the SEC or at the
time it becomes effective under the Securities Act or supplied to the Purchaser
or to shareholders of the Company or any of their respective representatives or
advisers in connection with the transactions contemplated by this Amended
Agreement, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. All information disseminated by the Company or FOHP-NJ
in connection with the transactions contemplated by this Amended Agreement will
comply as to form in all material respects with all applicable laws, including
all relevant provisions of the Securities Act and the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation is made by
the Company with respect to information supplied by the Purchaser for inclusion
therein.
2.19 Certain Business Practices and Regulations. Neither the Company nor
any of the Subsidiaries, nor, to the knowledge of the Company or FOHP-NJ, any of
its or their respective executive officers, directors, or managerial employees
has (a) made or agreed to make any contribution, payment or gift to any
customer, supplier, governmental official, employee or agent where either the
contribution, payment or gift or the purpose thereof was illegal under any law,
(b) established or maintained any unrecorded fund or asset of the Company, FOHP-
NJ or any of the other Subsidiaries for any improper purpose or made any false
entries on its books and records for any reason, (c) made or agreed to make any
contribution, or reimbursed any political gift or contribution made by any other
person, to any candidate for federal, state or local public office in violation
of any law, or (d) engaged in any activity constituting fraud or abuse under the
laws relating to health care, insurance or the regulation of professional
corporations.
2.20 Insurance. All policies and binders of insurance for professional
liability, directors and officers, property and casualty, fire, liability,
workers' compensation and other customary matters held by or on behalf of the
Company or the Subsidiaries ("Insurance Policies") have been made available to
the Purchaser. The Insurance Policies are in full force and effect and neither
the Company nor any of the Subsidiaries is in default with respect to any
provision contained in any Insurance Policy, which default has had or would have
a Material Adverse Effect nor, to the knowledge of the Company or FOHP-NJ, has
the Company or the Subsidiaries failed to give any notice of any claim under any
Insurance Policy in due and timely fashion, nor has any coverage for current
claims been denied, which failure or denial has had or would have a Material
Adverse Effect. Set forth on Schedule 2.20 hereto is a list of insurance
currently maintained by the Company, FOHP-NJ or any of the Subsidiaries. The
Company and each of the Subsidiaries require as part of their contractual
relationships that each individual or entity rendering professional health care
services as an employee of or contractor to the Company or the Subsidiaries
maintain professional liability insurance and neither the Company nor FOHP-NJ
has any reason to believe that such individuals and entities generally do not
comply with such policy of the Company and each of the Subsidiaries.
2.21 Labor Issues. There is no collective bargaining or other labor union
contract to which the Company or any of the Subsidiaries is a party and which is
applicable to persons employed by the Company or any of the Subsidiaries. To
the knowledge of the Company or FOHP-NJ, there are no union organization
attempts underway with respect to the employees of the Company or any of the
Subsidiaries. There is no pending or, to the knowledge of the Company or
FOHP-NJ, threatened labor dispute, strike or work stoppage against the Company
or any of the Subsidiaries which may have a Material Adverse Effect. Neither
the Company nor any of the Subsidiaries, nor, to the knowledge of the Company or
FOHP-NJ, their respective representatives or employees, has committed any unfair
labor practices in connection with the operation of the respective businesses of
the Company or the Subsidiaries, and there is no pending or, to the knowledge of
the Company or FOHP-NJ, threatened charge or complaint against the Company or
the Subsidiaries by the National Labor Relations Board or any comparable state
agency.
2.22 Employment/Severance Matters. Schedule 2.22 sets forth a list of all
written or, to the knowledge of the Company or FOHP-NJ, material oral employment
agreements, employment contracts or understandings (other than understandings
with respect to "at will" employment) relating to employment to which the
Company or any of the Subsidiaries is a party. Schedule 2.22 sets forth all
severance and change of control payments that may become payable either as a
result of the transactions contemplated hereby, any future termination of
employment of employees party to such agreements, or both. To the knowledge of
the Company or FOHP-NJ, no executive officer of the Company or any of the
Subsidiaries is subject to any secrecy or noncompetition agreement or any
agreement or restriction of any kind with any third party that would impede in
any material way the ability of such executive officer to carry out fully all
activities of such executive officer in furtherance of the business of the
Company or any of the Subsidiaries. The Company and the Subsidiaries currently
have, and have had in the past, good relationship with their respective
employees.
2.23 Absence of Undisclosed Liabilities. Except as described in Sections
2.4 and 2.7 hereof and Schedules 2.4(b) and 2.7 hereto, to the best of the
knowledge of the Company or FOHP-NJ, neither the Company nor the Subsidiaries
taken as a whole, nor any of their respective assets or properties, are subject
to any liabilities, claims or obligations (whether known or unknown, accrued,
absolute, contingent or otherwise) of any nature.
2.24 Intellectual Property.
(a) The Company and the Subsidiaries do not own any patents,
registered trademarks or registered copyrights. The Company and the
Subsidiaries have not been advised, nor have the Company or FOHP-NJ any reason
to believe, that the Company or any Subsidiary is infringing a patent,
trademark, trade name or copyright held by another person.
(b) The Company and the Subsidiaries own or have in their possession
certain information of the sort typically considered as trade secrets in the
health care industry (the "Trade Secrets"). The Company and the Subsidiaries
have taken commercially reasonable precautions to maintain Trade Secrets in
confidence and to prevent their disclosure to unauthorized persons. To the
knowledge of the Company or FOHP-NJ, the Company and the Subsidiaries have good
title and an absolute (though not necessarily exclusive) right to use all Trade
Secrets and the use of the Trade Secrets does not infringe the rights of any
third party.
(c) To the best of the knowledge of the Company or FOHP-NJ, none of
the names (including, without limitation, the name "First Option Health Plan"),
processes or know-how used by the Company or any Subsidiary infringes any
patent, trademark, trade name or copyright of any third party. To the best of
the knowledge of the Company or FOHP-NJ, there is no intellectual property, in
any form, necessary for the operation of the Company and the Subsidiaries'
business as currently conducted which the Company or any Subsidiary does not
currently own or license on commercially reasonable terms.
2.25 Employee Benefit Plans. Neither the Company nor FOHP-NJ, in
connection with its business, is a party to any agreement requiring it to
continue to employ any of its present employees or any group of its present
employees, or continue to cover any present or former employees or any group of
present or former employees under any benefit plan. Schedule 2.25 lists each
currently effective employment, bonus, profit sharing, compensation,
termination, stock option, stock purchase, stock appreciation right, restricted
stock, phantom stock, performance unit, pension, retirement, deferred
compensation, welfare or other employee benefit plan or agreement, trust fund or
other arrangement and any union, guild or collective bargaining agreement
maintained or contributed to or required to be contributed to by the Company or
any of the Subsidiaries (such plans and arrangements being referred to herein as
the "Company Benefit Plans"). Full and complete copies of each of the Company
Benefit Plans have been delivered to Purchaser. Each of the Company Benefit
Plans is in material compliance with all applicable laws including the Employee
Retirement Income Security Act of 1974 ("ERISA") and the Code except where
noncompliance would not have a Material Adverse Effect. No condition exists
that is reasonably likely to subject the Company or any of the Subsidiaries to a
civil penalty under section 502(i) of ERISA or liability under section 4069 of
ERISA or section 4975, 4976, or 4980B of the Code or the loss of a Federal tax
deduction under section 280G of the Code or other liability with respect to the
Company Benefit Plans that would have a Material Adverse Effect and that is not
reflected on such balance sheet. None of the Company Benefit Plans is subject
to Title IV of ERISA. There are no pending or, to the knowledge of the Company
or FOHP-NJ, threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Company Benefit Plans or any
trusts related thereto.
2.26 Brokerage and Other Fees. Except for PaineWebber Incorporated, no
broker, finder, agent, consultant or similar intermediary has acted on behalf of
the Company or FOHP-NJ in connection with the transactions contemplated by this
Amended Agreement and, except for fees payable to PaineWebber Incorporated,
there are no brokerage commissions, finder's fees or similar items of
compensation payable in connection therewith based on any agreement made by or
on behalf of the Company or FOHP-NJ. The Company and FOHP-NJ will, jointly and
severally, indemnify and hold the Purchaser harmless from and against any
liability or expense arising out of any such claim.
2.27 Accuracy of Information. None of the representations, warranties or
statements of the Company or FOHP-NJ contained in this Amended Agreement or in
the schedules and exhibits hereto contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make any of such
representations, warranties or statements, in light of the circumstances under
which they were made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Company and FOHP-NJ as
follows:
3.1 Organization and Good Standing.
(a) The Purchaser is a corporation, duly organized, validly existing
and in good standing under the laws of the state of Delaware, and has all
requisite corporate power and authority to carry on its business as now
conducted.
(b) Each of the Purchaser and its subsidiaries, to the extent
conducting business as an HMO, managed care organization, insurance company,
third party administrator or other entity requiring any form of governmental
licensure, qualification or authorization, is duly licensed, qualified or
authorized and in good standing under the applicable laws and regulations,
respectively, of each state or territory in which the conduct of such business
so requires, except where failure would not have a material adverse effect on
the Purchaser and its subsidiaries, taken as a whole. The conduct of the
respective businesses of the Purchaser and its subsidiaries is in conformity
with all applicable foreign, federal, state or territorial, local and other
governmental and regulatory requirements and the forms, procedures and practices
of the Purchaser and its subsidiaries in the conduct of their respective
businesses are also in compliance with all such requirements, to the extent
applicable, except where nonconformity or noncompliance would not constitute a
material adverse effect on the business of the Purchaser and its subsidiaries,
taken as a whole.
3.2 Authorization; Power. The execution, delivery and performance of this
Amended Agreement has been duly authorized by all necessary action of the
Purchaser. The Purchaser has the full right, power and authority to enter into
this Amended Agreement and to perform fully its obligations hereunder. This
Amended Agreement has been duly and validly executed and delivered by, and
constitutes the valid and binding obligation of, the Purchaser, enforceable in
accordance with its terms. The execution, delivery and performance of this
Amended Agreement and the purchase of the Debentures will not (a) conflict with,
or result in a material breach of any of the terms of, or constitute a material
default under, the Certificate of Incorporation or By-laws of the Purchaser or
(b) violate any laws, regulations, rules, judgments or orders to which the
Purchaser is subject, except for any such violation as would not have a material
adverse effect on the business, conditions, properties, results of operations or
prospects of the Purchaser and its subsidiaries, taken as a whole.
3.3 Purchase for Investment. The Purchaser is purchasing Debentures for
its own account or for the account of one or more of its subsidiaries, for
investment purposes and not with a view to, or for resale in connection with,
any distribution or public offering thereof within the meaning of the Securities
Act.
