EXECUTION COPY
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STOCK PURCHASE AGREEMENT
AMONG
SAFEGUARD HEALTH ENTERPRISES, INC.
("BUYER"),
XXXXXXXX X. XXXXXXXXX, DMD
("SELLER"),
AND
PARAMOUNT DENTAL PLAN, INC.
("COMPANY")
Dated as of April 24, 2002
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TABLE OF CONTENTS
PAGE
ARTICLE 1 PURCHASE AND SALE.............................................. 1
1.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 SELLER'S REPRESENTATIONS AND WARRANTIES CONCERNING
THE TRANSACTION.................................................. 1
2.1 Organization and Standing . . . . . . . . . . . . . . . . . . . 2
2.2 Enforceability; Authorization. . . . . . . . . . . . . . . . . . 2
2.3 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Title to Stock. . . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Capitalization of the Company. . . . . . . . . . . . . . . . . 3
2.6 Subsidiaries/Investments. . . . . . . . . . . . . . . . . . . . . 3
2.7 Compliance with Applicable Laws; Licenses . . . . . . . . . . 3
2.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . 4
2.9 No Material Adverse Change . . . . . . . . . . . . . . . . . . 5
2.10 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . 6
2.11 Title to and Condition of Properties . . . . . . . . . . . . 6
2.12 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.13 Real Property Leases. . . . . . . . . . . . . . . . . . . . . . 7
2.14 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 7
2.15 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2.17 Employee Benefit Plans. . . . . . . . . . . . . . . . . . . . . 10
2.18 Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.19 Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . 13
2.20 Broker's and Finder's Fees . . . . . . . . . . . . . . . . . . 13
2.21 Labor Practices. . . . . . . . . . . . . . . . . . . . . . . . . 13
2.22 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.23 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . 14
2.24 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.25 Statutory Financial Statements. . . . . . . . . . . . . . . . . 15
2.26 Transactions With Affiliates. . . . . . . . . . . . . . . . . . 15
2.27 Improper Payments. . . . . . . . . . . . . . . . . . . . . . . . 16
2.28 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.29 Investment Purposes. . . . . . . . . . . . . . . . . . . . . . . 16
2.30 Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . 17
2.31 Legend on Certificates. . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER...................... 17
3.1 Organization and Standing . . . . . . . . . . . . . . . . . . . 17
3.2 Noncontravention. . . . . . . . . . . . . . . . . . . . . . . . . 17
3.3 Execution/Enforceability. . . . . . . . . . . . . . . . . . . . . 18
3.4 Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.5 Validity of SafeGuard Stock. . . . . . . . . . . . . . . . . . 18
3.6 SafeGuard Florida Shares; Other Subsidiaries. . . . . . . . . 19
3.7 Validity and Rights of the Convertible Note and Conversion Shares 19
3.8 Buyer SEC Reports . . . . . . . . . . . . . . . . . . . . . . . 19
3.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.10 Broker's and Finder's Fees . . . . . . . . . . . . . . . . . . 20
3.11 Licenses/Compliance with Law. . . . . . . . . . . . . . . . . . 20
3.12 No Material Adverse Change . . . . . . . . . . . . . . . . . . 20
3.13 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.14 Transactions With Affiliates. . . . . . . . . . . . . . . . . . 21
3.15 Improper Payments. . . . . . . . . . . . . . . . . . . . . . . . 21
3.16 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 4 GENERAL COVENANTS............................................... 21
4.1 Implementing Agreement . . . . . . . . . . . . . . . . . . . . . 21
4.2 Access and Information. . . . . . . . . . . . . . . . . . . . . 21
4.3 Operation of Businesses; Course of Conduct . . . . . . . . . 22
4.4 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Public Communications. . . . . . . . . . . . . . . . . . . . . . 25
4.6 Solicitation of Inquiries . . . . . . . . . . . . . . . . . . . 25
4.7 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.8 Updating of Schedules . . . . . . . . . . . . . . . . . . . . . 25
4.9 Reinvestment of Equity Investments . . . . . . . . . . . . . . 26
ARTICLE 5 CONDITIONS PRECEDENT............................................ 26
5.1 Conditions to Obligations of Seller . . . . . . . . . . . . . 26
5.2 Conditions to the Obligations of Buyer . . . . . . . . . . . 27
ARTICLE 6 CLOSING.......................................................... 28
6.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Seller's Closing Deliveries . . . . . . . . . . . . . . . . . . 29
6.3 Buyer's Closing Deliveries. . . . . . . . . . . . . . . . . . . 29
6.4 Transfer Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 7 BUYER'S COVENANTS............................................... 30
7.1 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.2 Seller's Access to Information After the Closing. . . . . . 30
7.3 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.4 Employment of Seller. . . . . . . . . . . . . . . . . . . . . . 31
7.5 Florida Market Headquarters . . . . . . . . . . . . . . . . . . 31
7.6 Merger of SafeGuard Florida and the Company . . . . . . . . 31
ARTICLE 8 ADDITIONAL COVENANTS AND AGREEMENTS........................... 31
8.1 Specific Performance . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . 31
8.3 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.5 No Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.6 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE 9 INDEMNIFICATION.................................................. 34
9.1 Survival of Representations and Warranties. . . . . . . . . . 34
9.2 Indemnification by Seller . . . . . . . . . . . . . . . . . . . 34
9.3 Indemnification by Buyer. . . . . . . . . . . . . . . . . . . . 35
9.4 Third Party Claims. . . . . . . . . . . . . . . . . . . . . . . 35
9.5 Limitation on Indemnification of Buyer Indemnified Parties. 36
9.6 Limitation on Indemnification of Seller Indemnified Parties 38
9.7 Remedies; Default; Notice and Cure. . . . . . . . . . . . . . 39
9.8 Payment of Liability. . . . . . . . . . . . . . . . . . . . . . 40
9.9 Limited Right of Set-Off . . . . . . . . . . . . . . . . . . . 40
ARTICLE 10 TERMINATION; NON-SOLICITATION................................... 40
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
10.2 Non-Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 11 CERTAIN DEFINITIONS............................................. 42
ARTICLE 12 CONSTRUCTION; MISCELLANEOUS PROVISIONS......................... 48
12.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12.2 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . 49
12.3 Modification and Waiver . . . . . . . . . . . . . . . . . . . . 49
12.4 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . 49
12.5 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.6 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 Number and Gender . . . . . . . . . . . . . . . . . . . . . . . 51
12.8 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.9 Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.10 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . 51
12.11 Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.12 No Strict Construction. . . . . . . . . . . . . . . . . . . . . 51
SCHEDULES
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Schedule 2.1 Licenses
Schedule 2.3 Noncontravention
Schedule 2.7 Company Permits
Schedule 2.7(A) Material Company Permits
Schedule 2.8 Financial Statements
Schedule 2.9 Material Adverse Change
Schedule 2.10 Liabilities
Schedule 2.12 Litigation
Schedule 2.13 Real Property Leases
Schedule 2.14 Intellectual Property
Schedule 2.15 Contracts
Schedule 2.16 Employees
Schedule 2.17 Employee Benefit Plans
Schedule 2.18 Aged Accounts Receivable
Schedule 2.22 Insurance Policies
Schedule 2.24 Taxes
Schedule 2.25 Statutory Financial Statements
Schedule 2.26 Transactions with Affiliates
Schedule 2.27 Improper Payments
Schedule 3.11 Licenses/Compliance with Law
Schedule 3.12 No Material Adverse Change
Schedule 3.13 Litigation
Schedule 3.14 Transactions with Affiliates
Schedule 4.3 Anticipated Bonus Arrangements
EXHIBITS
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Exhibit A Form of Secured Convertible Promissory Note
Exhibit B Form of Employment Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Lease Agreement
Exhibit E Form of Pledge Agreement
Exhibit F Form of Security Agreement
Exhibit G Form of Opinion of Counsel to Seller and the Company
Exhibit H Form of Opinion of Counsel to Buyer
Exhibit I Buyer's Investment Policy Statement
Exhibit J Form of Guaranty
STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of April 24,
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2002, is entered into among SafeGuard Health Enterprises, Inc., a Delaware
corporation based in California ("Buyer"); Xxxxxxxx X. Xxxxxxxxx, DMD
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("Seller"), a Florida resident; and Paramount Dental Plan, Inc., a Florida
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corporation based in Tampa, Florida (the "Company"). Certain capitalized terms
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used in this Agreement are defined in Article 11 hereof.
BACKGROUND:
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Seller owns all of the Shares. Upon the terms and subject to the conditions
set forth in this Agreement, Seller desires to sell to Buyer, and Buyer desires
to purchase from Seller, the Shares. Immediately following its purchase of the
Shares, Buyer will cause the Company to merge with SafeGuard Health Plans, Inc.,
a Florida corporation and its wholly-owned subsidiary.
The parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale. Subject to the terms and conditions of this
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Agreement, on the Closing Date, Seller shall sell to Buyer all of the Shares,
free and clear of all Liens, and Buyer shall purchase all of the Shares.
1.2 Purchase Price. The total consideration for the Shares shall
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consist of the following payments (collectively, the "Purchase Price"):
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(a) $3,000,000 in U.S. Dollars;
(b) The execution and delivery by Buyer of its seven percent (7%)
Secured Convertible Promissory Note in the original principal amount of
$2,625,000, in the form of Exhibit A attached hereto (the "Convertible
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Note"), secured by a pledge of the Pledged Shares pursuant to the Pledge
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Agreement and a first lien on all of SafeGuard Florida's assets pursuant to
the Security Agreement; and
(c) The issuance to Seller of 769,231 shares of Common Stock of
Buyer (the "SafeGuard Stock").
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ARTICLE 2
SELLER'S REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION
Seller represents and warrants to Buyer, as of the date of this Agreement
and as of the Closing Date unless expressly provided otherwise in the
representation, as follows:
2.1 Organization and Standing. Except as listed on Schedule 2.1, the
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Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Florida with all requisite corporate power and
authority to conduct its business operations as being conducted on the date of
this Agreement, including but not limited to, a license to operate a Prepaid
Limited Health Service Organization issued by the Florida Department of
Insurance. The Company does not conduct business operations in any state other
than Florida and has not qualified as a foreign corporation authorized to do
business in any state. The Company has not failed to so qualify in any
jurisdiction where the failure to be so authorized would have a Material Adverse
Effect on the Company. Seller has delivered to Buyer true, correct and complete
copies of the articles of incorporation and bylaws of the Company, as amended to
and in effect on the date of this Agreement. The Company is not in violation of
any term or provision of its articles of incorporation or bylaws.
2.2 Enforceability; Authorization.
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(a) Seller has full power, authority and capacity to execute,
deliver and perform this Agreement and each of the agreements and documents
delivered by Seller in connection herewith. This Agreement and each other
agreement and document delivered by Seller in connection herewith has been
duly executed and delivered by Seller and constitutes Seller's legal, valid
and binding obligations enforceable in accordance with their respective
terms, except to the extent that its enforceability is limited by
application of general principles of equity and by bankruptcy, insolvency,
moratorium, debtor relief, and similar laws of general application
affecting enforcement of creditors' rights and debtor obligations.
(b) The Company has full power, authority and capacity to execute,
deliver and perform this Agreement and each of the agreements and documents
delivered by the Company in connection herewith. The execution and delivery
by the Company of this Agreement and of each other agreement and document
have been duly and validly approved by its board of directors and to the
extent required by law, by all its shareholders entitled to vote thereon,
and no other actions or proceedings on the part of the Company are
necessary to authorize this Agreement and each other agreement and document
and the transactions contemplated hereby and thereby. This Agreement and
each other agreement and document delivered by the Company in connection
herewith has been duly executed and delivered by the Company and
constitutes the Company's legal, valid and binding obligations enforceable
in accordance with their respective terms, except to the extent that its
enforceability is limited by application of general principles of equity
and by bankruptcy, insolvency, moratorium, debtor relief, and similar laws
of general application affecting enforcement of creditors' rights and
debtor obligations.
2.3 Noncontravention. Except as set forth on Schedule 2.3, neither the
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execution and delivery of this Agreement or any Related Agreement, nor the
consummation of the transaction contemplated hereby or thereby, will (a) violate
any decree or judgment of any court or governmental authority which may be
applicable to the Company or Seller; (b) to the Knowledge of Seller, violate any
law, rule or regulation applicable to Seller or the Company or its business
operations as conducted on the Effective Date; (c) violate or conflict with, or
result in a breach of, or constitute a default (or an event which, with or
without notice or lapse of time or both,
would constitute a default) under, or permit cancellation of, or result in the
creation of any encumbrance upon any of the assets of the Company under any of
the terms, conditions, or provisions of, any material contract, lease, sales
order, purchase order, indenture, mortgage, note, bond, instrument, license or
other agreement to which the Company or the Seller is a party, or by which the
Company or its assets or Seller is bound; (d) permit the acceleration of the
maturity of any indebtedness of the Company; (e) violate or conflict with any
provision of the articles of incorporation or bylaws of the Company; or (f)
subject to the governmental filings and other matters referred to in Schedule
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2.3 and Section 4.4, require the consent, approval or authorization of any
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Person or Governmental Authority.
2.4 Title to Stock. Seller is the unconditional sole legal,
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beneficial, record and equitable owner of the Shares, free and clear of any and
all Liens, and that there are no voting restrictions on the Shares. Seller has
not granted and is not a party to any agreement granting rights of first refusal
or any similar or comparable rights with respect to the Shares. At the Closing,
Seller will convey to Buyer valid and marketable title to the Shares, free and
clear of any and all Liens, except for Liens contemplated by this Agreement.
2.5 Capitalization of the Company. The authorized capital stock of the
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Company consists of one hundred thousand (100,000) shares of common stock, $.01
par value per share, of which eight hundred (800) shares are validly issued and
outstanding. All such outstanding shares of capital stock of the Company are
fully paid and non-assessable. Seller owns of record and beneficially all of
the issued and outstanding shares of capital stock of the Company. The Company
has no other capital stock authorized for issuance and has no treasury shares.
There are no outstanding options, warrants, convertible instruments, or other
rights, agreements, or commitments to issue or acquire any shares of common
stock of the Company or any other security constituting, or convertible or
exchangeable into, capital stock of the Company. The Company has not granted
and is not a party to any agreement granting preemptive rights, rights of first
refusal, or registration rights with respect to its outstanding or authorized
capital stock or any capital stock of the Company to be issued in the future.
2.6 Subsidiaries/Investments. The Company has no subsidiaries, whether
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direct or indirect. Other than the equity investments to be reinvested pursuant
to Section 4.9, the Company has no equity interest or investment in, and does
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not possess any other right or obligation to purchase any equity or other
investment in, and is not a partner of or joint venturer with, any other Person.
2.7 Compliance with Applicable Laws; Licenses. Except as listed on
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Schedule 2.7, the Company has the lawful authority and all governmental
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authorizations, certificates of authority, licenses or permits necessary for or
required to conduct its business operations as presently conducted as a Prepaid
Limited Health Service Organization under the laws of the State of Florida
(collectively, the "Company Permits"). Schedule 2.7(A) lists all the material
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Company Permits. As of the date of this Agreement, there are no pending or, to
the Knowledge of Seller, threatened legal, administrative, arbitration, or other
proceedings of any kind nor any pending or, to the Knowledge of Seller,
threatened governmental investigations by any federal, state or local government
or any subdivision thereof or by any public or private group, with respect to
revocation, cancellation, suspension or nonrenewal of any Company Permit, or
which assert or allege any violation of, or non-compliance with, any
governmental requirements or
which would have the effect of materially limiting, prohibiting or changing the
business operations of the Company as presently conducted. Except as listed on
Schedule 2.7, to the Knowledge of Seller, the Company has made all material
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filings with governmental agencies required for the conduct of its business
operations as such are presently conducted. Except as listed on Schedule 2.7,
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the Company currently satisfies all requirements under the regulations of the
Florida Department of Insurance for its operation as a Prepaid Limited Health
Services Organization including, without limitation, all capital requirements,
except where the Company's failure to satisfy any requirement would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
There are no judgments, consent decrees, or injunctions of any court,
governmental department, commission, agency or instrumentality by which the
Company is bound or to which the Company is subject. The Company is not subject
to and has not received any request for information, notice, demand letter,
administrative inquiry or formal or informal complaint or claim from any
Government Authority. Except as listed on Schedule 2.7, to the Knowledge of
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Seller, the Company's business operations as presently conducted do not violate
or fail to comply in any material respect with any applicable federal, state or
local codes, laws, rules or regulations, and the Company has not received any
notices alleging any such violation or non-compliance.
2.8 Financial Statements. On or prior to the date hereof, the Seller
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has delivered to Buyer true, correct and complete copies of (1) audited
financial statements of the Company as of December 31, 2001, consisting of an
audited balance sheet at such date, and the related audited statements of
income, retained earnings, and cash flows for the applicable twelve-month period
then ended and notes thereto and (2) unaudited financial statements of the
Company as of February 28, 2002 (the "Company Balance Sheet Date") consisting of
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an unaudited balance sheet of the Company at such date (the "Company Balance
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Sheet") and the related statements of income for the applicable month and
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year-to-date period then ended. Complete and accurate copies of all such
financial statements (the "Company Financial Statements") are included as part
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of Schedule 2.8. Except as separately reflected in Schedule 2.8, the Company
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Financial Statements present fairly in all material respects the financial
position of the Company and the results of the operations, changes in
shareholders' equity and cash flows of the Company, as of the respective dates
thereof and for the respective periods covered thereby. Except as separately
reflected in Schedule 2.8, the Company Financial Statements have been prepared
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in accordance with GAAP in all material respects (subject to, in the case of the
February 28, 2002 financial statements, normal year-end adjustments, the
preparation of footnotes, and inclusion by the Company of the Stay Bonuses).