3.4 Unregistered Securities; Legend. The Purchaser understands that the
securities to be issued pursuant to this Amended Agreement have not been
registered under the Securities Act and will be issued in reliance upon an
exemption from the registration requirements thereof. The Purchaser
acknowledges that the certificates representing the Debentures and the Common
Stock issuable upon conversion thereof shall each bear a restrictive legend
substantially as follows:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 or any
applicable state securities laws and may not be offered for
sale, sold, transferred or conveyed without registration or
an opinion of counsel in form and substance reasonably
satisfactory to the Company to the effect that such
registration is not required."
3.5 Access to Data; Experience; Investment Decision.
(a) The Purchaser has had an opportunity to discuss the business and
financial affairs of the Company and the Subsidiaries with the management of the
Company, and to ask questions of officers of the Company. The Purchaser is an
"accredited investor" as the term is defined in Rule 501 of Regulation D under
the Securities Act.
(b) The Purchaser acknowledges that it has had an opportunity to
evaluate all information regarding the Company and the Subsidiaries as it has
deemed necessary or desirable in connection with the transactions contemplated
by this Amended Agreement and has independently evaluated the transactions
contemplated by this Amended Agreement and reached its own decision to enter
into this Amended Agreement; provided, however, that such acknowledgement shall
in no way be deemed to mitigate the effect of the representations and warranties
of the Company and FOHP-NJ set forth in Article II hereof (as such
representations and warranties may have been amended in accordance with
Section 11(a)(ii) of this Amended Agreement) or to imply that the Purchaser is
not, in entering into this Amended Agreement, relying on such representations
and warranties; and, provided, further, that such acknowledgement in no way
affects the rights and remedies of the Purchaser hereunder in connection with
any breach of such representations and warranties or otherwise. The Purchaser
acknowledges that it is relying solely upon the Company to disclose any and all
information material to the Purchaser's decision to enter into this Amended
Agreement and is not relying upon any statements made by PaineWebber
Incorporated regarding the Company or the transactions contemplated by this
Amended Agreement.
3.6 Brokerage and Other Fees. No broker, finder, agent, consultant or
similar intermediary has acted on the Purchaser's behalf in connection with the
transactions contemplated by this Amended Agreement other than ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Partners Inc., and there are no brokerage commissions, finder's fees or similar
compensation based on any arrangement or agreement made by or on behalf of the
Purchaser other than that payable to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Partners Inc. The
Purchaser will indemnify and hold the Company harmless against any liability or
expense arising out of any such claim.
3.7 No Financing Required. The Purchaser has unrestricted funds available
to pay the Purchase Price of the Debentures.
3.8 Litigation. There is no litigation, arbitration or governmental
proceeding or investigation pending or, to the knowledge of the Purchaser,
threatened in writing against the Purchaser which conflicts with the rights of
the Company hereunder or the performance of the Purchaser's obligations
hereunder or in any other agreement contemplated hereby. The Purchaser is not a
party to any litigation, arbitration, proceeding or investigation pending, or to
the knowledge of the Purchaser threatened, involving any federal, state or local
government or agency which would conflict with, or in any way impact, the
Purchaser's ability to perform its duties hereunder or in any other agreement
contemplated hereby.
3.9 Claims Processing System. The Purchaser's medical management systems
and techniques, claims processing system and related systems and procedures and
other information systems are sufficient to satisfactorily operate the Company's
business and such systems conform to industry standards.
3.10 Securities Exchange Act Reports Supplied to the Company. Each report,
schedule, registration statement and definitive proxy statement filed by the
Purchaser with the SEC on or after January 1, 1995, which are all the forms,
reports and documents required to be filed by the Purchaser with the SEC since
January 1, 1995 (a) complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, at and as of the
times they were filed (or, if amended or superseded by a filing prior to the
date of this Amended Agreement, then on the date of such filing) and (b) did not
at and as of the time they were filed (or, if amended or superseded by a filing
prior to the date of this Amended Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except, in each case, as would not have a material adverse effect on
the Purchaser's ability to consummate the transactions contemplated hereunder
and perform its obligations hereunder and under the Management Agreements and
would not involve facts indicative of the substantial elimination of earnings of
the Purchaser and its subsidiaries on a consolidated basis.
ARTICLE IV
PRE-CLOSING COVENANTS OF THE COMPANY
The Company covenants and agrees with the Purchaser that between the date
hereof and the Initial Closing:
4.1 Fulfillment of Obligations. The Company shall observe and comply
fully with all of the terms, conditions and covenants of this Amended Agreement.
4.2 Access. The Company shall permit the Purchaser and its authorized
representatives, at all reasonable times and as often as reasonably requested,
to visit and inspect, at the expense of the Purchaser, any of the properties of
the Company and the Subsidiaries, to inspect and make copies of all documents,
records and information with respect to the affairs of the Company and the
Subsidiaries as the Purchaser and its representatives may reasonably request,
and shall make available to the Purchaser and its authorized representatives the
officers and other personnel of the Company and the Subsidiaries to discuss the
affairs, finances and accounts of the Company and the Subsidiaries, provided
that the Purchaser shall maintain the confidentiality of any material nonpublic
or proprietary information of the Company or the Subsidiaries thereby obtained
and provided, further, that the Purchaser shall conduct all such inspections and
discussions in a manner that is not unreasonably disruptive to the employees or
operations of the Company and the Subsidiaries.
4.3 Conduct of Businesses.
(a) Unless the Purchaser shall have consented in writing thereto and
except as otherwise provided for in this Amended Agreement, each of the Company
and FOHP-NJ:
(i) shall promptly notify the Purchaser of any Material Adverse
Effect or any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same may be
contemplated), affecting, as the case may be, the Company or any of the
Subsidiaries;
(ii) shall promptly deliver to the Purchaser true and correct
copies of any press release, and any report, statement or schedule filed with
the SEC subsequent to the date of this Amended Agreement;
(iii) shall not, and shall cause each of the Subsidiaries to
not, take any action that would cause the representations and warranties
contained in Article II hereof to be untrue in any material respect; provided,
however, that any such action which is the subject of an update notice from the
Company to the Purchaser not rejected by the Purchaser in accordance with the
termination provisions hereof shall not be deemed to be a breach hereof;
(b) In addition to the foregoing (and in no way limiting the
generality of the foregoing), between the date hereof and the Initial Closing,
unless the Purchaser shall have consented in writing thereto and except as
otherwise provided for in this Amended Agreement, each of the Company and FOHP-
NJ agrees that the Company, FOHP-NJ and each of the other Subsidiaries:
(i) shall confer on a regular basis with one or more
representatives of the Purchaser to report operational matters of materiality
and any proposals to engage in material transactions (except that such
obligation to confer is not applicable to Subsidiaries of the Company that are
not operating Subsidiaries);
(ii) shall not, except as otherwise specifically disclosed
herein, fail to comply with any laws and regulations applicable to it or to the
conduct of its business, the noncompliance with which would, individually or in
the aggregate, have a Material Adverse Effect;
(iii) shall not authorize for issuance, issue or deliver any
additional shares of any stock of any class or securities convertible into
shares of stock or issue or grant any right, option, warrant or other commitment
for the issuance of shares of stock or such securities, or any stock
appreciation rights, other than under the terms of this Amended Agreement;
(iv) shall not amend its certificate or incorporation or by-laws,
except as provided for in this Amended Agreement;
(v) shall not split, combine or reclassify any shares of its
capital stock or declare, set aside or pay any dividend (whether in cash, stock
or property) in respect of its capital stock (other than dividends paid to the
Company) or redeem or otherwise acquire any of its capital stock;
(vi) shall not sell marketable securities owned by it, if any, or
purchase marketable securities, except in the ordinary course of business;
(vii) shall not prepay its expenses or obligations except in
accordance with the terms of applicable contracts, commitments and arrangements
and in the ordinary course of business (and in any case, not to exceed $50,000);
(viii) shall not increase compensation or benefits for, or pay
any bonuses to, or enter into any severance or change of control arrangements
with, any of its directors, officers, employees, consultants or agents outside
of the ordinary course of business;
(ix) shall not offer employment to or employ any person not
currently employed by it other than on the basis of employment-at-will in the
ordinary course of business or enter into any written employment contract or any
collective bargaining agreement;
(x) shall not create, amend, extend, renew, assume, incur or
guarantee any indebtedness either involving amounts in excess of $50,000
individually or in excess of $100,000 in the aggregate, or not in the ordinary
course of its business;
(xi) shall not, except as otherwise permitted herein, enter into
or amend any contract, commitment or arrangement or engage in any transaction
which is not in the ordinary course of its business;
(xii) shall not create any stock option or other stock-based
incentive plan or grant any stock option, phantom stock, stock appreciation
right or other similar security or instrument;
(xiii) shall not acquire any other business or interest
therein;
(xiv) shall not enter into any contract, commitment or
arrangement or engage in any transaction with any of its affiliates,
shareholders, directors, officers or employees which is not in the ordinary
course of business and consistent with past practice;
(xv) shall not enter into any amendment or modification of any of
its agreements with providers, other than amendments or modifications expressly
contemplated hereby or with respect to which the Purchaser shall have provided
its prior written consent;
(xvi) shall not make any contractual commitment (including by
way of renewal) with respect to any single account involving projected annual
premium revenues or health care costs in excess of $1,000,000;
(xvii) shall use all reasonable, good-faith efforts to conduct
its operations only according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
(xviii) shall use all reasonable, good-faith efforts to
preserve intact its business organization and goodwill, keep available the
services of its officers and employees and maintain satisfactory relationships
with those persons having business relationships with it;
(xix) shall not make any change in its accounting practices
other than as required by the Financial Accounting Standards Board (in which
event such change shall be reported promptly to Purchaser in writing); and
(xx) shall not enter into any contract, commitment or arrangement
to do any of the things described in clauses (iii) through (xvi) and clause
(xix) above.