Except as set forth in the Company Balance Sheet included in the Company
Financial Statements and the Stay Bonuses, and except as also separately
reflected in Schedule 2.8, as of the Company Balance Sheet Date, there were no
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liabilities, debts, claims or obligations, whether accrued, absolute, contingent
or otherwise, whether due or to become due, which are required by GAAP to be set
forth in a balance sheet of the Company, which have not been so set forth in the
Company Balance Sheet. No dividends or distributions with respect to the
capital stock of the Company had been declared but not paid prior to the Company
Balance Sheet Date. The Company Financial Statements were prepared from the
books and records of the Company. At the Company Balance Sheet Date, the
Company owned each of the assets reflected on the Company Balance Sheet.
2.9 No Material Adverse Change. Since February 28, 2002, the Company
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has conducted its business in the ordinary course and, except as disclosed on
Schedule 2.9, the Company has not:
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(a) suffered any Material Adverse Effect;
(b) suffered any loss or damage (whether or not covered by
insurance) to any of the assets of the Company that affects or impairs the
ability of the Company to conduct its business as previously conducted, in
excess of $50,000 in the aggregate;
(c) agreed to the attaching, placing or granting of, or the
agreement to attach, place or grant, any encumbrance on any material
portion of the assets of the Company;
(d) sold or transferred assets of the Company worth in excess of
$20,000 in the aggregate, excluding the disposition of damaged or obsolete
equipment in the ordinary course of business;
(e) made any material change in the accounting systems, policies
or practices of the Company;
(f) entered into or terminated any contract or any other
commitment, contract, agreement, or transaction (including, without
limitation, any material borrowing or capital expenditure or sale or other
disposition of any material assets) by the Company, in excess of $20,000
outside the ordinary course of the Company's business;
(g) authorized any redemption, repurchase, or other acquisition by
the Company of, or redeemed, repurchased or acquired, any of its capital
stock;
(h) authorized any issuance of or issued any capital stock of the
Company or securities convertible into or rights to acquire any such
capital stock;
(i) authorized any dividend or distribution declared, or set aside
or paid any distribution or dividend on capital stock of the Company;
(j) agreed to any transfer of any right or granted any right of
the Company under or in any lease, license, agreement, patent, trademark,
trade name, service xxxx or copyright;
(k) entered into any mortgage, pledge, or imposition of any lien
or other encumbrance on any asset of the Company, or any agreement relating
to or contemplating any of the foregoing not in the ordinary and usual
course of business;
(l) suffered any default or breach by the Company in any material
respect under any contract, license, or permit that is material to the
Company's business;
(m) authorized any material change to (i) increase employee
compensation levels, (ii) change the manner in which employees of the
Company are compensated, (iii)
increase supplemental benefits provided to any employees, or (iv) paid any
bonuses to employees or officers, except as reflected on Schedule 2.9; or
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(n) made any agreements or commitments by the Company to do any of
the foregoing.
2.10 No Undisclosed Liabilities. True and correct copies of all
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notes, agreements or other documents evidencing outstanding liabilities of the
Company (as such term is defined pursuant to GAAP), as amended to and in effect
on the date of this Agreement, have been delivered to Buyer by the Company. The
Company has no indebtedness or other liabilities which are not adequately
disclosed or reflected or reserved against on the Company Balance Sheet, except
liabilities incurred since the Company Balance Sheet Date in the ordinary course
of business consistent with past practice which, in the aggregate would not have
a Material Adverse Effect, and except for liabilities disclosed in Schedule 2.8.
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Schedule 2.10 sets forth each liability of the Company in an amount in excess of
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$25,000 and each person to whom the aggregate amount of liabilities owed to such
person by the Company exceeds $25,000, each as of March 31, 2002.
2.11 Title to and Condition of Properties. The Company has good and
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marketable title, or valid, effective and continuing leasehold rights in the
case of leased property, to all of the assets reflected on the Company Balance
Sheet and all personal property owned or leased by it or used by it in the
conduct of its business in such a manner as to create the appearance or
reasonable expectation that the same is owned or leased by it, free and clear of
all Liens other than Permitted Liens. To the Knowledge of Seller, there is no
potential action or assertion of rights by any party, governmental or other, and
no proceedings with respect thereto have been instituted of which Seller or the
Company has notice, that would materially and adversely affect the ability of
the Company to utilize each of such assets in its business which are material to
such business. The Company has not received any notices of default or other
violations from any landlord or lessor regarding any properties leased by the
Company. The assets now owned by the Company constitute all assets reasonably
necessary to permit the business and operations of the Company to be conducted
on substantially the same terms as such business has been conducted historically
and is being conducted on the date of this Agreement. To the Knowledge of
Seller, none of the assets owned, leased or used by the Company in the operation
of its business violates or fails to comply in any material respect with any
applicable federal, state or local health, fire, environmental, safety, zoning,
building or other codes, laws, rules or regulations and the Company has not
received any notice of an alleged violation thereof.
2.12 Litigation. Except as set forth in Schedule 2.12, no
---------- --------------
investigation or review by any Governmental Authority with respect to the
Company is pending or, to the Knowledge of Seller, threatened, nor has any
Governmental Authority indicated to the Company an intention to conduct the
same; and there is no action, suit, or administrative, arbitration or other
proceeding (including proceedings concerning labor disputes or grievances or
union recognition) pending or, to the Knowledge of Seller, threatened against or
affecting the Company to which the Company is a party, at law or in equity,
before any federal, state, or municipal court or other governmental department,
commission, board, bureau, agency, or instrumentality. As of the Closing Date,
the Company is not now, and has not been, a party to any agreement, injunction,
order or decree restricting the method or geographic area under which the
Company may conduct business
operations or the marketing of any of its products or services or the product or
services it may sell.
2.13 Real Property Leases. Schedule 2.13 lists all leases of real
---------------------- --------------
property to which the Company is a party (the "Real Property Leases"). Accurate
--------------------
and complete copies of the Real Property Leases, as amended to the date of this
Agreement, have been delivered to Buyer. Seller is not aware, and the Company
has not received any notices, that the land, buildings, facilities or other
structures and improvements subject to the Real Property Leases are not in
compliance with any applicable zoning, environmental or health laws and
regulations or any other similar law, statute, regulation or ordinance. The
Company is in peaceful and undisturbed possession of the property subject to the
Real Property Leases. To the Knowledge of Seller, all covenants or other
restrictions (if any) to which any of the real property leased to the Company
pursuant to the Real Property Leases are subject are being properly performed
and observed in all material respects by the Company, and the Company has not
received any notice of violation (or claimed violation) thereof which has not
been resolved. There is no pending proceeding or governmental action, and the
Company has not received notice of any threatened proceeding or governmental
action, to condemn or take by the power of eminent domain (or to purchase in
lieu thereof) all or any part of the property subject to the Real Property
Leases. The Company does not own any real property.
2.14 Intellectual Property. Schedule 2.14 is an accurate and complete
---------------------- -------------
list of all copyrights, patents, trade names, trademarks, service marks or
patents that the Company uses in its business operations. Except as disclosed
on Schedule 2.14, the Company has no United States or foreign patents, patent
--------------
applications, patent licenses, trademarks or service xxxx registrations (and
applications therefor), and has no copyrights and copyright registrations (and
applications therefor) which are owned or licensed for use by the Company and
utilized by the Company in the business operations of the Company as presently
conducted. There is no adverse claim of infringement against the Company, nor
to the Knowledge of Seller, any threatened litigation or claim of infringement.
To the Knowledge of Seller, the Company does not utilize any intellectual
property or proprietary trade secret information which infringes any trademark,
trade name, service xxxx, copyright or patent of another, and the Company has
not received any notice contesting its right to use any trade name, intellectual
property or proprietary trade secret information now used by it in connection
with its business operations. The Company has not granted any license to a
third party in respect of any of its intellectual property or confidential
proprietary information.
2.15 Contracts.
---------
(a) Contracts. Schedule 2.15 is an accurate list of all written
---------- --------------
Contracts (other than contracts described in Sections 2.15(b)-(j)) and, to
--------------------
Seller's Knowledge, all oral Contracts of the following types to which the
Company is a party or by which it is bound:
(i) any contract which is not terminable upon thirty (30)
days or less notice or which obligates the Company to the payment of
more than $10,000 during any 12 month period, including, without
limitation, loan agreements;
(ii) any contract for the maintenance, purchase or sale of
equipment or capital assets having a contractual liability in excess
of $10,000 during any 12 month period;
(iii) any power of attorney (other than routine powers given
to governmental officials authorizing service of process);
(iv) any lease of personal property which is not terminable
upon thirty (30) days or less notice or which has annual contractual
liability in excess of $20,000;
(v) any guaranty, suretyship agreement or other agreement
relating to any contingent liability or indebtedness of a third party;
(vi) any contract with an independent agent or broker acting
on behalf of the Company who is among the Company's ten most
productive independent agents or brokers, as measured by revenues
generated by the Company with respect to such agent or broker in the
2001 calendar year;
(vii) any contract with an independent consultant (other than
a broker or agent acting on behalf of the Company);
(viii) any contract involving any restrictions with respect
to the geographical area or operations or scope or type of business of
the Company;
(ix) any stop loss insurance policy issued by the Company;
and
(x) any contract between the Company and Seller or any other
affiliates of the Company including, without limitation, affiliates of
Seller.
(b) Dentist Contracts. Schedule 2.15 includes (i) copies of
------------------ -------------
representative forms of all dentist and other dental provider agreements
(the "Dentist Contracts") to which the Company is a party (ii) copies of
------------------
any Dentist Contracts between the Company and Seller or any affiliate of
Seller, and (iii) lists all dentist and other dental providers by name,
address, telephone number and dentist or provider number, as applicable,
with whom the Company has contracted.
(c) Other Health Care Provider Contracts. Schedule 2.15 includes
------------------------------------ --------------
copies of all contracts with all other health care providers (other than
the Dentist Contracts) with whom the Company has contracted and lists the
other health providers by name and address.
(d) HMO Contracts. Schedule 2.15 includes copies of all the
-------------- --------------
contracts between the Company and any HMO for which the Company provides
dental plan benefits to such HMO's members (the "HMO Contracts") and lists
-------------
all HMO Contracts to which the Company is a party, the name of the HMO, the
capitation rates, and number of participants under each HMO Contract as of
March 31, 2002.
(e) Group Contracts. Schedule 2.15 lists all employer group
---------------- --------------
agreements with 200 or more employees/subscribers (the "Group Contracts")
---------------
to which the Company is a party and also lists the premium rates and number
of employees/subscribers under each respective Group Contract as of March
31, 2002. Schedule 2.15 contains copies of the five largest Group Contracts
-------------
as of the date of this Agreement, based on actual revenue in the first
quarter of the 2002 calendar year.
(f) Individual Member Contracts. Schedule 2.15 lists all the
----------------------------- --------------
individual participants under all individual member agreements ("Individual
----------
Contracts") to which the Company is a party as of March 31, 2002, lists the
---------
premium rate for each such participant under the Individual Contracts, and
includes a representative copy of each Individual Contract.
(g) Management Contracts. Schedule 2.15 lists all management,
--------------------- --------------
marketing, administrative services and third-party administrative contracts
to which the Company is a party and includes copies of all such contracts.
(h) ASO Contracts. Schedule 2.15 lists all the contracts by which
------------- -------------
the Company provides administrative services only to such clients of the
Company and includes copies of all such contracts.
(i) Commission Agreements. Schedule 2.15 lists all the contracts
---------------------- -------------
with other entities to which the Company is a party and by which the
Company receives a commission or fee and includes copies of all such
contracts.
(j) Broker Agreements. Schedule 2.15 includes copies of
------------------ --------------
representative forms of all broker or agent agreements to which the Company
is a party and a copy of the document describing the arrangement with
respect to the Pinellas County contract between the broker and the Company.
Schedule 2.15 also lists, as of March 31, 2002, all brokers or agents with
--------------
whom the Company has contracted, the commission rate of each broker, agent
or agency, and the commission paid to each such broker or agent in the 2001
calendar year.
(k) Copies/Status of Material Contracts. True, complete and
--------------------------------------
correct copies of all contracts (or forms of contract) listed but not
included as a part of Schedule 2.15 have been made available to Buyer.
-------------
Except to the extent disclosed on Schedule 2.15, as of the date of this
-------------
Agreement, (i) to Seller's Knowledge, all of the contracts listed on
Schedule 2.15 are in full force and effect, (ii) to Seller's Knowledge, the
-------------
Company has not received any notice of cancellation with respect to any
such contract or been advised that the other party thereto intends to
cancel any such agreement, (iii) to Seller's Knowledge, there are no
outstanding disputes under any of such contracts, (iv) to Seller's
Knowledge, each such contract is with an unrelated third party entered into
on an arms-length basis in the ordinary course of business, (v) to Seller's
Knowledge, there are no defaults under any of such contracts, (vi) to
Seller's Knowledge, there are no verbal amendments, modifications or other
understandings relating to such contracts which are legally binding on the
parties thereto, and (vii) to Seller's Knowledge, the Company has no
obligation that has accrued
to refund all or any portion of the fees that have been paid under any HMO
Contract, Group Contract, or Individual Contract.
2.16 Employees. Schedule 2.16 hereto lists in accurate and complete
--------- --------------
detail, in all material respects, all employees of the Company as of March 31,
2002, their job titles, annual rates of compensation, accrued vacation and
personal days as of the most recent regular payroll date of the Company
immediately preceding March 31, 2002, other fringe benefits, if any, a
description of any severance arrangements, if any, and the amounts payable with
respect to such accrued vacation and personal days as of the most recent payroll
date of the Company immediately preceding March 31, 2002 and the rate at which
such vacation and personal days will accrue after the date of this Agreement.
Except as shown on Schedule 2.16, the Company is not bound by any written
--------------
contract of employment with any of its employees and all oral employment
contracts are terminable at will, subject to applicable law, or by any
consulting or similar agreements. Schedule 2.16 includes a copy of all such
--------------
employment contracts. Except as set forth in Schedule 2.16 or Schedule 4.3, the
------------- ------------
Company is not a party to any employment or other agreement, whether written or
oral, pursuant to which the Company has agreed to make a loan to, or guarantee
any loan of, any employee or relating to any bonus, deferred compensation,
severance pay or similar plan, agreement, arrangement or understanding. Except
as listed on Schedule 2.16 or Schedule 2.17, the Company has no Welfare Plan (as
------------- -------------
defined in Section 3(1) of ERISA), no Pension Plan (as defined in Section 3(2)
of ERISA), nor any other type of pension, profit sharing, deferred compensation,
retirement, stock option, bonus, severance, medical, dental, life insurance,
accident, or other employee benefit or compensation plan, agreement,
arrangement, practice or policy with respect to employees. The Company has
complied in all material respects with all requirements of Sections 6001 through
6008 of ERISA and Section 4980B of the Code with respect to itself and its
employees. The Company is not bound, and following the Closing will not be
bound, by any express or implied contract or agreement to employ, directly or as
a consultant or otherwise, any person for any specific period of time or until
any specific age except as specified in the written agreements identified in
Schedule 2.16.
--------------
2.17 Employee Benefit Plans. Except as disclosed in Schedule 2.17:
------------------------ -------------
(a) The Company does not maintain or contribute to, and has not in
the past maintained or contributed to, any Pension Plan or Welfare Plan,
nor is the Company presently, or has it ever been, a participating employer
in any Multiemployer Plan (as defined in ERISA Section 3(37) or Section
414(f) of the Code).
(b) With respect to each Pension Plan and each Welfare Plan listed
on Schedule 2.17, to Seller's Knowledge: (i) there is no fact, including,
--------------
without limitation, any reportable event, that exists that would constitute
grounds for termination of such plan by the PBGC or for the appointment by
the appropriate United States District Court of a trustee to administer
such plan, in each case as contemplated by ERISA; (ii) neither the Company
nor any fiduciary, trustee, or administrator of any such Pension Plan or
Welfare Plan, has engaged in a prohibited transaction that would subject
the Company to any material tax or any material penalty imposed by ERISA or
the Code; (iii) the Company has not incurred any material liability to the
PBGC (other than for payment of premiums); (iv) the Company has contributed
all amounts it is required to contribute under the terms of the plan in
question and applicable law, and there is no accumulated
funding deficiency with respect to any Pension Plan, whether or not waived,
other than routine, non-contested claims for benefits. There is not pending
or, to the Knowledge of Seller, threatened any claim by or on behalf of or
against any Pension Plan or Welfare Plan, by any employee or former
employee covered or previously covered under any Pension Plan or Welfare
Plan, or otherwise involving any Pension Plan or Welfare Plan.
(c) There has been no termination of any Pension Plan or Welfare
Plan by the Company during the five-year period prior to the Effective
Date.
(d) No material liability has been incurred under Title IV of
ERISA by the Company with respect to any Pension Plan maintained by a trade
or business (whether or not incorporated) which is under common control
with, or part of a controlled group of corporations with, the Company
within the meaning of Sections 414(b) or (c) of the Code.
(e) No Welfare Plan listed on Schedule 2.17 is funded with a trust
-------------
or other funding vehicle, other than insurance policies.
(f) Each Welfare Plan, Pension Plan, and any other type of
pension, profit sharing, deferred compensation, retirement, stock option,
bonus, severance, medical, dental, life insurance, accident, or other
employee benefit or compensation plan, agreement, arrangement, practice, or
policy with respect to employees maintained by or contributed to by the
Company is maintained, administered, and operated in accordance with all
applicable laws, including but not limited to, ERISA and the Code. All
governmental reports and returns (including, but not limited to, annual
IRS/DOL 5500-series information returns/reports) required to be filed in
connection with each Welfare Plan and Pension Plan have been timely filed,
and were true and complete when filed.