4.4 No Solicitation of Other Offers. Neither the Company nor any of the
Subsidiaries shall, directly or indirectly, through any of their respective
officers, directors, employees, agents or otherwise (i) solicit, initiate or
encourage submission of any inquiry, proposal or offer from any person or entity
(other than the Purchaser) relating to any acquisition, purchase or sale of all
or a material amount of the respective assets of, or any securities of, or any
merger, consolidation or business combination, liquidation, reorganization or
similar transaction with, the Company or any of the Subsidiaries (an
"Alternative Transaction"), or (ii) subject to fiduciary obligations under
applicable law as advised by counsel, participate in any discussion or
negotiations regarding, or furnish to any other person any information with
respect to, any effort or attempt by any other person to do or seek any of the
foregoing. Subject to fiduciary obligations under applicable law as advised by
counsel, neither the Company nor any of the Subsidiaries shall furnish or cause
to be furnished any confidential information concerning its business, properties
or assets to any person or entity that is interested in any Alternative
Transaction. The Company shall promptly notify Purchaser if any such inquiry,
proposal or offer with respect to an Alternative Transaction, or any inquiry or
contact with any person or entity with respect thereto, is made, and shall, in
any such notice, include a description of the terms of any proposal or offer, or
the nature of any such inquiry or contact, that is made, and the identity of the
person or entity making such inquiry, proposal or offer or other communication.
4.5 Interim Financial Statements. Within 30 days after the end of each
calendar month that ends after the date of this Amended Agreement and before the
Initial Closing, the Company will deliver to the Purchaser unaudited
consolidated balance sheets and summaries of earnings for such calendar month
and the year to date. All such financial statements shall accurately present
the financial position and results of operations of the Company and the
Subsidiaries on a consolidated basis.
4.6 Updated Disclosure; Breaches. From and after the date of this Amended
Agreement until the Initial Closing, the Company shall promptly notify the
Purchaser hereto by written update of (i) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
condition to the obligations of any party to effect the transactions
contemplated by this Amended Agreement not to be satisfied, (ii) the failure of
the Company to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it pursuant to this Amended Agreement which would
be likely to result in any condition to the obligations of any party to effect
the transactions contemplated by this Amended Agreement not be satisfied or
(iii) any representation, warranty or information set forth in this Amended
Agreement or its schedules regarding the Company becoming incorrect or
incomplete in any material respect; provided, however, that the delivery of any
notice pursuant to this Section 4.6 shall not cure any breach of any
representation or warranty requiring disclosure prior to the date, or in
connection with the execution and delivery, of this Amended Agreement or
otherwise limit or affect the remedies available to the Purchaser (other than
with respect to Material Contracts described in Section 2.10 hereof and entered
into in the ordinary course of business subsequent to the date hereof and any
changes in representations and warranties of the Company relating to regulatory
compliance resulting from regulatory action occurring after the date hereof).
4.7 Consummation of Amended Agreement. The Company shall use all
reasonable efforts to cause the consummation of the transactions contemplated
hereby in accordance with their terms and conditions.
4.8 Approvals of Third Parties. The Company shall use all reasonable
efforts to secure, as soon as practicable after the date hereof, all necessary
approvals and consents of third parties, including, without limitation, the New
Jersey Department of
Banking and Insurance and the New Jersey Department of Health and Senior
Services, to the consummation of the transactions contemplated hereby.
4.9 Restated Certificates and By-laws.
(a) Subject to receipt of necessary shareholder approval as
contemplated in Section 4.10 hereof, the Company shall (i)(A) use all reasonable
efforts to file an Amended and Restated Certificate of Incorporation in the form
attached hereto as Exhibit B-1 (the "Restated Certificate") with the Secretary
of State of the State of New Jersey prior to the Initial Closing and (B) adopt
by-laws in the form attached hereto as Exhibit B-2 and (ii) if requested by the
Purchaser, cause each of the Subsidiaries to file an amended and restated
certificate of incorporation in its jurisdiction of incorporation and to adopt
amended and restated by-laws, which amended and restated certificate of
incorporation and amended and restated by-laws shall in no way be breached,
violated or conflict with the transactions contemplated hereby.
(b) FOHP-NJ shall, prior to the Initial Closing (i) use all
reasonable efforts to file an amended and restated certificate of incorporation,
in the form attached hereto as Exhibit B-3, with the Secretary of the State of
the State of New Jersey and (ii) adopt by-laws in the form attached hereto as
Exhibit B-4.
4.10 Proxy Statement.
(a) Subject to the terms and conditions of this Amended Agreement, as
promptly as practicable after the date hereof, the Company shall prepare and
file with the SEC the proxy statement (the "Proxy Statement") of the Company for
a meeting of shareholders to be held in connection with the approval of this
Amended Agreement and the transactions contemplated hereunder (the "Meeting").
The Company shall provide the Purchaser with a draft of the Proxy Statement a
reasonable period of time prior to filing the Proxy Statement with the SEC. The
Purchaser shall have the right to consent to and approve (which consent and
approval shall not be unreasonably withheld) the information included in the
Proxy Statement in any manner relating to the Purchaser or its subsidiaries or
affiliates or to the transactions contemplated hereby. Subject to the terms and
conditions of this Amended Agreement, the Company shall use all reasonable
efforts to have the Proxy Statement cleared for mailing by the SEC. The Company
will (i) take appropriate action to call the Meeting to be held at the earliest
practicable date to consider and vote upon the transactions contemplated
hereunder, (ii) mail the Proxy Statement to the shareholders of the Company
entitled to receive it and otherwise comply in all material respects with all
applicable legal requirements in connection with the vote of shareholders at the
Meeting promptly after the SEC has cleared the Proxy Statement for distribution
to the shareholders of the Company, and (iii) submit this Amended Agreement to
its shareholders with a recommendation for approval by its Board of Directors,
subject to fiduciary obligations under applicable law as advised by counsel.
(b) The Company shall promptly furnish to the Purchaser all
information concerning the Company, the Subsidiaries and its shareholders as may
be required or reasonably requested in connection with any action contemplated
by this Section 4.10.
4.11 Provider Contracts.
(a) (i) The Company and FOHP-NJ shall use all reasonable efforts to
modify their provider contracts (A) with each physician provider so that (I) the
aggregate rate of reimbursement with respect to all FOHP-NJ commercial members
is reduced to an average of 115 percent of RBRVS and (II) the aggregate rate of
reimbursement with respect to all FOHP-NJ Medicare members is reduced to an
average of no more than 100 percent of RBRVS, and (III) the aggregate rate of
reimbursement with respect to all FOHP Medicaid members is reduced to an average
of no more than 65 percent of RBRVS and (B) with each hospital or acute care
institution provider so that (I) the rate of reimbursement applicable to in-
patient visits will be the lower of (x) the lowest rate of reimbursement
received by such provider from nongovernmental payors for each line of business,
or (y) the rate of reimbursement reflecting a reduction (compared to calendar
1996 rates) of five percent in in-patient costs (solely as a result of rate
reductions and not through utilization or medical management efforts) and (II)
the rate of reimbursement applicable to out-patient visits will be the lower of
(x) the lowest rate of reimbursement received by such provider from
nongovernmental payors for each line of business, or (y) the rate of
reimbursement reflecting a reduction (compared to calendar 1996 rates) of 10
percent in out-patient costs (solely as a result of rate reductions and not
through utilization or medical management efforts). The Company and FOHP-NJ
will also use all reasonable efforts to, in the case of any physician or
hospital or acute care institution providers with which the Company or FOHP-NJ,
as the case may be, has contracts containing terms not competitive with terms
offered by other providers in the same markets, pursue additional modifications
to such terms to make such terms so competitive.
(ii) The Company and FOHP-NJ shall use all reasonable efforts to
(A) enter into an agreement, in substantially the form attached hereto as
Exhibit C-1, with each hospital or acute care institution provider (referred to
herein as an "Exclusive Plan Hospital Provider") which currently offers to its
employees as its exclusive health benefits plan a FOHP-NJ health benefits plan
committing such Exclusive Plan Hospital Provider to continue to offer such FOHP-
NJ plan to its employees as its exclusive health benefits plan through the end
of 1999 or such other period as the parties thereto may mutually agree on the
same terms and conditions as currently in effect except that reimbursement rates
under such plan with respect to renewals commencing in the 1998 and 1999
calendar years shall be adjusted in accordance with the methodology set forth in
such form of agreement and (B) enter into an agreement, in substantially the
form attached hereto as Exhibit C-2, with each hospital or acute care
institution provider (referred to herein as a "Non-Exclusive Plan Hospital
Provider") which currently offers to its employees on a non-exclusive basis a
FOHP-NJ health benefits plan committing such Non-Exclusive Plan Hospital
Provider to continue to offer such FOHP-NJ plan to its employees through the end
of 1999 or such other renewal as the parties thereto may mutually agree on the
same terms and conditions as currently in effect except that reimbursement rates
under such plan with respect to the renewals commencing in 1998 and 1999
calendar years shall be adjusted in accordance with the methodology set forth in
such form of agreement.
(b) The Company agrees to allow the Purchaser to evaluate the
Company's current Managed Care Management Information Services Agreement (the
"HSII Agreement") between the Company and Health Systems Integration, Inc. and
further agrees to terminate such agreement at or subsequent to the Initial
Closing if (i) the Purchaser so requests and (ii) the Company is presented the
opportunity to enter into an agreement with the Purchaser or a third party
pursuant to which the Company would be provided services substantially similar
to those set forth in the HSII Agreement for a fee no higher than that set forth
in the HSII Agreement.
4.12 Letters of Credit; Guarantees. Neither the Company nor FOHP-NJ shall
draw any amounts under any letter of credit, or incur any obligations under any
other reimbursement or other agreement relating to credit support therefor,
unless so required by either the New Jersey Department of Banking and Insurance
or the New Jersey Department of Health and Senior Services to so draw such
amounts under such letter of credit or so incur such obligations under such
reimbursement or other agreement, in which event all amounts so drawn, or
received by the Company or FOHP-NJ in connection with such obligation
incurrence, shall be placed and maintained in a separate and segregated account
from which funds shall be used to satisfy in full all obligations relating to
such letter of credit or reimbursement or other agreement, as the case may be.
The Company or FOHP-NJ, as the case may be, shall immediately provide written
notice to HSI should they become required by the New Jersey Department of
Banking and Insurance or the New Jersey Department of Health and Senior Services
to draw any amounts under any letter of credit, or incur any obligations under
any other reimbursement or other agreement relating to credit support therefor.
4.13 Liability Insurance. The Company shall continue to keep in effect its
directors' and officers' liability insurance coverage policies with National
Union Fire Insurance Co., American Alliance and Executive Risk Indemnity Inc. as
are listed on Schedule 2.20 hereto.
ARTICLE V
COVENANTS OF THE PURCHASER
5.1 Consummation of Agreement. The Purchaser shall, between the date
hereof and the Initial Closing, use all reasonable efforts to cause the
consummation of the transactions contemplated hereby in accordance with their
terms and conditions.
5.2 Claims Processing System. The Purchaser shall, between the date
hereof and the Initial Closing, use all reasonable efforts to maintain its
medical management systems and techniques, claims processing system and related
systems and procedures and other information systems in conformance and
adherence to industry standards.
5.3 Updated Disclosure; Breaches. From and after the date of this Amended
Agreement until the Initial Closing Date, the Purchaser shall promptly notify
the Company hereto by written update of (a) the occurrence or non-occurrence of
any event the occurrence or non-occurrence of which would be likely to cause any
condition to the obligations of the Company to effect the transactions
contemplated by this Amended Agreement not to be satisfied, or (b) the failure
of the Purchaser to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it pursuant to this Amended Agreement which
would be likely to result in any condition to the obligations of any party to
effect the transactions contemplated by this Amended Agreement not be satisfied
or (c) any representation, warranty or information set forth in this Amended
Agreement or its schedules regarding the Purchaser shall become incorrect or
incomplete in any material respect; provided, however, that the delivery of any
notice pursuant to this Section 5.3 shall not cure any breach of any
representation or warranty requiring disclosure prior to the date of this
Amended Agreement or otherwise limit or affect the remedies available to the
Company (other than as described in Section 11.1(a)(iii) hereof).
5.4 Standstill. Prior to December 31, 1998, the Purchaser shall not,
without the prior written consent of the Company, purchase or acquire any Common
Stock (other than in connection with the conversion of the Debentures into
Conversion Shares); provided, however, that the restriction on the Purchaser set
forth in this Section 5.4 shall not apply to (a) the transactions contemplated
herein, (b) any acquisition of Common Stock by the Purchaser pursuant to its
rights of first refusal or preemptive rights under, or as otherwise contemplated
in Article III - Section (E)(4)(a) of, the Restated Certificate or (c) any
purchase or acquisition of Common Stock effected in connection with a tender
offer made by the Purchaser to holders of Common Stock if such tender offer (i)
is accompanied by an irrevocable commitment of the Purchaser to make an Exchange
Offer or Cash Offer in accordance with Section 6.4 hereof in 1999, or (ii)
provides for the determination of consideration to be offered to be made in
accordance with the provisions of Section 6.4 hereof or (iii) is preceded by a
tender offer in which the determination of consideration to be offered is made
in accordance with clause (ii) of this Section 5.4(c) hereof.
ARTICLE VI
OTHER AGREEMENTS
6.1 Provider Contracts.
(a) From and after the Initial Closing, the Company and FOHP-NJ shall
continue to use all reasonable efforts to modify such remaining provider
contracts as were not modified prior to the Initial Closing in satisfaction of
the condition set forth in Section 7.1(h)(ii) hereof (i) with each physician
provider so that (A) the aggregate rate of reimbursement with respect to all
FOHP-NJ commercial members is reduced to an average of 115 percent of RBRVS,
(B) the aggregate rate of reimbursement with respect to all FOHP-NJ Medicare
members is reduced to an average of 100 percent of RBRVS, and (C) the aggregate
rate of reimbursement with respect to all FOHP Medicaid members is reduced to an
average of no more than 65 percent of RBRVS and (ii) with each hospital or acute
care institution provider so that (A) the rate of reimbursement applicable to
in-patient visits will be the lower of (I) the lowest rate of reimbursement
received by such provider from nongovernmental payors for each line of business,
or (II) the rate of reimbursement reflecting a reduction (compared to calendar
1996 rates) of five percent in in-patient costs (solely as a result of rate
reductions and not through utilization or medical management efforts) and (B)
the rate of reimbursement applicable to out-patient visits will be the lower of
(I) the lowest rate of reimbursement received by such providers from non-
governmental payors for each line of business, or (II) the rate of reimbursement
reflecting a reduction (compared to calendar 1996 rates) of 10 percent in out-
patient costs (solely as a result of rate reductions and not through utilization
or medical management efforts). The Company and FOHP-NJ will also continue to
use all reasonable efforts to, in the case of any physician or hospital
providers with which the Company or FOHP-NJ, as the case may be, has contracts
containing terms not competitive with terms offered by other providers in the
same markets, pursue additional modifications to such terms to make such terms
so competitive.
(b) From and after the Initial Closing, the Company and FOHP-NJ shall
continue to use all reasonable efforts to (i) enter into an agreement, in
substantially the form attached hereto as Exhibit C-1, with each remaining
Exclusive Plan Hospital Provider as did not enter into such an agreement prior
to the Initial Closing in satisfaction of the condition set forth in Section
7.1(h)(i) hereof, committing such Exclusive Plan Hospital Provider to continue
to offer such FOHP-NJ plan to its employees as its exclusive health benefits
plan through the end of 1999 or such other period as the parties thereto may
mutually agree on the same terms and conditions as currently in effect except
that reimbursement rates under such plan with respect to the renewals commencing
in 1998 and 1999 calendar years shall be adjusted in accordance with the
methodology set forth in such form of agreement and (ii) enter into an
agreement, in substantially the form attached hereto as Exhibit C-2, with each
remaining Non-Exclusive Plan Hospital Provider as did not enter into such an
agreement prior to the Initial Closing in satisfaction of the conditions set
forth in Section 4.11 hereof, committing such Non-Exclusive Plan Hospital
Provider to continue to offer such FOHP-NJ plan to its employees through the end
of 1999 or such other period as the parties thereto may mutually agree on the
same terms and conditions as currently in effect except that reimbursement rates
under such plan with respect to the renewals commencing in 1998 and 1999
calendar years shall be adjusted in accordance with the methodology set forth in
such form of agreement.
6.2 Capital Requirements. The parties hereto agree that, based on
reasonable projections, prepared by the Purchaser or the Company, of the
Company's net worth and statutory surplus in relation to the net worth
requirements applicable thereto, as are determined by the New Jersey Department
of Banking and Insurance and the New Jersey Department of Health and Senior
Services, from time to time after the date as of which the aggregate of all
Additional Debenture Advance Amounts and the Initial Debenture Advance Amount
shall equal the Debentures Commitment Amount, if it is determined that the
Company needs capital to satisfy such net worth requirements ("Net Capital
Shortfall"), then the Purchaser shall have the right to advance funds to the
Company so that the Company will satisfy the Net Capital Shortfall in exchange
for additional convertible debentures in form substantially similar to the
Debentures; provided that in the event any such Net Capital Shortfall is the
result of payments made to the Purchaser under the General Administrative
Services Management Agreement that would have qualified as Deferred Management
Fees under Section 5.1 of the Debentures had such payments not been made, the
principal amount and interest thereon of such additional convertible debentures
related to such payments shall only become convertible into Common Stock if such
principal amount and interest thereon related to such payments is not repaid to
the Purchaser on or before the end of the calendar quarter immediately following
such payments. If the Purchaser does not, within seven days of the receipt of
any such projections as were prepared by the Company, determine to so advance
funds to the Company, then the Board of Directors of the Company shall have the
right to initiate a pro rata offering of the Common Stock to all then-current
shareholders of the Company to raise capital to satisfy such Net Capital
Shortfall.
6.3 New York Subsidiary. The parties hereto agree to work cooperatively
and in good faith to pursue a mutually agreeable capitalization plan with
respect to FOHP-NY. In the event that no such capitalization plan is developed
and implemented prior to June 30, 1997, the Purchaser shall have the right to
effect a transaction with respect to FOHP-NY, at the fair market value thereof,
pursuant to which FOHP-NY would become a stand-alone company no longer
affiliated as a subsidiary of FOHP so long as there is presented to those
directors of the Company not affiliated with the Purchaser a valuation or
appraiser report or fairness opinion, delivered by an independent, nationally
recognized valuation firm, evidencing that such transaction is to be effected
for fair market value consideration or otherwise opining as to the fairness,
from a financial point of view, of such transaction to the Company.
6.4 Post-Closing Acquisition.
(a) Exchange/Cash Offer for Shares. (i) The Purchaser may at any
time during 1999, at its option, either make an offer (referred to herein as the
"Exchange Offer") to shareholders of the Company to exchange shares of the Class
A Common Stock of the Purchaser or the common stock of any successor corporation
of the Purchaser (in either case referred to herein as "HSI Common Stock"), or
make an offer (referred to herein as the "Cash Offer") to pay cash, for the
shares of the Common Stock of the Company held by such shareholders. Prior to
making the Exchange Offer or the Cash Offer, the Purchaser shall furnish the
Company with prior written notice of its intention to promptly make such
Exchange Offer or Cash Offer, as the case may be (such notification being
referred to herein as the "Offer Notice"). In the Exchange Offer, the Purchaser
would agree to exchange, for each share of Common Stock of the Company, such
number of shares of HSI Common Stock as shall have a Purchaser Stock Market
Value (as such term is defined in paragraph (ii) of this Section 6.4(a)) equal
to the Company Stock Value of such share of Common Stock of the Company. In the
Cash Offer, the Purchaser would agree to pay cash, for each share of Common
Stock of the Company, equal to the Company Stock Value (as such term is defined
in paragraph (iii) of this Section 6.4(a) hereof) of such share of Common Stock
of the Company.
(ii) For purposes hereof the term "Purchaser Stock Market Value"
shall mean the average closing sales price of the HSI Common Stock on the New
York Stock Exchange, Inc. (or, if such HSI Common Stock is not at such time
listed on the New York Stock Exchange, Inc., on such other national securities
exchange as the HSI Common Stock shall at such times be listed or quoted) for
the five consecutive trading days immediately preceding the date on which such
Exchange Offer is commenced by the Purchaser; provided, however, that, in the
event HSI Common Stock shall at such times not be listed or quoted on any
national securities exchange, "Purchaser Stock Market Value" shall be determined
in accordance with the procedures for the determination of Company Stock Value
set forth in paragraph (a)(iii) of this Section 6.4.