(g) Each Pension Plan listed on Schedule 2.17 which is intended to
-------------
be qualified under Section 401(a) of the Code, has received a favorable
determination letter from the IRS as to the qualification under the Code of
each such Pension Plan as amended to comply with the Tax Reform Act of 1986
and all applicable subsequent legislation, and, to the Knowledge of Seller,
no event has occurred since the date of such favorable determination letter
that would adversely affect such qualification. No Pension Plan is or has
at any time subject to ERISA Section 302 or Code Section 412.
(h) Except as disclosed on Schedule 2.17, no bonus, severance pay,
-------------
or any other employee benefit under any Welfare Plan, Pension Plan, or any
other type of pension, profit sharing, deferred compensation, retirement,
stock option, bonus, severance, or other employee benefit or compensation
plan, agreement, arrangement, practice, or policy with respect to employees
maintained by or contributed to by the Company is payable or exercisable as
a result of the transaction contemplated by this Agreement, and the
payment, exercise, or vesting of any such bonus, severance pay, or employee
benefit will not be accelerated or otherwise enhanced by such transaction.
(i) Seller has delivered or made available to Buyer true, correct,
and complete copies of all of the following items with respect to any and
all Welfare Plan or Pension
Plan: (i) the current plan document, including any and all current
amendments thereto; (ii) the current trust agreement, and all current
amendments thereto, and all other current agreements between the Company
and the trustee or any other plan fiduciary; (iii) the current Summary Plan
Description and all Summaries of Material Modifications; (iv) written
summaries of any and all unwritten agreements, policies, or understandings
between the Company and any employee or group of employees (including an
indeterminate group of employees, and all employees generally) concerning
any Company Plan, whether or not the Company considers such written
agreements, policies, or understandings to be binding on it; (v) all
individual or group insurance or annuity contracts, including any "stop
loss," "excess loss," or similar insurance contract currently in force;
(vi) all agreements with HMOs, PPOs, or other providers of healthcare
services currently in force; (vii) all agreements with all persons for the
provision of administrative, record keeping, claims handling or review,
consulting, and/or investment management services currently in force; the
last filed IRS/DOL 5500-series form currently in force.
(j) All required contributions to all Welfare Plan or Pension Plan
and all premiums, fees, or other payments required to be made in connection
with any Plan have either been timely made or are reflected on an accrual
basis in the Company Balance Sheet, whether or not presented on an accrual
basis.
(k) No Welfare Plan provides benefits to any employee after
termination of employment, or to a director or independent contractor after
he or she ceases to be a director or to perform services for the Company,
except on a basis that will at all times require that the former employee,
director, or independent contractor pay and bear all costs of his or her
coverage.
(l) No Plan is currently under audit by the IRS or the U.S.
Department of Labor ("DOL"), nor to the best of Seller's Knowledge is any
---
Plan likely to become the subject of an IRS or DOL audit within the next
twelve months.
(m) No Plan holds any "employer securities" within the meaning of
ERISA 407(d)(1) or any "employer real property" within the meaning of ERISA
407(d)(2). Except to the extent that any Pension Plan is an "ERISA Section
404(c) Plan" within the meaning of 29 C.F.R. 2550.404c-1(b)(1), no Pension
Plan has any investment that:
(i) Except in the case of any contract issued by an insurance
company, is not publicly traded;
(ii) In the case of any contract issued by an insurance
company, is not issued by a carrier rated AAA by Standard & Poor's
Corporation or the equivalent by another nationally recognized agency.
(n) None of the transactions contemplated by, or incident to, this
Agreement, or any combination of any such transactions, including all such
transactions, will result in any cancellation or loss of, or a reduction in
coverage under, any insurance policy
including any "stop loss" or "excess loss" policy, any obligation to
provide conversion coverage, or any HMO, PPO, or other healthcare contract
in connection with any Welfare Plan.
(o) Except as listed on Schedule 2.17, the Company does not
--------------
receive significant services from leased employees within the meaning of
Section 414(n)(2) of the Code or from independent contractors who work, on
average, more than ten hours per week for the Company, or who as of the
date of this Agreement have worked for the Company for more than six
months, except for health care providers that contracted with the Company
to provide services to employees of its customers.
True, correct and complete copies of each Pension Plan and Welfare Plan
listed on Schedule 2.17 as amended to and in effect on the date hereof; any
--------------
agreements entered into in connection with each such Pension Plan and Welfare
Plan; the most recent annual report filed with the IRS for each such Pension
Plan and Welfare Plan; the most recent actuarial report, if any, for each such
Pension Plan and Welfare Plan; the most recent summary plan description,
together with each summary of material modifications; and any other
communication generally disseminated to employees or former employees of the
Company describing benefits provided under each such Pension Plan and Welfare
Plan, have been delivered or made available to Buyer.
2.18 Receivables. All accounts receivable, notes receivable and other
-----------
receivables (the "Receivables") of the Company, whether or not reflected in the
-----------
Company Balance Sheet, arise out of transactions in the ordinary course of
business. Aged accounts receivable reports of the Company dated as of February
28, 2002 and March 31, 2002 are attached as Schedule 2.18. Except as reflected
-------------
in the aged accounts receivable report and to the extent of the accrued reserve,
to the Knowledge of Seller, none of such accounts receivable have been disputed
or denied or is uncollectible for any reasons or subject to any legitimate
offsets of any kind.
2.19 Accounts Payable. The accounts payable and accrued expenses
-----------------
reflected on the Company Balance Sheet, except for the payments contemplated by
Section 4.3(a)(vi), and those reflected on the books of the Company at the time
--------------------
of the Closing will reflect, all material amounts owed by the Company in respect
of trade accounts due and other payables required by GAAP to be identified on
such Company Balance Sheet or in the books of the Company. No account payable
or accrued expenses of the Company is past due or otherwise in default in any
material respect by the Company.
2.20 Broker's and Finder's Fees. No agent, broker, employee, officer,
---------------------------
stockholder or other person or entity acting on behalf of, or under the
authority of, the Company or Seller is or will be entitled to any commission or
broker's or finder's fee from any of the parties hereto in connection with this
Agreement or any of the transactions contemplated hereby.
2.21 Labor Practices. The Company has no collective bargaining or
----------------
other labor union agreements. There is no unfair labor practice complaint
against the Company pending before the National Labor Relations Board, there is
no pending or, to Seller's Knowledge, threatened labor dispute, strike or work
stoppage affecting the Company's business, nor has there been any of the same or
any labor union organizing activity relating to the Company employees within the
last three (3) years.
2.22 Insurance. Schedule 2.22 lists all insurance policies and
--------- --------------
coverages maintained by or for the Company including but not limited to real and
personal property insurance, comprehensive liability insurance, automobile
liability insurance, workers' compensation insurance, stop loss insurance,
medical malpractice insurance and professional liability insurance. Schedule
--------
2.22 lists all insurance claims submitted in connection with property damage or
----
in connection with liability, medical or professional malpractice claims
involving the Company or any of its employees since January 1, 2000.
2.23 Environmental Matters. The Company has not received any notice
----------------------
from any governmental authority or private person or entity advising it that the
Company, its assets, any real property it occupies or leases (or will lease
pursuant to the Lease Agreement) or its business operations is or has been in
violation of any environmental law or any applicable environmental permit or
that the Company is responsible (or potentially responsible) for the cleanup of
any pollutants, contaminants, hazardous or toxic wastes, substances or materials
at, on or beneath the property subject to the Real Property Leases or otherwise.
The Company is not the subject of federal, state, local or private litigation or
proceedings involving a demand for damages or other potential liability with
respect to violations of environmental laws.
2.24 Taxes.
-----
(a) Except as listed on Schedule 2.24, all material Tax Returns
-------------
required to be filed by or with respect to the Company through the Closing
Date have been or will be accurately prepared in all material respects, and
have been or will be duly and timely filed, and all Taxes shown on such Tax
Returns have been or will be timely paid, or to the extent not due and
payable as of the Closing Date, adequate provision for the payment thereof
has been or will be made on the financial statements or the books of
account of the Company.
(b) With respect to each taxable period of the Company ending
prior to the date of this Agreement, such taxable period (i) has been
audited by the IRS or other taxing authority, and such audit has been
completed without the issuance of any notice of deficiency or similar
notice of additional liability, (ii) has not been audited or investigated
by the IRS or other taxing authority, or (iii) the time for assessing or
collecting income tax with respect to each such taxable period has closed
and such taxable period is not subject to review by the IRS or such other
taxing authority. The Company has not granted or been requested to grant
waivers of any statute of limitations applicable to any claim for Taxes.
(c) The Company is not and has not been a member of an affiliated
group (as defined in Section 1504(a) of the Code) or filed or been included
in a combined, consolidated or unitary income tax return. The Company is
not a party to any Tax sharing agreement.
(d) The Company is not obligated to make, and as a result of any
event connected with the transactions contemplated by this Agreement, will
not become obligated to make, any "excess parachute payment" within the
meaning of Section 280G of the Code, (determined without regard to
subsection (b)(4) thereof).
(e) At no time since its inception has the Company made an
election under Section 1362 of the Code to be an "S" Corporation as defined
in Section 1361 of the Code.
(f) Buyer will not be required to deduct and withhold any amount
pursuant to Section 1445(a) of the Code upon the transfer of the Shares to
Buyer.
(g) Except as listed on Schedule 2.24, there are no claims for
-------------
Taxes pending against the Company nor any tax liens (other than for current
Taxes not yet due and payable) upon the assets of the Company, and to the
Knowledge of the Seller there are no threatened claims for tax deficiencies
or any basis for such claims.
(h) Except as listed on Schedule 2.24, the Company has paid or is
-------------
withholding all amounts in taxes required to be paid or withheld for all
income, unemployment, social security, Medicare or similar Taxes, with
respect to wages, salary and other compensation of directors, officers and
employees of the Company.
(i) Seller has provided to the Buyer true and complete copies of
all federal and state income tax and franchise tax returns of the Company
for all periods ending on or after December 31, 1999.
2.25 Statutory Financial Statements. The Annual Statements of the
--------------------------------
Company, as filed with the Florida Department of Insurance for the years ended
December 31, 1999, December 31, 2000 and December 31, 2001 (together with all
exhibits and schedules thereto, "Company Statutory Financial Statements"), have
--------------------------------------
been prepared in accordance with the accounting practices prescribed or
permitted by the Florida Department of Insurance for purposes of financial
reporting to the Florida insurance regulators (the "Company State Statutory
-----------------------
Accounting Principles"), and such accounting practices have been applied in all
----------------------
material respects on a basis consistent with Company State Statutory Accounting
Principles throughout the periods involved, except as expressly set forth in the
notes, exhibits, schedules thereto or Schedule 2.25 and the Company Statutory
-------------
Financial Statements present fairly in all material respects the financial
position and the results of operations for the Company as of the dates and for
the periods therein in accordance with the applicable Company State Statutory
Accounting Principles. Except as set forth in Schedule 2.25, the Company has
-------------
not received any response, claim, question, notice, show cause order or
objections from any regulatory body relating to any Company Statutory Financial
Statements whether with respect to the manner in which such were prepared, or
the financial condition of the Company or otherwise. The Company has delivered
or made available to Buyer true and complete copies of the Company Statutory
Financial Statements.
2.26 Transactions With Affiliates. Except as disclosed on Schedule
------------------------------ --------
2.26, there are no loans, leases, agreements, contracts or other transactions
----
between the Company and any present or former stockholder, director or officer
of the Company, or Seller, or any member of such Stockholder's, director's or
officer's immediate family, or any entity controlled by any such person.
Schedule 2.26 lists the number of participants under the HMO Contracts and the
--------------
Group Contracts that are assigned to a dental clinic owned by Seller or an
affiliate of Seller. No shareholder, director or officer of the Company or
Seller nor any of their respective spouses or family members owns directly or
indirectly on an individual or joint basis any material interest
in, or serves as an officer or director of, or in any representative or agent
capacity for, any competitor, customer, provider or supplier of the Company or
any organization which has a material contract or arrangement with the Company.
2.27 Improper Payments. Except as listed on Schedule 2.27, to Seller's
----------------- -------------
Knowledge, neither the Company, nor any shareholder, director, officer, employee
or agent of the Company has made any improper bribes, kickbacks or other
payments to, or received any such payments from, customers, vendors, suppliers
or other persons contracting with the Company and has not proposed or offered to
make or receive any such payments.
2.28 Information. Seller has been given access to all information
-----------
concerning the condition, properties, operations and prospects of Buyer that
Seller has reasonably requested. Seller has had an opportunity to ask questions
of, and to receive information from Buyer and persons acting on its behalf
concerning the terms and conditions of the SafeGuard Stock and the Convertible
Note. The knowledge and experience of Seller in financial matters is such that
he is capable of evaluating the merits and risks of his investment in the
SafeGuard Stock and the Convertible Note.
2.29 Investment Purposes.
--------------------
(a) Seller is acquiring the SafeGuard Stock and the Convertible
Note solely for his account for investment and not with a view to, or for
resale in connection with, the distribution thereof, except for any
distribution thereof effected in compliance with the Securities Act.
(b) Seller understands: (i) that the purchase of the SafeGuard
Stock, and the Convertible Note is a speculative investment which involves
a high degree of risk of loss of Seller's investment therein; (ii) that
there are restrictions on the transferability of the SafeGuard Stock and
the Convertible Note (and the shares of Common Stock issuable upon
conversion of the Convertible Note, collectively the "Conversion Shares")
-----------------
under the terms of this Agreement and the other agreements contemplated by
this Agreement; and (iii) that there are restrictions on transfer of all
such securities under the applicable provisions of the Securities Act and
the rules and regulations of the Securities and Exchange Commission (the
"SEC") promulgated thereunder and applicable state securities or "blue sky"
---
laws.
(c) Seller has been advised and understands that, (i) the offer
and sale of the SafeGuard Stock, the Convertible Note, and the Conversion
Shares have not been registered under the Securities Act; (ii) the
SafeGuard Stock, the Convertible Note, and the Conversion Shares must be
held indefinitely and Seller must continue to bear the economic risk of the
investment in the SafeGuard Stock, the Convertible Note, and the Conversion
Shares unless the offer or sale of the SafeGuard Stock, the Convertible
Note, or the Conversion Shares is subsequently registered under the
Securities Act or an exemption from such registration is available; (iii)
there is not currently any public market for the Convertible Note, (iv)
when and if the SafeGuard Stock, the Convertible Note or the Conversion
Shares may be disposed of without registration in reliance on Rule 144,
such disposition can be made only in accordance with the terms and
conditions
of such Rule, (v) restrictive legends shall be placed on the certificates
representing the SafeGuard Stock, the Convertible Note and the Conversion
Shares and (vi) a notation shall be made in the appropriate records of the
Company indicating that the SafeGuard Stock, the Convertible Note and the
Conversion Shares are subject to restrictions on transfer and appropriate
stop transfer instructions will be issued to the transfer agent of the
Company with respect to the SafeGuard Stock, the Convertible Note and the
Conversion Shares.
(d) Seller is aware that, except as expressly provided in the
Registration Rights Agreement contemplated by this Agreement, there exists
no right to require registration of the SafeGuard Stock or the Conversion
Shares and Seller must bear the economic risk of the investment in the
SafeGuard Stock the Convertible Note, and the Conversion Shares.
2.30 Accredited Investor. Seller is an "accredited investor" as
--------------------
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933, as amended.
2.31 Legend on Certificates. Seller has been advised by Buyer that the
----------------------
instruments and certificates representing the SafeGuard Stock, the Convertible
Note and the Conversion Shares will bear an appropriate legend to the effect
that the SafeGuard Stock, the Convertible Note and the Conversion Shares
represented by such instruments and certificates have not been registered under
the Securities Act, and may not be transferred in the absence of an effective
registration statement under the Securities Act or an exemption from such
registration under said Act, and will also bear such additional legends as may
be specified in the other agreements contemplated by this Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller, as of the date of this Agreement
and as of the Closing Date unless expressly provided otherwise in the
representation, as follows.
3.1 Organization and Standing. Buyer and each of its subsidiaries are
---------------------------
corporations organized, validly existing and in good standing under the laws of
their respective states of incorporation with all requisite corporate power and
authority to conduct their business operations as being conducted on the date of
this Agreement. Neither the Buyer nor any subsidiary has failed to qualify as a
foreign corporation in any jurisdiction where the failure to be so authorized
would have a Material Adverse Effect on the Buyer and its subsidiaries, taken as
a whole.
3.2 Noncontravention. The execution and delivery of this Agreement and
----------------
the performance of the transactions contemplated by this Agreement and each of
the agreements and documents delivered by Buyer in connection herewith have been
duly authorized by all requisite corporate action of Buyer and does not, on the
date of this Agreement, and will not, on the Closing Date, (i) violate any
decree or judgment of any court or governmental authority which may be
applicable to Buyer or any of its subsidiaries; (ii) to Buyer's Knowledge,
violate any law, rule or regulation binding on Buyer or any of its subsidiaries;
(iii) violate or conflict with, or
result in a breach of, or constitute a default (or an event which, with or
without notice or lapse of time or both, would constitute a default) under any
of the terms, conditions, or provisions of any contract, lease, indenture,
mortgage, note, bond, instrument, license or other agreement to which Buyer or
any of its subsidiaries is a party, or by which Buyer or any of its subsidiaries
is bound; (iv) permit the acceleration of the maturity of any indebtedness of
Buyer or any of its subsidiaries; (v) violate or conflict with any provision of
the certificate of incorporation or bylaws of Buyer or any of its subsidiaries;
or (vi) require the consent, approval or authorization or any Person or
Governmental Authority.