(iii) For purposes hereof, "Company Stock Value" shall
be determined as follows: Each of the Purchaser and the Company (through its
directors who are unaffiliated with the Purchaser) shall promptly (and in no
event later than 10 days after the Offer Notice) select an independent qualified
appraiser to appraise the Company Stock Value. Upon completion of such
appraisal by each of such appraisers within 10 business days of the selection
thereof, the two independent qualified appraisers shall exchange their
respective appraisals and submit such appraisals to the Company and the
Purchaser. If the two independent qualified appraisers agree on an appraisal
for the Company Stock Value, the Company Stock Value shall be the agreed-upon
amount. If only one of such appraisers so submits an appraisal within the 10-
business day period subsequent to the selection thereof, the Company Stock Value
shall be the amount set forth in such appraisal. If the two independent
qualified appraisers submit their appraisals within such 10-business day period
but do not promptly agree upon a Company Stock Value, the two independent
qualified appraisers shall select a third independent qualified appraiser to
appraise the Company Stock Value. The third independent qualified appraiser,
upon completion of its appraisal within 10 business days of the selection
thereof, shall submit such appraisal to the Company and the Purchaser. The
Company Stock Value shall be determined by taking the average of the two
appraisals which are closest to each other; provided, however, that, if the
appraisal amount which is less than the highest appraisal and greater than the
lowest appraisal is greater or less than the average amount of such other
appraisals by an amount representing no more than seven and one-half percent of
such average amount, then the average of all three appraisals will be the
Company Stock Value for the purposes of this Section 6.4. For example, if the
Purchaser's independent qualified appraiser valued the aggregate Company Stock
Value at $150 million, the Company's independent qualified appraiser valued the
aggregate Company Stock Value at $50 million and the third independent qualified
appraiser valued the aggregate Company Stock Value at $125 million, the
aggregate Company Stock Value for purposes of this Section 6.4 would be $137.5
million (the average of the two closest appraisals). If, however, the third
independent qualified appraiser appraised the Company Stock Value at $105
million (greater than $100 million by an amount less than seven and one-half
percent of $100 million), the aggregate Company Stock Value for purposes of this
Section 6.4 would be approximately $101.7 million (the average of all three).
For purposes of this Section 6.4, the term "independent qualified appraiser"
shall mean any appraiser which, for at least two years prior to the date of
appointment hereunder (A) is a nationally recognized investment banking firm or
has been in the business of appraising managed health care businesses with
revenues and membership comparable to that of FOHP-NJ and (B) is not affiliated
with either the Company or the Purchaser or otherwise unable to exercise
independent judgment as to the Company Stock Value determination.
(b) Post-Closing Merger. (i) The parties hereto agree that, at any
time after the consummation of the Exchange Offer or the Cash Offer, as the case
may be, or otherwise at any time during the 1999 calendar year, the Purchaser
may (after providing at least 30 days advance written notice thereof to the
Company and providing other legally required notices) effect a merger, business
combination or consolidation transaction (the "Merger Transaction") involving
the Company for the purpose of obtaining 100 percent of the then-outstanding
equity of the Company. The consideration to be paid or distributed in
connection with the Merger Transaction to the shareholders of the Company other
than the Purchaser in respect of each share of Common Stock of the Company held
thereby shall consist of (A) cash in an amount equal to the Company Stock Value
of such share of Common Stock of the Company or (B) such number of shares of HSI
Common Stock as shall have a Purchaser Stock Market Value equal to the Company
Stock Value of such share of Common Stock of the Company.
(c) The Board of Directors of the Company has approved the Merger
Transaction for purposes of Section 14A:10A-4 of the New Jersey Shareholders
Protection Act, and the Company agrees to separately provide to the Purchaser
evidence, satisfactory to the Purchaser, of such approval prior to the Initial
Closing. For purposes hereof, any such Merger Transaction must provide: (i) in
connection therewith, the shareholders of the Company, other than the Purchaser,
shall be afforded dissenters' rights in the same manner and under the same
conditions as are provided under Chapter 11 of the New Jersey Business
Corporation Act, regardless of whether such shareholders would otherwise have
been entitled to such rights under the New Jersey Business Corporation Act; (ii)
the Company, or any successor thereto, shall provide in its by-laws
indemnification provisions substantially similar to those currently contained in
the Company's by-laws for the period ending six years from the date of the
Merger Transaction, or, if earlier, for the period ending on the date on which
the statute of limitations has expired with respect to the Company's Board of
Directors' approval of this Amended Agreement and the Merger Transaction
contemplated hereby; and (iii) the Company, or any successor thereto, shall
maintain officers' and directors' liability insurance coverage policies with
terms and conditions contained in the officers' and directors' liability
insurance coverage policies currently maintained by the Company for the period
ending six years from the date of the Merger Transaction, or, if earlier, for
the period ending on the date on which the statute of limitations has expired
with respect to the Company's Board of Directors' approval of this Amended
Agreement and the Merger Transaction contemplated hereby, which insurance shall
provide coverage for former directors of the Company.
6.5 Additional HSR Act Filings. Each of the Company and the Purchaser
agrees that, in the event that any additional filings are required under the
▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), subsequent to the Initial Closing, with respect to consummation of any of
the transactions contemplated hereunder, it shall use all reasonable efforts to
file as soon as possible and to effect early termination of all applicable
waiting periods regarding such filing under the HSR Act (including, without
limitation, complying as promptly as practicable with all requests thereunder
for additional information). Each of the Company and the Purchaser shall pay to
the Federal Trade Commission (the "FTC") one-half of the appropriate filing fee
required to be paid under the rules of the FTC with respect to any such
additional filing.
6.6 Liability Insurance. The Company shall continue to keep in effect its
directors' liability insurance coverage policies with National Union Fire
Insurance Co., American Alliance and Executive Risk Indemnity Inc. as are listed
on Schedule 2.20 hereto through September 15, 1997 and shall renew such coverage
or substantially the same terms as are now in effect for at least six years from
and after the Initial Closing Date or for such shorter period as the Purchaser
may agree in writing.
ARTICLE VII
CONDITIONS PRECEDENT TO THE PURCHASER'S OBLIGATIONS
7.1 Conditions Precedent to Initial Closing. The Purchaser's obligations
to purchase the Debentures and consummate the other transactions contemplated
hereby shall be subject to the satisfaction of the following conditions, any of
which may be waived in writing:
(a) Delivery of Debentures. The Company shall have delivered to the
Purchaser the Debentures.
(b) Representations and Warranties. The representations and
warranties contained in Article II hereof (as such representations and
warranties may have been amended in accordance with Section 11.1(a)(ii) hereof)
shall be true and correct in all material respects on and as of the Initial
Closing Date, with the same effect as though made on and as of the Initial
Closing Date.
(c) Corporate Proceedings. All corporate and other proceedings
required to be taken by the Company in connection with the transactions
contemplated hereby, including, without limitation, approval by the shareholders
of the Company hereunder, shall have been taken or obtained and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
Purchaser. The Purchaser shall have received all such counterpart originals or
certified or other copies of such documents of the Company relating to all
corporate and other proceedings as it shall reasonably request.
(d) Amended and Restated Certificates and By-laws. The restated
certificates of incorporation of the Company and FOHP-NJ, in the forms of
Exhibits B-1 and B-3, respectively, attached hereto, shall have been filed with
the Secretary of State of the State of New Jersey and the terms thereof shall
have become effective and the amended and restated by-laws of the Company and
FOHP-NJ, in the forms of Exhibits B-2 and B-4, respectively, attached hereto
shall have been adopted.
(e) Good Standing Certificates. The Purchaser shall have received
(i) a copy of the Certificate certified as of a recent date by the Secretary of
State of the State of New Jersey and (ii) certificates as of a recent date of
the Secretary of State of each state in which the Company or any Subsidiary is
organized or qualified to do business as a foreign corporation, to the extent
that such corporation is in existence and otherwise is in good standing to
transact business in such state.
(f) Secretary's Certificate. The Purchaser shall have received
certificates of the Secretary of each of the Company and FOHP-NJ certifying that
(i) attached to the certificate is a true and complete copy of the By-Laws of
the Company, as in full force and effect at the Initial Closing Date, and
(ii) the names and true signatures of each officer of the Company and FOHP-NJ
who has been authorized to execute and deliver this Amended Agreement, the
Debentures and any other document to be delivered by the Company at the Initial
Closing.
(g) Management Agreements. The Company shall have entered into the
Management Agreements in the forms attached as Exhibit D-1 and D-2 hereto.
(h) Modified Provider Agreements. The Company shall have delivered
to the Purchaser evidence, satisfactory to the Purchaser in its sole discretion,
that (i) the Company and FOHP-NJ shall have modified, in a legally binding
manner, FOHP-NJ's provider contracts so that (A) at least 90 percent of
individual physician providers who contract directly with FOHP-NJ and at least
80 percent of the remaining individual physician providers (who contract with
FOHP-NJ through physician groups) are obligated to accept rates of reimbursement
which will result in aggregate payments of no more than (I) 115 percent of RBRVS
with respect to all commercial members, (II) 100 percent of RBRVS with respect
to all Medicare members and (III) 65 percent of RBRVS with respect to all
Medicaid members and (B) with respect to institutional providers, (I) the
aggregate rate of reimbursement among all FOHP-NJ institutional providers would
reflect a reduction (compared to calendar 1996 rates) of (x) five percent in in-
patient costs (solely as a result of rate reductions and not through utilization
or medical management efforts) and a reduction (compared to calendar 1996 rates)
of (y) 10 percent with respect to out-patient costs (solely as a result of rate
reductions and not through utilization or medical management efforts) and (II)
individual institutional providers representing at least 80 percent of FOHP-NJ's
health care costs (as measured with respect to the 1996 calendar year) shall
have modified their provider contracts with FOHP-NJ as described in Section
4.11(a)(i)(B) hereof and (ii) (A) the Exclusive Plan Hospital Providers shall
have delivered to the Company and FOHP-NJ legally binding commitments, in
substantially the form of Exhibit C-1 hereto, that all of their employees will
continue to be covered by a FOHP-NJ health benefits plan through the end of 1999
and that such employees will constitute an aggregate of at least 1,614,660
"member-months" over the terms of such respective commitments, including (I)(x)
at least 621,100 "member-months" for the 1997 calendar year, (y) at least
496,780 "member-months" for the 1998 calendar year and (z) at least 496,780
"member-months" for the 1999 calendar year and (B) the Non-Exclusive Plan
Hospital Providers shall have delivered to the Company and FOHP-NJ satisfactory
commitments, in substantially the form of Exhibit C-2 hereto, that (I) employees
representing a minimum of annualized 238,800 member-months will continue to be
covered by a FOHP-NJ health benefits plan through the end of the 1997 calendar
year and (II) employees representing a minimum of annualized 382,080 member-
months will be covered by a FOHP-NJ health benefits plan for the 1998 and 1999
calendar years.
(i) Investors Agreement. The Company shall have entered into the
Investors Agreement in the form attached hereto as Exhibit E.
(j) Opinions of Counsel. The Purchaser shall have received from
Shereff, Friedman, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C. and
the general counsel of the Company, opinions of counsel, dated the Initial
Closing Date, containing the opinions set forth in, and allocated as designated
in, the form attached as Exhibit F hereto.
(k) Approvals and Consents. All authorizations, approvals, consents
and waivers of any governmental authority necessary in the good faith judgment
of the Purchaser for the consummation of any or all of the transactions
contemplated hereby including, without limitation, the consent and approval of
the New Jersey Department of Banking and Insurance and the New Jersey Department
of Health and Senior Services with respect to the terms and provisions of this
Amended Agreement (including Section 4.13 hereof), shall have been obtained on
terms satisfactory to the Purchaser and shall be in full force and effect; and
consents or waivers from parties other than governmental bodies (including
shareholders of the Company) that are required in connection with the
consummation of any or all of the transactions contemplated hereby shall have
been obtained on terms satisfactory to the Purchaser and shall be in full force
and effect and signed copies thereof shall have been delivered to the Purchaser.
(l) Covenants. The Company shall have performed or complied in all
material respects with all obligations, agreements and covenants required to be
performed by it hereunder prior to or on the Initial Closing Date.
(m) Sierra Contract. The Agreement dated January 16, 1995, between
Sierra and FOHP-NJ shall have been terminated on terms without any residual
liability or obligations of the Company or FOHP-NJ and otherwise on terms
acceptable to the Purchaser.
(n) Letters of Credit; Guarantees. With the exception of the Letter
of Credit issued by CoreStates Bank and secured by ▇▇▇▇ ▇. ▇▇▇▇▇▇, none of the
Letters of Credit or guarantees set forth on Schedule 2.6 hereto shall have
expired or terminated.
(o) Injunction, Etc. No injunction or similar order shall be
effective which enjoins, prohibits or restrains the purchase and sale of the
Debentures or the transactions contemplated hereby.
(p) Action or Proceeding. There shall not be any action or
proceeding by or before any court or other governmental body that shall seek to
restrain, prohibit or invalidate the transactions contemplated by this Amended
Agreement, and there shall not be any action or proceeding seeking a material
amount of damages by reason of consummation of this Amended Agreement or any of
the transactions contemplated hereunder, the defense of any of which would
involve expense or lapse of time that would be materially adverse to the
interests of the Company.
7.2 Conditions Precedent to each Additional Debenture Advance Closing.
The Purchaser's obligation hereunder to loan and advance to the Company
Additional Debenture Advance Amounts at each Additional Debenture Advance
Closing shall be subject to the satisfaction of the following conditions, any of
which may be waived by the Purchaser in writing, subject to the further
conditions and elections set forth in Section 7.3 below:
(a) Representations and Warranties. The representations and
warranties contained in Article II hereof (as such representations and
warranties may have been amended in accordance with Section 11.1(a)(ii) hereof)
shall (i) have been true and correct in all material respects as of the Initial
Closing Date and (ii) with respect to all items set forth on a certificate of an
executive officer of the Company in substantially the form attached hereto as
Exhibit G, be true and correct in all material respects on and as of the
Additional Debenture Advance Closing Date, the Additional Debenture Advance
Amount being so advanced, with the same effect as being made on and as of such
Additional Debenture Advance Closing Date, and such certificate shall have been
delivered to the Purchaser.
(b) Good Standing Certificates. The Purchaser shall have received
(i) a copy of the Certificate certified as of a recent date by the Secretary of
State of the State of New Jersey and (ii) certificates as of a recent date of
the Secretary of State of each state in which the Company or Subsidiary is
organized or qualified to do business as a foreign corporation, to the extent
that such corporation is in existence and otherwise is in good standing to
transact business in such state.
(c) Secretary's Certificate. The Purchaser shall have received
certificates of the Secretary of each of the Company and FOHP-NJ certifying that
(i) attached to the certificate is a true and correct copy of its By-laws of the
Company, as in full force and effect at the Additional Debenture Advance Closing
Date with respect to the Additional Debenture Advance Amount being so advanced,
and (ii) the names and true signatures of each officer of the Company and FOHP-
NJ who has been authorized to execute and deliver any document to be delivered
by the Company at such Additional Debenture Advance Closing.
(d) Management Agreements. The General Administrative Services
Management Agreement, and the Management Information Systems and Claims
Processing Services Management Agreement, if effective, shall be in full force
and effect or shall have been terminated without cause by the Purchaser.
(e) Approvals and Consents. All authorizations, approvals, consents
and waivers of any government authority necessary in the good-faith judgment of
the Purchaser for the loan and advance by the Purchaser of such Additional
Debenture Advance Amount being so advanced shall have been obtained on terms
satisfactory to the Purchaser and shall be in full force and effect, and
consents or waivers from parties other than governmental bodies that are
required in connection with the loan and advance by the Purchaser of such
Additional Debenture Advance Amount shall have been obtained on terms
satisfactory to the Purchaser and shall be in full force and effect, and signed
copies thereof shall have been delivered to the Purchaser.
(f) Covenants. The Company shall have performed and complied in all
material respects with all obligations, agreements and covenants required to be
performed by it hereunder prior to or on the Additional Debenture Advance
Closing Date with respect to the Additional Debenture Advance Amount being so
advanced.
(g) Action or Proceeding. There shall not be any action or
proceeding by or before any court or other governmental body that shall seek to
restrict, prohibit or invalidate the loan and advance by the Purchaser of the
Additional Debenture Advance Amount being so advanced, and there shall not be
any action or proceeding seeking a material amount of damages by reason of the
advance by the Purchaser of such Additional Debenture Advance Amount the defense
of any of which would involve expending a length of time that would be
materially adverse to the interest of the Company or the Purchaser.
7.3 Additional Debenture Advance Elections and Adjustment.
(a) In the event all of the conditions set forth in Section 7.2 above
are not satisfied with respect to any given Additional Debenture Advance Amount,
then the Purchaser may, at its option:
(i) elect in writing to not advance such Additional Debenture
Advance Amount (the "No Additional Advance Option"); or
(ii) elect in writing to deduct from such Additional Debenture
Advance Amount an amount equal to the Additional Debenture Advance Adjustment
relating to the conditions set forth in Section 7.2 not so satisfied (the
"Advance Adjustment Option").
The Additional Debenture Advance Adjustment shall mean the amount of all losses,
claims, obligations, demands, assessments, penalties, liabilities, costs,
damages, attorneys' fees and expenses asserted against or incurred by the
Purchaser by reason of or resulting from the nonsatisfaction of the conditions
set forth in Section 7.2 relating to the Additional Debenture Advance Amount.
In calculating the amount of the downward adjustment to the Additional Debenture
Advance Amount in connection with the exercise of the Advance Adjustment Option,
the Purchaser shall in good faith promptly (and prior to the applicable
Additional Debenture Advance Closing) prepare a reasonable estimate of the
Additional Debenture Advance Adjustment in consultation with the directors of
the Company not affiliated with the Purchaser (the "Non-HSI Directors"). In the
event the Purchaser and the Non-HSI Directors disagree on the correct amount of
the Additional Debenture Advance Adjustment, the Purchaser's estimate of such
adjustment shall prevail for purposes of determining the Additional Debenture
Advance Amount for the applicable Additional Debenture Advance Closing, and the
procedures contained in Section 7.3 (b) shall be utilized to resolve any
proposed changes or inaccuracies of such estimate. In addition, it is further
agreed that any Additional Debenture Advance Adjustment shall not be considered
to be Damages of the Purchaser for the purposes of Article IX.
(b) In the event of any dispute, controversy, claim or difference
which arises out of or relates to the Purchaser's estimate of the amount of such
Additional Debenture Advance Adjustment, the Non-HSI Directors may give written
notice of an intention to submit such matter to binding arbitration unless the
matter is resolved within two weeks or such additional period of time as shall
be agreed upon by the parties hereto. If the matter cannot be resolved within
such period through correspondence and mutual consultation of the parties
hereto, it shall be finally settled by arbitration in accordance with the Rules
of Civil Arbitration of the American Arbitration Association ("AAA"). Each
party of the Company and FOHP-NJ, on the one hand, and HSI, on the other hand,
shall select an arbitrator with expertise in managed care organizations and such
arbitrators shall jointly select a third arbitrator or, if such arbitrators
cannot agree, the AAA shall select the third arbitrator; provided, however, that
such third arbitrator shall not have a residence or office in the State of New
Jersey. If either party fails to select an arbitrator within 20 days after
service of the notice of demand for arbitration, then the AAA shall select such
arbitrator. Arbitration proceedings shall be held in the State of New Jersey
unless otherwise agreed to by the parties in writing. The decision of a
majority of the arbitrators shall be final and binding upon the parties hereto,
shall not be subject to appeal and shall deal with the question of costs of the
arbitration and all matters related thereto. Judgment upon the award or
decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof, or application may be made to such court for a judicial
recognition of the arbitration award or an order of enforcement thereof, as the
case may be. The agreement to arbitrate set forth in this Section 7.3(b) shall
be specifically enforceable by the parties hereto, and such parties shall
acknowledge and agree that they intend that all disputes, controversies or
claims of any kind covered by this Section 7.3, including disputes over whether
and how to arbitrate, shall be arbitrated.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
The Company's obligation to sell the Debentures to the Purchaser and to
consummate the other transactions contemplated hereby shall be subject to the
satisfaction of the following conditions, any of which may be waived in writing:
8.1 Receipt of Payment. The Company shall have received payment of the
Initial Debenture Purchase Price as provided in Section 1.2 hereof.
8.2 Representations and Warranties. The representations and warranties
contained in Article III hereof (as such representations and warranties may have
been amended in accordance with Section 11.1(a)(iii) hereof) shall be true and
correct in all material respects on and as of the Initial Closing Date, with the
same effect as though made on and as of the Initial Closing Date.
8.3 Proceedings and Documents. All corporate and other proceedings
required to be taken in connection with the transactions contemplated by this
Amended Agreement shall have been taken or obtained and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Company,
and the Company shall have received all such counterpart originals or certified
or other copies of such documents as the Company reasonably requests.
8.4 Covenants. The Purchaser shall have performed or complied in all
material respects with all obligations, agreements and covenants required to be
performed by it hereunder prior to or on the Initial Closing Date.
8.5 Injunction, Etc. No injunction or similar order shall be effective
which enjoins, prohibits or restrains the purchase and sale of the Debentures or
the transactions contemplated hereby.
8.6 Approvals. All authorizations, approvals, consents and waivers of
shareholders of the Company or any governmental authority or third party,
including, without limitation, the New Jersey Department of Health and Senior
Services, each as required to permit the consummation of the transactions
contemplated by this Amended Agreement, shall have been obtained and shall not
be terminated, suspended or withdrawn as of the Initial Closing Date.
8.7 Investors Agreement. The Purchaser shall have entered into the
Investors Agreement in the form attached hereto as Exhibit F.
8.8 Opinion of Counsel. The Company shall have received from ▇▇▇▇▇▇▇▇▇,
Will & ▇▇▇▇▇, an opinion of counsel, substantially in the form attached as
Exhibit H hereto.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Company.