3.3 Execution/Enforceability. This Agreement and each other agreement
------------------------
and document delivered by Buyer or SafeGuard Florida in connection herewith has
been duly and validly executed and delivered by Buyer or SafeGuard Florida, as
the case may be, and constitutes a valid and binding agreement of Buyer or
SafeGuard Florida, as the case may be, enforceable in accordance with their
terms, except to the extent that its enforceability is limited by application of
general principles of equity and by bankruptcy, insolvency, moratorium, debtor
relief, and similar laws of general application affecting enforcement of
creditors' rights and debtor obligations.
3.4 Capitalization. As of the date of this Agreement, the authorized
--------------
capital stock of Buyer consists of 40,000,000 shares of Common Stock, $.01 par
value per share and 1,000,000 shares of Preferred Stock, $.01 par value per
share of which 80,000 shares have been designated as Series A Preferred Stock,
80,000 shares as Series B Preferred Stock, 30,000 shares as Series C Preferred
Stock and 110,000 shares as Series D Preferred Stock, all of which is
convertible into 30,000,000 shares of Buyer's Common Stock. As of the date of
this Agreement, 4,820,832 shares of Common Stock and 300,000 shares of Buyer's
Preferred Stock are issued and outstanding. As of the date of this Agreement,
stock options to acquire 3,000,000 shares of Common Stock are authorized under
the stock option plans of Buyer, of which 2,637,834 are issued and outstanding a
portion of which are subject to stockholder approval of an increase in the total
number of shares for which options may be granted under the stock option plan
and 611,741 shares of Common Stock have been issued (all prior to March 1, 2000)
pursuant to the exercise of stock options granted under the plan. All of the
issued and outstanding shares of Common Stock and Preferred Stock are validly
issued, fully paid and non-assessable. Except for the Convertible Note or as
set forth above, there are no shares of capital stock of Buyer issued or
outstanding or any stock options, warrants, subscriptions, calls, rights,
convertible securities or other agreements or commitments obligating Buyer to
issue, transfer, sell, redeem, repurchase or otherwise acquire any shares of its
capital stock. Upon consummation of the Closing, Buyer shall have sufficient
shares of Common Stock reserved for issuance upon conversion of the Convertible
Note. On the Closing Date, the Buyer's capitalization will be as set forth on
Schedule 3.4, which will be prepared and delivered to Seller, certified by
-------------
Buyer, on or before the Closing Date in the form of this Section 3.4.
-----------
3.5 Validity of SafeGuard Stock. The SafeGuard Stock, when issued to
-----------------------------
Seller pursuant to this Agreement, will be duly authorized, validly issued, and
fully paid and non-assessable. The SafeGuard Stock, when issued to Seller
pursuant to this Agreement, will be free and clear of all Liens, except solely
as permitted in this Agreement or in the other agreements expressly contemplated
by this Agreement or imposed by applicable securities laws.
3.6 SafeGuard Florida Shares; Other Subsidiaries. Buyer is the
------------------------------------------------
unconditional sole legal, beneficial, record and equitable owner of all of the
capital stock of SafeGuard Florida and each of its other subsidiaries, free and
clear of any and all Liens, and that capital stock is duly authorized and
validly issued. The Pledged Shares constitute all of the issued and outstanding
capital stock of SafeGuard Florida, and there are no outstanding options,
warrants, convertible securities, or other rights to acquire capital stock of
Safeguard Florida. The Pledged Shares are not subject to shareholder
agreements, voting agreements, proxies, or other restrictions on their voting or
disposition, except for restrictions imposed by applicable securities laws and
Florida Statutes and regulations relating to a change of control of a Prepaid
Limited Health Services Organization. At the Closing, Buyer will convey to
Seller a valid first priority perfected security interest in the Pledged Shares
pursuant to the Pledge Agreement.
3.7 Validity and Rights of the Convertible Note and Conversion Shares.
------------------------------------------------------------------
The Convertible Note, when issued to Seller pursuant to this Agreement, will be
duly authorized and validly issued and will have the terms and rights set forth
in the form of the Convertible Note attached hereto as Exhibit A. The
---------
Convertible Note, when issued to Seller pursuant to this Agreement, will be free
and clear of all Liens except solely as provided in this Agreement or in the
other agreements expressly contemplated by this Agreement or imposed by
applicable securities laws. Any and all shares of the Conversion Shares, when
issued, will be validly issued, fully paid, and non-assessable and will be free
and clear of all Liens of any kind except solely as expressly provided in this
Agreement or in the other agreements expressly contemplated by this Agreement or
imposed by applicable securities laws.
3.8 Buyer SEC Reports. Buyer has filed all required reports,
-------------------
schedules, forms, statements and other documents with the SEC since January 1,
2000 (collectively, the "SEC Reports"). As of the respective dates the SEC
------------
Reports were filed or, if any such SEC Reports were amended, as of the date such
amendment was filed, each of the SEC Reports (i) complied in all material
respects with all applicable requirements of the Securities Act and the Exchange
Act, and the rules and regulations promulgated thereunder and (ii) did not
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. Each of (i) the audited consolidated financial statements of Buyer
(including any related notes and schedules) included (or incorporated by
reference) in the SEC Reports and (ii) the unaudited consolidated interim
financial statements for Buyer (including any related notes and schedules)
included (or incorporated by reference) in the SEC Reports, fairly present, in
conformity with GAAP applied on a consistent basis (except as may be indicated
in the notes thereto), the consolidated financial position of Buyer and its
subsidiaries as of the dates thereof and the consolidated results of their
operations and changes in their financial position for the periods then ended
(subject to normal year-end adjustments in the case of any unaudited interim
financial statements).
3.9 Taxes.
-----
(a) All material Tax Returns required to be filed by or with
respect to the Buyer and its subsidiaries through the Closing Date have
been or will be accurately prepared in all material respects, and have been
or will be duly and timely filed, and all Taxes shown on such Tax Returns
have been or will be timely paid, or to the extent not
due and payable as of the Closing Date, adequate provision for the payment
thereof has been or will be made on the financial statements or the books
of account of Buyer.
(b) With respect to each taxable period of Buyer and its
subsidiaries ending prior to the date of this Agreement, such taxable
period (i) has been audited by the IRS or other taxing authority, and such
audit has been completed without the issuance of any notice of deficiency
or similar notice of additional liability, (ii) has not been audited or
investigated by the IRS or other taxing authority, or (iii) the time for
assessing or collecting income tax with respect to each such taxable period
has closed and such taxable period is not subject to review by the IRS or
such other taxing authority. Neither the Buyer nor any subsidiary has
granted or been requested to grant waivers of any statute of limitations
applicable to any claim for Taxes.
3.10 Broker's and Finder's Fees. No agent, broker, employee, officer,
---------------------------
stockholder or other person or entity acting on behalf of, or under the
authority of, Buyer or any of its subsidiaries is or will be entitled to any
commission or broker's or finder's fee from any of the parties hereto in
connection with this Agreement or any of the transactions contemplated hereby.
3.11 Licenses/Compliance with Law. Buyer and each of its subsidiaries,
----------------------------
including without limitation SafeGuard Florida, has the lawful authority and all
governmental authorizations, certificates of authority, licenses or permits
necessary for or required to conduct its business operations as presently
conducted. There are no pending or, to the Knowledge of Buyer, threatened
legal, administrative, arbitration, or other proceedings of any kind nor any
pending or, to the Knowledge of Buyer, threatened governmental investigations by
any federal, state or local government or any subdivision thereof or by any
public or private group, which assert or allege any violation of or
non-compliance with any governmental requirements or which would have the effect
of limiting, prohibiting or changing the business operations of Buyer or any of
its subsidiaries, including without limitation SafeGuard Florida, as presently
conducted. To the Knowledge of Buyer, each of Buyer and its subsidiaries has
made all filings with Governmental Agencies required for the conduct of its
business operations as such are presently conducted, except where failure to
file would not have a Material Adverse Effect on Buyer. To the knowledge of
Buyer, each of Buyer's and each of its subsidiaries's business operations as
presently conducted do not violate or fail to comply in any material respect
with any applicable federal, state or local codes, laws, rules or regulations.
Neither Buyer nor any subsidiary has received any notices alleging any such
violation or non-compliance. Each of the representations in this Section 3.11
------------
is subject to Schedule 3.11.
--------------
3.12 No Material Adverse Change. Since December 31, 2001, Buyer and
-----------------------------
each of its subsidiaries have conducted their respective business in the
ordinary course and, except as disclosed on Schedule 3.12, neither Buyer nor any
-------------
of its subsidiaries has suffered any Material Adverse Effect.
3.13 Litigation. Except as set forth in Schedule 3.13, no
---------- --------------
investigation or review by any governmental entity with respect to Buyer or any
of its subsidiaries is pending or, to the Knowledge of Buyer, threatened, nor
has any governmental entity indicated to Buyer or any of its subsidiaries an
intention to conduct the same; and there is no action, suit, or administrative,
arbitration or other proceeding (including proceedings concerning labor disputes
or grievances or
union recognition) pending or, to the Knowledge of Buyer, threatened against or
affecting Buyer or any of its subsidiaries to which Buyer or any of its
subsidiaries is a party, at law or in equity, before any federal, state, or
municipal court or other governmental department, commission, board, bureau,
agency, or instrumentality. Neither Buyer nor any of its subsidiaries is now,
and has not been, a party to any agreement, injunction, order or decree
restricting the method or geographic area under which Buyer or any of its
subsidiaries may conduct business operations or the marketing of any of their
respective products or services or the product or services they may sell.
3.14 Transactions With Affiliates. Except as disclosed on Schedule
------------------------------ --------
3.14, there are no loans, leases, agreements, contracts or other transactions
----
between Buyer and SafeGuard Florida, any present or former stockholder, director
or officer of Buyer, or any member of such stockholder, director or officer's
immediate family, or any entity controlled by any such person. No shareholder,
director or officer of Buyer nor any of their respective spouses or family
members owns directly or indirectly on an individual or joint basis any material
interest in, or serves as an officer or director of, or in any representative or
agent capacity for, any competitor, customer, provider or supplier of Buyer or
any organization which has a material contract or arrangement with Buyer.
3.15 Improper Payments. To Buyer's Knowledge, neither Buyer or any
------------------
affiliate of Buyer, nor any shareholder, director, officer, employee or agent of
Buyer or any affiliate of Buyer has made any improper bribes, kickbacks or other
payments to, or received any such payments from, customers, vendors, suppliers
or other persons contracting with Buyer and has not proposed or offered to make
or receive any such payments.
3.16 Proceedings. There is not any pending claim, litigation,
-----------
investigation, or proceeding against Buyer or any of its subsidiaries that has
been commenced or threatened that challenges or might have the effect of
preventing, delaying, making illegal, or otherwise interfering with the
transactions contemplated by this Agreement.
ARTICLE 4
GENERAL COVENANTS
4.1 Implementing Agreement. Subject to the terms and conditions of
-----------------------
this Agreement, each party hereto shall take all action required of it to
fulfill its obligations under the terms of this Agreement and shall otherwise
use commercially reasonable efforts to facilitate the consummation of the
transactions contemplated hereby.
4.2 Access and Information. From and after the date of this Agreement
-----------------------
until the Closing Date, Seller and the Company shall (a) give to Buyer and its
representatives reasonable access during normal business hours upon reasonable
notice to all properties, books, contracts and records (including tax returns
and insurance policies) of or relating to the Company and (b) furnish all other
information pertaining to the Company as may be reasonably requested by Buyer.
Except as approved by Seller, all information obtained hereunder that is not
otherwise public shall be held confidential and, in the event of termination of
this Agreement, except to the extent required because of any pending or
threatened litigation or governmental proceeding, all
documents (including copies thereof) obtained hereunder containing such
information shall be, at Seller's option, destroyed or returned to Seller.
From the date of this Agreement through the Closing Date, the Company will
prepare monthly and year-to-date unaudited financial statements (the "Interim
-------
Financial Statements") consistent with GAAP and will promptly deliver the same
---------------------
to Buyer. The representations contained in Section 2.8 with respect to the
-----------
Company Financial Statements will be applicable to all Interim Financial
Statements so prepared and delivered; provided, however, that the Interim
-------- -------
Financial Statements shall be subject to normal year-end adjustments.
4.3 Operation of Businesses; Course of Conduct.
-----------------------------------------------
(a) Except as set forth in Schedule 4.3, except as contemplated by
------------
this Agreement, and except with the written consent of Buyer, during the
period from the date of this Agreement to the Closing Date, Seller shall
cause the Company to operate its business as presently operated in the
ordinary course and, consistent with such operations, the Company will
substantially comply with all applicable legal and contractual obligations,
and will use reasonable efforts consistent with past practice to preserve
its business organization intact and to preserve the goodwill of its
suppliers, customers, clients, providers, employees and others with whom it
has business relationships; and Seller and the Company shall use reasonable
efforts consistent with past practice to not take any action (or omit to
take any action) outside the ordinary course of business that would cause
any representation or warranty contained in Article 2 hereof to be
----------
inaccurate. Without limiting the generality of the foregoing, except as set
forth in Schedule 4.3, except as contemplated by this Agreement, and except
------------
with the written consent of Buyer, during the period from the date of this
Agreement to the Closing Date, Seller will not permit the Company to,
without the prior written consent of Buyer:
(i) enter into any contract or agreement relating to the
Company's business, other than (1) such contracts or agreements that
are entered into in the ordinary course of business consistent with
past practice; and (2) any such contract or agreement not entered into
in the ordinary course of business consistent with past practice and
pursuant to which the Company receives or is reasonably expected to
receive payments, or makes or is reasonably expected to make payments
of less than $20,000 per calendar year;
(ii) make (1) any material change, except in the ordinary
course of business, in the assets (including, but not limited to, any
change in the composition of such assets so as to materially alter the
proportion of cash thereof) or liabilities of the Company, or (2) any
commitment for any capital expenditures including, without limitation,
replacements of equipment in the ordinary course of business,
involving, in the aggregate, more than $50,000;
(iii) make any change in the articles of incorporation or
bylaws of the Company;
(iv) (1) authorize any shares of the capital stock of the
Company for issuance, (2) issue or agree to issue any shares of any
authorized but unissued shares of the capital stock of the Company,
(3) grant, issue, or make any option or commitment relating to the
capital stock of the Company, or any other security constituting, or
convertible or exchangeable for, capital stock of the Company, or (4)
purchase or otherwise acquire any outstanding shares of the capital
stock of the Company;
(v) (1) declare or pay any dividend, make any other
distribution or payment, or set aside any amount for payment, with
respect to any shares of the capital stock of the Company, or (2)
directly or indirectly redeem, purchase or otherwise acquire any
shares of the capital stock of the Company or make any commitment
relating thereto;
(vi) (1) make any increase in the compensation payable or to
become payable to any of the officers, employees or agents of the
Company (including any bonus or incentive payment or arrangement),
other than normal yearly salary increases and scheduled increases
under presently existing compensation plans, and currently anticipated
bonuses pursuant to existing bonus arrangements; provided, however,
-------- -------
that the Company may make payments ("Stay Bonuses") of up to $250,000
------------
to Xxxxx Xxxxxx and $125,000 to Xxxxxxx X. Xxxxxxx; or (2) make,
amend, or enter into any written employment or consulting contract
with any employee or independent consultant or any bonus, stock
option, profit sharing, pension, retirement or other similar payment
or arrangement. Schedule 4.3 lists the amount and terms of currently
------------
anticipated bonuses pursuant to existing bonus arrangements with
respect to Seller, Xxxxxxx X. Xxxxxxx, and Xxxxx Xxxxxx and a general
description of the Company's existing bonus arrangements for its other
employees;
(vii) enter into any agreement resulting in the imposition of
any Liens on any assets of the Company, except Permitted Liens;
(viii) enter into any agreement for the purchase of capital
stock of any other entity;
(ix) use reasonable efforts not to take any action that would
prevent compliance with any of the conditions in Article 4 of this
---------
Agreement;
(x) enter into any agreement for the sale of equity of the
Company or the creation of any profit sharing relationship with any
current or potential client or broker;
(xi) enter into or engage in any material transaction with
any officer, director, shareholder or affiliate of the Company except
for the payment of salaries in the ordinary course of business;
(xii) (1) carry on any negotiations with other parties
relating to the acquisition of capital stock or any material assets of
the Company or (2) merge or
consolidate with or into any entity or sell or otherwise dispose of,
or purchase, any material assets or properties (other than sales of
obsolete inventory or equipment and purchases of items of inventory or
equipment in replacement therefor, in the ordinary course of business
consistent with past business practice) or enter into any agreement in
respect of such merger, consolidation, purchases, sales, and
dispositions; and
(xiii) cancel, surrender or let lapse any insurance policies
issued to the Company.
(b) Except as contemplated by this Agreement, and except with the
written consent of Seller, during the period from the date of this
Agreement to the Closing Date, Buyer shall not take any action (or omit to
take any action) which action or omission would cause any representation or
warranty or covenant in the Convertible Note to be inaccurate or would
constitute a breach of such representation or warranty or covenant, or a
failure by Buyer to perform any such covenant.
(c) Buyer shall be permitted to file this Agreement with and
discuss the transaction as represented by this Agreement with the Florida
Department of Insurance and any such other regulatory agencies that may be
involved in the transaction.
(d) From the date of this Agreement to the Closing Date,
(i) The Company shall not make or implement any employee or
officer hiring or termination decision involving an individual who is paid
in excess of $50,000 per year without the prior written consent of Buyer,
which shall not be unreasonably withheld or delayed; and
(ii) The Company shall inform Buyer regarding all
discussions, correspondence or negotiations relating to any existing or
proposed new Group Contracts involving 1,000 or more participants or HMO
Contract and shall not modify, amend or renew any Group Contract involving
1,000 or more participants or HMO Contract without the prior written
consent of Buyer, which shall not be unreasonably withheld or delayed.
4.4 Consents.
--------
(a) From the date of this Agreement to the Closing Date, Seller,
the Company and Buyer shall take all steps reasonably necessary to obtain
the written consent or approval of each and every governmental agency whose
consent or approval shall be required in order to permit the consummation
of the transactions contemplated by this Agreement.
(b) As soon as practicable after the execution of this Agreement,
and not later than 30 days after the date of this Agreement, Buyer shall
file an application for transfer of control of the Company with the Florida
Department of Insurance, together with all documents and information as may
be required to be filed in connection therewith and shall thereafter
promptly provide such additional information such Department shall
request from time to time, and otherwise shall prosecute such application
diligently and use reasonable efforts to obtain such approval as promptly
as reasonably practicable. Seller and the Company will assist in the
preparation and prosecution of the required filings with the Florida
Department of Insurance. The parties shall (i) furnish to other party
copies of all filings and such necessary information as may be requested by
either in connection with any required filings or submissions to any
governmental agency or third party and (ii) will keep the other party
informed of the status of any inquiries made with respect to this
transaction by any federal, state or local governmental agency or authority
with respect to this Agreement or the transaction contemplated hereby.
4.5 Public Communications. All press releases or other public
----------------------
communications of any sort relating to this Agreement, and the method of the
release for publication thereof, shall be subject to the prior approval of both
Buyer and Seller, which approval shall not be unreasonably withheld by either of
such parties, except to the extent that disclosure is otherwise required by law
or judicial process.
4.6 Solicitation of Inquiries. From the date of this Agreement to the
--------------------------
Closing Date, neither Seller, the Company, nor any employee or agent of either
shall solicit from any other person, firm, corporation or other entity any
inquiries or proposals relating to the disposition of any substantial portion of
the Company's business or assets or to the acquisition of all or a substantial
portion of its capital stock (whether issued and outstanding or authorized but
not issued) or to the merger, reorganization or consolidation of the Company.
Until the Closing Date, each of Seller and the Company additionally agree that,
without the prior written consent of Buyer, it will not furnish to any person or
entity (other than Buyer and its directors, employees, agents and
representatives) any non-public information concerning the Company or its
business, financial affairs or prospects for the purpose or with the intent of
permitting such person or entity to evaluate a possible acquisition of the
Company or any of its capital stock or (other than in the ordinary course of
business) assets. In the event Seller, the Company, or any agent or employee of
either, receives any such solicitation, inquiry or proposal, they shall provide
a copy of such to Buyer immediately upon receipt thereof.
4.7 Cooperation. The parties will fully cooperate each with the other
-----------
and their respective counsel and accountants in connection with any steps
required to be taken as part of their obligations under this Agreement. Seller,
the Company and Buyer each agrees to use its best efforts to make all necessary
filings and to obtain all necessary consents to the transactions contemplated by
this Agreement, including without limitation all consents of parties to any
contracts or agreements requiring such consents, and all necessary consents of
governmental authorities.
4.8 Updating of Schedules. Each party shall promptly notify the other
----------------------
party in writing of any changes, additions, or events which may cause any change
in or addition to the Schedules delivered by the party under this Agreement
promptly after the occurrence of the same and again at the Closing by delivery
of appropriate updates to all such Schedules. No notification of a change or
addition to a Schedule made pursuant to this Section 4.8 shall be deemed to cure
-----------
any breach of any representation or warranty resulting from such change or
addition, unless the other party specifically agrees thereto in writing or
consummates the Closing under this Agreement after receipt of such written
notification nor shall any such notification, be
considered to constitute or give rise to a waiver by the other party of any
conditions set forth in this Agreement, unless the other party specifically
agrees thereto in writing or consummates the Closing under this Agreement after
receipt of such written notification. Nothing contained herein shall be deemed
to create or impose on a party any duty to examine or investigate any matter or
thing for the purposes of verifying the representations and warranties made by
the other party herein.
4.9 Reinvestment of Equity Investments. As soon as reasonably
-------------------------------------
practicable after the date on which the last signature page to this Agreement is
executed, Seller will cause the Company to sell the assets of the Company
invested in equity securities for cash and will cause the cash proceeds received
by the Company from such sale to be invested in "Permitted Investments," as that
term is defined in Buyer's Investment Policy Statement attached to this
Agreement as Exhibit I.
----------
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions to Obligations of Seller. The obligations of Seller
---------------------------------------
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) Accuracy of Representations and Warranties. The
----------------------------------------------
representations and warranties of Buyer contained in Article 3 shall be
---------
true and correct in all material respects at the date of this Agreement
and, unless otherwise provided in Article 3, the Closing Date, except to
---------
the extent such representations and warranties are not true and correct in
all material respects by reason of actions permitted or authorized by this
Agreement or consented to in writing by Seller.
(b) Performance. Buyer shall have performed and complied in all
-----------
material respects with all of its covenants and agreements required to be
performed by it under this Agreement and each of the other agreements
contemplated hereby at or prior to the Closing Date.
(c) Consents and Approvals. Seller shall have received written
------------------------
evidence of all material consents and approvals referred to in Section
-------
4.4. Seller shall have received written evidence of Buyer's shareholder's
---
approval of an increase in the number of authorized shares of Common Stock
to 42,500,000 shares of Common Stock.
(d) Certificate. Seller shall have received a certificate of
-----------
Buyer, dated the Closing Date and duly executed by the President or a Vice
President of Buyer on behalf of Buyer certifying to the best of such
Person's knowledge as to compliance with Sections 5.1(a) and (b).
---------------- ---
(e) Legal Actions. No legal action or proceeding by any
--------------
Governmental Authority or other Person shall have been instituted and
threatened which enjoins, restrains, prohibits or results in substantial
damages in respect of, or could enjoin, restrain, prohibit or result in
substantial damages in respect of, any provision of this Agreement or any
related Agreements consummation of the transactions contemplated hereby or
thereby.
(f) Employment Agreement. On the Closing Date, Buyer shall have
---------------------
executed and delivered the Employment Agreement with Seller in the form of
Exhibit B (the "Employment Agreement").
---------- ---------------------
(g) Registration Rights Agreement. On the Closing Date, Buyer
-------------------------------
shall have executed and delivered the Registration Rights Agreement with
Seller in the form of Exhibit C (the "Registration Rights Agreement").
--------- -----------------------------
(h) Lease Agreement. On the Closing Date, SafeGuard Florida shall
---------------
have executed and delivered the Lease Agreement with Paramount Properties
in the form of Exhibit D (the "Lease Agreement").
---------- ----------------
(i) Pledge Agreement. On the Closing Date, Buyer shall have
-----------------
executed and delivered the Stock Pledge Agreement in favor of Seller in the
form of Exhibit E (the "Pledge Agreement").
---------- -----------------
(j) Security Agreement. On the Closing Date, SafeGuard Florida
-------------------
shall have executed and delivered the Security Agreement in favor of Seller
in the form of Exhibit F (the "Security Agreement") and all financing
---------- ------------------
statements requested by Seller in order to perfect Seller's security
interest in the assets of SafeGuard Florida.
(k) Convertible Note. On the Closing Date, Buyer shall have
-----------------
executed and delivered the Convertible Note.
(l) Material Adverse Effect. Since the date of this Agreement,
-------------------------
there shall not have occurred any event or condition of any character that
in any one case or in the aggregate has a Material Adverse Effect on Buyer
or SafeGuard Florida.
(m) Capitalization of Buyer. On or before the Closing Date, Buyer
-----------------------
shall have delivered to Seller its Schedule 3.4 describing Buyer's
-------------
capitalization as of the Closing Date.
(n) Guaranty. On the Closing Date, Buyer shall have executed and
--------
delivered the Guaranty in favor of Paramount Properties in the form of
Exhibit J (the "Guaranty").
--------
5.2 Conditions to the Obligations of Buyer. The obligations of Buyer
----------------------------------------
shall be subject to the fulfillment at or prior to the Closing Date of the
following conditions:
(a) Accuracy of Representations and Warranties. The
----------------------------------------------
representations and warranties of Seller contained in Article 2 shall be
---------
true and correct in all material respects at the date of this Agreement and
at and as of the Closing Date, except to the extent such representations
and warranties are not true and correct by reason of actions permitted or
authorized by this Agreement or consented to in writing by Buyer or because
of an event that does not have a Material Adverse Effect on Seller or the
Company.
(b) Performance. Seller shall have performed and complied in all
-----------
material respects with all of its covenants and agreements required to be
performed by it under
this Agreement and each of the other agreements contemplated hereby at or
prior to the Closing Date.
(c) Consents and Approvals. Buyer shall have received written
------------------------
evidence of the consents and approvals referred to in Section 4.4, and the
-----------
consents to assignment of HMOs representing at least 50% by projected 2002
calendar year dollar volume of all HMO Contracts of the Company.
(d) Certificate. Buyer shall have received a certificate of
-----------
Seller, dated the Closing Date and duly executed by the President or a Vice
President of Seller on behalf of Seller certifying to the best of such
Person's knowledge as to compliance with Sections 5.2(a) and (b).
---------------- ---
(e) Legal Action. No legal action or proceeding by any
-------------
Governmental Authority or other Person shall have been instituted and
threatened which enjoins, restrains, prohibits or results in substantial
damages in respect of, or could enjoin, restrain, prohibit or result in
substantial damages in respect of, any provision of this Agreement or any
other agreement contemplated hereby or the consummation of the transactions
contemplated hereby or thereby.
(f) Other Agreements. On the Closing Date, Seller (or Paramount
-----------------
Properties in the case of the Lease Agreement) shall have executed and
delivered the Employment Agreement, the Registration Rights Agreement, the
Lease Agreement, and the Pledge Agreement.
(g) Material Adverse Effect. Since the date of this Agreement,
-------------------------
there shall not have occurred any event or condition of any character that
in any one case or in the aggregate has a Material Adverse Effect on the
Company, including, without limitation, any terms, conditions, or
limitations that are imposed by the Florida Department of Insurance as a
prerequisite to its approval of the change of control of the Company
contemplated by this Agreement.
(h) Approval of Certain Company Plans. The Company shall have
---------------------------------
filed all of its offered plans that are required to be filed with the
Florida Department of Insurance and received approval of such plans from
the Florida Department of Insurance, in each case to the extent required by
Florida law.
ARTICLE 6
CLOSING
6.1 Closing. Unless the parties agree otherwise, the consummation of
-------
the transactions contemplated by this Agreement (the "Closing") will take place
-------
at 1:00 p.m., Tampa, Florida time, on the last Business Day of the month in
which the satisfaction or waiver of the condition precedent set forth in
Sections 5.1(c) and 5.2(c) shall have occurred (the "Closing Date"), at the
---------------- ------ ------------
offices of Xxxx, Xxxx & Xxxxxxxxx, P.A., 000 Xxxx Xxxxxxx Xxxxxxxxx, Xxxxx,
Xxxxxxx, 00000, provided that the parties will arrange for the Convertible Note
--------
to be executed, and delivered outside of the State of Florida. The transfers
and deliveries described in Article 6 shall be mutually interdependent and shall
---------
be regarded as occurring simultaneously and, notwithstanding
any other provision of this Agreement, no such transfer or delivery shall become
effective or shall be deemed to have occurred until all of the other transfers
and deliveries provided for in Article 6 shall also have occurred. The Closing,
---------
and all transactions to occur at the Closing, shall be deemed to have taken
place at, and shall be effective as of, the close of business on the Closing
Date.
6.2 Seller's Closing Deliveries. Seller shall deliver the following to
---------------------------
Buyer at the Closing:
(a) certificate evidencing all of the Shares, which certificate
shall be duly endorsed in blank or accompanied by duly executed stock
powers;
(b) resignations of all directors and officers of the Company;
(c) the Employment Agreement, the Registration Rights Agreement,
the Lease Agreement, the Pledge Agreement, and the Security Agreement, each
duly executed by Seller (or Paramount Properties in the case of the Lease
Agreement);
(d) legal opinions, dated the Closing Date, of Xxxx, Xxxx &
Xxxxxxxxx, P.A., counsel to Seller and the Company, to the effect set forth
in Exhibit G; and
----------
(e) all keys, pass-codes, computer access information and any and
all other tools and implements used in the day-to-day operation of the
Company's business.
6.3 Buyer's Closing Deliveries. Buyer shall deliver the following to
----------------------------
Seller at the Closing:
(a) $3,000,000 in U.S. Dollars, by wire transfer of immediately
available funds in accordance with the wire transfer instructions of
Seller;
(b) the Convertible Note, duly executed by Buyer;
(c) a stock certificate evidencing the 769,231 shares of SafeGuard
Stock;
(d) the Lease Agreement, Employment Agreement, Registration Rights
Agreement, and Guaranty, each duly executed by Buyer (or SafeGuard Florida
in the case of the Lease Agreement);
(e) the Pledge Agreement and the stock certificate representing
all of the shares of SafeGuard Florida, which certificate shall be duly
endorsed in blank or accompanied by duly executed stock powers;
(f) legal opinions, dated the Closing Date, of Xxxxxxxxxxx &
Price, LLP, counsel to Buyer and Safeguard Florida, to the effect set forth
in Exhibit H; and
----------
(g) the Security Agreement and all financing statements requested
by Seller in order to perfect Seller's security interest in the assets of
SafeGuard Florida.
6.4 Transfer Taxes. Seller and Buyer shall share equally the cost of
---------------
all transfer, sales, use, income or other taxes, if any, payable in connection
with the transfer of the Shares contemplated by this Agreement or as a result of
the transaction contemplated hereby. Seller shall be responsible for the
payment of any individual taxes levied as a result of selling the Shares to
Buyer.
ARTICLE 7
BUYER'S COVENANTS
Buyer agrees that:
7.1 Closing. Buyer shall, to the extent within its control, use its
-------
best efforts to cause the conditions specified in Section 5.1 to be satisfied by
-----------
the Closing Date.
7.2 Seller's Access to Information After the Closing.
------------------------------------------------------
(a) Retention. Until the third anniversary of the Closing Date,
---------
Buyer shall retain such of the books and records pertaining to the Company
prior to the Closing Date as Seller reasonably requires for the purposes
referred to in Section 7.2(b). If Buyer wishes to dispose of such books and
--------------
records after such date, then it shall first give 90 days notice to Seller
and Seller shall have the right, upon notice to Buyer within such 90-day
period, to require Buyer to retain such books and records (at Seller's
cost) for such additional period as Seller reasonably require for the
purposes referred to in Section 7.2(b).
---------------
(b) Access. After the Closing, (i) Buyer shall, and shall use its
------
reasonable efforts to cause its counsel and independent public accountants
to afford to Seller and their employees, agents and representatives,
including its counsel and independent public accountants, reasonable
access, during normal business hours, to the premises of the Company and to
all books, records, files, documents or other assets related to the
operation of the Company on or prior to the Closing Date in Buyer's
possession or under Buyer's control as may be reasonably requested by
Seller in connection with preparing tax returns or the investigation of
defense of claims, and (ii) Seller shall have the right, at its cost and
expense, to copy such books, records, files and documents related to the
Company as may be reasonably useful to Seller.
(c) Limitations on Access. The rights of Seller under Section
----------------------- -------
7.2(b) may be exercised only (i) at times reasonably satisfactory to Buyer
------
and only in a manner that does not unreasonably disrupt or otherwise
materially adversely affect the Company's or Buyer's business and
operations, and (ii) subject to any confidentiality obligation to third
parties.
7.3 Confidentiality. Buyer shall, and shall use its reasonable efforts
---------------
to cause its employees, agents and other representatives to, hold in confidence
all information of or related to the Company or otherwise in connection with the
negotiation and execution of this Agreement, except, in each case, as required
in preparing tax returns or in connection with any investigation or litigation
or the defense of any claims. The provisions of this Section 7.3 shall not apply
-----------
to
any portion of the information that (i) becomes generally available to the
public other than as a result of a disclosure by Buyer or its employees, agents,
or other representative, (ii) was or is made available to Buyer on a
non-confidential basis by a person not affiliated with or acting on behalf of
Seller either before or after its disclosure by Seller to Buyer, or (iii) Buyer
becomes legally obligated to disclose, but in the case of this clause (iii)
Buyer shall promptly notify Seller of the impending disclosure.
7.4 Employment of Seller. Effective as of the Closing Date, Buyer
----------------------
shall employ Seller pursuant to the terms of the Employment Agreement in the
form of Exhibit B attached hereto.
----------
7.5 Florida Market Headquarters. From the Closing Date until the later
---------------------------
of (i) September 30, 2002 or (ii) the Closing Date (the "Lease Start Date"),
----------------
Buyer will cause SafeGuard Florida to have the principal executive offices of
SafeGuard Florida and the Company at the location of the Company on the date of
this Agreement, pursuant to the terms on the date of this Agreement of that
certain month-to-month lease to which the Company is a party. On the Lease Start
Date, Buyer will cause the principal executive offices of the combined SafeGuard
Florida and Paramount to relocate to 0000 Xxxxxxxxx Xxxx, Xxxxx, Xxxxxxx 00000
(the "New Office"). SafeGuard Florida will occupy the New Office pursuant to the
----------
Lease Agreement. Immediately after the Closing, Buyer will designate the office
of SafeGuard Florida as its Florida market headquarters and shall maintain that
designation for so long as Seller is employed 7.5 Buyer. If pursuant to this
Section 7.5 Buyer is permitted to change the designation of its Florida market
------------
headquarters, any such change will not affect SafeGuard Florida's obligations
under the Lease Agreement or Buyer's obligations under the Guaranty.
7.6 Merger of SafeGuard Florida and the Company. On the day after the
--------------------------------------------
Closing Date, Buyer shall merge SafeGuard Florida and the Company, pursuant to a
valid statutory merger under Florida law (the "Merger"). Buyer shall use its
------
best efforts to cause the Merger to be treated as a reorganization within the
meaning of Section 368(a) of the Code.
ARTICLE 8
ADDITIONAL COVENANTS AND AGREEMENTS
8.1 Specific Performance. Each party to this Agreement acknowledges
---------------------
and agrees that such party's obligations hereunder are unique, and that, should
any party breach or default in the performance of his or its obligations
hereunder, such breach or default would cause irreparable harm to the other
parties for which money damages alone would not be an adequate remedy.
Accordingly, each party agrees that the non-defaulting party or parties, in
addition to any other rights and remedies that may be available to them at law,
may xxx in equity for injunctive relief, specific performance of this Agreement,
or both, and each party hereby expressly waives any defense that a remedy
consisting solely of money damages would be adequate.
8.2 Further Assurances. Buyer and Seller will each execute and deliver
------------------
to each other any and all other documents and instruments, and do and perform
such acts, in addition to those expressly provided for herein, as may be
reasonably necessary to carry out or evidence the transactions contemplated by
this Agreement, whether before, at or after the Closing.
8.3 Publicity. Any disclosures or announcements relating to this
---------
Agreement or the transactions contemplated hereby will be made only as may be
agreed upon by Seller and Buyer, or as may be required by Law.
8.4 Expenses. Whether or not the transactions contemplated herein
--------
shall be consummated, all legal and other costs and expenses incurred in
connection herewith and the transactions contemplated hereby shall, except as
otherwise provided in Sections 4.4, 6.4, 8.6(e), (accountants fees, filing
------------ --- ------
fees for consent), be paid by the party incurring such expenses; provided,
--------
however, that all of the professional fees and expenses incurred by Seller in
-------
connection with the transactions contemplated herein may be borne by the Company
up to the maximum amount of $80,000. Notwithstanding the foregoing, the
prevailing party in any legal action arising out of or relating to this
Agreement shall be entitled to its reasonable attorneys' fees and court and
other expenses. The provisions of this Section 8.4 shall survive any
------------
termination of this Agreement.
8.5 No Assignment. No assignment of any part of this Agreement or any
--------------
right or obligation hereunder may be made without the prior written consent of
all other parties hereto, and any assignment attempted without such consent will
be void.
8.6 Certain Tax Matters.
---------------------
(a) Buyer and Seller agree that Buyer shall make no election under
Section 338 of the Code (or any corresponding provision of state or local
income Tax law) in connection with this Agreement.
(b) Seller shall prepare, or cause to be prepared and timely file
or cause to be timely filed, all Tax Returns required for the Company for
all periods ending on or prior to the Closing Date. Seller shall permit
Buyer to review and comment on each such return for a period of twenty (20)
days prior to filing. If Buyer raises objections to any such Tax Return
that cannot be resolved by the parties within such 20-day period, such Tax
Return shall be filed as prepared by Sellers, and the Accounting Firm shall
resolve any remaining disputes as provided in Section 8.6(e). Buyer shall
--------------
prepare or cause to be prepared and timely file, or cause to be timely
filed, all Tax Returns required for the Company for all periods ending
after the Closing Date. During any period when Seller has indemnification
obligations relating to Taxes pursuant to Section 9.2(c), Buyer shall
--------------
permit Seller to review and comment on each such Tax Return for a period of
twenty (20) days prior to filing. If Seller raises objections to any such
Tax Return that cannot be resolved by the parties within such 20-day
period, such Tax Return shall be filed as prepared by Buyer, and the
Accounting Firm shall resolve any remaining disputes as provided in Section
-------
8.6(e).
------
(c) The Company shall not file a claim for refund or amended
return for a period ending on or prior to the Closing Date without the
prior written approval of Seller. Seller shall be responsible for any
penalties, interest or increase in taxes applicable to periods ending on
the Closing Date and the Company and Buyer shall be responsible for any
penalties, interest or increase in taxes for any periods after the Closing
Date. For purposes of this Section 8.6(c) and Section 9.2(c), Taxes
--------------- --------------
attributable to the period ending
on the Closing Date will be determined on the basis of an interim closing
of the books; provided, however, that in the case of any taxable period
-------- -------
that includes (but does not end on) the Closing Date (a "Straddle Period"),
---------------
the portion of the Tax which relates to the portion of the Straddle Period
ending on the Closing Date will (i) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the
amount of such Tax for the Straddle Period, multiplied by a fraction, the
numerator of which is the number of days in the Straddle Period ending on
the Closing Date, and the denominator of which is the number of days in the
entire Straddle Period, and (ii) in the case of any Tax based upon or
related to income or receipts, be deemed equal to the amount which would
have been payable if the relevant taxable period had ended on the Closing
Date. All determinations necessary to give effect to the foregoing
allocations will be made in a manner consistent with prior practices of the
Company.
(d) Buyer and Seller shall cooperate fully, as and to the extent
reasonably requested by the other party, in connection with the filing of
Tax Returns pursuant to this Section 8.6 and any audit, litigation or other
-----------
proceeding with respect to Taxes involving the Company.
(e) In the event that the parties submit any unresolved disputes
to the Accounting Firm, the Accounting Firm shall be instructed to resolve
any disputes referred to it pursuant to Section 8.6(b) within 30 days after
-------------
such referral. The resolution of disputes by the Accounting Firm shall be
set forth in writing and shall be conclusive and binding upon all parties
and the parties shall join in the execution and cooperate in the filing of
any amended Tax Return as shall be necessary to implement such resolution.
The fees and expenses of the Accounting Firm shall be paid as follows: each
party shall pay that percentage of such fees and expenses equal to the
inverse percentage of the net amount in dispute determined in favor of the
applicable party; such fee and expense allocations to be determined by such
Accounting Firm in accordance with the provisions of this Agreement. (For
example, if the net amount in dispute is $100,000 and the Accounting Firm
concludes that Buyer is entitled to $60,000 of such disputed amount and
Seller is entitled to $40,000 of such disputed amount, Buyer shall pay 40%
of such Accounting Firm's fees and expenses and Seller shall pay 60% of
such Accounting Firm's fees and expenses.)
(f) Any refunds or credits of Taxes of the Company for any period
ending on or before the Closing Date shall be for the account of Seller,
provided, however, that if any such refund or credit is listed as an asset
-------- -------
of the Company in the Company Balance Sheet, such refund or credit shall be
for the account of Buyer. Any refunds or credits of Taxes of the Company
for any period beginning after the Closing Date shall be for the account of
Buyer. Any refunds or credits of Taxes relating to a taxable period that
begins before and ends after the Closing Date shall be apportioned between
Seller and Buyer in accordance with Section 8.6(c), provided, however, that
-------------- -------- -------
if any such refund or credit is listed as an asset of the Company in the
Company Balance Sheet, such refund or credit shall be for the account of
Buyer. Buyer shall promptly pay over to Seller all refunds received by
Seller or its Affiliates to which Seller is entitled under this Section
-------
8.6(f). Seller shall promptly pay over to Buyer all refunds received by
------
Seller to which Buyer is entitled under this Section 8.6(f).
---------------
(g) Buyer shall promptly give written notice to Seller (a "Tax
---
Claim Notice") of any proposed adjustment (specifying with reasonable
-------------
particularity the basis of the proposed adjustment) of any item on any Tax
Return of the Company for any period that, if successful, could give rise
to a liability of Seller to Buyer under Article 9 (a "Tax Liability
--------- -------------
Issue"). If such Tax Claim Notice is not given to Seller within 15 days
-----
after the receipt by Buyer or SafeGuard Florida of notice of such proposed
adjustment and the failure to give such notice materially and substantially
prejudices the position of Seller with respect to such proposed adjustment,
Seller shall not be liable to Buyer under Article 9 for such claim. If such
---------
proposed adjustment may affect the tax liability of the Company or Buyer
for any period beginning after the Closing Date, Seller shall advise Buyer
of the status of any conferences, meetings and proceedings with tax
authorities or appearances before any court pertaining to such adjustment
or adjustments and shall advise Buyer of the outcome of such proceedings.
However, nothing herein shall entitle Buyer to interfere with Seller's
right to make any judgments or to take any actions it deems appropriate in
connection with the disposition of any such proposed adjustments.
ARTICLE 9
INDEMNIFICATION
9.1 Survival of Representations and Warranties. Subject to the
----------------------------------------------
limitations specified below, the representations and warranties of Seller in
Article 2 and of Buyer in Article 3 will survive the Closing and continue to be
---------- ---------
binding regardless of any investigation made at any time by any party.
Nevertheless, the right of Buyer Indemnified Parties to bring certain
indemnification claims is subject to the limits in Section 9.5, and the right of
-----------
Seller Indemnified Parties to bring certain indemnification claims is subject to
the limits in Section 9.6.
------------
9.2 Indemnification by Seller. From and after the Closing, Seller will
-------------------------
indemnify Buyer and the Company (collectively, the "Buyer Indemnified Parties")
-------------------------
against and hold them harmless from:
(a) All Losses resulting from or arising out of any material
breach of any representation or warranty made by Seller in this Agreement
or any Related Agreement; provided, however, that if such representation or
-------- -------
warranty is subject to a materiality limitation, the materiality limitation
in this Section 9.2(a) will not impose any additional requirement;
---------------
(b) Any breach of or failure by Seller to perform any covenant or
obligation of Seller set out or contemplated in this Agreement or any
Related Agreement or any document delivered by Seller at Closing;
(c) All Taxes that have become due and payable during, or which
have accrued with respect to the Company for, any period included in the
Tax Indemnification Period and that have not been paid prior to the Closing
Date or reserved for in the Company Balance Sheet or accrued in the
ordinary course of business since the Company Balance Sheet Date. Any Taxes
attributable to the Company payable as a result of an audit of any Tax
Return shall be deemed to have accrued in the period to which such
Taxes are attributable, and any Taxes attributable to a Straddle Period
shall be determined in accordance with Section 8(c);
-------------
(d) All Losses resulting from or arising out of the claims of any
broker, finder or other Person acting in a similar capacity on behalf of
either of the Company or Seller in connection with the transactions herein
contemplated; and
(e) Any and all actions, suits, proceedings, demands, assessments,
judgments, costs and reasonable legal and other expenses incident to any of
the foregoing.
9.3 Indemnification by Buyer. From and after the Closing, Buyer will
--------------------------
indemnify Seller (the "Seller Indemnified Parties") against and hold him
----------------------------
harmless from:
(a) All Losses resulting from or arising out of any material
breach of any representation or warranty made by Buyer or any of its
subsidiaries in this Agreement or any Related Agreement; provided, however,
-------- -------
that if such representation or warranty is subject to a materiality
limitation, the materiality limitation in this Section 9.3(a) will not
--------------
impose any additional requirement;
(b) Any breach of or failure by Buyer to perform any covenant or
obligation of Buyer set out or contemplated in this Agreement or any
Related Agreement or any document delivered by Buyer at Closing;
(c) All Taxes that have accrued with respect to the Company for
any period after the Tax Indemnification Period for which a claim is
asserted against Seller. Any Taxes attributable to the Company payable as a
result of an audit of any Tax Return shall be deemed to have accrued in the
period to which such
Taxes are attributable, and any Taxes attributable to a Straddle Period
shall be determined in accordance with Section 8(c);
------------
(d) All Losses resulting from or arising out of the claims of any
broker, finder or other Person acting in a similar capacity on behalf of
either of the Company or Seller in connection with the transactions herein
contemplated; and
(e) Any and all actions, suits, proceedings, demands, assessments,
judgments, costs and reasonable legal and other expenses incident to any of
the foregoing.
9.4 Third Party Claims. Except with respect to a Tax Liability Issue,
-------------------
if any legal proceedings are instituted or any claim is asserted by any third
party with respect to which any of Seller Indemnified Parties on the one hand,
or any of Buyer Indemnified Parties on the other hand, may be entitled to
indemnity hereunder, the party asserting such right to indemnity (the
"Indemnitee") will promptly give the party from whom indemnity is sought (the
----------
"Indemnitor") written notice thereof. A delay in giving such notice will only
----------
relieve the recipient thereof of liability to the extent the recipient suffers
actual prejudice because of the delay. The Indemnitor will have the right, at
its option and expense, to participate in the defense of such a proceeding or
claim, but not to control the defense, negotiation or settlement thereof, which
control will at all times rest with the Indemnitee, unless the proceeding or
claim involves only money damages, and the Indemnitor:
(a) irrevocably acknowledges in writing complete responsibility
for and agrees to indemnify the Indemnitee; and
(b) furnishes evidence satisfactory to the Indemnitee of the
financial ability to so indemnify,
in which case the Indemnitor may assume such control through counsel of its
choice, who shall be reasonably satisfactory to the Indemnitee, and at
Indemnitor's expense, but the Indemnitee will continue to have the right to be
represented, at its own expense, by counsel of its choice in connection with the
defense of such a proceeding or claim. If the Indemnitor does not assume
control of the defense of such a proceeding or claim, the entire defense of the
proceeding or claim by the Indemnitee, any settlement made by the Indemnitee,
and any judgment entered in the proceeding or claim will be deemed to have been
consented to by, and will be binding on, the Indemnitor as fully as though it
alone had assumed the defense thereof and a judgment had been entered in the
proceeding or claim in the amount of such settlement or judgment, except that
the right of the Indemnitor to contest the right of Indemnitee to
indemnification under this Agreement with respect to the proceeding or claim
will not be extinguished. If the Indemnitor does assume control of the defense
of such a proceeding or claim, the Indemnitor will have the exclusive right to
settle the claim; provided, that, it will not, without the prior written consent
---------
of the Indemnitee, settle the proceeding or claim or consent to entry of any
judgment relating thereto which does not include as an unconditional term
thereof the giving by the claimant to the Indemnitee a release from all
liability in respect of the proceeding or claim. The parties hereto agree to
cooperate fully with each other in connection with the defense, negotiation or
settlement of any such proceeding or claim, including providing reasonable
access to all applicable books and records and the officers, employees and
agents that are reasonably necessary to the defense.
9.5 Limitation on Indemnification of Buyer Indemnified Parties. The
-------------------------------------------------------------
indemnification of Buyer Indemnified Parties provided for under Section 9.2
-----------
shall be limited in certain respects as follows:
(a) Any claim for indemnification by Buyer Indemnified Parties
under Section 9.2(a) must be made on or before eighteen (18) months after
---------------
the Closing Date, except that (i) there will be no limits on the time for
making a claim for indemnification relating to the representations and
warranties contained in Section 2.1 ("Organization and Standing"), Section
----------- -------
2.4 ("Title to Stock"), Section 2.5 ("Capitalization of the Company"), and
--- -----------
Section 2.20 ("Broker's and Finder's Fees"); and (ii) a claim for
-------------
indemnification relating to the Tax Warranties may be made until the close
of business on the Tax Statute of Limitations Date.
(b) Seller shall not be liable to Buyer Indemnified Parties for
indemnification claims under Section 9.2(a) until the aggregate amount of
-------------
such indemnification claims exceeds Twenty Five Thousand Dollars ($25,000)
("Indemnification Threshold"), and then only for the amount by which the
--------------------------
amount of such indemnification claims exceed the Indemnification Threshold;
except that claims for indemnification relating to the representations and
warranties contained in Section 2.1 ("Organization and Standing"), Section
----------- -------
2.4 ("Title to Stock"), Section 2.5 ("Capitalization of the Company"),
--- ------------
Section
-------
2.20 ("Broker's and Finder's Fees"), or Section 2.24 ("Taxes")
---- -------------
shall not be subject to the Indemnification Threshold.
(c) The maximum liability of Seller, in the aggregate, for
indemnification claims made under Section 9.2(a) shall be Seven Hundred
--------------
Fifty Thousand Dollars ($750,000) (the "Indemnity Cap"), except that there
-------------
shall be no limits on the amount of a claim for indemnification relating to
the representations and warranties contained in Section 2.1 ("Organization
-----------
and Standing"), Section 2.4 ("Title to Stock"), Section 2.5
------------ ------------
("Capitalization of the Company"), Section 2.7 ("Compliance with Applicable
-----------
Laws; Licenses"), Section 2.20 ("Broker's and Finder's Fees"), or Section
------------ -------
2.24 ("Taxes"), nor shall the amount of any such claims be aggregated with
----
any other claims for indemnification for purposes of attaining the
Indemnification Threshold.
(d) To the extent that insurance coverage is available to Buyer or
the Company to cover any item for which indemnification may be sought
hereunder, Buyer shall use commercially reasonable efforts and proceed on a
good faith and timely basis to seek to recover such amounts as may be
available thereunder for a period of 120 days and shall only seek
indemnification against Seller in the event that such recovery is not paid
within 120 days after the insurance claim is first made or coverage is
denied or is insufficient to satisfy the claim. To the extent Seller
indemnifies Buyer on any claim referred to in the previous sentence, Buyer
shall, or shall cause the Company, to the extent applicable, (i) pay to
Seller the amount received from such insurance company or any other third
party up to the amount paid to Buyer by Seller with respect to such
indemnification claim; and (ii) assign to Seller, to the extent
permissible, its claims against such insurance company or other third
party. If any such insurance or third party claim is not assignable to
Seller, Buyer shall cause the Company to commence litigation on behalf of
Seller, provided that (1) Seller advances all costs and expenses associated
--------
with the litigation of such claim, and (2) Buyer is satisfied that there is
a reasonable basis for the Company to be successful in such claim as
reasonably determined by legal counsel to Buyer.
(e) All amounts recoverable by Buyer from Seller under this
Article 9 shall be net of tax effects (benefits or detriments) received by
----------
Buyer or SafeGuard Florida on account of any liability, loss, damage, or
expense subject to indemnification or receipt of indemnification payments
hereunder. In the event the tax effects cannot reasonably be determined
with certainty at the time the indemnification payments are otherwise due
and payable hereunder, Seller shall not delay payment hereunder on account
of such uncertainty and Seller and Buyer agree to negotiate in good faith a
reasonable estimate of the tax effects in order to permit Seller's timely
payment of all indemnification amounts hereunder.
(f) Notwithstanding anything to the contrary in this Agreement
(including Section 9.7), Seller shall have no obligation to indemnify any
------------
Buyer Indemnified Party for exemplary, consequential, special or punitive
damages, except solely in the case that any such damages constitute part of
a third-party claim.
(g) Notwithstanding anything to the contrary in this Agreement,
Seller shall have no obligation to indemnify any Buyer Indemnified Party
for any breach of representation or warranty in this Agreement if Buyer has
actual knowledge of such facts or circumstances underlying the breach prior
to the Closing Date.
9.6 Limitation on Indemnification of Seller Indemnified Parties. The
-------------------------------------------------------------
indemnification of Seller Indemnified Parties provided for under Section 9.3
-----------
will be limited in certain respects as follows:
(a) Any claim for indemnification under Section 9.3(a) by Seller
--------------
Indemnified Parties must be made on or before eighteen (18) months after
the Closing Date, except that (i) there will be no limits on the time for
making a claim for indemnification relating to the representations and
warranties contained in Section 3.1 ("Organization and Standing"), Section
----------- -------
3.2 ("Noncontravention"), Section 3.4 ("Capitalization"), Section 3.5
--- ------------ ------------
("Validity of SafeGuard Stock"), Section 3.6 ("Title to SafeGuard Florida
-----------
Stock"), Section 3.7 ("Validity and Rights of the Convertible Note and
------------
Conversion Shares"), and Section 3.10 ("Broker's and Finder's Fees") and
------------
(ii) a claim for indemnification relating to Tax Warranties may be made
until the close of business on the Tax Statute of Limitations Date.
(b) Buyer shall not be liable to Seller's Indemnified Parties for
indemnification claims under Section 9.3(a) until the aggregate amount of
-------------
indemnification claims exceeds the Indemnification Threshold, and then only
for the amount by which such indemnification claims exceed the
Indemnification Threshold; except that claims for indemnification relating
to the representations and warranties contained in Section 3.1
------------
("Organization and Standing"), Section 3.2 ("Noncontravention"), Section
----------- -------
3.4 ("Capitalization"), Section 3.5 ("Validity of SafeGuard Stock"),
---
Section 3.6 ("SafeGuard Florida Shares; Other Subsidiaries"), Section 3.7
------------ -----------
("Validity and Rights of the Convertible Note and Conversion Shares"), and
Section 3.10 ("Broker's and Finder's Fees") shall not be subject to the
-------------
Indemnification Threshold.
(c) The maximum liability of Buyer for indemnification claims made
under Section 9.3(a) shall be equal to the Indemnity Cap, except that any
---------------
claim for indemnification relating to the representations and warranties
contained in Section 3.1 ("Organization and Standing"), Section 3.2
------------ ------------
("Noncontravention"), Section 3.4 ("Capitalization"), Section 3.5
------------ ------------
("Validity of SafeGuard Stock"), Section 3.6 ("SafeGuard Florida Shares;
-----------
Other Subsidiaries"), Section 3.7 ("Validity and Rights of the Convertible
-----------
Note and Conversion Shares"), Section 3.10 ("Broker's and Finder's Fees"),
------------
and Section 3.11 ("Licenses/Compliance with Law") shall not be subject to
-------------
or applied against the Indemnity Cap.
(d) To the extent that insurance coverage is available to Seller
to cover any item for which indemnification may be sought hereunder, Seller
shall use commercially reasonable efforts and proceed on a good faith and
timely basis to seek to recover such amounts as may be available thereunder
for a period of 120 days and shall only seek indemnification against Buyer
in the event that such recovery is not paid within 120 days after the
insurance claim is first made or coverage is denied or is insufficient to
satisfy the
claim. To the extent Buyer indemnifies Seller on any claim referred to in
the previous sentence, Seller shall to the extent applicable, (i) pay to
Buyer the amount received from such insurance company or any other third
party up to the amount paid to Seller by Buyer with respect to such
indemnification claim; and (ii) assign to Buyer, to the extent permissible,
its claims against such insurance company or other third party. If any such
insurance or third party claim is not assignable to Buyer, Seller shall
cause the Company to commence litigation on behalf of Buyer, provided that
--------
(1) Buyer advances all costs and expenses associated with the litigation of
such claim, and (2) Seller is satisfied that there is a reasonable basis
for the Company to be successful in such claim as reasonably determined by
legal counsel to Seller.
(e) All amounts recoverable by Seller from Buyer under this
Article 9 shall be net of tax effects (benefits or detriments) received by
----------
Seller on account of any liability, loss, damage, or expense subject to
indemnification or receipt of indemnification payments hereunder. In the
event the tax effects cannot reasonably be determined with certainty at the
time the indemnification payments are otherwise due and payable hereunder,
Buyer shall not delay payment hereunder on account of such uncertainty and
Buyer and Seller agree to negotiate in good faith a reasonable estimate of
the tax effects in order to permit Buyer's timely payment of all
indemnification amounts hereunder.
(f) Notwithstanding anything to the contrary in this Agreement
(including Section 9.7), Buyer shall have no obligation to indemnify any
------------
Seller Indemnified Party for exemplary, consequential, special or punitive
damages, except solely in the case that any such damages constitute part of
a third-party claim.
(g) Notwithstanding anything to the contrary in this Agreement,
Buyer shall have no obligation to indemnify any Seller Indemnified Party
for any breach of representation or warranty in this Agreement if Seller
has actual knowledge of any facts or circumstances underlying the breach
prior to the Closing Date.
9.7 Remedies; Default; Notice and Cure. If the Closing occurs, each
-------------------------------------
party acknowledges and agrees that the sole and exclusive remedy with respect to
any and all claims arising under this Agreement or in connection with the
transactions contemplated by this Agreement (but excluding claims under the
Lease Agreement, Employment Agreement, Convertible Note, Security Agreement, and
Registration Rights Agreement) shall be pursuant to the indemnification
provisions set forth in this Article 9. No party shall be deemed in breach of
---------
its obligations hereunder unless it has received written notice from the other
party of noncompliance with a term or provision of this Agreement specifying the
specific item of noncompliance and the defaulting party has failed to cure such
noncompliance within 10 days after receipt of such notice; provided, however,
-------- -------
that if the nature of such default is such that it cannot be cured solely by the
payment of money and that more than 10 days may be reasonably required to effect
a cure, then the defaulting party shall not be deemed to be in default if such
party shall commence such cure within such 10 day period and thereafter
diligently and in good faith prosecutes such cure to successful completion
within 60 days after receipt of such notice. Any liability for indemnification
under this Agreement will be determined without duplication of recovery by
reason of the state of facts giving rise to the liability constituting the
breach of more than one representation, warranty, covenant or agreement.
9.8 Payment of Liability. Any liability of Seller under this Article 9
-------------------- ---------
may be paid by the surrender for cancellation of shares of the SafeGuard Stock.
For purposes of such payment, each share of SafeGuard Stock so surrendered shall
be deemed to have a value of $1.30 per share. Accordingly, for purposes of this
Article 9, the amount of any such payment shall be the number of shares of
----------
SafeGuard Stock so surrendered times $1.30. If Seller elects not to satisfy its
liability under this Article 9 with shares of SafeGuard Stock, the sole recourse
---------
for the Buyer Indemnified Parties against Seller shall be to set-off Seller's
liability against future payments under the Convertible Note, in accordance with
Section 9.9. Any liability of Buyer under this Article 9 shall be paid in cash.
------------ ---------
9.9 Limited Right of Set-Off. The sole recourse of a Buyer Indemnified
-------------------------
Party to satisfy Seller's liability under this Article 9 for indemnification
---------
claims that are subject to the Indemnity Cap under Section 9.5(c), but not for
--------------
indemnification claims not subject to the Indemnity Cap, will be for Buyer to
set off the claim against payments due under the Convertible Note in accordance
with this section. Buyer shall not set-off against payments due under the
Convertible Note the amount of any liability of Seller to the Buyer Indemnified
Parties, unless both of the following occur: (i) Seller's obligation to
indemnify a Buyer Indemnified Party is finally determined by agreement of Buyer
and Seller or by a court, the Arbitrators or other trier of fact in accordance
with Section 12.4 and (ii) Buyer gives Seller at least ten (10) days prior
-------------
written notice of its intent to exercise its set-off right. If at any time
while the Convertible Note is outstanding any Buyer Indemnified Party makes a
timely claim for indemnification by Seller pursuant to Section 9.2, Buyer may
-----------
elect to make any payments due under the Convertible Note, after making such
claim until a final non-appealable decision of a court, the Arbitrators or other
trier of fact, to an escrow account (the "Escrow Account"). The parties will,
--------------
within 10 days of Seller's receipt of the claim, select a mutually acceptable
escrow agent for the Escrow Account. If the parties cannot agree on the choice
of an escrow agent within such 10-day period, they will within a further 10-day
period, select by lot a nationally recognized bank in Tampa, Florida (after
excluding their respective regular banks) to serve as the escrow agent for the
Escrow Account. The parties will enter into an escrow agreement providing,
among other things, for the release of the funds in the Escrow Account in
accordance with the parties' mutual agreement or direction of the court, the
Arbitrators or other trier of fact pursuant to a final non-appealable order, and
for standard indemnification of the escrow agent.
ARTICLE 10
TERMINATION; NON-SOLICITATION
10.1 Termination. This Agreement may be terminated prior to the
-----------
Closing Date:
(a) by Seller, if Buyer has not filed an application for approval
of change of control of the Company with the Florida Department of
Insurance within 30 days after the date of this Agreement that it
reasonably believes is fully and properly completed, or does not as soon as
practicable provide any supplemental materials requested by the Florida
Department of Insurance;
(b) by Seller at any time after one hundred twenty (120) days
after the Florida Department of Insurance has accepted as complete the
application for approval of the change of control of the Company (the
"Approval Date") if the Closing has not occurred
--------------
on or before such date; provided that neither Seller nor the Company is in
--------
default under, or breach or violation of, any material covenant, agreement,
representation or warranty made by it in this Agreement (and in the case of
a breach of a representation or warranty, the breach has a Material Adverse
Effect on Seller or the Company). Seller will not be entitled to terminate
this Agreement pursuant to this Section 10.1(b) if: (i) the Florida
---------------
Department of Insurance has approved the application for approval of the
change of control of the Company before the Approval Date, (ii) the parties
schedule the Closing for the last Business Day of the month in which the
Florida Department of Insurance grants such approval in accordance with
Section 6.1, and (iii) the Closing occurs on such day;
------------
(c) by Buyer at any time after the Approval Date if the Closing
has not occurred on or before such date; provided that Buyer is not in
--------
default under, or breach or violation of, any material covenant, agreement,
representation or warranty made by it in this Agreement (and in the case of
a breach of a representation or warranty, the breach has a Material Adverse
Effect on Buyer);
(d) by Seller or Buyer at any time if an order is entered by any
court or governmental agency having jurisdiction enjoining Buyer or Seller,
respectively, from consummating the transaction contemplated by this
Agreement and such order shall not have been vacated, reversed or withdrawn
on or before the earlier of (i) the sixtieth day after the date on which
such order was first issued or (ii) the Approval Date;
(e) by Seller or Buyer, if (i) any material representation or
warranty of the other hereunder shall not have been true and correct as of
the time at which made (and in the case of a breach of representation or
warranty by a party, the breach had a Material Adverse Effect on the
party), or (ii) material default shall be made by the other hereunder in
the due and timely observance or performance of any of its covenants and
agreements herein contained, in either event only if such representation or
warranty cannot be made true and correct or such default cannot be cured on
or prior to the earlier of (1) the 15th day after the non-defaulting or
non-breaching party notifies the other in writing of such default or
breach, specifying the nature thereof, or (2) the Approval Date. Seller and
the Company shall be considered a single party for purposes of this
Section10.1(e);
--------------
(f) by Seller or Buyer, if the Florida Department of Insurance has
not approved the application for approval of change of control of the
Company within one hundred eighty (180) days after the date of this
Agreement, provided that the party desiring to terminate this Agreement
--------
pursuant to this Section 10.1(f) has complied with all obligations with
----------------
respect to furnishing information required by the Florida Department of
Insurance in connection with the application for approval of change of
control of the Company; or
(g) by mutual written agreement by Seller and Buyer at any time.
In the event of the termination of this Agreement by Seller pursuant to
Section 10.1(a), Section 10.1(b), Section 10.1(e), or Section 10(f) above or by
---------------- ---------------- --------------- -------------
Buyer pursuant to Section 10.1(c), Section 10.1(e), or Section 10.1(f) above and
--------------- --------------- ---------------
such termination is a result of the other party
having engaged in a failure to perform any of its material obligations under
this Agreement or a material misstatement of any representation or warranty
contained in this Agreement, then Seller or Buyer, as the case may be, shall be
entitled to recover from the other party the full amount of all costs and
expenses, including without limitation attorneys and accountants fees and
expenses, incurred in connection with this Agreement and the transactions
contemplated by this Agreement as damages in addition to any and all other
relief and remedies to which such party may be entitled. In the event of the
termination of this Agreement by the parties in all other cases, each party
shall be responsible for the full amount of all his/its costs and expenses,
including without limitation attorneys and accountants fees and expenses,
incurred in connection with this Agreement and the transaction contemplated by
this Agreement.
10.2 Non-Solicitation. In the event of the termination of this
----------------
Agreement, Buyer agrees that neither Buyer nor any Affiliate of Buyer nor any
director, officer, employee or agent of Buyer (i) will persuade or attempt to
persuade United HealthCare, WellCare, StayWell, Neighborhood Health Partners,
Healthease, Preferred Medical Plan, Humana Health Plan, or America's Health
Choice (collectively, the "Customers"), to cease to do business with the
---------
Company, reduce the amount of business that it historically has done with the
Company, or otherwise adversely alter its business relationship with the
Company, or (ii) accept or conduct any business within the State of Florida with
any such Customer for a period of twenty-four (24) months, commencing on the
date of the termination of this Agreement.
ARTICLE 11
CERTAIN DEFINITIONS
When used in this Agreement, the following terms in all of their tenses,
cases and correlative forms shall have the meanings assigned to them in this
Article 11, or elsewhere in this Agreement as indicated in this Article 11:
----------- ----------
"AAA" is defined in Section 12.4(a).
--- ----------------
"Accounting Firm" shall mean Deloitte & Touche, LLP or another nationally
---------------
recognized independent accounting firm mutually agreeable to Buyer and
Seller.
"Affiliate" of any Person means any other Person directly or indirectly
---------
controlling, controlled by, or under common control with the referenced
Person, and any officer, director or general partner of such referenced
Person.
"Agreement" means this Stock Purchase Agreement.
---------
"Approval Date" is defined in Section 10.1(b).
-------------- ----------------
"Arbitrators" is defined in Section 12.4.
----------- -------------
"Business Day" means any day of the year other than (i) any Saturday or
-------------
Sunday or (ii) any other day on which banks located in Tampa, Florida
generally are closed for business.
"Buyer" means SafeGuard Health Enterprises, Inc., a Delaware corporation.
-----
"Buyer Indemnified Parties" is defined in Section 9.2.
--------------------------- ------------
"Closing" and "Closing Date" are defined in Section 6.1.
------- ------------- ------------
"Code" means the United States Internal Revenue Code of 1986, as amended,
----
and the regulations thereunder.
"Commission" means the Securities and Exchange Commission or any other
----------
federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, $.01 par value per share, of Buyer.
-------------
"Company" means Paramount Dental Plan, Inc., a Florida corporation.
-------
"Company Balance Sheet" is defined in Section 2.8.
----------------------- ------------
"Company Balance Sheet Date" is defined in Section 2.8.
----------------------------- ------------
"Company Financial Statements" is defined in Section 2.8.
------------------------------ ------------
"Company Permits" is defined in Section 2.7.
---------------- ------------
"Company State Statutory Accounting Principles" is defined in Section 2.25.
--------------------------------------------- ------------
"Company Statutory Financial Statements" is defined in Section 2.25.
----------------------------------------- ------------
"Contract" means any commitment, instrument, lease, pledge, mortgage,
--------
indenture, note, license, agreement, purchase or sale order, contract, or
similar arrangement evidencing or creating any legally enforceable
obligation, whether written or oral.
"Conversion Shares" is defined in Section 2.29(b).
------------------ ----------------
"Convertible Note" is defined in Section 1.2(b).
----------------- ---------------
"Customers" is defined in Section 10.2.
--------- -------------
"Dentist Contracts" is defined in Section 2.15(b).
------------------ ----------------
"DOL" is defined in Section 2.17(l).
--- ----------------
"Employment Agreement" is defined in Section 5.1(f).
--------------------- ---------------
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended, and the regulations thereunder.
"Escrow Account" is defined in Section 9.9.
--------------- ------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Executive Officers" means Buyer's President and CEO, Executive Vice
-------------------
President and COO, Senior Vice President and CFO, and Senior Vice President
and Secretary.
"GAAP" means generally accepted accounting principles, as in effect in the
----
United States from time to time and applied on a consistent basis.
"Governmental Authority" means any foreign, federal, state, regional or
-----------------------
local authority, agency, body, court or instrumentality, regulatory or
otherwise, which, in whole or in part, was formed by or operates under the
auspices of any foreign, federal, state, regional or local government.
"Group Contracts" is defined in Section 2.15(e).
---------------- ----------------
"Guaranty" is defined in Section 5.1(n).
-------- ---------------
"HMO" means a health maintenance organization.
---
"HMO Contracts" is defined in Section 2.15(d).
-------------- ----------------
"Indemnification Threshold" is defined in Section 9.5(b).
-------------------------- ---------------
"Indemnitee" and "Indemnitor" are defined in Section 9.4.
---------- ---------- ------------
"Indemnity Cap" is defined in Section 9.5(c).
-------------- ---------------
"Individual Contracts" is defined in Section 2.15(f).
--------------------- ----------------
"Interim Financial Statements" is defined in Section 4.2.
------------------------------ ------------
"IRS" means the Internal Revenue Service.
---
"Knowledge" in respect of: (i) Seller means the actual knowledge of
---------
Xxxxxxxx X. Xxxxxxxxx, DMD, Xxxxxxx X. Xxxxxxx, and Xxxxx Xxxxxx; and (ii)
Buyer means the actual knowledge of Buyer's Executive Officers.
"Law" means any common law and any federal, state, regional, local or
---
foreign law, statute, ordinance, rule, regulation or order.
"Lease Agreement" is defined in Section 5.1(h).
---------------- ---------------
"Lease Start Date" is defined in Section 7.5.
------------------ ------------
"Lien" means any mortgage, lien, pledge, charge, easement, encumbrance,
----
security interest, adverse claim, option, rights of third parties, or any
other title defect, transfer restriction or other restriction of any kind.
"Losses" means any liability, damage, deficiency, cost or expense,
------
including reasonable attorney, technical, engineering, laboratory,
accounting and report fees.
"Material Adverse Effect" means an event that is likely to be materially
-------------------------
adverse to the business, financial condition or results of operations of a
party taken as a whole or any effect that is likely to be materially
adverse to the ability of a party to consummate the transactions
contemplated by, or to perform any obligations under, this Agreement or any
Related Agreement; provided, however, that the following shall be excluded
-------- -------
from the definition of "Material Adverse Effect" and from any determination
as to whether such Material Adverse Effect has occurred or may occur: the
effects of changes that are generally applicable to (i) any effect
resulting from the economy or financial markets in general, (ii) conditions
generally affecting industries in which the party participates, or (iii)
any effect related to, or caused by, the execution of this Agreement, the
transactions contemplated hereby or by the Related Agreements or the
announcement of this Agreement (including the identity of Buyer) or the
transactions contemplated thereby. The Company's loss of customers between
the date of this Agreement and the Closing Date that constitute 50% or less
of its projected revenue in the 2002 calendar year from the HMO Contracts
will not constitute a Material Adverse Effect on the Company. The Company's
loss of customers between the date of this Agreement and the Closing Date
that constitute more than 50% of its projected revenue in the 2002 calendar
year from the HMO Contracts resulting from a termination of HMO Contracts
will constitute a Material Adverse Effect on the Company, provided that for
--------
purposes of calculating the amount of lost projected revenue in the 2002
calendar year resulting from terminated HMO Contracts, the Company will be
entitled to include additional projected revenue in the 2002 calendar year
pursuant to any new HMO Contracts entered into after the date of this
Agreement and approved by Buyer pursuant to Section 4.3(d)(ii).
-------------------
"Merger" is defined in Section 7.6.
------ ------------
"New Office" is defined in Section 7.5.
----------- ------------
"Paramount Properties" means Paramount Properties, LLC, a Florida limited
---------------------
liability company.
"PBGC" means the Pension Benefit Guaranty Corporation.
----
"Pension Plan" is defined in Section 2.16.
------------- -------------
"Permitted Liens" means (i) Liens for current taxes and assessments not yet
---------------
due and payable or being contested in good faith by appropriate
proceedings, (ii) Liens imposed by law and incurred in the ordinary course
of business for obligations not yet due to
carriers, warehousemen, laborers, materialmen or the like or being
contested in good faith by appropriate proceedings, (iii) Liens in respect
of pledges or deposits under workers' compensation laws, (iv) with respect
to real property, zoning ordinances (if any), (v) with respect to leased
real property, landlord liens, or (vi) with respect to leased personal
property, Liens arising under original purchase price conditional sales
contracts and equipment leases with third parties entered into in the
ordinary course of business.
"Person" means an individual, a corporation, a limited liability company, a
------
partnership, a trust, an unincorporated association, a government or any
agency, instrumentality or political subdivision of a government, or any
other entity or organization.
"Pledge Agreement" is defined in Section 5.1(i).
----------------- ---------------
"Pledged Shares" means all of the issued and outstanding shares of capital
---------------
stock of Safeguard Florida, as well as any additional shares issued during
the term of the Pledge Agreement.
"PPO" means a preferred provider organization.
---
"Purchase Price" is defined in Section 1.2.
--------------- ------------
"Real Property Leases" is defined in Section 2.13.
---------------------- -------------
"Receivables" is defined in Section 2.18.
----------- -------------
"Registration Rights Agreement" is defined in Section 5.1(g).
------------------------------- ---------------
"Related Agreements" means the Contracts that are to be entered into at the
------------------
Closing or otherwise pursuant to this Agreement, and includes the
Convertible Note, Pledge Agreement, Registration Rights Agreement,
Employment Agreement, Security Agreement, Lease Agreement, and Guaranty.
"SafeGuard Florida" means SafeGuard Health Plans, Inc., a Florida
------------------
corporation.
"SafeGuard Stock" is defined in Section 1.2(c).
---------------- ---------------
"SEC" is defined in Section 2.29(b).
--- ----------------
"SEC Reports" is defined in Section 3.8.
------------ ------------
"Securities Act" means the Securities Act of 1933, as amended, or any
---------------
similar federal statute, and the rules and regulations of the Commission
thereunder, in effect at the time.
"Security Agreement" is defined in Section 5.1(j).
------------------- ---------------
"Seller" means Xxxxxxxx X. Xxxxxxxxx, DMD.
------
"Seller Indemnified Parties" is defined in Section 9.3.
---------------------------- ------------
"Shares" means (a) the 800 shares of common stock, $.01 par value per
------
share, of the Company held of record by Seller and (b) any shares of common
stock, $.01 par value per share, of the Company issued to Seller after the
execution of this Agreement and prior to the Closing.
"Stay Bonuses" is defined in Section 4.3(a)(vi).
------------- -------------------
"Straddle Period" is defined in Section 8.6(c).
---------------- ---------------
"Tax" and "Taxes" means all taxes, charges, fees, duties, levies or other
--- -----
assessments, including without limitation, income, gross receipts, premium,
net proceeds, ad valorem, turnover, real and person property (tangible and
intangible), sales, use, franchise, excise, value added, license, payroll,
unemployment, environmental, customs duties, capital stock, disability,
stamp, leasing, lease, user, transfer, fuel, excess profits, occupational
and interest equalization, windfall profits, severance and employees'
income withholding and Social Security taxes imposed by the United States
or any foreign country or by any state, municipality, subdivision or
instrumentality of the United States or of any foreign country or by any
other tax authority, including all applicable penalties and interest, and
such term shall include any interest, penalties or additions to tax
attributable to such taxes.
"Tax Claim Notice" is defined in Section 8.6(g).
------------------ ---------------
"Tax Indemnification Period" means the period (including all prior taxable
---------------------------
years) ending on and including the Closing Date. For any taxable year of
the Company that does not end on, and would otherwise extend beyond, the
Closing Date, there shall be a deemed short taxable year ending on and
including the Closing Date and a second deemed short taxable year beginning
on and including the day after the Closing Date. The allocation of income
and deductions between the deemed short taxable years shall be based on a
closing of the books as of the end of the Closing Date.
"Tax Liability Issue" is defined in Section 8.6(g).
--------------------- ---------------
"Tax Return" means all federal, state, local and foreign reports,
-----------
estimates, declarations of estimated tax, information statements and
returns relating to, or required to be filed in connection with any Taxes.
"Tax Statute of Limitations Date" means the close of business on the 30th
---------------------------------
day after the expiration of the applicable statute of limitations or period
for assessment with respect to Taxes, including any extensions thereof (or
if such date is not a Business Day, the next Business Day).
"Tax Warranty" means a representation or warranty in Section 2.17 or
------------- ------------
Section 2.24 in the case of Seller or Section 3.9 in the case of Buyer.
------------- -----------
ARTICLE 12
CONSTRUCTION; MISCELLANEOUS PROVISIONS
12.1 Notices. All notices required to be given or delivered pursuant
-------
to this Agreement shall be in writing, and shall be given or delivered as
follows:
If to Seller, addressed as follows:
Xxxxxxxx X. Xxxxxxxxx, DMD
0000 Xxxx Xxxx Xxxxxx
Xxxxx, Xxxxxxx 00000
Facsimile Number: (000) 000-0000
With a copy to:
Xxxx, Xxxx & Xxxxxxxxx, P.A.
000 Xxxx Xxxxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Facsimile Number: (000) 000-0000
If to Buyer, addressed as follows:
SafeGuard Health Enterprises, Inc.
00 Xxxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxx X. Xxxxxxx
President and Chief Executive Officer
Facsimile Number: (000) 000-0000
With a copy to:
SafeGuard Health Enterprises, Inc.
00 Xxxxxxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx
Senior Vice President and General Counsel
Facsimile Number: (000) 000-0000
And with a copy to:
Xxxxxxxxxxx & Price, LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxxxx, Esq.
Facsimile Number: (000) 000-0000
If to the Company, addressed as follows:
Paramount Dental Plan, Inc.
0000 Xxxx Xxxx Xxxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxxxxx, DMD
Facsimile Number: (000) 000-0000
or in any case, to such other address for a party as to which notice shall have
been given to Buyer, Seller and the Company in accordance with this Section.
Notices so addressed shall be deemed to have been duly given (i) on the next
Business Day following the documented acceptance thereof for next-day delivery
by a national overnight air courier service, if so sent, or (ii) upon
confirmation of receipt at the number specified above if sent by facsimile.
Otherwise, notices will be deemed given when received at the designated address.
The original document of any notice sent by facsimile shall be delivered by
national overnight air courier service.
12.2 Entire Agreement. This Agreement, and the documents, schedules
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and exhibits executed or delivered in connection herewith, constitute the
exclusive statement of the agreement among the parties hereto concerning the
subject matter hereof, and supersede all other prior agreements and
negotiations, whether oral or written, among or between any of the parties
hereto concerning such subject matter. There are no representations,
warranties, promises, understandings or agreements, oral or written, in relation
to the subject matter hereof among or between any of the parties hereto other
than those expressly set forth or expressly incorporated in this Agreement, or
the documents, schedules and exhibits executed or delivered in connection
herewith.
12.3 Modification and Waiver. No amendment, modification, or waiver of
-----------------------
this Agreement or any provision hereof, including the provisions of this
sentence, shall be effective or enforceable as against a party hereto unless
made in a written instrument which specifically references this Agreement and
which is signed by the party waiving compliance. Except as may otherwise be
expressly provided herein, the failure of any Person to enforce at any time, or
for any period of time, any provision of this Agreement shall not be construed
as a waiver of any provision of this Agreement or of the right of any such
Person to enforce each and every provision of this Agreement, and no single or
partial exercise of any right hereunder shall preclude any other or further
exercise of that or any other right.
12.4 Dispute Resolution.
-------------------
(a) Unless and except to the extent otherwise expressly agreed to
by the parties in writing, in the event of any dispute arising out of or
related to this Agreement or any of the transactions contemplated hereby,
the parties shall be required to enter into mediation of such dispute or
disagreement for a minimum of five (5) hours prior to the
initiation of any action or proceeding against the other. Upon notice by
either party to the other of the initiating party's desire to mediate, the
parties shall endeavor to settle the dispute by mediation under the
then-current procedure for mediation of business disputes of the American
Arbitration Association ("AAA"). The location for the mediation shall be in
---
Atlanta, Georgia, and the neutral third party will be selected from the AAA
Panel of Neutrals applicable to such geographical area and disputed matter.
If the parties encounter difficulty in agreeing on a Neutral, they will
seek the assistance of AAA in the selection process. A mediation proceeding
shall thereafter be scheduled at a time mutually convenient to the parties
involved, and each party must present to the Neutral at or before the
commencement of the proceeding written evidence of the full power and
authority of its officer or representative to compromise or settle all
matters in dispute. The mediation shall be held within thirty (30) days
following the notification by a party of a desire for mediation. If the
parties cannot agree on a date for mediation, then the AAA shall select a
date it believes is reasonable for the parties, given all of the alleged
conflicts in dates. The parties shall equally share the cost of the
mediator. Each party in the mediation proceeding shall submit a written
statement of their position to each other and to the Neutral prior to the
date of the hearing. All conduct, offers, promises and statements, whether
oral or written, made in the course of the mediation by any party, the
attorney of any party, the mediator or any other participant in the
mediation shall be confidential, privileged and inadmissible for any
purpose, including impeachment, in any arbitration, litigation or other
proceeding involving the parties; provided that any evidence that is
--------
otherwise inadmissible or discoverable shall not be rendered inadmissible
or non-discoverable as a result of its use in the mediation. If any party
fails to take any action within the time required under this subsection and
fails to cure the same within ten (10) days after written notice of such
failure is provided to such party, any other party may commence arbitration
proceedings with respect to such matter. Time shall be of the essence with
respect to each action to be taken under this subsection.
(b) Should the parties be unable to agree concerning the
resolution of any disputed items pursuant to subsection (a) above, any
party may promptly apply to the American Arbitration Association under its
Commercial Arbitration Rules for the immediate appointment of a panel of
three (3) arbitrators (the "Arbitrators"). The location of the arbitration
shall be Atlanta, Georgia and the Arbitrators will be selected from the AAA
Panel of Neutrals applicable to such geographical area and disputed matter.
Discovery shall be completed in four (4) months and the Arbitrators shall
proceed to conduct an evidentiary hearing in accordance with the Commercial
Arbitration Rules of the American Arbitration Association to resolve the
disputed items or determine the damages. The Arbitrators shall conduct the
proceeding and make procedural and evidentiary rulings and resolve
discovery disputes. The Arbitrators shall be the finder of fact and have
sole responsibility and jurisdiction to render a decision based on the
evidence received. The Arbitrators shall, within thirty (30) days after the
submission of evidence, render a written decision on each disputed item or
claimed damages to Buyer and Seller, setting forth the terms of the
Arbitrators' decision, which will be final and binding on the parties to
this Agreement, absent fraud or evident mistake. Such arbitration shall be
the exclusive dispute resolution mechanism under this Agreement. Judgment
may be entered upon such award in any court having jurisdiction thereof.
Seller, as one party, and Buyer, as the other party, will share equally the
total expenses
(excluding legal fees) of the arbitration. The prevailing party in the
arbitration shall be entitled to recover its reasonable legal fees, costs,
and expenses.
(c) This Agreement shall be governed by and construed under the
laws of the State of Florida, without regard to conflict of laws
principles.
12.5 Binding Effect. This Agreement shall be binding upon and shall
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inure to the benefit of Buyer, Seller, and the respective successors and
permitted assigns of Buyer and Seller.
12.6 Headings. The article and section headings used in this Agreement
--------
are intended solely for convenience of reference, do not themselves form a part
of this Agreement, and may not be given effect in the interpretation or
construction of this Agreement.
12.7 Number and Gender. Whenever the context requires in this
-------------------
Agreement, the masculine gender includes the feminine or neuter, the neuter
gender includes the masculine or feminine, the singular number includes the
plural, and the plural number includes the singular.
12.8 Counterparts. This Agreement may be executed and delivered in
------------
multiple counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
12.9 Third Parties. Except as may otherwise be expressly stated
--------------
herein, no provision of this Agreement is intended or shall be construed to
confer on any Person, other than the parties hereto, any rights hereunder.
12.10 Schedules and Exhibits. The schedules and exhibits referenced in
----------------------
this Agreement constitute an integral part of this Agreement as if fully
rewritten herein. All references in this document to "this Agreement" and the
terms "herein," "hereof," "hereunder" and the like shall be deemed to include
all of such schedules and exhibits.
12.11 Time Periods. Any action required hereunder to be taken within a
------------
certain number of days shall, except as may otherwise be expressly provided
herein, be taken within that number of calendar days; provided, however, that if
-------- -------
the last day for taking such action falls on a Saturday, a Sunday, or a legal
holiday, the period during which such action may be taken shall automatically be
extended to the next Business Day.
12.12 No Strict Construction. The parties to this Agreement and the
------------------------
Related Agreements participated jointly in negotiating and drafting such
agreements. In the event of an ambiguity or question of intent or
interpretation, this Agreement and the Related Agreements will be construed as
if drafted jointly by the parties to this Agreement and the Related Agreements,
as the case may be, and no presumption or burden of proof will arise favoring or
disfavoring any party by virtue of authorship of any of its provisions.
[The remainder of this page is intentionally left blank.]
STOCK PURCHASE AGREEMENT
BUYER SIGNATURE PAGE
The undersigned execute the Stock Purchase Agreement and authorizes this
signature page to be attached to a counterpart of the Agreement executed by the
other parties to the Agreement.
Executed as of the day and year first above written.
BUYER:
SAFEGUARD HEALTH ENTERPRISES, INC.,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxx
President and Chief Executive Officer
By: /s/ Xxxxxxx X. Xxxxx
-------------------------------------
Xxxxxxx X. Xxxxx
Executive Vice President and Chief
Operating Officer
STOCK PURCHASE AGREEMENT
SELLER AND COMPANY SIGNATURE PAGE
The undersigned execute the Stock Purchase Agreement and authorizes this
signature page to be attached to a counterpart of the Agreement executed by the
other parties to the Agreement.
Executed as of the day and year first above written.
SELLER:
/s/ Xxxxxxxx X. Xxxxxxxxx
-----------------------------------------
Xxxxxxxx X. Xxxxxxxxx, DMD
COMPANY:
PARAMOUNT DENTAL PLAN, INC.,
a Florida corporation
By: /s/ Xxxxxxxx X. Xxxxxxxxx
-------------------------------------
Xxxxxxxx X. Xxxxxxxxx, DMD
President and Chief Executive Officer