(a) Subject to the terms and conditions of this Article IX, the
Company and FOHP-NJ hereby agree, jointly and severally, to indemnify, defend
and hold Purchaser and its directors, officers, agents, and affiliates harmless
from and against all losses, claims, obligations, demands, assessments,
penalties, liabilities, costs, damages, attorneys' fees and expenses
(collectively, "Damages"), asserted against or incurred by such indemnitees by
reason of or resulting from a breach of any representation or warranty (as such
representations and warranties may have been amended in accordance with Section
11.1(a)(ii) hereof) or covenant of the Company or FOHP-NJ contained herein in
any exhibit, schedule, certificate or financial statement delivered hereunder or
in any other agreement or document executed in connection with the transactions
contemplated hereby.
(b) The Company and FOHP-NJ hereby agree, jointly and severally, to
pay the costs and expenses (including reasonable attorney's fees and expenses)
incurred by any other party in successfully (i) enforcing any of the terms of
this Article IX against the Company or (ii) proving that the Company breached
any of the terms of this Amended Agreement.
(c) Neither the Company nor FOHP-NJ shall have any obligation to
indemnify Purchaser and its directors, officers, agents and affiliates in
respect of any Damages resulting from circumstances described in clause (a)
above until the aggregate amount of such Damages exceeds $250,000 (the "Minimum
Threshold Requirement"), and then the Company and FOHP-NJ shall be liable only
to the extent the aggregate amount of such Damages exceeds $250,000.
(d) The amount of Damages for which the Company or FOHP-NJ shall have
an obligation to indemnify Purchaser and its directors, officers, agents and
affiliates resulting from a breach of any representation or warranty arising
more than 18 months after the Initial Closing Date (or the date that is 6 years
following such Initial Closing Date, as relates to the representations and
warranties set forth in Section 2.14 and Section 2.16 hereof) shall be limited
to the aggregate Additional Debenture Advance Amounts advanced to the Company by
the Purchaser within one year (or 66 months, as relates to Damages by reason of
or resulting from a breach of any representation or warranty set forth in
Section 2.14 or Section 2.16 hereof) of the date on which such claim for Damages
shall have arisen.
9.2 Indemnification by the Purchaser.
(a) Subject to the terms and conditions of this Article IX, the
Purchaser hereby agrees to indemnify, defend and hold the Company and FOHP-NJ
and their respective directors, officers, agents, and affiliates harmless from
and against all Damages asserted against or incurred by any of such indemnitees
by reason of or resulting from a breach of any representation or warranty (as
such representations and warranties may have been amended in accordance with
Section 11.1(a)(iii) hereof) or covenant of the Purchaser contained herein or in
any exhibit, schedule or certificate delivered hereunder, or in any agreement
executed in connection with the transactions contemplated hereby.
(b) The Purchaser agrees to pay the costs and expenses (including
reasonable attorney's fees and expenses) incurred by any other party in
successfully (i) enforcing any of the terms of this Article IX against the
Purchaser or (ii) proving that the Purchaser breached any of the terms of this
Amended Agreement.
(c) The Purchaser shall have no obligation to indemnify the Company
or FOHP-NJ and their respective directors, officers, agents and affiliates in
respect of any Damages resulting from circumstances described in clause (a) of
this Section 9.2 unless the aggregate amount of such Damages exceeds the Minimum
Threshold Requirement, in which case the Purchaser shall be liable only to the
extent the aggregate amount of such Damages exceeds $250,000.
9.3 Conditions of Indemnification. The respective obligations and
liabilities of the Company and FOHP-NJ, on the one hand, and the Purchaser (the
"indemnifying party"), on the other hand, to the other party or parties, as the
case may be (the "party to be indemnified") under Section 9.1 and Section 9.2
hereof with respect to claims resulting from the assertion of liability by third
parties shall be subject to the following terms and conditions:
(a) Promptly, but in no event later than 20 days (or such earlier
time as might be required to avoid prejudicing the indemnifying party's
position) after receipt of notice of commencement of any action evidenced by
service of process or other legal pleading, the party to be indemnified shall
give the indemnifying party written notice thereof together with a copy of such
claim, process or other legal pleading, and the indemnifying party shall have
the right to undertake the defense thereof by representatives of its own
choosing and at its own expense; provided that the party to be indemnified may
participate in the defense with counsel of its own choice, the fees and expenses
of which counsel shall be paid by the party to be indemnified unless (i) the
indemnifying party has agreed to pay such fees and expenses, (ii) the
indemnifying party has failed to assume the defense of such action or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnifying party and the party to be indemnified and the party to be
indemnified has been advised by counsel in writing that there may be one or more
legal defenses available to it that are different from or additional to those
available to the indemnifying party (in which case, if the party to be
indemnified informs the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the party to be indemnified, it being understood, however, that the indemnifying
party shall not, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable for the reasonable fees
and expenses of more than one separate firm of attorneys at any time for the
party to be indemnified, which firm shall be designated in writing by the party
to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after
receipt of notice of any such claim (or, if earlier, by the 10th day preceding
the day on which an answer or other pleading must be served in order to prevent
judgment by default in favor of the person asserting such claim), does not elect
to defend against such claim, the party to be indemnified will (upon further
notice to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such claim on behalf of and for the account and risk
of the indemnifying party and at the indemnifying party's expense, subject to
the right of the indemnifying party to assume the defense of such claims at any
time prior to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not
settle any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
9.4 Remedies Not Exclusive. The remedies provided in this Article IX
shall not be exclusive of any other rights or remedies available to one party
against the other, either at law or in equity.
ARTICLE X
SURVIVAL OF REPRESENTATIONS
The representations and warranties made herein or in any certificates or
documents executed in connection herewith shall survive the execution and
delivery hereof and thereof and the issuance of the Debentures until the date
that is the earlier of (a) the date that is the later of (i) 18 months following
the Initial Closing Date (or the date that is six years following such Initial
Closing Date, as relates to the representations and warranties set forth in
Section 2.14 and Section 2.16 hereof) or (ii) with respect to representations
and warranties made by the Company or FOHP-NJ one year following the Additional
Debenture Advance Closing Date latest in time (or the date that is 66 months
following such Additional Debenture Advance Closing Date, as relates to the
representations and warranties set forth in Section 2.14 and Section 2.16
hereof) or (b) such time as at least 50 percent of such principal amount of the
Debentures as is equal to the Debentures Commitment Amount shall have been
converted into shares of Common Stock pursuant to the terms of the Debentures.
All statements contained in any certificate or other document delivered
hereunder or in connection herewith shall be deemed to constitute continuing
representations, warranties, covenants and agreements made herein by the Company
or the Purchaser, as the case may be. Notwithstanding the foregoing, the
parties hereto hereby agree that all rights and obligations of the parties
hereunder (other than those set forth in Section 5.4, Article VI and Article IX
hereof) shall immediately cease and terminate at such time as at least 50
percent of the Initial Principal Amount of the Debentures shall have been
converted into shares of Common Stock.
ARTICLE XI
TERMINATION
11.1 (a) Termination Events. This Amended Agreement may be terminated
prior to the Initial Closing:
(i) by the mutual written consent of the parties;
(ii) by the Purchaser, if any condition set forth in Article VII
hereof to be performed by the Company or FOHP-NJ has not been satisfied or
waived by the Purchaser on or before the Initial Closing or if there has been a
material breach on or before the Initial Closing of any of the representations
and warranties of the Company or FOHP-NJ (as such representations and warranties
may be amended by this Section 11.1(a)(ii)) or covenants contained in this
Amended Agreement, except that the execution and delivery of this Amended
Agreement (and the execution and delivery of all exhibits hereto) shall not be
deemed to constitute a breach of any such representation, warranty or covenant;
provided, however, that the Purchaser shall, during the 20-day period following
receipt of any written update furnished by the Company to the Purchaser pursuant
to Section 4.6 hereof, with respect to Material Contracts similar to those
described in Section 2.10 hereof and entered into in the ordinary course of
business subsequent to the date hereof, and any changes in representations and
warranties of the Company relating to regulatory compliance resulting from
regulatory action occurring after the date hereof, consider in good faith
whether it will ultimately in any case be willing to proceed with the
transactions contemplated by this Amended Agreement in light of the information
provided in such written update, in which case the Purchaser may inform the
Company in writing that such written update is not satisfactory. In the event
of written notice from the Purchaser that the written update is not satisfactory
and the failure by the Company to cure such written update to the Purchaser's
satisfaction within two business days after such delivery of written notice,
this Amended Agreement shall terminate. The failure of the Purchaser to notify
the Company within such 20-day period shall be deemed to constitute acceptance
by the Purchaser of a modification to this Amended Agreement;
(iii) by the Company if any condition set forth in
Article VIII hereof to be performed by the Purchaser has not been satisfied or
waived by the Company on or before the Initial Closing or if there has been a
material breach on or before the Initial Closing of any of the Purchaser's
representations or warranties (as such representations and warranties may have
been amended in accordance with Section 11.1(a)(iii) hereof) or covenants
contained in this Amended Agreement; provided, however, that the Company shall,
during the 20-day period following receipt of any written update furnished by
the Purchaser to the Company pursuant to Section 5.5 hereof, consider in good
faith whether it will ultimately in any case be willing to proceed with the
transactions contemplated by this Amended Agreement in light of the information
provided in such written update, in which case the Company shall inform the
Purchaser in writing that such written update is not satisfactory. In the event
of written notice from the Company that the written update is not satisfactory
and the failure by the Purchaser to cure such written update to the Company's
satisfaction within two business days after such delivery of written notice,
this Amended Agreement shall terminate. The failure of the Company to notify
the Purchaser within such 20-day period shall be deemed to constitute acceptance
by the Company of a modification to this Amended Agreement; or
(iv) by either party if the Initial Closing shall not have
occurred before July 31, 1997.
(b) Termination Fees.
(i) The Company agrees that if the Purchaser shall terminate
this Amended Agreement pursuant to Section 11.1(a)(ii) or Section 11.1(a)(iv)
hereof, or the Company shall terminate this Amended Agreement pursuant to
Section 11.1(a)(iv) hereof, and, in either case a Competing Transaction (as such
term is defined in paragraph (iv) of this Section 11.1(b)) shall exist at any
time within 12 months after the date of this Amended Agreement which is
subsequently consummated within 12 months of its commencement, then on the
Payment Date (as such term is hereinafter defined below), the Company shall be
liable to pay to the Purchaser an amount equal to the greater of (A) $2,500,000
or (B) the actual costs incurred by the Purchaser in connection within the
transactions contemplated hereunder prior to the termination hereof. For
purposes of this Section 11.1(b), the "Payment Date" is the date 10 days
following the consummation of such Competing Transaction.
(ii) Termination Fee as Liquidated Damages; Material Intentional
Breach. All parties agree that the payment provided for in paragraph (i) of
this Section 11.1(b) shall be the sole and exclusive remedy of the parties upon
any termination of this Amended Agreement, followed by the occurrence or
existence of a Competing Transaction, as described in paragraph (iv) of this
Section 11.1(b) and such remedies shall be limited to the sum stipulated in such
paragraph (i); provided, however, that with respect to any such termination of
this Amended Agreement followed by the occurrence or existence of a Competing
Transaction pursuant to Section 11.1(a)(ii) as a direct result of a material,
intentional breach by the Company of any of its representations, warranties,
covenants or agreements contained in this Amended Agreement, all remedies
available to the Purchaser either in law or equity shall be preserved and
survive the termination of this Amended Agreement.
(iii) Payment Method. Any payment required to be made
pursuant to paragraph (i) of this Section 11.1(b) shall be made to the Purchaser
not later than two business days after delivery to the Company of notice of
demand for payment, and shall be made by wire transfer of immediately available
funds to an account designated by the Purchaser in a notice of demand for
payment delivered in accordance with the procedures set forth in this Amended
Agreement.
(iv) Competing Transaction. For purposes of this Amended
Agreement, "Competing Transaction" shall mean any of the following, or any
agreement or widely disseminated public announcement or widely disseminated
communication by the Company or FOHP-NJ or any other person of a proposed plan
or intention to do any of the following (other than the transactions
contemplated by this Amended Agreement): (A) any merger, consolidation, share
exchange functionally equivalent to a merger, business combination or other
similar transaction; (B) any sale, lease, exchange, mortgage, pledge, transfer
or other disposition of 20 percent or more of the assets of the Company and its
subsidiaries, taken as a whole, in a single transaction or a series of related
transactions; (C) any tender offer or exchange offer for 20 percent or more of
the outstanding shares of capital stock of the Company, in the event the Board
of Directors of the Company shall have changed its recommendation to
shareholders of the Company under Section 4.10 hereof for approval of the
transactions contemplated hereunder, whether or not consummated; (D) the filing
of a registration statement under the Securities Act registering 20 percent or
more of the outstanding shares of capital stock of the Company, whether or not
consummated; or (E) any other transaction, in the event the Board of Directors
of the Company shall have changed its recommendation to shareholders of the
Company under Section 4.10 hereof for approval of the transactions contemplated
hereunder, by which any person or group becomes the beneficial owner of or has
the right to acquire 20 percent or more of the outstanding capital stock of the
Company and such person or group infuses cash or other capital into the Company
or any of the Subsidiaries (or provides guarantees) of at least $2,500,000.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement; Amendments and Waivers. This Amended Agreement
(including the Exhibits and Schedules) and the other agreements executed in
connection with the consummation of the transactions contemplated herein contain
the entire agreement among the parties with respect to the transactions
contemplated hereby, and supersede all prior agreements, written or oral, with
respect thereto (including the Original Agreement). Changes in or additions to
this Amended Agreement may be made only upon written consent of the Company,
FOHP-NJ and the Purchaser.
12.2 Governing Law. This Amended Agreement and the rights and obligations
of the parties hereunder are to be governed and construed in accordance with the
laws of the State of New Jersey, except for the conflicts of law principles
thereof.
12.3 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed,
telexed, sent by facsimile transmission, sent by certified, registered or
express mail, postage prepaid or sent by reputable overnight courier. Any such
notice shall be deemed given when so delivered personally, telegraphed, telexed
or sent by facsimile transmission or, if mailed, two days after the date of
deposit in the United States mail, or if sent by overnight courier, the next
business day following the date the notice is sent, as follows:
(i) if to the Purchaser, to:
Health Systems International, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Senior Vice President, General Counsel and Secretary
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) if to the Company, to:
FOHP, Inc.
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Senior Vice President, General Counsel and Secretary
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Shereff, Friedman, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and with an additional copy to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
Post Office Box 190
Middletown, New Jersey 07748
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(iii) if to FOHP-NJ, to:
First Option Health Plan of New Jersey, Inc.
▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Senior Vice President, General Counsel and Secretary
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
Shereff, Friedman, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and with an additional copy to:
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
Post Office Box 190
Middletown, New Jersey 07748
Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Any party may by notice given in accordance with this section to the other party
designate another address or person for receipt of notices hereunder.
12.4 Effect of Headings. The section and paragraph headings herein are for
convenience only and shall not affect the construction hereof.
12.5 Severability. This Amended Agreement shall be deemed severable, and
the invalidity or unenforceability of any term or provision hereof shall not
affect the validity or enforceability of this Amended Agreement or of any other
term or provision hereof. Furthermore, in lieu of any such invalid or
unenforceable term or provision, the parties hereto intend that there shall be
added as a part of this Amended Agreement a provision as similar in terms to
such invalid or unenforceable provision as may be possible and be valid and
enforceable.
12.6 Confidentiality; Publicity and Disclosures. Each party shall keep
this Amended Agreement and its terms confidential, and shall make no press
release or public disclosure, either written or oral, regarding the transactions
contemplated by this Amended Agreement without the prior knowledge and consent
of the other party hereto; provided that the foregoing shall not prohibit any
disclosure made in good faith by press release, filing or otherwise that is
required by law (including, without limitation, federal securities laws),
regulation or court or administrative order or the New Jersey Department of
Banking and Insurance (in which case the disclosing party shall use best efforts
to advise the other party hereto and obtain such other party's consent and
approval, which consent and approval shall not be unreasonably withheld, prior
to making the disclosure).
12.7 Assignment. Neither this Amended Agreement nor any right or
obligation created hereby or in any agreement entered into in connection with
the transactions contemplated hereby shall be assignable by either party hereto.
12.8 Expenses. Each party hereto shall bear its own fees for counsel and
accountants and other expenses relating to this Amended Agreement and the
transactions contemplated hereby.
12.9 Counterparts. This Amended Agreement may be executed in multiple
counterparts, each of which when so executed and delivered shall be an original,
but all of such counterparts shall together constitute one and the same
instrument.
12.10 Further Assurances. Subject to the terms and conditions herein
provided, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the terms of this Amended Agreement. In case at
any time any further action is necessary or desirable to carry out the purposes
of this Amended Agreement, the proper officers of each party to this Amended
Agreement are hereby directed and authorized to use their best efforts to
effectuate all such action.
12.11 Effectiveness of Amended Agreement.
(a) The parties hereto agree that this Amended Agreement shall not be
effective until, and shall be null and void unless, the following conditions
shall have been satisfied by the Company or waived by the Purchaser in its sole
discretion prior to or on February 21, 1997 (unless such date is extended at the
sole discretion of the Purchaser):
(i) Evidence shall have been delivered to the Purchaser by the
Company, satisfactory to the Purchaser in its sole discretion, that
(A) institutional providers representing at least 40 percent of FOHP-NJ's health
care costs (as measured with respect to the 1996 calendar year) incurred with
respect to all institutional providers in the FOHP-NJ provider network, shall
have modified their provider contracts with FOHP-NJ as described in Section
4.11(a)(i)(B) hereof, and (B) Exclusive Plan Hospital Providers and Non-
Exclusive Plan Hospital Providers shall have delivered to the Company and FOHP-
NJ legally binding commitments regarding coverage of all of their employees (in
the case of Exclusive Plan Hospital Providers) or a portion of their employees
(in the case of Non-Exclusive Hospital Plan Providers) so that FOHP-NJ health
benefits plan will cover employees constituting an aggregate of at least
1,117,770 "member-months" over the terms of such respective commitments,
including (I) at least 429,950 "member-months" for the 1997 calendar year,
(II) at least 343,910 "member-months" for the 1998 calendar year, and (III) at
least 343,910 "member-months" for the 1999 calendar year; and
(ii) The Purchaser shall have received evidence from the Company,
satisfactory to the Purchaser in its sole discretion, that the Company has
obtained from such institutional providers as are separately agreed to in
writing by the Company and the Purchaser the legally binding commitments,
contemplated in Section 7.1(h) hereof.
(b) In addition to the conditions to effectiveness set forth in
paragraph (a) of this Section 12.11, the parties hereto agree that this Amended
Agreement shall not be effective until, and shall be null and void unless, the
following conditions shall have been satisfied by the Company or waived by the
Purchaser in its sole discretion prior to or on March 7, 1997 (unless such date
is extended at the sole discretion of the Purchaser):
(i) Evidence shall be delivered to the Purchaser by the Company,
satisfactory to the Purchaser in its sole discretion, that the conditions set
forth in Section 7.1(h) hereof shall have been satisfied; and
(ii) Evidence shall have been delivered to the Purchaser by the
Company of insurance coverage, satisfactory to the Purchaser in its sole
discretion, relating to all potential losses, claims, obligations, demands,
assessments, penalties, liabilities, costs, damages, attorneys' fees and
expenses (collectively, "Insured Events") due to any actions or lawsuits brought
by any person or entity (including, without limitation, past or present
shareholders of the Company), relating to actions or events occurring prior to
the execution of, or relating to the transactions contemplated by, this Amended
Agreement which such insurance coverage shall (A) cover the Company and the past
and present directors and officers of the Company, (B) be in the amount of $20
million in coverage per Insured Event and (C) provide the Company with the
ability to purchase tail coverage to survive for either six years or the
expiration of any applicable statute of limitations (whichever period is
shorter), at rates representing no more than 75 percent of the current premiums
paid during the first year of such coverage.
(c) HSI acknowledges and agrees that the Phase-In Management Fee
Amount concept set forth herein has not, as of the date hereof, been approved by
the Board of Directors of the Company. The parties hereto agree that the
Amended Agreement shall not be effective until, and shall be null and void
unless (in addition to the conditions to effectiveness set forth in paragraph
(a) of this Section 12.11), (i) the Purchaser shall have received evidence from
the Company, satisfactory to the Purchaser in its sole discretion, that the
Board of Directors of the Company shall have approved the Phase-In Period
Management Fee Amount concept and provisions set forth herein, in the Debentures
and in the General Administrative Services Management Agreement, or (ii) the
Purchaser waives such condition to effectiveness in its sole discretion.
IN WITNESS WHEREOF, this Amended Agreement has been executed by the parties
hereto as of the date first set forth above.
FOHP, INC.
By:_______________________________________
Name:
Title:
FIRST OPTION HEALTH PLAN
OF NEW JERSEY, INC.
By:_______________________________________
Name:
Title:
HEALTH SYSTEMS INTERNATIONAL, INC.
By:_______________________________________
Name:
Title: