Exhibit 99.2
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
UNIVERSAL AMERICAN FINANCIAL CORP.,
HHS ACQUISITION CORP.,
HERITAGE HEALTH SYSTEMS, INC.
AND
CARLYLE VENTURE PARTNERS, L.P.,
as the Stockholder Representative
Dated as of March 9, 2004
TABLE OF CONTENTS
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Section Page
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Article I DEFINITIONS ...............................................................................1
1.1 Certain Definitions.............................................................................1
Article II THE MERGER................................................................................10
2.1 The Merger.....................................................................................10
2.2 Closing........................................................................................10
2.3 Effective Time.................................................................................10
2.4 Effects of the Merger..........................................................................10
2.5 Certificate of Incorporation and By-laws.......................................................10
2.6 Directors......................................................................................11
2.7 Officers.......................................................................................11
Article III EFFECT OF THE MERGER ON THE SECURITIES OF THE COMPANY AND MERGER SUB......................11
3.1 Effect on Capital Stock........................................................................11
3.2 Payment for Company Securities.................................................................15
3.3 Aggregate Consideration Spreadsheet............................................................18
3.4 Stockholder Representative Reserve.............................................................18
3.5 Payment of Bonuses and Transaction Expenses....................................................19
Article IV TERMINATION, AMENDMENT AND WAIVER.........................................................19
4.1 Termination of Agreement.......................................................................19
4.2 Procedure Upon Termination.....................................................................20
4.3 Effect of Termination..........................................................................20
Article V REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................20
5.1 Organization and Good Standing.................................................................20
5.2 Authorization of Agreement.....................................................................20
5.3 Conflicts; Consents of Third Parties...........................................................21
5.4 Capitalization.................................................................................22
5.5 Subsidiaries...................................................................................22
5.6 Corporate Records..............................................................................23
5.7 Financial Statements...........................................................................23
5.8 No Undisclosed Liabilities.....................................................................25
5.9 Absence of Certain Developments................................................................25
5.10 Taxes..........................................................................................27
5.11 Real Property..................................................................................30
5.12 Assets.........................................................................................31
5.13 Intellectual Property..........................................................................31
5.14 Material Contracts.............................................................................32
5.15 Employee Benefits .............................................................................34
5.16 Labor..........................................................................................36
5.17 Litigation.....................................................................................36
5.18 Compliance with Laws; Authorizations...........................................................37
5.19 Environmental Matters..........................................................................38
5.20 Insurance......................................................................................38
5.21 Providers......................................................................................39
5.22 Members........................................................................................39
5.23 Related Party Transactions.....................................................................39
5.24 Fraud and Abuse................................................................................39
5.25 Health Professional's Financial Relationships; Disqualified Individuals........................40
5.26 Banks..........................................................................................41
5.27 State Takeover Statutes........................................................................41
5.28 Financial Advisors.............................................................................41
Article VI REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB...................................41
6.1 Organization and Good Standing.................................................................41
6.2 Authorization of Agreement.....................................................................41
6.3 Conflicts; Consents of Third Parties...........................................................42
6.4 Litigation.....................................................................................42
6.5 Financial Advisors.............................................................................42
6.6 Financing......................................................................................42
Article VII COVENANTS.................................................................................42
7.1 Access to Information..........................................................................42
7.2 Conduct of the Business Pending the Closing....................................................43
7.3 Advice of Changes..............................................................................46
7.4 Commercially Reasonable Efforts; Regulatory Approvals..........................................46
7.5 Stockholder Notice.............................................................................49
7.6 Stockholder Litigation.........................................................................49
7.7 Indemnification................................................................................49
7.8 No Shop........................................................................................50
7.9 Confidentiality................................................................................50
7.10 Publicity......................................................................................50
7.11 Additional Financial Information...............................................................51
7.12 Transaction Expenses...........................................................................51
7.13 Assistance with Financing......................................................................51
Article VIII CONDITIONS TO CLOSING.....................................................................51
8.1 Conditions Precedent to Obligations of Parent and Merger Sub...................................51
8.2 Conditions Precedent to Obligations of the Company.............................................54
Article IX INDEMNIFICATION ..........................................................................54
9.1 Survival of Representations and Warranties.....................................................54
9.2 Indemnification................................................................................55
9.3 Escrow Arrangements............................................................................56
9.4 Exclusive Remedy...............................................................................59
9.5 Tax Losses.....................................................................................59
9.6 Tax Treatment of Indemnity Payments............................................................60
Article X MISCELLANEOUS.............................................................................60
10.1 Stockholder Representative.....................................................................60
10.2 Specific Performance...........................................................................62
10.3 Submission to Jurisdiction; Consent to Service of Process......................................63
10.4 Governing Law..................................................................................63
10.5 Entire Agreement; No Third-Party Beneficiaries.................................................63
10.6 Amendment and Waivers..........................................................................63
10.7 Notices........................................................................................64
10.8 Severability...................................................................................65
10.9 Assignment.....................................................................................65
10.10 Counterparts...................................................................................65
SCHEDULES
Schedule 1.1 Principal Stockholders
Schedule 3.1(c)(i) Indebtedness
Schedule 5.3(b) Conflicts; Consents of Third Parties
Schedule 5.4(b) Capitalization
Schedule 5.5 Subsidiaries
Schedule 5.7(b) Financial Statements
Schedule 5.8 No Undisclosed Liabilities
Schedule 5.9 Absence of Certain Developments
Schedule 5.9(c) Employee Compensation
Schedule 5.9(g) Amounts Paid to Related Parties
Schedule 5.9(l) Incurrence of Indebtedness
Schedule 5.10(c) Tax Returns
Schedule 5.10(d) Taxes
Schedule 5.10(j) 280G Payments
Schedule 5.10(n) Taxes; Disregarded Entities
Schedule 5.10(q) Additional Tax Information
Schedule 5.11(a) Real Property
Schedule 5.13 Intellectual Property
Schedule 5.14(a) Material Contracts
Schedule 5.14(b) Material Contracts; Form Participation Provider Contracts
Schedule 5.14(d) Material Contracts; Payments Under the CIGNA Contract and
the Pacificare Contract
Schedule 5.15(a) Employee Benefits Plans
Schedule 5.15(d) Employee Benefits; Bonus Plan Participants
Schedule 5.15(j) Employee Benefits; Acceleration of Payments
Schedule 5.16(b) Labor
Schedule 5.17 Litigation
Schedule 5.18(b) Compliance with Laws; Authorizations; Administrator
Licenses
Schedule 5.18(c) Compliance with Laws; Authorizations; Good Standing
Schedule 5.20 Insurance
Schedule 5.22 Members
Schedule 5.23 Related Party Transactions
Schedule 5.24 Fraud and Abuse
Schedule 5.25 Health Professional's Financial Relationships;
Disqualified Individuals
Schedule 5.26 Banks
Schedule 5.28 Financial Advisors
Schedule 6.3(a) No Conflicts
Schedule 6.5 Parent Financial Advisor
Schedule 7.2(b)(i) Repurchase of Ownership Interests
Schedule 7.2(b)(v) Employee Benefits
Schedule 7.2(b)(vi) Indebtedness
Schedule 7.2(b)(ix) Acquisition
Section 7.2(b)(xiv) Contracts
Schedule 8.1(k) Employment Agreements
Schedule 8.1(p) Agreements to be Terminated
Schedule 8.1(q) Persons Executing the Non-Solicitation and
Confidentiality Agreement
EXHIBITS
Exhibit A - Form of Consent
Exhibit B - Form of Escrow Agreement
Exhibit C - Amended Certificate of Incorporation
Exhibit D - Release Agreement
Exhibit E - Form of Non-Solicitation and Confidentiality Agreement
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 9, 2004 (this
"Agreement"), by and among Universal American Financial Corp., a corporation
existing under the laws of New York ("Parent"), HHS Acquisition Corp., a
corporation existing under the laws of Delaware and a direct, wholly-owned
subsidiary of Parent ("Merger Sub"), Heritage Health Systems, Inc., a
corporation existing under the laws of Delaware (the "Company"), and Carlyle
Venture Partners, L.P., a Delaware limited partnership as the Stockholder
Representative (as defined herein).
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and
the Company have approved and declared advisable this Agreement and the merger
of Merger Sub with and into the Company (the "Merger"), upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, concurrently herewith, the Principal Stockholders (as
hereinafter defined) will execute and deliver written consents ("Consents") in
the form of Exhibit A attached hereto approving the Merger; and
WHEREAS, Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties hereto agree
as follows:
Article I
DEFINITIONS
1.1 Certain Definitions.
(a) For purposes of this Agreement, the following terms shall have
the meanings specified in this Section 1.1:
"Affiliate" means, with respect to any Person, any other Person that,
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person, and the term
"control" (including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such Person, whether through
ownership of voting securities, by contract or otherwise.
"Affiliated Group" means any affiliated group within the meaning of
Section 1504 of the Code or any comparable or analogous group under state, local
or foreign Law.
"Aggregate Consideration" means the Common and Preferred Stock Merger
Consideration, the Preferred Stock Redemption Amount, the Initial Bonus Amount,
if any, the Subsequent Bonus Amount, the Option Cash-Out Consideration and, if
any, the Escrow Payment.
"Aggregate Consideration Spreadsheet" means a spreadsheet, to be
prepared by the Company and the Stockholder Representative, calculating and
allocating to each Company Stockholder and/or holder of Company Stock Options
the Aggregate Consideration in reasonable detail and in form reasonably
satisfactory to Parent and Merger Sub, a preliminary draft of which will be
delivered to Parent and Merger Sub by the Company and the Stockholder
Representative not later than fifteen (15) Business Days after the date hereof,
which preliminary draft shall be updated as provided in Section 3.3.
"Business Day" means any day of the year on which national banking
institutions in New York are open to the public for conducting business and are
not required or authorized to close.
"CMS" means the Centers for Medicare and Medicaid Services, an
administrative agency of the U.S. government responsible for administering the
Medicare program.
"CMS Agreement" means that certain Contract (p4506) between CMS and
SelectCare for the contract period January 1, 2004 to December 31, 2004, and any
other written authorization providing evidence of the right to furnish services
and receive payment under the Medicare+Choice program.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company Securities" means the Common Stock and the Preferred Stock
issued and outstanding immediately prior to the Effective Time.
"Company Stockholders" means each holder of a Company Security
immediately prior to the Effective Time.
"Contract" means any contract, agreement, indenture, note, bond,
loan, instrument, lease, commitment or other arrangement or agreement, whether
written or oral.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended.
"Escrow Agreement" means that certain Escrow Agreement to be entered
into on the Closing Date by and among Parent, the Stockholder Representative and
the Escrow Agent (as therein defined), substantially in the form of Exhibit B
hereto (with such changes as may be required by the Escrow Agent).
"GAAP" means generally accepted accounting principles in the United
States as of the date hereof.
"Governmental Body" means any government or governmental or
regulatory body thereof, or political subdivision thereof, whether federal,
state, local or foreign, or any agency, instrumentality or authority thereof, or
any court or arbitrator (public or private).
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"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"Indebtedness" of any Person means, without duplication, (i) the
principal of and premium (if any) in respect of (A) indebtedness of such Person
for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
other similar instruments for the payment of which such Person is responsible or
liable; (ii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person and
all obligations of such Person under any title retention agreement (but
excluding trade accounts payable and other accrued current liabilities arising
in the Ordinary Course of Business); (iii) all obligations of such Person under
leases required to be capitalized in accordance with GAAP; (iv) all obligations
of such Person for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction; (v) the liquidation value of
all redeemable preferred stock of such Person; (vi) all obligations of the type
referred to in clauses (i) through (v) of any Persons for the payment of which
such Person is responsible or liable, directly or indirectly, as obligor,
guarantor, surety or otherwise, including guarantees of such obligations; and
(vii) all obligations of the type referred to in clauses (i) through (vi) of
other Persons secured by any Lien on any property or asset of such Person
(whether or not such obligation is assumed by such Person).
"Initial Bonus Amount" means an amount equal to 20% of the aggregate
amount of (A) $98,000,000, plus (B) the Pacificare Reserve Adjustment (if any),
less (C) the Transaction Expenses, less (D) $12,000,000, less (E) the
Stockholder Representative Reserve, less (F) the Escrow Amount, less (G)
Indebtedness of the Company and its Subsidiaries existing as of the Closing
(other than such Indebtedness set forth on Schedule 3.1(c)(i)).
"Intellectual Property" means all intellectual property rights used
by the Company and its Subsidiaries arising from or in respect of the following,
whether protected, created or arising under the laws of the United States or any
other jurisdiction: (i) all patents and applications therefor, including
continuations, divisionals, continuations-in-part, or reissues of patent
applications and patents issuing thereon, (ii) all trademarks, service marks,
trade names, service names, brand names, trade dress rights, logos, Internet
domain names and corporate names and general intangibles of a like nature,
together with the goodwill associated with any of the foregoing, and all
applications, registrations and renewals thereof, (iii) copyrights and
registrations and applications therefor, works of authorship and mask work
rights, (iv) discoveries, concepts, ideas, research and development, trade
secrets, know-how, formulae, inventions, compositions, manufacturing and
production processes and techniques, technical data, procedures, designs,
drawings, specifications, databases, and other proprietary and confidential
information, including customer lists, supplier lists, pricing and cost
information, and business and marketing plans and proposals of the Company and
its Subsidiaries, in each case excluding any rights in respect of any of the
foregoing that comprise or are protected by copyrights or patents, and (v) all
Software and Technology of the Company and its Subsidiaries.
"IRS" means the Internal Revenue Service.
"Knowledge" means, with respect to (i) any Person other than the
Company or its Subsidiaries, the knowledge of, after reasonable inquiry by, the
senior officers or comparable representatives of such Person, (ii) an
3
individual, the knowledge of, after reasonable inquiry by, such individual, or
(iii) the Company or its Subsidiaries, the knowledge of, after reasonable
inquiry by, Rock Xxxxxxx, Xxxx Xxxxxx, Xxx Xxxxxxxxx, Xxxxxxx Xxxxxx, Xxxxx
Xxxxxx and Xxxxx Xxxxx.
"Law" means any foreign, federal, state or local law (including
common law), statute, code, ordinance, rule, regulation or other requirement.
"Legal Proceeding" means any judicial, administrative or arbitral
actions, suits, proceedings (public or private) or claims or proceedings by or
before a Governmental Body.
"Liability" means any debt, loss, damage, adverse claim, liability or
obligation (whether direct or indirect, known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, or due or to become due, and whether in contract, tort, strict
liability or otherwise).
"Lien" means any lien, pledge, mortgage, deed of trust, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, proxy, voting trust or agreement, transfer restriction under any
shareholder or similar agreement, encumbrance or any other restriction or
limitation whatsoever.
"Material Adverse Effect" means any change, effect, event, occurrence
or state of facts that is, or would reasonably be expected to be, materially
adverse to (i) the business, assets, properties, results of operations or
condition (financial or otherwise) of the Company and its Subsidiaries (taken as
a whole), including a termination of or materially adverse modification to the
CMS Agreement (including with respect to reimbursement rates), or (ii) the
ability of the Company to consummate the Merger and the other transactions
contemplated by this Agreement or perform its material obligations under this
Agreement or the Company Documents.
"Merger Consideration" means the Common and Preferred Stock Merger
Consideration and the Preferred Stock Redemption Amount.
"Order" means any order, injunction, judgment, decree, ruling, writ,
assessment or arbitration award of a Governmental Body.
"Ordinary Course of Business" means the ordinary and usual course of
day-to-day operations of the business of the Company and its Subsidiaries
through the date hereof consistent with past practice.
"Permits" means any approvals, authorizations, consents, licenses,
permits or certificates of a Governmental Body.
"Permitted Exceptions" means (i) all defects, exceptions,
restrictions, easements, rights of way and encumbrances disclosed in policies of
title insurance which have been made available to Parent; (ii) statutory liens
for current Taxes, assessments or other governmental charges not yet delinquent
or the amount or validity of which is being contested in good faith by
appropriate proceedings, provided an appropriate reserve is established
therefor; (iii) mechanics', carriers', workers', repairers' and similar Liens
arising or incurred in the Ordinary Course of Business that are not material to
4
the business, operations and financial condition of the Company Properties so
encumbered and that are not resulting from a breach, default or violation by the
Company or any of its Subsidiaries of any Contract or Law; (iv) zoning,
entitlement and other land use and environmental regulations by any Governmental
Body, provided that such regulations have not been violated; and (v) such other
imperfections in title, charges, easements, restrictions and encumbrances which
do not materially detract from the value of or materially interfere with the
present use of any asset subject thereto or affected thereby.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
Governmental Body or other entity.
"Pre-Closing Tax Period" means any taxable year or period (or portion
thereof) that ends on or before the Effective Time.
"Preferred Stock" collectively means the Series A Preferred Stock,
the Series B Preferred Stock and the Series C Preferred Stock.
"Preferred Stock Redemption Amount" means, collectively, the (A) the
Series A Preferred Stock Redemption Amount, if any, (B) the Series B Preferred
Stock Redemption Amount, if any, and (C) the Series C Preferred Stock Redemption
Amount, if any.
"Principal Stockholders" means, collectively, each of the Persons set
forth in Schedule 1.1, together with their respective successors and assigns.
"Software" means any and all (i) computer programs, including any and
all software implementations of algorithms, models and methodologies, whether in
source code or object code, (ii) databases and compilations, including any and
all data and collections of data, whether machine readable or otherwise, (iii)
descriptions, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, screens, user interfaces, report formats,
firmware, development tools, templates, menus, buttons and icons, and (iv) all
documentation including user manuals and other training documentation related to
any of the foregoing.
"Stockholder Representative Reserve" means $25,000 intended to defray
the costs and expenses incurred by the Stockholder Representative in connection
with its obligations under this Agreement.
"Straddle Period" means any taxable year or period that includes, but
does not end on, the Closing Date.
"Subsequent Bonus Amount" means with respect to the calculation of
the Escrow Payment, an amount equal to twenty percent (20%) of the Escrow
Residual Amount.
"Subsidiary" means any Person of which the Company directly or
indirectly owns voting securities, other voting rights or voting partnership
interests which are sufficient to elect at least a majority of such Person's
board of directors or other governing body (or, if there are no such voting
interests, the Company directly or indirectly owns 50% of the equity interests
5
of such Person). Notwithstanding the foregoing, the following companies shall,
for purposes of this Agreement, be deemed Subsidiaries of the Company:
SelectCare, Golden Triangle Physician Alliance and Heritage Physician Networks.
"Tax Return" means any return, report or statement required to be
filed with respect to any Tax (including any attachments thereto, and any
amendment thereof), including any information return, claim for refund, amended
return or declaration of estimated Tax, and including, where permitted or
required, combined, consolidated or unitary returns for any group of entities
that includes the Company, any of its Subsidiaries, or any of their Affiliates.
"Taxes" means (i) all federal, state, local or foreign taxes,
charges, fees, imposts, levies or other assessments, including all net income,
gross receipts, capital, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation,
property and estimated taxes, customs duties, fees, assessments and charges of
any kind whatsoever, (ii) all interest, penalties, fines, additions to tax or
additional amounts imposed by any Taxing Authority in connection with any item
described in clause (i) and (iii) any transferee liability in respect of any
items described in clauses (i) and/or (ii) payable by reason of contract,
assumption, transferee liability, operation of Law, Treasury Regulation Section
1.1502-6(a) (or any predecessor or successor thereof of any analogous or similar
provision under Law) or otherwise.
"Taxing Authority" means the IRS and any other Governmental Body
responsible for the administration of any Tax.
"Technology" means, collectively, all designs, formulae, algorithms,
procedures, methods, techniques, ideas, know-how, research and development,
technical data, programs, subroutines, tools, materials, specifications,
processes, inventions (whether patentable or unpatentable and whether or not
reduced to practice), apparatus, creations, improvements, works of authorship
and other similar materials, and all recordings, graphs, drawings, reports,
analyses, and other writings, and other tangible embodiments of the foregoing,
in any form whether or not specifically listed herein, and all related
technology, that are used in, incorporated in, embodied in, displayed by or
relate to, or are used by the Company or any Subsidiary.
"Transaction Expenses" means all the transaction costs and Transfer
Taxes of the Company, the Company Stockholders and the Stockholder
Representative (excluding the Stockholder Representative Reserve), including
brokers' or finders' fees and fees and expenses of counsel, advisors,
consultants, investment bankers, accountants, auditors and experts, incurred by
the Company or its Subsidiaries in connection with the negotiation and execution
of this Agreement and the consummation of the transactions contemplated by this
Agreement, including fifty percent (50%) of the premium for the D&O Insurance.
"Transfer Taxes" means all sales, use, stamp, documentary, filing,
recording, transfer or similar fees or taxes or governmental charges as levied
by any Governmental Body including any interest and penalties) in connection
with the transactions contemplated by this Agreement.
6
"Treasury Regulations" means the regulations promulgated under the
Code.
"WARN" means the Worker Adjustment and Retraining Notification Act of
1988, as amended.
(b) Terms Defined Elsewhere in this Agreement. For purposes of this
Agreement, the following terms have meanings set forth in the sections
indicated:
Term Section
---- -------
Agreement Preamble
Antitrust Laws 7.4(c)
Audited Statutory Financial Statements 5.7(a)
Audited Year-End Statements 7.11(b)
Authorizations 5.18(a)
Balance Sheet 5.7(b)
Balance Sheet Date 5.7(b)
Certificates 3.1(d)(iv)
Certificate of Merger 2.3
CIGNA Contract 5.14(d)
Closing 2.2
Closing Date 2.2
Closing Date Tax Balance Sheet 9.5
COBRA 5.15(i)
Common Stock 3.1
Common and Preferred Stock Merger 3.1(c)(ii)
Consideration
Company Preamble
Company Documents 5.2
Company Entities 5.10(a)
Company Plans 5.15(a)
Company Properties 5.11(a)
Company Stock Options 3.1(e)(i)
Confidentiality Agreement 7.9
Consents Recitals
Deductible 9.2
DGCL 2.1
Dissenting Holder 3.2(h)
Dissenting Share Payments 9.2(e)
D&O Insurance 7.7(b)
Effective Time 2.3
Employees 5.15(a)
Environmental Laws 5.19
ERISA Affiliate 5.15(a)
Escrow Agent 3.1(g)
Escrow Amount 3.1(c)(i)(A)
Escrow Fund 3.1(g)
7
Term Section
---- -------
Escrow Payment 3.1(c)(ii)
Escrow Period 9.3(b)
Escrow Residual Amount 3.1(c)(ii)(A)
Exercise Difference 3.1(e)(ii)
Expiration Date 9.1(c)
Financial Statements 5.7(b)
HSR Act 5.3(b)
IBNR 7.2(b)(xiii)
Initial Cash Consideration 3.1(c)(i)(A)
Initial Option Cash-Out Consideration 3.1(e)(ii)
Losses 9.1(a)
Material Contracts 5.14(a)
Members 5.14(a)(x)
Merger Recitals
Merger Sub Preamble
Merger Sub Common Stock 3.1
Multiemployer Plan 5.15(c)
Officer's Certificate 9.3(b)
Option Cash-Out Consideration 3.1(e)(ii)
Pacificare 3.1(c)(i)(A)
Pacificare Contract 5.14(d)
Pacificare Reserve Adjustment 3.1(c)(i)(A)
Parent Preamble
Parent Documents 6.2
Parent Indemnified Parties 9.2
Parent Indemnifiable Losses 9.2
Paying Agent 3.2(a)
Payment Fund 3.2(a)
Payors 5.18(d)
Per Share Amount 3.1(c)(i)
Per Share Common and Preferred Stock Consideration 3.1(c)(ii)
Preferred Stock Certificates 3.1(d)(iv)
Providers 5.14(a)(x)
Provider Agreements 5.14(a)(x)
Real Property Lease 5.11(a)
SelectCare 5.7(a)
Series A Preferred Stock 3.1
Series A Preferred Stock Redemption Amount 3.1(d)(i)
Series B Preferred Stock 3.1
Series B Preferred Stock Redemption Amount 3.1(d)(ii)
Series C Preferred Stock 3.1
Series C Preferred Stock Redemption Amount 3.1(d)(iii)
Xxxxx Statute 5.25(a)
8
Term Section
---- -------
Statutory Financial Statements 5.7(a)
Stock Certificate 3.1(c)
Stockholder Representative 10.1(a)
Stockholder Representative Documents 10.1(h)
Surviving Corporation 2.1
Tax Losses 9.5(a)
Tax Sharing Agreement 5.10(i)
TDI 5.3(b)
Third-Party Interests 5.5
Title IV Plans 5.15(b)
Unresolved Claim 9.3(b)
(c) Other Definitional and Interpretive Matters. Unless otherwise
expressly provided, for purposes of this Agreement, the following rules of
interpretation shall apply:
(i) Calculation of Time Period. When calculating the period of time
before which, within which or following which any act is to be done or step
taken pursuant to this Agreement, the date that is the reference date in
calculating such period shall be excluded. If the last day of such period is a
non-Business Day, the period in question shall end on the next succeeding
Business Day.
(ii) Dollars. Any reference in this Agreement to $ shall mean U.S.
dollars.
(iii) Exhibits/Schedules. The Exhibits and Schedules to this
Agreement are hereby incorporated and made a part hereof and are an integral
part of this Agreement. All Exhibits and Schedules annexed hereto or referred to
herein are hereby incorporated in and made a part of this Agreement as if set
forth in full herein. Any capitalized terms used in any Schedule or Exhibit but
not otherwise defined therein shall be defined as set forth in this Agreement.
(iv) Gender and Number. Any reference in this Agreement to gender
shall include all genders, and words imparting the singular number only shall
include the plural and vice versa.
(v) Headings. The provision of a Table of Contents, the division of
this Agreement into Articles, Sections and other subdivisions and the insertion
of headings are for convenience of reference only and shall not affect or be
utilized in construing or interpreting this Agreement. All references in this
Agreement to any "Section" are to the corresponding Section of this Agreement
unless otherwise specified.
(vi) Herein. The words such as "herein," "hereinafter," "hereof," and
"hereunder" refer to this Agreement as a whole and not merely to a subdivision
in which such words appear unless the context otherwise requires.
9
(vii) Including. The word "including" or any variation thereof means
"including, without limitation" and shall not be construed to limit any general
statement that it follows to the specific or similar items or matters
immediately following it.
(d) The parties hereto have participated jointly in the negotiation
and drafting of this Agreement and, in the event an ambiguity or question of
intent or interpretation arises, this Agreement shall be construed as jointly
drafted by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship of any provision
of this Agreement.
Article II
THE MERGER
2.1 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Merger Sub shall be merged with and into the
Company at the Effective Time. Following the Effective Time, the separate
corporate existence of Merger Sub shall cease, and the Company shall continue as
the surviving corporation in the Merger (the "Surviving Corporation") and shall
succeed to and assume all the rights and obligations of Merger Sub in accordance
with the DGCL.
2.2 Closing. Subject to the satisfaction of the conditions set forth
in Sections 8.1 and 8.2 (or the waiver thereof by the party entitled to waive
that condition), the closing of the Merger (the "Closing") shall take place at
the offices of Weil, Gotshal & Xxxxxx LLP located at 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 (or at such other place as the parties may designate in writing)
at 10:00 a.m. (New York City time) on a date to be specified by the parties,
which date shall be no later than the second (2nd) Business Day after the
satisfaction or waiver of each conditions to the Closing set forth in Article
VIII (other than conditions that by their nature are to be satisfied at the
Closing, but subject to the satisfaction or waiver of such conditions), unless
another time or date, or both, are agreed to in writing by the parties hereto.
The date on which the Closing shall be held is referred to in this Agreement as
the "Closing Date."
2.3 Effective Time. Subject to the provisions of this Agreement, as
soon as practicable on the Closing Date, the parties shall file a certificate of
merger (the "Certificate of Merger") executed in accordance with the relevant
provisions of the DGCL and, as soon as practicable on or after the Closing Date,
shall make all other filings or recordings required under the DGCL. The Merger
shall become effective at such time as the Certificate of Merger is duly filed
with the Secretary of State of the State of Delaware, or at such other time as
Parent and the Company shall agree and shall specify in the Certificate of
Merger (the time the Merger becomes effective being the "Effective Time").
2.4 Effects of the Merger. The Merger shall have the effects set
forth in the DGCL.
2.5 Certificate of Incorporation and By-laws.
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(a) The certificate of incorporation of the Surviving Corporation
shall be amended at or prior to the Effective Time to be in the form of Exhibit
C and, as so amended, such certificate of incorporation shall be the certificate
of incorporation of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable Law.
(b) The bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable Law.
2.6 Directors. The directors of Merger Sub immediately prior to the
Effective Time shall be the directors of the Surviving Corporation until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
2.7 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
Article III
EFFECT OF THE MERGER ON THE
SECURITIES OF THE COMPANY AND MERGER SUB
3.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holders of (i) (A) any shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), (B) any shares of the Company's Series A
Participating Convertible Preferred Stock, par value $0.01 per share (the
"Series A Preferred Stock"), (C) any shares of the Company's Series B
Participating Convertible Preferred Stock, par value $0.01 per share (the
"Series B Preferred Stock"), or (D) any shares of the Company's Series C
Participating Convertible Preferred Stock, par value $0.01 per share (the
"Series C Preferred Stock"), or (ii) any shares of common stock, par value $0.01
per share ("Merger Sub Common Stock"), of Merger Sub, the following shall occur:
(a) Common Stock of Merger Sub. The shares of Merger Sub Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchangeable as a whole for a number of shares of common
stock of the Surviving Corporation equal in number to the number of shares of
Common Stock outstanding immediately prior to the Effective Time. After the
Effective Time, Parent shall be the sole stockholder of the Surviving
Corporation.
(b) Cancellation of Treasury Stock. Each share of Common Stock,
Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock
issued and outstanding immediately prior to the Effective Time that is owned by
the Company (as treasury stock or otherwise) shall automatically be cancelled
and retired and shall cease to exist, and no cash or other consideration shall
be delivered or deliverable in exchange therefor.
(c) Conversion of Common Stock and Preferred Stock. Each holder of
Common Stock and Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than such shares held by the Company, any Subsidiary of
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the Company or a Dissenting Holder or shares of Preferred Stock redeemed in
accordance with Section 3.1(d)) shall be entitled to receive, at the times and
subject to reduction as set out in this Section 3.1, an amount in cash, without
interest, for each such share, equal to the sum of:
(i) the "Per Share Amount," which is equal to the quotient obtained
by dividing
(A) an amount (the "Initial Cash Consideration") equal to
(I) $98,000,000, plus (II) if prior to the Closing, Heritage
Physician Networks and Pacificare of Texas, Inc. ("Pacificare")
execute and deliver a final, written settlement agreement, resolving
all claims arising under and relating to the Pacificare Contract, and
releasing the Company and its Subsidiaries from all Liability
thereunder, then an amount equal to fifty percent (50%) of the amount
by which the shareholders' equity of the Company, as determined in
accordance with GAAP, increases as a result of such settlement, after
giving effect to any amounts paid or accrued in respect of such
settlement (the "Pacificare Reserve Adjustment"); provided, however,
the Pacificare Reserve Adjustment shall not exceed $2,000,000, plus
(III) an aggregate amount of $1,847,800, which represents the
proceeds from the exercise of warrants of the Company outstanding
immediately prior to the Closing Date plus the product of the
aggregate number of all Company Stock Options outstanding immediately
prior to the Closing Date (including any Company Stock Options that
are to be exercised immediately prior to the Effective Time)
multiplied by the weighted average exercise price of such Company
Stock Options, less (IV) all Transaction Expenses, less (V) the
Initial Bonus Amount, less (VI) the aggregate Preferred Stock
Redemption Amount (if any), less (VII) $4,900,000 (the "Escrow
Amount"), less (VIII) any Indebtedness of the Company or its
Subsidiaries existing as of the Closing (other than such Indebtedness
set forth on Schedule 3.1(c)(i)), less (IX) the Stockholder
Representative Reserve, by
(B) the number of shares of Common Stock and Preferred
Stock issued and outstanding immediately prior to the Effective Time
(after giving effect to any option or any warrant exercises or
Preferred Stock conversions at or prior to the Effective Time and any
redemptions of Preferred Stock in accordance with Section 3.1(d))
plus the number of shares of Common Stock subject to issuance in
respect of unexercised Company Stock Options that are cancelled and
converted pursuant to Section 3.1(e)(ii);
provided, however, that notwithstanding the foregoing, to the extent
that the proceeds from the exercise of Company Stock Options and
Company warrants are not placed into a segregated fund available at
Closing for the payment of the Aggregate Consideration, the Initial
Cash Consideration shall be reduced by such unavailable amount; and
provided, further, that in no event will the aggregate Per Share
Amounts and the Initial Option Cash-Out Consideration payable
pursuant to this Agreement exceed the Initial Cash Consideration;
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plus
(ii) at the time set forth in, and subject to, Section 9.3, the
"Escrow Payment," if any, which is equal to the quotient obtained by dividing
(A) an amount equal to (I) the Escrow Amount (and any
interest that accrues on the Escrow Amount while the Escrow Amount is
held in the Escrow Fund), less (II) the aggregate amounts paid or
payable in respect of indemnifiable Losses or any other expenses or
amounts deducted from the Escrow Fund, in each case in accordance
with Article IX or the Escrow Agreement (the amount calculated
pursuant to clauses (I) and (II) of this subsection A is referred to
as the "Escrow Residual Amount"), less (III) the applicable
Subsequent Bonus Amount, by
(B) the number of shares of Common Stock and Preferred
Stock issued and outstanding immediately prior to the Effective Time
(after giving effect to any option or any warrant exercises or
Preferred Stock conversions at or prior to the Effective Time and any
redemptions of Preferred Stock in accordance with Section 3.1(d))
plus the number of shares of Common Stock subject to issuance in
respect of unexercised Company Stock Options that are cancelled and
converted pursuant to Section 3.1(e)(ii);
(collectively, the amount payable per share pursuant to clauses (i)
and (ii) is referred to as the "Per Share Common and Preferred Stock
Consideration," and, collectively, the amounts payable pursuant to
clauses (i) and (ii) above in respect of such shares is referred to
as the "Common and Preferred Stock Merger Consideration").
At the Effective Time, all shares of Common Stock or Preferred Stock
issued and outstanding immediately prior to the Effective Time shall no longer
be outstanding and such shares of Common Stock and Preferred Stock shall be
cancelled and retired and shall cease to exist, and each certificate (a "Stock
Certificate") formerly representing any such shares of Common Stock and
Preferred Stock (other than such shares held by the Company, any Subsidiary of
the Company or a Dissenting Holder or shares of Preferred Stock redeemed in
accordance with Section 3.1(d))) shall thereafter represent only the right to
receive the applicable portion of the Common and Preferred Stock Merger
Consideration and any such shares of Common Stock or Preferred Stock held by a
Dissenting Holder shall thereafter represent only the right to receive the
applicable payments set forth in Section 3.2(h).
(d) Redemption of Preferred Stock.
(i) If the Board of Directors of the Company determines that the Per
Share Amount is less than or equal to $1.06 (which such determination shall be
provided to Parent), each share of Series A Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than such shares held
by the Company, any Subsidiary of the Company or any Dissenting Holder) shall be
automatically redeemed at the Effective Time and the holder thereof shall be
entitled to receive upon compliance with Section 3.2(b)(ii) an amount in cash,
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without interest, equal to the sum of (A) the consideration received by the
Company upon the initial issuance of such share of Series A Preferred Stock and
(B) the amount such share would be entitled to receive if such share were
sharing in the distribution of the remaining consideration in connection with
the Merger on a pro rata basis with the Common Stock in accordance with the
number of shares of Common Stock into which such share of Series A Preferred
Stock is convertible, but in no event shall the total amount payable to such
holder for a redeemed share of Series A Preferred Stock exceed an amount equal
to $1.06 (such amount, the "Series A Preferred Stock Redemption Amount"), and
such holder shall not be entitled to receive any other consideration in respect
of the Merger.
(ii) If the Board of Directors of the Company determines that the Per
Share Amount is less than or equal to $2.00 (which such determination shall be
provided to Parent), each share of Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than such shares held
by the Company, any Subsidiary of the Company or any Dissenting Holder) shall be
automatically redeemed at the Effective Time and be entitled to receive upon
compliance with Section 3.2(b)(ii) an amount in cash, without interest, equal to
$2.00 (such amount, the "Series B Preferred Stock Redemption Amount"), and such
holder shall not be entitled to receive any other consideration in respect of
the Merger.
(iii) If the Board of Directors of the Company determines that the
Per Share Amount is less than or equal to $1.22 (which such determination shall
be provided to Parent), each share of Series C Preferred Stock issued and
outstanding immediately prior to the Effective Time (other than such shares held
by the Company, any Subsidiary of the Company or any Dissenting Holder) shall be
automatically redeemed at the Effective Time and be entitled to receive an
amount upon compliance with Section 3.2(b)(ii) in cash, without interest, equal
to $1.22 (such amount, the "Series C Preferred Stock Redemption Amount"), and
such holder shall not be entitled to receive any other consideration in respect
of the Merger.
(iv) At the Effective Time, all redeemed shares of Preferred Stock
shall no longer be outstanding and such shares of Preferred Stock shall be
cancelled and retired and shall cease to exist, and each certificate (a
"Preferred Stock Certificate" and together with the Stock Certificates, the
"Certificates") formerly representing any such redeemed shares of Preferred
Stock (other than such shares held by the Company, any Subsidiary of the Company
or a Dissenting Holder) shall thereafter represent only the right to the Series
A Preferred Stock Redemption Amount, the Series B Preferred Stock Redemption
Amount or the Series C Redemption Amount, as applicable.
(e) Company Stock Options.
(i) Prior to the Closing, the Company shall take all actions
necessary to cause all outstanding options to purchase shares of Common Stock
(the "Company Stock Options"), whether or not vested or exercisable by their
respective terms, to become fully vested and exercisable immediately prior to
the Effective Time. Holders of Company Stock Options, except for vested options
being exercised prior to the Closing Date in accordance with the terms of the
applicable Company Plan, shall be given the opportunity to exercise their
Company Stock Options, effective immediately prior to the Effective Time and
conditioned upon the occurrence of the Closing, and thereby to become Company
Stockholders, entitled to receive the Per Share Common and Preferred Stock
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Merger Consideration for each share of Common Stock at the same time and in the
same manner as the other Company Stockholders pursuant to Section 3.2. All
written communications distributed generally to employees by or on behalf of the
Company regarding such exercises will be mutually acceptable to Parent and the
Company.
(ii) Prior to the Closing, the Company shall take all actions
necessary to cause all Company Stock Options that are outstanding immediately
prior to the Effective Time that are not exercised in accordance with Section
3.1(e)(i) to (x) be cancelled and null and void and (y) converted, such that the
holders thereof shall be entitled to receive, at the same time as the Company
Stockholders, for each such Company Stock Option to acquire one share of Common
Stock, (x) an amount in cash equal to the Per Share Amount minus the exercise
price per share of such Company Stock Option (such difference being referred to
as the "Exercise Difference" and such collective amounts being referred to as
the "Initial Option Cash-Out Consideration") and (y) the Escrow Payment, if any
(collectively, such payments are referred to as, together with the Initial
Option Cash-Out Consideration, the "Option Cash-Out Consideration"). All
applicable withholding Taxes attributable to the payments made hereunder with
respect to any Company Stock Option shall be deducted from the amounts payable
hereunder with respect to such Company Stock Option. Notwithstanding anything in
this Section 3.1(e)(ii) to the contrary, in the event the Exercise Difference is
zero or a negative number with respect to any Company Stock Option, the holder
of such Company Stock Option shall receive no consideration in connection with
the cancellation of such Company Stock Option pursuant to this Section
3.1(e)(ii). All written communications distributed generally to employees by or
on behalf of the Company regarding such cancellation and conversion will be
mutually acceptable to Parent and the Company.
(iii) In connection with the termination of the Company Plans,
following the Effective Time, no holder of Company Stock Options or any
participant in or beneficiary of the Company Plans, will have any right to
acquire or receive any equity securities of the Surviving Corporation, any
Subsidiary thereof or any consideration other than as contemplated pursuant to
this Section 3.1(e).
(f) Warrants. All warrants issued by the Company that are not
exercised prior to the Effective Time will terminate and expire as of the
Effective Time. Prior to the Effective Time, the Company shall take all actions
necessary to effectuate such termination at the Effective Time.
(g) Escrow Fund. At the Closing, Parent shall cause to be deposited
with an escrow agent (the "Escrow Agent"), the Escrow Amount, which is to be
held in an interest-bearing account in accordance with the terms of the Escrow
Agreement and Article IX (the "Escrow Fund").
3.2 Payment for Company Securities.
(a) Paying Agent. Prior to the Effective Time, for the benefit of
holders of Company Securities, Parent shall designate, or shall cause to be
designated (pursuant to an agreement in form and substance reasonably acceptable
to Parent and the Company), a bank or trust company acceptable to the Company in
its reasonable discretion to act as agent (the "Paying Agent") for the payment
15
of the aggregate Per Share Amounts and the Preferred Stock Redemption Amount,
upon surrender of the Certificates, from time to time after the Effective Time.
At the Closing, Parent shall deposit, or cause to be deposited, with the Paying
Agent the aggregate Per Share Amounts and the Preferred Stock Redemption Amount
(collectively, the "Payment Fund").
(b) Payment Procedures. (i) No more than two (2) Business Days after
the Effective Time Parent shall cause the Paying Agent to mail to each holder of
record of Common Stock and Preferred Stock (other than those shares of Preferred
Stock that have been redeemed by the Company pursuant to Section 3.1(d)) (i) a
form of letter of transmittal (which shall (A) specify that delivery shall be
effected, and risk of loss and title to the Stock Certificates held by such
Person shall pass, only upon proper delivery of the Stock Certificates to the
Paying Agent, (B) be in customary form reasonably acceptable to Parent with no
representations or warranties or indemnities from holders thereof other than
customary representations and warranties from such holders with respect to
ownership of such stock and the right and authority to sell such stock, and (C)
have such other provisions as Parent may reasonably specify (including an
affidavit of non-foreign status of each of the holders that complies with
Section 1445 of the Code) and shall be in form and substance reasonably
satisfactory to Parent), and (ii) instructions for use in effecting the
surrender of the Stock Certificates or the appropriate documentation in exchange
for the applicable Merger Consideration, in each case in accordance with, and
subject to, the terms of this Article III. Upon surrender of a Stock Certificate
for cancellation to the Paying Agent, together with such letter of transmittal,
duly completed and validly executed, and such other documents as may reasonably
be required by the Paying Agent consistent with this Section 3.2(b), as of the
Effective Time, the holder of such Stock Certificate shall be entitled to
receive in exchange therefor the applicable Merger Consideration into which the
shares formerly represented by such Stock Certificate shall have been converted
pursuant, and subject, to the terms of this Article III, and the Stock
Certificate so surrendered shall forthwith be cancelled.
(ii) On or prior to the date the Company solicits any Consents, the
Company shall send a notice of redemption to notify each holder of issued and
outstanding shares of Preferred Stock, in each case, in accordance with the
terms of the Company's certificate of incorporation, any other document or
instrument governing the terms of such Preferred Stock and applicable Law. In
addition, the Company will notify each holder of Preferred Stock at least five
(5) days prior to the Closing of the Board of Directors' decision as to whether
shares of the Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock shall be redeemed in accordance with the terms of the Company's
certificate of incorporation and Section 3.1(d). If any such shares are to be
redeemed, the holders of such shares will be afforded the opportunity to convert
such shares into Common Stock immediately prior to and conditioned upon the
occurrence of the Closing and in accordance with the Company's certificate of
incorporation. Upon surrender of a Preferred Stock Certificate representing any
share of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock to be redeemed pursuant to Section 3.1(d) and this Section
3.2(b)(ii), together with such other documents as may reasonably be required by
the Company or Parent, such holder of record of such Preferred Stock Certificate
shall be entitled to receive the applicable redemption amount contemplated by
Section 3.1(d), and such Preferred Stock Certificate surrendered shall forthwith
be cancelled.
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(iii) In the event of a transfer of ownership of a share of a Company
Security that is not registered in the stock transfer books of the Company, the
proper amount of Merger Consideration (as determined in accordance with, and
subject to, the terms this Article III) may be paid in exchange therefor to a
Person other than the Person in whose name the Certificate so surrendered is
registered if such Certificate shall be properly endorsed or otherwise be in
proper form for transfer and accompanied by all the documents required by this
Section 3.2(b), and the Person requesting such payment shall pay any transfer or
other Taxes required by reason of the payment to a Person other than the
registered holder of such Certificate or establish to the satisfaction of Parent
that such Tax has been paid or is not applicable. No interest shall be paid or
shall accrue on the cash payable upon surrender of any Certificate.
(c) No Further Ownership Rights in Company Securities. All cash paid
upon the surrender for exchange of Certificates in accordance with, and subject
to, the terms of this Article III shall be deemed to have been paid in full
satisfaction of all rights pertaining to the shares of Company Securities
previously represented by such Certificates, and at the Effective Time the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers on the stock transfer books of the Surviving Entity of
the shares of Company Securities that were outstanding immediately prior to the
Effective Time. Subject to the last sentence of Section 3.2(e), if, at any time
after the Effective Time, Certificates are presented to the Surviving Entity or
the Paying Agent for any reason, they shall be canceled and exchanged or
redeemed as provided in this Article III.
(d) No Liability. None of the Surviving Corporation, Parent, the
Company or the Paying Agent shall be liable to any Person in respect of any cash
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar Law.
(e) Termination of Payment Fund. Any portion of the Payment Fund that
remains undistributed to the holders of the Certificates for six (6) months
after the Effective Time shall be delivered to Parent, upon demand, and any
holders of Certificates who have not theretofore complied with this Article III
shall thereafter look only to the Surviving Corporation for payment of their
claim for the applicable Merger Consideration (as determined in accordance with,
and subject to, the terms this Article III). If any Certificate shall not have
been surrendered immediately prior to the date on which any Merger Consideration
(as determined in accordance with, and subject to, the terms this Article III)
would otherwise escheat to or become the property of any Governmental Body, any
such Merger Consideration (as determined in accordance with, and subject to, the
terms this Article III) in respect thereof shall, to the extent permitted by
applicable Law, become the property of Parent, free and clear of all claims or
interest of any Person previously entitled thereto.
(f) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit (and if the Surviving
Corporation shall request, the posting of a bond in form and substance
reasonably satisfactory to the Surviving Corporation) of that fact by the Person
claiming such Certificate to be lost, stolen or destroyed, the Paying Agent
shall pay in respect of such lost, stolen or destroyed Certificate the
applicable amount of Merger Consideration (as determined in accordance with, and
subject to, the terms this Article III).
17
(g) Withholding Rights. The Surviving Corporation or the Paying Agent
shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement such amounts as the Surviving Corporation or
the Paying Agent is required to deduct and withhold with respect to the making
of such payment under the Code, or any provision of U.S. state or local Tax Law.
To the extent that amounts are so withheld and paid over to the appropriate
Taxing Authority by the Surviving Corporation or the Paying Agent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the party otherwise entitled to receive such payment in respect of which such
deduction and withholding was made by the Surviving Corporation or the Paying
Agent.
(h) Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, any holder of Company Securities issued and outstanding
immediately prior to the Effective Time who has the right to demand, and who
properly demands, an appraisal of such shares in accordance with Section 262 of
the DGCL (or any successor provision) (a "Dissenting Holder") shall not have the
right to receive the applicable Merger Consideration (as determined in
accordance with, and subject to, the terms this Article III), unless such holder
fails to perfect or otherwise loses such holder's right to such appraisal, if
any. Each Dissenting Holder shall be entitled to receive only the payment
provided by Section 262 of the DGCL with respect to shares of Common Stock or
Preferred Stock owned by such Dissenting Holder. If, after the Effective Time,
such holder fails to perfect or loses any such right to appraisal, such holder
shall be entitled to receive the full amount of such holder's portion of the
Merger Consideration (as determined in accordance with, and subject to, the
terms this Article III).
3.3 Aggregate Consideration Spreadsheet. Three (3) Business Days
prior to the Closing Date, the Company and the Stockholder Representative shall
deliver to Parent an updated draft of the Aggregate Consideration Spreadsheet
setting forth the estimated amount and allocation of Aggregate Consideration
that would be paid or issued to each Company Stockholder and holders of Company
Stock Options pursuant to this Article III. At the Closing, the Company and the
Stockholder Representative shall deliver to Parent the Aggregate Consideration
Spreadsheet setting forth the final calculation of such amounts.
3.4 Stockholder Representative Reserve. At the Closing, Parent shall
cause to be deposited, in an account designated by the Stockholder
Representative at least three (3) Business Days prior to Closing, the
Stockholder Representative Reserve. The Stockholder Representative Reserve (and
earnings thereon) may be applied as the Stockholder Representative, in its sole
discretion, determines appropriate to defray, offset, or pay any charges, fees,
costs, liabilities or expenses of the Stockholder Representative incurred in
connection with the transactions contemplated by this Agreement or the Escrow
Agreement. The balance of the Stockholder Representative Reserve held pursuant
to this Section 3.4, if any, and any income earned thereon, shall be deposited
into the Escrow Fund and distributed to the Company Stockholders and holders of
Company Stock Options who are entitled to receive the Common and Preferred Stock
Merger Consideration and Option Cash-Out Consideration as part of and on the
same terms and conditions as the distribution of the Escrow Payment.
Notwithstanding the foregoing, the Stockholder Representative Reserve shall only
be so distributed when the Stockholder Representative determines, in its sole
discretion, that such distribution is appropriate. Parent and the Surviving
Corporation shall have no liability or responsibility to the Company
Stockholders or holders of Company Stock Options with respect to the Stockholder
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Representative Reserve or the actions and responsibilities of the Stockholder
Representative contemplated by this Section 3.4.
3.5 Payment of Bonuses and Transaction Expenses. At or promptly
following the Closing, Parent shall pay, or cause to be paid, all unpaid
Transaction Expenses, the Initial Bonus Amount and the Initial Option Cash-Out
Consideration (in accordance with the Aggregate Consideration Spreadsheet) by
wire transfer of immediately available funds to the account(s) designated by the
recipients thereof upon receipt of an executed release or pay-off letter, as
applicable, by each such recipient.
Article IV
TERMINATION, AMENDMENT AND WAIVER
4.1 Termination of Agreement. This Agreement may be terminated at any
time prior to the Effective Time as follows:
(a) At the election of either Parent or the Company on or after May
31, 2004, if the Closing shall not have occurred by the close of business on
such date; provided, however, that if on such date the condition to the Closing
set forth in Section 8.1(f) shall not have been satisfied, then either Parent or
the Company may cause such date to be extended by up to two additional thirty
(30) day periods, upon delivery of written notice to the other party; provided,
further, however, that the right to terminate this Agreement under this Section
4.1(a) shall not be available to any party who is in material default of any of
its obligations hereunder;
(b) by mutual written consent of Parent and the Company;
(c) by written notice from Parent to the Company if there has been a
Material Adverse Effect;
(d) by either Parent or the Company if (i) there shall be in effect a
final nonappealable Order of a Governmental Body of competent jurisdiction
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated hereby or (ii) there shall be any Law enacted,
promulgated or issued or deemed applicable to the Merger by any Governmental
Body that would make consummation of the Merger illegal;
(e) by Parent, so long as Parent is not in material breach of its
representations, warranties, covenants or agreements under this Agreement, if
there shall have been a material breach of any representation, warranty,
covenant or agreement of the Company set forth in this Agreement, which breach
would give rise to a failure of a condition set forth in Sections 8.1(a), 8.1(b)
or 8.1(c) and is incapable of being cured or, if capable of being cured, shall
not have been cured within twenty (20) days following receipt by the Company of
notice of such breach from Parent;
(f) by Parent, so long as Parent is not in material breach of its
representations, warranties, covenants or agreements under this Agreement, if
the Company has failed to comply with the provisions of Section 7.11(b); or
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(g) by the Company, so long as the Company is not in material breach
of its representations, warranties, covenants or agreements under this
Agreement, if there shall have been a material breach of any representation,
warranty, covenant or agreement of Parent set forth in this Agreement, which
breach would give rise to a failure of a condition set forth in Sections 8.2(a)
or 8.2(b) and is incapable of being cured or, if capable of being cured, shall
not have been cured within twenty (20) days following receipt by Parent of
notice of such breach from the Company.
4.2 Procedure Upon Termination. In the event of termination and
abandonment by Parent or the Company, or both, pursuant to Section 4.1 hereof,
written notice thereof shall forthwith be given to the other party or parties,
and this Agreement shall terminate without further action by Parent or the
Company.
4.3 Effect of Termination. In the event that this Agreement is
validly terminated as provided herein, then each of the parties shall be
relieved of their duties and obligations arising under this Agreement after the
date of such termination and such termination shall be without liability or
obligation to Parent or the Company; provided, however, that nothing in this
Section 4.3 shall relieve Parent or the Company of any liability for a breach of
this Agreement prior to the effective date of such termination.
Article V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Merger Sub on the date hereof and as of the Closing Date that:
5.1 Organization and Good Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now conducted. The
Company is duly qualified or authorized to do business as a foreign corporation
and is in good standing under the laws of each jurisdiction in which it owns or
leases real property and each other jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification or
authorization, except where the failure to be so qualified, authorized or in
good standing would not have a Material Adverse Effect.
5.2 Authorization of Agreement. The Company has all requisite power,
authority and legal capacity to execute and deliver this Agreement and each
other agreement, document, or instrument or certificate contemplated by this
Agreement or to be executed by the Company in connection with the consummation
of the transactions contemplated by this Agreement (together with this
Agreement, the "Company Documents"), and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and each of the Company Documents, the performance of its obligations hereunder
and thereunder and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all required action on the part of the
Company. This Agreement has been, and each of the Company Documents will be at
or prior to the Closing, duly and validly executed and delivered by the Company
and (assuming the due authorization, execution and delivery by the other parties
20
hereto and thereto) this Agreement constitutes, and each of the Company
Documents when so executed and delivered will constitute, legal, valid and
binding obligations of the Company, as applicable, enforceable against the
Company in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of commercial reasonableness,
good faith and fair dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity). The Board of Directors of the Company, at a
meeting duly called and held at which all the directors of the Company were
present in person or by telephone, duly and unanimously adopted resolutions (i)
approving and declaring advisable this Agreement, the Merger and the other
transactions contemplated by this Agreement, (ii) directing that the adoption of
this Agreement be submitted to the stockholders of the Company and (iii)
recommending that the stockholders of the Company adopt this Agreement, which
resolutions have not been subsequently rescinded, modified or withdrawn in any
way. The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock and Preferred Stock, voting together as a single class, and each
series of Preferred Stock voting as a separate class are the only approvals of
holders of any class or series of Company capital stock necessary or required
(under applicable Law, the Company's certificate of incorporation and bylaws, or
otherwise) to approve this Agreement and the transactions contemplated hereby,
including the Merger. This Agreement, the Merger and the other transactions
contemplated hereby will have been authorized, approved and consented to by the
written consent of a majority of the holders of the outstanding shares of Common
Stock and Preferred Stock, voting together as a single class and each series of
Preferred Stock voting as a separate class, and such written consents will be
obtained in compliance with, and are valid and effective under, Section 228 of
the DGCL.
5.3 Conflicts; Consents of Third Parties.
(a) Assuming the receipt of the consents set forth in Section
5.3(b)(A), (B) and (C), none of the execution and delivery by the Company of
this Agreement or the Company Documents, the consummation of the Merger and the
transactions contemplated hereby or thereby, or compliance by the Company with
any of the provisions hereof or thereof will conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under, or give rise to any
obligation of the Company to make any payment under, or to the increased,
additional, accelerated or guaranteed rights or entitlements of any Person
under, or result in the creation of any Liens upon any of the properties or
assets of Company or any Subsidiary under, any provision of (i) the certificate
of incorporation and by-laws or comparable organizational documents of the
Company or any Subsidiary; (ii) any Material Contract, or Permit to which the
Company or any Subsidiary is a party or by which any of the properties or assets
of the Company or any Subsidiary are bound; (iii) any Order of any Governmental
Body applicable to the Company or any Subsidiary or any of the properties or
assets of the Company or any Subsidiary; or (iv) any applicable Law.
(b) No consent, waiver, approval, Order, Permit or authorization of,
or declaration or filing with, or notification to, any Person or Governmental
Body is required on the part of the Company or any Subsidiary in connection with
(i) the execution and delivery of this Agreement or the Company Documents, the
compliance by the Company with any of the provisions hereof, or the consummation
21
by the Company of the Merger or the other transactions contemplated hereby, or
(ii) the continuing validity and effectiveness immediately following the Closing
of any Permit, Authorization or Material Contract of the Company or any
Subsidiary, except for (A) compliance with the applicable requirements of the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976 and the rules and
regulations promulgated thereunder (the "HSR Act"), (B) those consents and
filings required by the Texas Department of Insurance (the "TDI") and (C) those
consents and filings set forth on Schedule 5.3(b).
5.4 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
80,000,000 shares of Common Stock, (ii) 18,809,632 shares of Series A Preferred
Stock, (iii) 5,223,363 shares of Series B Preferred Stock and (iv) 11,727,446
shares of Series C Preferred Stock. As of the date hereof, there are (i)
16,769,050 shares of Common Stock issued and outstanding (ii) 18,809,632 shares
of Series A Preferred Stock issued and outstanding, (iii) 5,223,363 shares of
Series B Preferred Stock issued and outstanding, (iv) 11,727,446 shares of
Series C Preferred Stock issued and outstanding and (v) 0 shares of Common Stock
and Preferred Stock are held by the Company as treasury stock. All of the issued
and outstanding shares of Company Securities were duly authorized for issuance
and are validly issued, fully paid and non-assessable.
(b) Except as set forth on Schedule 5.4(b), there is no existing
option, warrant, call, right or Contract of any character to which the Company
is a party requiring, and there are no securities of the Company outstanding
which upon conversion or exchange would require, the issuance, sale or transfer
of any additional shares of capital stock or other equity securities of the
Company or other securities convertible into, exchangeable for or evidencing the
right to subscribe for or purchase shares of capital stock or other equity
securities of the Company. Except as set forth on Schedule 5.4(b), the Company
is not a party to any voting trust or other Contract with respect to the voting,
redemption, sale, transfer or other disposition of the capital stock of the
Company.
5.5 Subsidiaries. Schedule 5.5 sets forth with respect to each
Subsidiary, the jurisdiction in which it is incorporated or organized, the
jurisdictions, if any, in which it is qualified to do business, the number of
shares of its authorized capital stock, the number and class of shares thereof
duly issued and outstanding, the names of all stockholders or other equity
owners and the number of shares of stock owned by each stockholder or the amount
of equity owned by each equity owner. Each Subsidiary is a duly organized and
validly existing corporation or other entity in good standing under the laws of
the jurisdiction of its incorporation or organization and is duly qualified or
authorized to do business as a foreign corporation or entity and is in good
standing under the laws of each jurisdiction in which the conduct of its
business or the ownership of its properties requires such qualification or
authorization. Each Subsidiary has all requisite corporate or entity power and
authority to own its properties and carry on its business as presently
conducted. The outstanding shares of capital stock or equity interests of each
Subsidiary are validly issued, fully paid and non-assessable, and all such
shares or other equity interests represented as being owned by the Company are
owned by it free and clear of any and all Liens, except as set forth in Schedule
5.5. No shares of capital stock are held by any Subsidiary as treasury stock.
There is no existing option, warrant, call, right or Contract to which any
Subsidiary is a party requiring, and there are no convertible securities of any
22
Subsidiary outstanding which upon conversion would require, the issuance of any
shares of capital stock or other equity interests of any Subsidiary or other
securities convertible into shares of capital stock or other equity interests of
any Subsidiary. Other than the Subsidiaries of the Company, neither the Company
nor any Subsidiary of the Company owns, directly or indirectly, any shares of
capital stock or equity or ownership interests in, any other Person
(collectively, "Third-Party Interests"). Neither the Company nor any Subsidiary
of the Company have any rights to, or are bound by any commitment or obligation
to, acquire by any means, directly or indirectly, any Third-Party Interests or
to make any investment in, or contribution or advance to, any Person.
5.6 Corporate Records.
(a) The Company has delivered to Parent true, correct and complete
copies of the certificates of incorporation (each certified by the Secretary of
State or other appropriate official of the applicable jurisdiction of
organization) and by-laws (each certified by the secretary, assistant secretary
or other appropriate officer) or comparable organizational documents of the
Company and each of its Subsidiaries.
(b) The minute books of the Company and each Subsidiary previously
made available to Parent contain true, correct and complete records of all
meetings and accurately reflect in all material respects all other corporate
action of the stockholders and board of directors (including committees thereof)
of the Company and its Subsidiaries. The stock certificate books and stock
transfer ledgers of the Company and its Subsidiaries previously made available
to Parent are true, correct and complete. All stock transfer taxes levied or
payable with respect to all transfers of shares of the Company and its
Subsidiaries prior to the date hereof have been paid and appropriate transfer
tax stamps affixed.
5.7 Financial Statements.
(a) The Company has previously delivered to Parent (i) the audited
statutory statement of admitted assets, liabilities and surplus of SelectCare of
Texas, LLC ("SelectCare") as of, and the audited statutory statements of income,
changes in surplus, and cash flows of SelectCare for the fiscal year ended
December 31, 2002 (collectively, the "Audited Statutory Financial Statements")
and (ii) the unaudited statutory statement of admitted assets, liabilities and
surplus of SelectCare as of, and the unaudited statutory statements of income,
changes in surplus, and cash flows of SelectCare for the year ended December 31,
2003 and for the quarterly periods ending March 31, 2003, June 30, 2003 and
September 30, 2003 (collectively with the Audited Statutory Financial
Statements, the "Statutory Financial Statements"). The Audited Statutory
Financial Statements have been certified without qualification by Ernst & Young,
the Company's independent public accountants. The Statutory Financial Statements
have been prepared in accordance with accounting practices prescribed or
permitted by the TDI applied on a basis consistent throughout the periods
covered, fairly present, in all material respects, the admitted assets,
liabilities and surplus as of the respective dates thereof and the results of
operations and cash flows of SelectCare for the periods referred to therein, on
the basis of the accounting described in the respective notes thereto, and are
consistent with the books and records of SelectCare.
23
(b) Attached hereto as Schedule 5.7(b) are the following financial
statements (collectively, the "Financial Statements"): (i) complete and correct
copies of the Company's unaudited consolidated balance sheet as of December 31,
2003 (the "Balance Sheet") and the related unaudited consolidated statements of
income and of cash flows for the twelve (12) month period ended December 31,
2003, all prepared in accordance with GAAP, (ii) complete and correct copies of
the Company's audited consolidated balance sheets as of December 31, 2002 and
December 31, 2000 and related audited statements of income and of cash flows for
the twelve (12) month periods ended December 31, 2002 and December 31, 2000,
(iii) complete and correct copies of the Company's unaudited consolidated
balance sheet as of December 31, 2001 and the related unaudited consolidated
statements of income and of cash flows for the twelve (12) month period ended
December 31, 2001, (iv) complete and correct copies of the unaudited
consolidating balance sheet of the Company and its Subsidiaries by legal entity
as of December 31, 2003 and the related unaudited consolidating statements of
income for the fiscal year ended December 31, 2003, and (v) complete and correct
copies of the unaudited consolidating income statements of the Company and its
Subsidiaries by product/network for the fiscal year ended December 31, 2003. The
Financial Statements have been prepared in accordance with GAAP (except with
respect to the unaudited Financial Statements, which are subject to normal,
customary year-end and audit adjustments and are subject to those items that may
be disclosed in notes to audited financial statements), consistently applied
throughout the periods indicated, present fairly in all material respects the
financial condition and results of operations of the Company as of such dates,
are complete and correct in all material respects, and are in accordance with
the books and records of the Company and its Subsidiaries.
For the purposes hereof, December 31, 2003 is referred to as the
"Balance Sheet Date."
(c) The Audited Year-End Statements delivered pursuant to Section
7.11 will be prepared in accordance with GAAP as indicated in Section 7.11,
consistently applied throughout the periods indicated, and will present fairly
in all material respects the financial condition of the Company and its
Subsidiaries as of December 31, 2003, will be complete and correct in all
material respects, and will be in accordance with the books and records of the
Company and its Subsidiaries (which books and records will be complete and
correct in all material respects).
(d) The reserves recorded in the accounting records of the Company
and its Subsidiaries for medical benefits, losses, claims and expenses incurred
in connection with the Medicare and commercial businesses of the Company and its
Subsidiaries and any other reserves (i) were prepared in accordance with the
actuarial and accounting practices prescribed or permitted by the TDI, (ii) make
good and sufficient provisions for all insurance obligations of the Company and
its Subsidiaries (provided that this representation is not intended to
constitute a guaranty as to the ultimate adequacy or sufficiency of such
provisions), (iii) to the Knowledge of the Company, meet the requirements of any
Law applicable to such reserves and the requirements of any Authorizations of
the Company and its Subsidiaries and (iv) are computed on the basis of
assumptions consistent with those used in computing the corresponding reserves
in the prior fiscal year. The Company is not aware of any facts or circumstances
which would necessitate any material adverse change in the statutorily required
reserves or reserves above those reflected in the Financial Statements and
Statutory Financial Statements (other than increases consistent with past
24
experience resulting from increases in enrollment with respect to services
provided by the Company or its Subsidiaries). All payments to and/or settlements
with providers of any medical services have been accounted for in the
appropriate medical expense reserve account (by category of medical expense) and
have been reflected as a medical expense of the Company and its Subsidiaries. As
of the date hereof, the capital and surplus for SelectCare is not less than 150%
of the authorized control level as defined in NAIC Risk Based Capital
Guidelines.
(e) The Company has provided or made available to Parent true and
correct documentation, electronic and otherwise, of data representing all paid
medical claims (including all medical payments and/or settlements) through
December 31, 2003. The Company has also provided documentation, electronic and
otherwise, that supports the medical claims data provided. The paid medical
claims data provided to Parent reflect any changes to the business of the
Company and its Subsidiaries since their inception that would materially affect
total medical costs. All paid medical claims and settlements of the Medicare
business of the Company and its Subsidiaries since January 1, 2001 have been
properly reflected as medical expenses.
(f) The Company and its Subsidiaries make and keep books, records and
accounts which, in reasonable detail, accurately and fairly reflect in all
material respects the transactions and dispositions of their respective assets.
The Company and its Subsidiaries maintain systems of internal accounting
controls sufficient to provide reasonable assurances that: (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit the preparation of financial
statements in conformity with GAAP and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the actual levels at reasonable intervals and appropriate action
is taken with respect to any differences.
5.8 No Undisclosed Liabilities. Except as set forth on Schedule 5.8,
neither the Company nor any Subsidiary has any Indebtedness, obligations or
Liabilities of any kind other than those (i) fully reflected in, reserved
against or otherwise described in the Balance Sheet or (ii) immaterial to the
Company or its Subsidiaries, taken as a whole, and incurred in the Ordinary
Course of Business since the Balance Sheet Date.
5.9 Absence of Certain Developments. Except as expressly contemplated
by this Agreement or as set forth on Schedule 5.9, since the Balance Sheet Date
(i) the Company and its Subsidiaries have conducted their respective businesses
only in the Ordinary Course of Business and (ii) there has not been any Material
Adverse Effect. Without limiting the generality of the foregoing, since the
Balance Sheet Date:
(a) there has not been any damage, destruction or loss, whether or
not covered by insurance, with respect to the property and assets of the Company
or any Subsidiary having a replacement cost of more than $50,000 for any single
loss or $200,000 for all such losses;
(b) there has not been any declaration, setting aside or payment of
any dividend or other distribution in respect of any shares of capital stock of
the Company or any repurchase, redemption or other acquisition by the Company or
25
any Subsidiary of any outstanding shares of capital stock or other securities
of, or other ownership interest in, the Company or any Subsidiary;
(c) except as set forth on Schedule 5.9(c), neither the Company nor
any Subsidiary has awarded or paid any bonuses to employees of the Company or
any Subsidiary with respect to the fiscal year ended December 31, 2003, except
to the extent previously disclosed to Parent in writing, or entered into any
employment, deferred compensation, severance or similar agreement (nor amended
any such agreement) or agreed to increase the compensation payable or to become
payable by it to any of the Company's or any Subsidiary's directors, officers,
employees, agents or representatives or agreed to increase the coverage or
benefits available under any severance pay, termination pay, vacation pay,
company awards, salary continuation for disability, sick leave, deferred
compensation, bonus or other incentive compensation, insurance, pension or other
employee benefit plan, payment or arrangement made to, for or with such
directors, officers, employees, agents or representatives;
(d) there has not been any material change by the Company or any
Subsidiary in accounting or Tax reporting principles, methods or policies;
(e) neither the Company nor any Subsidiary has made or changed any
material election concerning Taxes or Tax Returns, changed an annual accounting
period, adopted or changed any accounting method, filed any amended Tax Return,
entered into any closing agreement with respect to Taxes, settled any Tax claim
or assessment or surrendered any right to claim a refund of Taxes or obtained or
entered into any Tax ruling;
(f) neither the Company nor any Subsidiary has failed to promptly pay
and discharge current liabilities except where disputed in good faith by
appropriate proceedings;
(g) except as set forth on Schedule 5.9(g), neither the Company nor
any Subsidiary has made any loans, advances or capital contributions to, or
investments in, any Person or paid any fees or expenses to any stockholder of
the Company or any director, officer, partner, stockholder or Affiliate of the
Company or any Subsidiary;
(h) neither the Company nor any Subsidiary has mortgaged, pledged or
subjected to any Lien any of its assets, or acquired any assets or sold,
assigned, transferred, conveyed, leased or otherwise disposed of any assets of
the Company or any Subsidiary, except for assets acquired or sold, assigned,
transferred, conveyed, leased or otherwise disposed of in the Ordinary Course of
Business;
(i) neither the Company nor any Subsidiary has discharged or
satisfied any Lien, or paid any obligation or liability (fixed or contingent),
except in the Ordinary Course of Business and which, in the aggregate, would not
be material to the Company and its Subsidiaries taken as a whole;
(j) neither the Company nor any Subsidiary has canceled or
compromised any debt or claim or amended, canceled, terminated, relinquished,
waived or released any Contract or right except in the Ordinary Course of
Business and which, in the aggregate, would not be material to the Company and
its Subsidiaries taken as a whole;
26
(k) neither the Company nor any Subsidiary has made or committed to
make any capital expenditures or capital additions or betterments in excess of
$50,000 individually or $200,000 in the aggregate;
(l) except as set forth on Schedule 5.9(l), neither the Company nor
any Subsidiary has issued, created, incurred, assumed or guaranteed any
Indebtedness;
(m) neither the Company nor any Subsidiary has failed to pay any
medical claim liability or Indebtedness when due, and all such claim liabilities
have been properly recorded in the accounts of the Company and its Subsidiaries,
except for any such failure attributable to a claim contested by the Company or
any of its Subsidiaries in good faith in the Ordinary Course of Business
(provided an appropriate reserve is established therefor);
(n) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(o) neither the Company nor any Subsidiary has received notice of,
instituted or settled any material Legal Proceeding; and
(p) none of Company or any of its Subsidiaries has agreed, committed,
arranged or entered into any understanding to do anything set forth in this
Section 5.9.
5.10 Taxes.
(a) (i) All material Tax Returns required to be filed by or on behalf
of the Company or any Subsidiary or any Affiliated Group of which the Company or
any Subsidiary is or was a member have been duly and timely filed with the
appropriate Taxing Authority in all jurisdictions in which such Tax Returns are
required to be filed (after giving effect to any valid extensions of time in
which to make such filings), and all such Tax Returns are true, complete and
correct in all material respects; and (ii) all Taxes payable (A) with respect to
any taxable period (or portion thereof) ending on or prior to December 31, 2003
by or on behalf of the Company or any Subsidiary or any Affiliated Group of
which the Company or any Subsidiary is or was a member (the "Company Entities")
have been fully and timely paid or otherwise properly and clearly accrued in the
Balance Sheet and the books and records of the Company and its Subsidiaries and
(B) by or on behalf of any of the Company Entities with respect to any taxable
period (or portion thereof) between January 1, 2004 and the Closing Date have
been fully and timely paid or otherwise properly and clearly accrued in the
Closing Date Tax Balance Sheet and the books and records of the Company and its
Subsidiaries. With respect to any period for which Tax Returns of or relating to
the Company or any of its Subsidiaries or any such Affiliated Group have not yet
been filed or for which Taxes are not yet due or owing, the Company has made due
and sufficient accruals for such Taxes properly and clearly reflected in the
Balance Sheet and on its books and records. All required estimated Tax payments
sufficient to avoid any underpayment penalties have been made by or on behalf of
the Company and each Subsidiary.
(b) Each of the Company and each of its Subsidiaries has complied in
all material respects with all applicable Laws relating to the payment and
withholding of Taxes and has duly and timely withheld and paid over to the
appropriate Taxing Authority all amounts required to be so withheld and paid
under all applicable Laws.
27
(c) Parent has received complete copies of (i) all federal, state,
local and foreign income or franchise Tax Returns of each of the Company and its
Subsidiaries relating to the taxable periods beginning on January 1, 2000 and
(ii) any audit report issued within the last three (3) years relating to any
Taxes due from or with respect to the Company or any Subsidiary. Except as
otherwise provided in Schedule 5.10(c), all income and franchise Tax Returns
filed by or on behalf of the Company or any Subsidiary have been examined by the
relevant Taxing Authority or the statute of limitations with respect to such Tax
Returns has expired.
(d) Schedule 5.10(d) lists (i) all jurisdictions in which the Company
or any subsidiary has paid Taxes for taxable periods beginning on January 1,
2000, (ii) all types of Taxes paid for such years, and (iii) all types of Tax
Returns filed by or on behalf of Company or any Subsidiary for such years. No
claim has been made by a Taxing Authority in a jurisdiction where the Company or
any Subsidiary does not file Tax Returns such that it is or may be subject to
taxation by that jurisdiction.
(e) All deficiencies asserted or assessments made as a result of any
examinations by any Taxing Authority of the Tax Returns of, or including, the
Company or any Subsidiary have been fully paid, and there are no other audits or
investigations by any Taxing Authority in progress, nor has the Company or any
of its Subsidiaries received any written notice from any Taxing Authority that
it intends to conduct such an audit or investigation. To the Company's
Knowledge, no issue has been raised by a Taxing Authority in any prior
examination of the Company or any Subsidiary which, by application of the same
or similar principles, could reasonably be expected to result in a proposed
deficiency for any subsequent taxable period.
(f) None of the Company, any of its Subsidiaries or any other Person
on their behalf has (i) filed a consent pursuant to Section 341(f) of the Code
(as in effect prior to the repeal under the Jobs and Growth Tax Reconciliation
Act of 2003) or agreed to have Section 341(f)(2) of the Code (as in effect prior
to the repeal under the Jobs and Growth Tax Reconciliation Act of 2003) apply to
any disposition of a subsection (f) asset (as such term is defined in Section
341(f)(4) of the Code) owned by the Company or such Subsidiary, (ii) agreed to
or is required to make any adjustments pursuant to Section 481(a) of the Code or
any similar provision of Law or has any Knowledge that any Taxing Authority has
proposed any such adjustment, or has any application pending with any Taxing
Authority requesting permission for any changes in accounting methods that
relate to the Company or any Subsidiary, (iii) executed or entered into a
closing agreement pursuant to Section 7121 of the Code or any similar provision
of Law with respect to the Company or any Subsidiary, (iv) requested any
extension of time within which to file any Tax Return, which Tax Return has
since not been filed, (v) granted any extension or waived the statute of
limitations for the assessment or collection of Taxes, which Taxes have not
since been paid, or (vi) granted to any Person any power of attorney that is
currently in force with respect to any Tax matter.
(g) No property owned by the Company or any of its Subsidiaries is
(i) property required to be treated as being owned by another Person pursuant to
the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as
amended and in effect immediately prior to the enactment of the Tax Reform Act
of 1986, (ii) "tax-exempt use property" within the meaning of Section 168(h)(1)
of the Code or (iii) "tax-exempt bond financed property" within the meaning of
Section 168(g) of the Code, (iv) "limited use property" within the meaning of
28
Rev. Proc. 76-30, (v) subject to Section 168(g)(1)(A) of the Code or (vi)
subject to any provision of state, local or foreign Law comparable to any of the
provisions listed above.
(h) Neither the Company nor any of its Subsidiaries has any
"corporate acquisition indebtedness" within the meaning of Section 279 of the
Code.
(i) Neither the Company nor any of its Subsidiaries is a party to any
tax sharing, allocation, indemnity or similar agreement or arrangement (whether
or not written) (collectively, a "Tax Sharing Agreement") pursuant to which it
will have any obligation to make any payments after the Effective Time.
(j) Schedule 5.10(j) sets forth each contract, agreement, plan or
arrangement covering any person that, individually or collectively, could give
rise to the payment of any amount that would not be deductible by Parent, the
Company or their respective Affiliates by reason of Section 280G of the Code or
would be subject to withholding under Section 4999 of the Code.
(k) Neither the Company nor any of its Subsidiaries is subject to any
private letter ruling of the IRS or comparable rulings of any Taxing Authority.
(l) There are no Liens as a result of any unpaid Taxes upon any of
the assets of the Company or any Subsidiary other than Permitted Exceptions.
(m) Neither the Company nor any of its Subsidiaries has ever been a
member of any consolidated, combined, affiliated or unitary group of
corporations for any Tax purposes other than a group in which Company is the
common parent.
(n) Schedule 5.10(n) sets forth (i) each Subsidiary of the Company
that is properly treated as a disregarded entity (i.e., not treated as an entity
separate from its owner) under Treasury Regulations Section 301.7701-3 and under
each analogous or similar provision of state or local law in each jurisdiction
where such Subsidiary is required to file an income or franchise Tax Return and
(ii) each Subsidiary that is properly treated as a partnership under Subchapter
K of the Code and under each analogous or similar provision of state or local
law in each jurisdiction where such Subsidiary is required to file an income or
franchise Tax Return. No Subsidiary of the Company has had a voluntary or
involuntary termination or revocation of the status described in clause (i) or
(ii).
(o) Neither the Company nor any of its Subsidiaries has constituted
either a "distributing corporation" or a "controlled corporation" (within the
meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock
qualifying for tax-free treatment under Section 355 of the Code (A) in the two
(2) years prior to the date of this Agreement or (B) in a distribution which
could otherwise constitute part of a "plan" or "series of related transactions"
(within the meaning of Section 355(e) of the Code) in conjunction with the
transactions contemplated by this Agreement.
(p) There is no taxable income of the Company or any of its
Subsidiaries that will be required under applicable Tax Law to be reported by
Parent or any of its Affiliates, including the Company or any of its
29
Subsidiaries, for a taxable period beginning after the Effective Time which
taxable income was realized prior to the Effective Time.
(q) Schedule 5.10(q) sets forth, with respect to each of the Company
and its Subsidiaries (i) any material "intercompany transactions" in respect of
which gain was and continues to be deferred pursuant to Treasury Regulations
Section 1.1502-13 or any analogous or similar provision of Law, and (ii) any
"excess loss accounts" in respect of the stock of any Subsidiary pursuant to
Treasury Regulations Section 1.1502-19, or any analogous or similar provision of
Law. The Company's tax attributes as of December 31, 2002 are an alternative
minimum tax credit carryover of $61,815, a federal net operating loss
carryforward of $17,876,054, an alternative minimum tax net operating loss
carryforward of $18,050,376, a capital loss carryforward of $486,553 and a state
net operating loss carryforward of $25,639,681.
(r) Company and its Subsidiaries have disclosed on their federal
income Tax Returns all positions taken therein that could reasonably be expected
to give rise to substantial understatement of federal income tax within the
meaning of Section 6662 of the Code.
(s) None of the Company or any of its Subsidiaries has participated
in a "listed transaction" within the meaning of Treasury Regulations Section
1.6011-4(c)(3)(i)(A).
(t) Neither the Company nor any of its Subsidiaries has, or has ever
had, a permanent establishment in any country other than the United States, or
has engaged in a trade or business in any country other than the United States
that subjected it to tax in such country.
For purposes of this Section 5.10, any reference to the Company or
its Subsidiaries shall be deemed to include any Person which merged with or was
liquidated into such Company or Subsidiary.
5.11 Real Property.
(a) Schedule 5.11(a) sets forth a complete list of all real property
and interests in real property leased by the Company and its Subsidiaries
(individually, a "Real Property Lease" and collectively, the "Company
Properties") as lessee or lessor. Neither the Company nor its Subsidiaries own
in fee title any real property. The Company Properties constitute all interests
in real property currently used or currently held for use in connection with the
business of the Company and its Subsidiaries and which are necessary for the
continued operation of the business of the Company and its Subsidiaries as the
business is currently conducted. All of the Company Properties, buildings,
fixtures and improvements thereon owned or leased by the Company and its
Subsidiaries are in good operating condition and repair (subject to normal wear
and tear). The Company has delivered or otherwise made available to Parent true,
correct and complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have a valid and enforceable
leasehold interest under each of the Real Property Leases, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
30
proceeding at law or in equity). Each of the Real Property Leases is in full
force and effect, and neither the Company nor any Subsidiary has received or
given any notice of any default or event that with notice or lapse of time, or
both, would constitute a default by the Company or any Subsidiary under any of
the Real Property Leases and, to the Knowledge of the Company, no other party is
in default thereof, and no party of the Real Property Leases has exercised any
termination rights with respect thereto.
5.12 Assets. The Company and its Subsidiaries have good and
marketable title to all of the assets (tangible or intangible) purported to be
owned by the Company and its Subsidiaries and relating to, or used in, its
business, free and clear of all Liens, except for Permitted Exceptions. The
Company and its Subsidiaries own or lease all tangible assets sufficient for the
conduct of their business as presently conducted and as presently proposed to be
conducted. Each such tangible asset has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear) and is suitable for the purposes for which it presently is
used. Each item of equipment and other asset that the Company and its
Subsidiaries has possession of pursuant to a lease agreement or other
contractual arrangement and relating to, or used in, its business is in such
condition that, upon its return to its lessor or owner under the applicable
lease or contract, the obligations of the Company and its Subsidiaries to such
lessor owner will have been discharged in full.
5.13 Intellectual Property.
(a) Schedule 5.13 sets forth: (i) a true, correct and complete list
and, where appropriate, a description of, all items of Intellectual Property
owned by, or used or useful in connection with the business of the Company and
its Subsidiaries, excluding off-the-shelf software programs licensed by the
Company pursuant to shrink wrap and similar licenses; and (ii) a true, correct
and complete list of all licenses or similar agreements or arrangements to which
the Company and/or its Subsidiaries is a party, either as licensee or licensor,
with respect to the Intellectual Property. Except as set forth on Schedule 5.13,
the Company or one of the Subsidiaries is the sole and exclusive owner of all
right, title and interest in and to the Intellectual Property and all designs,
permits, labels and packages used on or in connection therewith, free and clear
of all Liens or obligations. The Company or its Subsidiaries has the right and
authority to use, and to continue to use after the Closing, the Intellectual
Property in connection with the conduct of its business in the manner presently
conducted, and such use or continuing use does not and will not conflict with,
infringe upon or violate any rights of any other Person.
(b) The Company has not received any notice of, nor has any Knowledge
of any basis for, a Legal Proceeding against the Company or its Subsidiaries
that any of the operations, activities, products, services or publications of
the Company or the Subsidiaries infringes or will infringe any patent,
trademark, trade name, copyright, trade secret or other property right of a
third party, or that it is illegally using the trade secrets, formulae or
property rights of others. There are no outstanding, nor to the Knowledge of the
Company, any threatened, disputes or other disagreements with respect to any
licenses or similar agreements or arrangements described in Schedule 5.13 or
with respect to infringement by a third party of any of the Intellectual
Property. The Company has no Knowledge that any third party is infringing, or
will threaten to infringe, upon or otherwise violate any of the Intellectual
Property in which the Company or its Subsidiaries has ownership rights.
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(c) The Intellectual Property owned or licensed by the Company or its
Subsidiaries is sufficient to conduct the Company's and its Subsidiaries'
businesses as presently conducted. The Company and its Subsidiaries have taken
all steps reasonably necessary to protect its right, title and interest in and
to the Intellectual Property and the continued use of the Intellectual Property.
(d) No officer, director, stockholder or employee of the Company, nor
any spouse, child or other relative or affiliate thereof, owns directly or
indirectly, in whole or in part, any of the Intellectual Property.
5.14 Material Contracts. (a) Schedule 5.14(a) sets forth a list of
all of the following Contracts to which the Company or any of its Subsidiaries
is a party or by which it is bound (collectively, the "Material Contracts"):
(i) the CMS Agreement;
(ii) Contracts with any current or former officer, director,
stockholder or Affiliate of the Company or any of its Subsidiaries;
(iii) all collective bargaining agreements, employment and consulting
agreements, offer letters, executive compensation plans, bonus plans, deferred
compensation agreements, pension plans, retirement plans, severance agreements
or policies, change in control agreements, employee stock option or stock
purchase plans and group life, health and accident insurance and other employee
benefit plans, agreements, arrangements or commitments to which the Company or
its Subsidiaries is a party or by which the Company or its Subsidiaries or any
of their respective property is bound;
(iv) all joint venture, partnership or other similar agreements to
which the Company or any of its Subsidiaries is a party;
(v) all leases, whether operating, capital or otherwise, under which
the Company or its Subsidiaries is lessor or lessee where annual payments under
such leases exceed $50,000 or $200,000 over the course of the lease; (vi)
Contracts containing covenants of the Company or any of its Subsidiaries not to
compete in any line of business or with any person in any geographical area or
which contain provisions restricting the geographical area in which, or the
method by which, the Medicare business may be conducted, or covenants of any
other person not to compete with the Company or any of its Subsidiaries in any
line of business or in any geographical area;
(vii) Contracts relating to the acquisition by the Company or any of
its Subsidiaries of any operating business or the capital stock of any other
Person;
(viii) Contracts relating to the incurrence, assumption or guarantee
of any Indebtedness (including any contract in which the Company or any of its
Subsidiaries is or may become obligated to make an advance or loan) or imposing
a Lien on any assets of the Company or any of its Subsidiaries;
32
(ix) Contracts under which the Company or any of its Subsidiaries has
made advances or loans to any other Person;
(x) contracts and agreements (collectively, the "Provider
Agreements") with physicians, hospitals and other providers of health care
services (for which the total amount paid during 2003 based upon information
contained in the Company's files for Form 1099 reporting to the Internal Revenue
Service exceeded $250,000 and those that would be anticipated to result in such
amounts in 2004), including any independent practice association, that have
contracted directly or indirectly with the Company or its Subsidiaries
(collectively, "Providers") to provide covered health care services to Medicare
beneficiaries (collectively, the "Members") enrolled under the CMS Agreement;
(xi) Contracts for the provision of goods or services involving
consideration in excess of $50,000 annually or $200,000 in the aggregate over
the term of the Contract;
(xii) reinsurance Contracts to which the Company or any of its
Subsidiaries is a party; and
(xiii) outstanding agreements of guaranty, surety or indemnification,
direct or indirect, by the Company or any of its Subsidiaries.
(b) Each of the Material Contracts is in full force and effect and is
the legal, valid and binding obligation of the Company and/or its Subsidiaries,
enforceable against them in accordance with its terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity). Neither the Company nor any Subsidiary is in
material default under any Material Contract, nor, to the Knowledge of the
Company, is any other party to any Material Contract in default thereunder, and
no event has occurred that with the lapse of time or the giving of notice or
both would constitute a material default thereunder. No party to any of the
Material Contracts has exercised any termination rights with respect thereto.
The Company has delivered or otherwise made available to Parent true, correct
and complete copies of all of the Material Contracts, together with all
amendments, modifications or supplements thereto. Except as set forth on
Schedule 5.14(b), each provider participation agreement (other than those
provider participation agreements set forth on Schedule 5.14(a)) of each
Subsidiary of the Company contains no material changes or deviations from the
standard form of agreement previously provided to Parent.
(c) To the Knowledge of the Company, each party to any of the
Company's or its Subsidiaries' reinsurance agreements was, at the date each
reinsurance agreement was executed and delivered, and is, currently solvent and
financially capable of fulfilling its obligations thereunder. The Company has
not received any written notice that any such reinsurer will not pay, or has a
valid defense to the payment of, any of its payments under any such reinsurance
agreement.
33
(d) The Managed Care Alliance Agreement between CIGNA HealthCare of
Texas, Inc. and Heritage Physician Networks (the "CIGNA Contract") was
terminated effective as of December 31, 2003 and the Health Services Agreement
(the "Pacificare Contract") between Heritage Physician Networks and Pacificare
dated June 1, 1999 was terminated effective as of December 31, 2001, and each
agreement is no longer in force and effect. Except as set forth on Schedule
5.14(d), from and after December 31, 2003, neither the Company nor any of its
Subsidiaries has any payment or performance obligations under the CIGNA Contract
or the Pacificare Contract.
5.15 Employee Benefits
(a) Schedule 5.15(a) sets forth a correct and complete list of all
"employee benefit plans" (as defined in Section 3(3) of ERISA), and all other
employee benefit plans, programs, agreements, policies, arrangements or payroll
practices, including bonus plans, employment, consulting or other compensation
agreements, collective bargaining agreements, incentive, equity or equity-based
compensation, or deferred compensation arrangements, change in control,
termination or severance plans or arrangements, stock purchase, severance pay,
sick leave, vacation pay, salary continuation for disability, hospitalization,
medical insurance, life insurance and scholarship plans and programs maintained
by the Company or any of its Subsidiaries or to which the Company or any of its
Subsidiaries contributed or is obligated to contribute thereunder for current or
former employees of the Company or any of its Subsidiaries (the "Employees")
(collectively, the "Company Plans"), maintained by the Company or any of its
Affiliates and any trade or business (whether or not incorporated) that is or
has ever been under common control, or that is or has ever been treated as a
single employer, with any of them under Section 414(b), (c), (m) or (o) of the
Code (each, an "ERISA Affiliate") or to which the Company or any ERISA Affiliate
contributed or has ever been obligated to contribute thereunder.
(b) None of the Company Plans is an "employee pension plan" (as
defined in Section 3(2) of ERISA, subject to Title IV of ERISA or Section 412 of
the Code (the "Title IV Plans"), and for the six years immediately preceding the
Closing Date, neither the Company nor its ERISA affiliates has maintained, been
obligated to contribute to or otherwise incurred an obligation with respect to a
Title IV Plan.
(c) None of the Company Plans is a "multiemployer plan" (as defined
in Section 3(37) of ERISA (a "Multiemployer Plan")), or is or has been subject
to Sections 4063 or 4064 of ERISA, and for the six years immediately preceding
the Closing Date, neither the Company nor any of its ERISA affiliates has
maintained, been obligated to contribute to or otherwise incurred an obligation
with respect to a Multiemployer Plan.
(d) Correct and complete copies of the following documents, with
respect to each of the Company Plans have been made available or delivered to
Parent by the Company, to the extent applicable: (i) any plans, all amendments
thereto and related trust documents, insurance contracts or other funding
arrangements, and amendments thereto; (ii) the most recent Forms 5500 and all
schedules thereto and the most recent actuarial report, if any; (iii) the most
recent IRS determination letter; and (iv) written descriptions of all
non-written agreements relating to the Company Plans. Schedule 5.15(d) sets
forth each of the participants in the Company's Retention Bonus Plan and each
34
such individual's "Participation Interest" (as such term is defined by the
Retention Bonus Plan).
(e) The Company Plans have been operated, administered and maintained
in all material respects in accordance with their terms and with all applicable
provisions of ERISA, the Code (including rules and regulations thereunder) and
other applicable Federal and state Laws and regulations, and neither the
Company, its Subsidiaries, any "party in interest" nor any "disqualified person"
with respect to the Company Plans has engaged in a non-exempt "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA. To the Knowledge of the Company, no fiduciary has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any Company Plan.
(f) The Company Plans intended to qualify under Section 401 of the
Code have been determined by the IRS to be so qualified and any related trusts
intended to be exempt from Federal income taxation under Section 501 of the Code
have been determined to be so exempt, and nothing has occurred with respect to
the operation of the Company Plans that could cause the revocation of such
determination or the imposition of any liability, penalty or tax under ERISA or
the Code.
(g) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under any of
the Company Plans to any funds or trusts established thereunder or in connection
therewith have been made by the due date thereof (including any valid
extension), and all contributions for any period ending on or before the Closing
Date that are not yet due will have been paid or sufficient accruals for such
contributions and other payments in accordance with GAAP are duly and fully
provided for on the Balance Sheet.
(h) There are no pending actions, claims or lawsuits that have been
asserted or instituted against the Company Plans, the assets of any of the
trusts under the Company Plans or the sponsor or administrator of any of the
Company Plans, or against any fiduciary of the Company Plans with respect to the
operation of any of the Company Plans (other than routine benefit claims), nor
does the Company have any Knowledge of facts that could form the basis for any
such claim or lawsuit.
(i) None of the Company Plans provides for post-employment life or
health insurance, benefits or coverage for any participant or any beneficiary of
a participant, except as may be required under the Consolidate Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), and except at the expense of
the participant or the participant's beneficiary. Each of the Company and any
ERISA Affiliate which maintains a "group health plan" within the meaning Section
5000(b)(1) of the Code has complied with the notice and continuation
requirements of Section 4980B of the Code, COBRA, Part 6 of Subtitle B of Title
I of ERISA and the regulations thereunder.
(j) Except as set forth on Schedule 5.15(j), neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (i) result in any payment becoming due to any Employee,
(ii) increase any benefits otherwise payable under any Company Plan or Title IV
35
Plan or (iii) result in the acceleration of the time of payment or vesting of
any such benefits under any Company Plan or Title IV Plan.
(k) Neither the Company nor any of its Subsidiaries has a contract,
plan or commitment, whether legally binding or not, to create any additional
Company Plan or to modify any existing Company Plan.
(l) No stock or other security issued by the Company or any of its
Subsidiaries forms or has formed a material part of the assets of any Company
Plan.
5.16 Labor.
(a) Neither the Company nor any of its Subsidiaries is a party to any
labor or collective bargaining agreement and there are no labor or collective
bargaining agreements which pertain to employees of the Company or any of its
Subsidiaries.
(b) Except as set forth on Schedule 5.16(b), no Employees are
represented by any labor organization. No labor organization or group of
employees of the Company or any of its Subsidiaries has made a pending demand
for recognition, and there are no representation proceedings or petitions
seeking a representation proceeding presently pending or, to the Knowledge of
the Company, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. To the Knowledge of the
Company, there is no organizing activity involving the Company or any of its
Subsidiaries pending or threatened by any labor organization or group of
employees of the Company or any of its Subsidiaries.
(c) There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the Knowledge of the Company, threatened against or involving the Company or any
of its Subsidiaries. To the Knowledge of the Company, there are no unfair labor
practice charges, grievances or complaints pending or threatened by or on behalf
of any employee or group of employees of the Company.
(d) There are no complaints, charges or claims against the Company or
any of its Subsidiaries pending or, to Knowledge of the Company, threatened that
could be brought or filed, with any Governmental Body or based on, arising out
of, in connection with or otherwise relating to the employment or termination of
employment or failure to employ by the Company or any of its Subsidiaries, of
any individual. Each of the Company and its Subsidiaries is in material
compliance with all Laws relating to the employment of labor, including all such
Laws relating to wages, hours, WARN and any similar state or local "mass layoff"
or "plant closing" Law, collective bargaining, discrimination, civil rights,
safety and health, workers' compensation and the collection and payment of
withholding and/or social security taxes and any similar tax except for
immaterial non-compliance. There has been no "mass layoff" or "plant closing"
(as defined by WARN) with respect to the Company or any of its Subsidiaries
within the six (6) months prior to Closing.
5.17 Litigation. Except as set forth in Schedule 5.17, there is no
Legal Proceeding pending or, to the Knowledge of the Company, threatened against
the Company or any of its Subsidiaries (or to the Knowledge of the Company,
pending or threatened, against any of the officers, directors or employees of
the Company or any of its Subsidiaries with respect to their business activities
36
on behalf of the Company), or to which the Company or any of its Subsidiaries is
otherwise a party before any Governmental Body; nor to the Knowledge of the
Company is there any reasonable basis for any such Legal Proceeding. Except as
set forth on Schedule 5.17, neither the Company nor any Subsidiary is subject to
any Order (other than Orders of general applicability to the Company's
industry). Except as set forth on Schedule 5.17, neither the Company nor any
Subsidiary is engaged in any legal action to recover monies due it or for
damages sustained by it.
5.18 Compliance with Laws; Authorizations.
(a) The Company, each Subsidiary and, to the Knowledge of the
Company, each Provider, has complied and is currently in compliance with each
Law to which such entity's business, operations, assets or properties is
subject, except for items of non-compliance which are not reasonably likely to
materially and adversely affect the business of such entity. Each of the Company
and the Subsidiaries (or, where required under applicable Law, to the Knowledge
of the Company, the Providers) owns, holds, possesses or lawfully uses in the
operation of its business all applicable Authorizations. As used herein,
"Authorizations" means all Permits, certificates of need, qualifications,
registrations, certifications, licenses, provider agreements and other
authorizations of any Governmental Body which are required under applicable Law
for a Provider to conduct its business and obtain payment for services and goods
provided by it under the Federal Medicare+Choice program and any other
governmental programs for payment of health care services or goods in which such
Provider purports to participate, other than any of the foregoing which are not
material to the business and operations of the relevant Provider, the Company or
any Subsidiary.
(b) Since January 1, 2000, the Company and each of its Subsidiaries
has filed all material reports, registrations and statements (including all
reports, registrations and statements in respect of any supervision or oversight
Order or letter), together with all material amendments required to be made with
respect thereto, heretofore required to be filed with (i) the TDI, (ii) CMS and
(iii) any other Governmental Body requiring the same. Except as set forth on
Schedule 5.18(b), neither the Company nor any of its Subsidiaries has received
from the TDI or CMS any citation, suspension, revocation, limitation, warning or
similar notice. The Company does not have health plan or other operations
outside of the State of Texas. None of the Company's Subsidiaries have any
business other than the provider sponsored organization operations and functions
related thereto. Except as set forth in Schedule 5.18(b), none of the Company,
any of its Subsidiaries or any of their respective Affiliates holds any third
party administrator license.
(c) Except as set forth in Schedule 5.18(c), all of the
Authorizations owned, held, possessed or lawfully used by the Company or its
Subsidiaries (or, where required under applicable law, to the Knowledge of the
Company, the Providers) are valid and in good standing, non-probationary,
non-provisional and in full force and effect. None of the Company, any
Subsidiary, or to the Knowledge of the Company, any Provider, is subject to any
governmental restrictions on its operations (e.g., due to prior survey
deficiencies), including any restriction on the payment of dividends, which
adversely affects the conduct of its business, other than restrictions which
apply to all providers of the services or goods furnished by such entity in the
relevant jurisdiction. Neither the Company nor any of its Subsidiaries has been
notified (orally or in writing) of any actions or proceedings to revoke,
37
withdraw, terminate or suspend any Authorization. Neither the Company nor any of
its Subsidiaries has received any notice or other communication threatening any
of the foregoing (other than notices and communications which have been
withdrawn or otherwise resolved), nor does the Company have any Knowledge of any
reason why any Authorization is likely not to be renewed by the applicable
Governmental Body in the ordinary course.
(d) All claims for payment for services rendered by the Company and
its Subsidiaries which have been made to any third-party payor (including the
Federal Medicare+Choice program and any applicable commercial insurance company,
health maintenance organization or preferred provider organization)
(collectively, "Payors"), have been prepared and filed in accordance with all
applicable Laws and requirements of the Payor, and all such claims have been
prepared in an accurate and complete manner and timely submitted to the
appropriate Payor, except in each case for items of non-compliance (i) which are
not reasonably likely to result in the loss of any Authorization and (ii) are
not reasonably likely to adversely affect the business of the Company and its
Subsidiaries. The Company and/or the Subsidiaries have paid or made provision to
pay through proper recordation any net liability for overpayments received from
any Payor and any similar obligations with respect to any Payor, in compliance
with all applicable Laws and the requirements of the Payor, except for items of
non-compliance (i) which are not reasonably likely to result in the loss of any
Authorization and (ii) are not reasonably likely to adversely affect the
business of the Company and its Subsidiaries.
5.19 Environmental Matters. The Company and its Subsidiaries have
conducted and are conducting their businesses in compliance in all material
respects with all applicable Laws currently in force relating to the protection
of the environment ("Environmental Laws") and there is no pending, or to the
Knowledge of the Company, threatened, civil or criminal litigation, written
notice of violation, or administrative proceeding relating to such Environmental
Laws involving the Company or its Subsidiaries. There is no condition existing
with respect to the release, emission, discharge or presence of hazardous
substances in connection with the businesses of the Company and its Subsidiaries
or any of the properties currently or previously owned by the Company or its
Subsidiaries which could reasonably be expected to result in a material
liability under Environmental Laws. The Company and its Subsidiaries have
received all approvals, consents, licenses, and permits with respect to
environmental matters necessary to carry on their respective businesses as
currently conducted.
5.20 Insurance. The Company and its Subsidiaries have insurance
policies in full force and effect for such amounts as are sufficient for all
requirements of Law and all agreements to which the Company or any of its
Subsidiaries is a party or by which it is bound. Set forth in Schedule 5.20 is a
list of all insurance policies and all fidelity bonds held by or applicable to
the Company or any of its Subsidiaries setting forth, in respect of each such
policy, the policy name, policy number, carrier, term, type and amount of
coverage and annual premium. Except as set forth in Schedule 5.20, to the
Knowledge of the Company, no event relating to the Company or any of its
Subsidiaries has occurred which could reasonably be expected to result in a
retroactive upward adjustment in premiums under any such insurance policies or
which could reasonably be expected to result in a prospective upward adjustment
in such premiums. Excluding insurance policies that have expired and been
replaced in the Ordinary Course of Business, no insurance policy has been
cancelled within the last two (2) years and, to the Knowledge of the Company, no
38
threat has been made to cancel any insurance policy of the Company or any of its
Subsidiaries during such period. Except as noted in Schedule 5.20, all such
insurance will remain in full force and effect immediately following the
consummation of the transactions contemplated hereby. No event has occurred,
including the failure by the Company or any of its Subsidiaries to give any
notice or information or the Company or any of its Subsidiaries giving any
inaccurate or erroneous notice or information, which limits or impairs the
rights of the Company or any of its Subsidiaries under any such insurance
policies.
5.21 Providers. The Company and each of its Subsidiaries uses
reasonable efforts to maintain good relations with all of its Providers, and the
Company uses reasonable business efforts to cause its accounts payable and other
payments owing to any Provider to be not more than the statutory requirements in
arrears. None of the Providers has disputed or asserted or, to the Knowledge of
the Company, threatened a claim against the Company or its Subsidiaries for any
payments due under any Contracts with respect to allocations of profit or bonus
payments. The Company has provided to Parent a true, correct and complete copy
of the standard weekly claims inventory report for the Company and its
Subsidiaries.
5.22 Members. Schedule 5.22 describes each written, pending and
unresolved complaint received by the Company or any of its Subsidiaries from or
relating to a Member and generally describes the nature and disposition of such
complaint.
5.23 Related Party Transactions.
(a) Except as set forth in Schedule 5.23 and other than with respect
to the Provider Agreements, no director, officer or partner or, to the actual
knowledge of the Company, stockholder or Affiliate of the Company or any of its
Subsidiaries (i) owns any direct or indirect interest of any kind in, or
controls or is a director, officer, employee or partner of, or consultant to, or
lender to or borrower from or has the right to participate in the profits of,
any Person which is (A) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company or any of its Subsidiaries, (B) engaged in a
business related to the business of the Company or any of its Subsidiaries, or
(C) a participant in any transaction to which the Company or any of its
Subsidiaries is a party or (ii) except as set forth in Schedule 5.23, is a party
to any Contract with the Company or any of its Subsidiaries.
(b) Each Contract, agreement or arrangement between the Company or
any Subsidiary, on the one hand, and any Affiliate of the Company or any of its
Subsidiaries, or any director, officer or employee of the Company or any of its
Subsidiaries, on the other hand, is on commercially reasonable terms no more
favorable to such Affiliate, director, officer or employee than what any third
party negotiating on an arms-length basis would expect.
5.24 Fraud and Abuse. Except as set forth in Schedule 5.24, neither
the Company nor any of its Subsidiaries or any Affiliate thereof or any of their
respective partners, officers and directors, or, to the Knowledge of the
Company, any Provider, has engaged in any activities which are prohibited under
the federal Medicare statute, including 42 U.S.C. Sections 1320a-7a and
1320a-7b, the federal TRICARE statute, 10 U.S.C. Section 1071 et seq., the
Federal Civil False Claims Act, 31 U.S.C. Section 3729 et seq., or the
regulations promulgated pursuant to such statutes or any similar state laws, or
regulations, including the following:
39
(a) knowingly and willfully making or causing to be made false
statement or representation of a material fact in any application for any
benefit or payment;
(b) knowingly and willfully making or causing to be made any false
statement or representation of a material fact for use in determining rights to
any benefit or payment;
(c) presenting or causing to be presented a claim for services under
Medicare, any state Medicaid program, TRICARE or any other Federal health care
program (as used herein, such term shall have the meaning specified in 42 U.S.C.
ss. 1320a-7b(f)) that is for an item or service that is known or could be known
to be (i) not provided as claimed, or (ii) false or fraudulent;
(d) failing to disclose knowledge by a claimant of the occurrence of
any event affecting the initial or continued right to any benefit or payment on
its own behalf or on behalf of another, with intent to fraudulently secure such
benefit or payment;
(e) knowingly and willfully offering, paying, soliciting or receiving
any remuneration (including any kickback, bribe or rebate), directly or
indirectly, overtly or covertly, in cash or in kind (i) in return for referring
an individual to a person for the furnishing or arranging for the furnishing of
any item or service for which payment may be made in whole or in party by
TRICARE, Medicare, or any other Federal health care program, or (ii) in return
for purchasing, leasing or ordering or arranging for or recommending purchasing,
leasing or ordering any good, Provider, service or item for which payment may be
made in whole or in part by TRICARE, Medicare or any other Federal health care
program; or
(f) knowingly and willfully making or causing to be made or inducing
or seeking to induce the making of any false statement or representation (or
omitting to state a fact required to be stated therein or necessary to make the
statements contained therein not misleading) of a material fact with respect to
(i) the conditions or operations of a Provider in order that the Provider may
qualify for certification under TRICARE, Medicare, a state Medicaid program or
another Federal health care program, or (ii) information required to be provided
under Section 1124A of the Social Security Act (42 U.S.C. ss. 1320a-3).
5.25 Health Professional's Financial Relationships; Disqualified
Individuals.
(a) The operations of the Company and its Subsidiaries are and at all
times have been in compliance with all applicable Laws regarding health
professional self-referrals, including 42 U.S.C. ss. 1395nn (commonly known as
the "Xxxxx Statute") and 42 U.S.C. ss. 1396b.
(b) Except as set forth in Schedule 5.25, none of the Company, any of
its Subsidiaries or, to the Knowledge of the Company, any Provider, nor their
respective officers, directors, trustees, partners, members, managers, employees
or contractors, has been charged with or convicted of any Medicare, Medicaid or
other Federal health care program-related offense, or has been debarred,
excluded or suspended from participation in Medicare, Medicaid or any other
Federal health care program, or is currently listed on the General Services
Administration list of parties excluded from Federal procurement programs and
non-procurement programs. Except as set forth in Schedule 5.25, to the Knowledge
40
of the Company, none of the Company, any of its Subsidiaries or any Provider,
nor their respective officers, directors, trustees, partners, members, managers,
employees or contractors, has been investigated for any Medicare or other
Federal health care program-related offense, or is currently under sanction,
exclusion or investigation (civil or criminal) by any Federal or state
enforcement, regulatory, administrative or licensing authority.
5.26 Banks. Schedule 5.26 contains a complete and correct list of the
names and locations of all banks in which Company or any Subsidiary has accounts
or safe deposit boxes and the names of all persons authorized to draw thereon or
to have access thereto. Except as set forth on Schedule 5.26, no person holds a
power of attorney to act on behalf of the Company or any Subsidiary.
5.27 State Takeover Statutes. Neither Section 203 of the DGCL nor any
other state takeover or similar statute or regulation is applicable to this
Agreement, the Merger, the other transactions contemplated by this Agreement.
5.28 Financial Advisors. Except as set forth on Schedule 5.28, no
Person has acted, directly or indirectly, as a broker, finder or financial
advisor for the Company in connection with the transactions contemplated by this
Agreement and no Person is entitled to any fee or commission or like payment in
respect thereof.
Article VI
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company on the
date hereof and as of the Closing Date, that:
6.1 Organization and Good Standing. Each of Parent and Merger Sub is
a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all requisite corporate power
and authority to own, lease and operate properties and carry on its business.
6.2 Authorization of Agreement. Each of Parent and Merger Sub has
full corporate power and authority to execute and deliver this Agreement and
each other agreement, document, instrument or certificate contemplated by this
Agreement or to be executed by Parent and/or Merger Sub in connection with the
consummation of the transactions contemplated hereby and thereby (the "Parent
Documents"), and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance by each of Parent and Merger Sub of this
Agreement and each Parent Document have been duly authorized by all necessary
corporate action on behalf of Parent and Merger Sub. This Agreement has been,
and each Parent Document will be at or prior to the Closing, duly executed and
delivered by each of Parent and Merger Sub and (assuming the due authorization,
execution and delivery by the other parties hereto and thereto) this Agreement
constitutes, and each Parent Document when so executed and delivered will
constitute, the legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable against it in accordance with its respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally, and subject, as to
41
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
6.3 Conflicts; Consents of Third Parties.
(a) Except as set forth on Schedule 6.3(a) hereto, neither of the
execution and delivery by Parent and Merger Sub of this Agreement and of the
Parent Documents, nor the compliance by Parent with any of the provisions hereof
or thereof will (i) conflict with, or result in the breach of, any provision of
the certificate of incorporation or by-laws of Parent or Merger Sub, (ii)
conflict with, violate, result in the breach of, or constitute a default under
any note, bond, mortgage, indenture, license, agreement or other obligation to
which Parent is a party or by which Parent or its properties or assets are bound
or (iii) violate any Law or Order of any Governmental Body by which Parent is
bound, except, in the case of clauses (ii) and (iii), for such violations,
breaches or defaults as would not, individually or in the aggregate, have a
material adverse effect on the ability of Parent to consummate the transactions
contemplated by this Agreement.
(b) No consent, waiver, approval, Order, Permit or authorization of,
or declaration or filing with, or notification to, any Person or Governmental
Body is required on the part of Parent and Merger Sub in connection with the
execution and delivery of this Agreement or the Parent Documents or the
compliance by Parent and Merger Sub with any of the provisions hereof or
thereof, except for compliance with the applicable requirements of the HSR Act
and a Form A filing with the TDI.
6.4 Litigation. There are no Legal Proceedings pending or, to the
Knowledge of Parent, threatened that are reasonably likely to prohibit or
restrain the ability of Parent and Merger Sub to enter into this Agreement or
consummate the transactions contemplated hereby.
6.5 Financial Advisors. Except as set forth on Schedule 6.5, no
Person has acted, directly or indirectly, as a broker, finder or financial
advisor for either Parent or Merger Sub in connection with the transactions
contemplated by this Agreement and no Person is entitled to any fee or
commission or like payment in respect thereof.
6.6 Financing. Parent has the financial resources necessary to
consummate the Merger and perform its obligations hereunder or the ability to
borrow such resources and has received reasonable assurances from its senior
lender(s) that such financing is or will be available to Parent.
Article VII
COVENANTS
7.1 Access to Information.
(a) The Company agrees that, prior to the Effective Time, Parent
shall be entitled, through its officers, employees and representatives
(including its legal advisors and accountants), to make such investigation of
the properties, businesses and operations of the Company and its Subsidiaries
42
and such examination of the books, records and financial condition of the
Company and its Subsidiaries as it reasonably requests and to make extracts and
copies of such books and records. Any such investigation and examination shall
be conducted during regular business hours and under reasonable circumstances,
and the Company shall cooperate, and shall cause the Company and its
Subsidiaries to cooperate, fully therein. No investigation by Parent prior to or
after the date of this Agreement shall diminish or obviate any of the
representations, warranties, covenants or agreements of the Company contained in
this Agreement or the Company Documents. In order that Parent may have full
opportunity to make such physical, business, accounting and legal review,
examination or investigation as it may reasonably request of the affairs of the
Company and its Subsidiaries, the Company shall cause the officers, employees,
consultants, agents, accountants, attorneys and other representatives of the
Company and its Subsidiaries to cooperate fully with such representatives in
connection with such review and examination. The Company consents to Parent
contacting such Governmental Body and accrediting body officials and such
Providers as Parent deems necessary in connection with the foregoing and to
discuss the Company's standing, performance and condition and issues related to
the consummation of the transactions contemplated by this Agreement, provided
that the Company is given an opportunity to participate in any such meeting.
(b) The Company shall authorize the release to Parent of all files
pertaining to the business or operations of the Company and its Subsidiaries
held by any Governmental Body. The authorizations of the Company shall
specifically waive all previous claims of privilege or other restrictions, and
in any case where a release by a present or former employee of the Company is
necessary, the Company shall exercise its commercially reasonable efforts to
obtain such a release.
7.2 Conduct of the Business Pending the Closing.
(a) Except as otherwise expressly provided in this Agreement or with
the prior written consent of Parent, during the period from the date of this
Agreement to the Effective Time, the Company shall, and shall cause its
Subsidiaries to:
(i) conduct the respective businesses of the Company and its
Subsidiaries only in the Ordinary Course of Business;
(ii) use its commercially reasonable efforts to (A) preserve its
present business operations, organization (including management and its Medicare
business) and goodwill of the Company and its Subsidiaries and (B) preserve its
present relationship with Persons having business dealings with the Company and
its Subsidiaries (including preserving the good will of its relationships with
Providers, Members, any Governmental Body, agents, brokers and others having
relations with it);
(iii) use its commercially reasonable efforts to maintain (A) all of
the assets and properties of the Company and its Subsidiaries in their current
condition, ordinary wear and tear excepted and (B) insurance upon all of the
properties and assets of the Company and its Subsidiaries in such amounts and of
such kinds comparable to that in effect on the date of this Agreement;
43
(iv) (A) maintain the books, accounts and records of the Company and
its Subsidiaries in the Ordinary Course of Business, (B) continue to collect
accounts receivable and pay accounts payable utilizing normal procedures and
without discounting or accelerating payment of such accounts, and (C) comply
with all contractual and other obligations applicable to the operation of the
Company and its Subsidiaries; and
(v) comply in all material respects with all applicable Laws;
(vi) not take any action which would adversely affect the ability of
the parties to consummate the transactions contemplated by this Agreement; and
(vii) use its commercially reasonable efforts to maintain, in
accordance with past practice, its network of Providers, and cause the
credentialing and re-credentialing of such providers in accordance with the
American Health Care Association, the American Accreditation Healthcare
Commission and the National Commission for Quality Assurance requirements. (b)
Except as otherwise expressly provided in this Agreement or with the prior
written consent of Parent, during the period from the date of this Agreement to
the Effective Time, the Company shall not and shall not permit its Subsidiaries
to:
(i) except as set forth on Schedule 7.2(b)(i), declare, set aside,
make or pay any dividend or other distribution (whether in cash, stock or
property) in respect of the capital stock of the Company or repurchase, redeem
or otherwise acquire any outstanding shares of the capital stock or other
securities of, or other ownership interests in, the Company or any of its
Subsidiaries;
(ii) transfer, issue, sell or dispose of any shares of capital stock
or other securities of the Company or any of its Subsidiaries or grant options,
warrants, calls or other rights to purchase or otherwise acquire shares of the
capital stock or other securities of the Company or any of its Subsidiaries;
(iii) effect any recapitalization, reclassification, stock split or
like change in the capitalization of the Company or any of its Subsidiaries;
(iv) amend the certificate of incorporation or by-laws of the Company
or any of its Subsidiaries;
(v) except as set forth on Schedule 7.2(b)(v), (A) increase the
annual level of compensation of any employee of the Company or any of its
Subsidiaries, (B) increase the annual level of compensation payable or to become
payable by the Company or any of its Subsidiaries to any of their respective
executive officers, (C) grant any unusual or extraordinary bonus, benefit or
other direct or indirect compensation to any employee, director or consultant,
(D) increase the coverage or benefits available under any (or create any new)
severance pay, termination pay, vacation pay, company awards, salary
continuation for disability, sick leave, deferred compensation, bonus or other
incentive compensation, insurance, pension or other employee benefit plan or
arrangement made to, for, or with any of the directors, officers, employees,
agents or representatives of the Company or any of its Subsidiaries or otherwise
modify or amend or terminate any such plan or arrangement or (E) enter into any
44
collective bargaining, employment, deferred compensation, severance, consulting,
non-competition or similar agreement (or amend any such agreement) to which the
Company or any of its Subsidiaries is a party or involving a director, officer
or employee of the Company or any of its Subsidiaries in his or her capacity as
a director, officer or employee of the Company or any of its Subsidiaries;
(vi) incur or assume any Indebtedness (other than Indebtedness set
forth on Schedule 7.2(b)(vi));
(vii) subject to any Lien or otherwise encumber or, except for
Permitted Exceptions, permit, allow or suffer to be encumbered, any of the
properties or assets (whether tangible or intangible) or any shares of capital
stock of the Company or any of its Subsidiaries;
(viii) acquire any material properties or assets or sell, assign,
license, transfer, convey, lease or otherwise dispose of any of the material
properties or assets of the Company and its Subsidiaries;
(ix) except as set forth on Schedule 7.2(b)(ix), enter into or agree
to enter into any merger or consolidation with, any corporation or other entity,
and not engage in any new business or invest in, make a loan, advance or capital
contribution to, or otherwise acquire the securities of any other Person;
(x) cancel or compromise any material debt or claim or waive or
release any material right of the Company or any of its Subsidiaries except in
the Ordinary Course of Business;
(xi) enter into any commitment for capital expenditures of the
Company and its Subsidiaries in excess of $50,000 for any individual commitment
and $200,000 for all commitments in the aggregate;
(xii) enter into, modify or terminate any labor or collective
bargaining agreement of the Company or any of its Subsidiaries or, through
negotiation or otherwise, make any commitment or incur any liability to any
labor organization with respect to the Company or any of its Subsidiaries;
(xiii) introduce any material change with respect to the operation of
the Company or any of its Subsidiaries, including any material change in the
customary terms and conditions upon which it does business with respect to the
Company's and its Subsidiaries' Medicare business, including modifications to
its provider compensation or accounting methodologies, principles or practices
(including the manner of setting incurred but not reported ("IBNR") reserves);
(xiv) except as set forth on Schedule 7.2(b)(xiv), permit the Company
or any of its Subsidiaries to enter into any transaction or to enter into,
modify or renew any Contract which by reason of its size, nature or otherwise is
not in the Ordinary Course of Business;
(xv) except for transfers of cash pursuant to normal cash management
practices in the Ordinary Course of Business, permit the Company or any of its
Subsidiaries to make any investments in or loans to, or pay any fees or expenses
45
to, or enter into or modify any Contract with any Affiliate of the Company or
any of its Subsidiaries, or any director, officer or employee of the Company or
any of its Subsidiaries;
(xvi) make or change any material election concerning Taxes or Tax
Returns, change an annual accounting period, adopt or change any accounting
method, file any amended Tax Return, enter into any closing agreement with
respect to Taxes, settle any Tax claim or assessment or surrender any right to
claim a refund of Taxes or obtain or enter into any Tax ruling, in each case, if
taking such action would materially affect the amount of Taxes required to be
paid by the Company or any of its Subsidiaries after the Effective Time;
(xvii) enter into any Contract, understanding or commitment that
restrains, restricts, limits or impedes the ability of the Company or any
Subsidiary to compete with or conduct any business or line of business in any
geographic area or enter into, modify, amend or terminate (A) any Contract which
if so entered into, modified, amended or terminated could be reasonably be
expected to (I) have a Material Adverse Effect, (II) impair in any material
respect the ability of the Company to perform its obligations under this
Agreement or (III) prevent or materially delay the consummation of any of the
transactions contemplated by this Agreement;
(xviii) fail to pay any medical claim liability or indebtedness
relating to the Medicare business of the Company and its Subsidiaries when due
or improperly record such claim liabilities in the accounts of the Company or
its Subsidiaries, except for any such failure attributable to a claim contested
by the Company in good faith in the Ordinary Course of Business;
(xix) terminate, amend, restate, supplement or waive any rights under
any Material Contract, Permit or Authorization;
(xx) amend or modify the terms upon which any of the Providers are
compensated or reimbursed; and
(xxi) agree to do anything prohibited by this Section 7.2 or anything
which would make any of the representations and warranties of the Company in
this Agreement or the Company Documents untrue or incorrect in any material
respect.
7.3 Advice of Changes. The Company and Parent shall promptly advise
the other party orally and in writing of (i) any representation or warranty made
by it (and, in the case of Parent, made by Merger Sub) contained in this
Agreement becoming untrue or inaccurate in any material respect or any such
representation or warranty or (ii) the failure of it (and, in the case of
Parent, of Merger Sub) to comply with or satisfy in any material respect any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement.
7.4 Commercially Reasonable Efforts; Regulatory Approvals.
46
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement.
(b) Parent shall and the Company shall (i) make all filings required
of each of them or any of their respective subsidiaries or Affiliates under the
HSR Act or other Antitrust Laws with respect to the transactions contemplated
hereby as promptly as reasonably practicable after the date of this Agreement in
the case of all filings required under the HSR Act and within twenty (20) days
in the case of all other filings required by other Antitrust Laws, (ii) comply
at the earliest practicable date with any request under the HSR Act or other
Antitrust Laws for additional information, documents, or other materials
received by each of them or any of their respective Subsidiaries from the FTC,
the Antitrust Division or any other Governmental Body in respect of such filings
or such transactions, and (iii) cooperate with each other in connection with any
such filing (including, to the extent permitted by applicable law, providing
copies of all such documents to the non-filing parties prior to filing and
considering all reasonable additions, deletions or changes suggested in
connection therewith) and in connection with resolving any investigation or
other inquiry of any of the FTC, the Antitrust Division or other Governmental
Body under any Antitrust Laws with respect to any such filing or any such
transaction.
(c) Each of Parent and the Company shall use commercially reasonable
efforts to resolve such objections, if any, as may be asserted by any
Governmental Body with respect to the transactions contemplated by this
Agreement under the HSR Act, the Xxxxxxx Act, as amended, the Xxxxxxx Act, as
amended, the Federal Trade Commission Act, as amended, and any other United
States federal or state or foreign statutes, rules, regulations, orders,
decrees, administrative or judicial doctrines or other laws that are designed to
prohibit, restrict or regulate actions having the purpose or effect of
monopolization or restraint of trade (collectively, the "Antitrust Laws"). In
connection therewith, if any Legal Proceeding is instituted (or threatened to be
instituted) challenging any transaction contemplated by this Agreement as in
violation of any Antitrust Law, the Company shall use its commercially
reasonable efforts, and Parent shall cooperate with the Company, to contest and
resist any such Legal Proceeding, and to have vacated, lifted, reversed, or
overturned any decree, judgment, injunction or other order whether temporary,
preliminary or permanent, that is in effect and that prohibits, prevents, or
restricts consummation of the transactions contemplated by this Agreement,
including by pursuing all available avenues of administrative and judicial
appeal and all available legislative action, unless, by mutual agreement, Parent
and the Company decide that litigation is not in their respective best
interests. Each of Parent and the Company shall use commercially reasonable
efforts to take such action as may be required to cause the expiration of the
notice periods under the HSR Act or other Antitrust Laws with respect to such
transactions as promptly as possible after the execution of this Agreement.
(d) As soon as practicable, but in any event not later than twenty
(20) days after the date hereof, each party hereto shall file all applications
and other documents, and shall use its commercially reasonable efforts to obtain
all consents and approvals, as are required to be filed or obtained by it under
47
applicable laws of the State of Texas, and all other Governmental Body approvals
required for consummation of the transactions contemplated by this Agreement, in
each case as promptly as is practicable. Notwithstanding the foregoing, in
connection with obtaining any consent or approval contemplated by this
Agreement, neither the Company nor any of its Subsidiaries shall, without the
prior written consent of Parent, take or consent to any action, term or
condition that imposes any adverse condition or requirement on the conduct of
business by Parent, its subsidiaries, the Company or any of its Subsidiaries,
requires any capital contribution or infusion to the Company or its
Subsidiaries, imposes any restriction on the ability of the Company, any of its
Subsidiaries, Parent or any of its subsidiaries to pay dividends or their
respective flow of funds, or limits Parent's or its subsidiaries' freedom of
action with respect to any material portion of the assets of Parent, its
subsidiaries, the Company or its Subsidiaries. Without limiting the generality
of the foregoing, as promptly as practical and, in any event within twenty (20)
calendar days after the date hereof, Parent shall make a Form A filing, which
shall include all required exhibits thereto, with the TDI with respect to the
transactions contemplated hereby. The Company agrees to furnish Parent with such
necessary information and reasonable assistance as Parent may reasonably request
in connection with its preparation of such Form A filing. Parent shall keep the
Company fully apprised of its actions with respect to all such filings and
submissions and shall provide the Company with a copy of such Form A filing
(except to the extent that such information would be, or relates to information
that would be, filed under a claim of confidentiality).
(e) Each such party shall use commercially reasonable efforts to
furnish to each other all information required for any application or other
filing to be made pursuant to any applicable Law in connection with the
transactions contemplated by this Agreement. Each such party shall promptly
inform the other parties hereto of any oral communication with, and provide
copies of written communications with, any Governmental Body regarding any such
filings or any such transaction. No party hereto shall independently participate
in any formal meeting with any Governmental Body in respect of any such filings,
investigation, or other inquiry without giving the other parties hereto prior
notice of the meeting and, to the extent permitted by such Governmental Body,
the opportunity to attend and/or participate. Subject to applicable Law, the
parties hereto will consult and cooperate with one another in connection with
any analyses, appearances, presentations, memoranda, briefs, arguments, opinions
and proposals made or submitted by or on behalf of any party hereto relating to
proceedings under the HSR Act or other Antitrust Laws or any other applicable
Law. The Company and Parent may, as each deems advisable and necessary,
reasonably designate any competitively sensitive material provided to the other
under this Section 7.4 as "outside counsel only." Such materials and the
information contained therein shall be given only to the outside legal counsel
of the recipient and will not be disclosed by such outside counsel to employees,
officers, or directors of the recipient, unless express written permission is
obtained in advance from the source of the materials (the Company or Parent, as
the case may be).
(f) In connection with and without limiting the first sentence of
this Section 7.4, each of the Company and its Board of Directors and Parent and
its Board of Directors shall (i) take all action necessary to ensure that no
state takeover statute or similar statute or regulation is or becomes applicable
to this Agreement, the Merger or any of the other transactions contemplated by
this Agreement and (ii) if any state takeover statute or similar statute becomes
applicable to this Agreement, the Merger or any of the other transactions
48
contemplated by this Agreement, take all action necessary to ensure that the
Merger and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
this Agreement, the Merger and the other transactions contemplated by this
Agreement.
7.5 Stockholder Notice. As promptly as practicable after the date of
this Agreement, the Company shall prepare and distribute to the Company
Stockholders the notices required by Section 228(e) and 262(d)(2) of the DGCL
and an information statement, informing them that this Agreement and the Merger
were adopted and approved by the Principal Stockholders, describing in
reasonable detail the Merger and the Consents and informing them that appraisal
rights are available for their Company Securities pursuant to Section 262 of the
DGCL and otherwise to comply with all legal requirements under the DGCL in
respect of the Merger. Parent will have the right to review and comment on all
such notices and statements prior to their distribution. Such materials shall
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not misleading.
In addition, the Company agrees to immediately notify Parent in
writing upon its receipt of any notices or other communications with respect to
Dissenting Shares.
7.6 Stockholder Litigation. The Company shall give Parent the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and/or its directors relating to the transactions
contemplated by this Agreement, and no such settlement shall be agreed to
without Parent's prior consent.
7.7 Indemnification. (a) All rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time now existing in favor of the current or former directors or
officers of the Company as provided in the Company's certificate of
incorporation, the Company's bylaws or any written indemnification agreement
between such directors or officers and the Company (in each case, as in effect
on the date hereof) shall be assumed by the Surviving Corporation (and its
successors and assigns) in the Merger, without further action, as of the
Effective Time and shall survive the Merger and shall, following the Closing,
continue in full force and effect in accordance with their terms and shall not
be amended, repealed or otherwise modified for a period of six (6) years from
the Effective Time in any manner that would adversely affect the rights
thereunder of indemnified parties, unless such modification is required by Law.
(b) Prior to the Effective Time, the Surviving Corporation shall
purchase a directors' and officers' insurance policy with respect to matters
arising before and acts or omissions occurring or existing at or prior to the
Effective Time including the transactions contemplated by this Agreement (the
"D&O Insurance"). The D&O Insurance will have a term of not less than three (3)
years and shall provide at least the same coverage and amounts containing terms
and conditions which in the aggregate are not materially less advantageous to
directors and officers of the Company and its Subsidiaries as the directors' and
officers' insurance policies in effect as of the date hereof The premium for the
D&O Insurance shall be paid 50% by Parent and 50% will be treated as a
49
Transaction Expense. Prior to the Effective Time, the Company and Parent shall
use commercially reasonable efforts to obtain the D&O Insurance.
7.8 No Shop. During the period between the date of this Agreement and
the Closing Date, unless the Agreement is otherwise terminated pursuant to
Section 4.1 above, neither the Company or its Subsidiaries nor their respective
officers, directors, employees, investment bankers, attorneys or other advisors
or representatives shall, directly or indirectly, (i) solicit, initiate,
encourage or accept the submission of any proposal or offer from any Person or
party relating to (X) the acquisition of the Company or any of its Subsidiaries
or a material portion of the assets of the Company or its Subsidiaries or (Y)
any recapitalization, refinancing merger, consolidation, business combination or
similar transaction involving the Company or its Subsidiaries or (ii)
participate in any discussions or negotiations regarding, furnish any
information with respect to, assist or participate in, or facilitate in any
other manner any effort or attempt by any Person or party to do or seek any of
the foregoing. During such period, unless this Agreement is otherwise
terminated, the Company will notify Parent immediately if any Person or party
makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing. The Company agrees to immediately terminate, and to cause its
respective advisors and representatives to terminate, all discussions and
negotiations with any Person other than Parent or its Affiliates that relate to,
or may reasonably be expected to lead to any such offer or proposal.
7.9 Confidentiality. Except for disclosures expressly permitted by
the terms of the Confidentiality Agreement, dated May 29, 2003, between Parent
and the Company (as it may be amended from time to time, the "Confidentiality
Agreement"), Parent shall hold, and shall cause its officers, employees,
accountants, counsel, financial advisors and other Representatives to hold, all
information received from the Company, directly or indirectly, in confidence in
accordance with the Confidentiality Agreement.
7.10 Publicity.
(a) None of the Company or Parent shall issue any press release or
public announcement concerning this Agreement or the transactions contemplated
hereby without obtaining the prior written approval of the other party hereto or
in the event such press release or public announcement identifies any Company
Stockholder the prior written approval of such Company Stockholder, which, in
each case, approval will not be unreasonably withheld or delayed, unless, in the
sole judgment of Parent, disclosure is otherwise required by applicable Law or
by the applicable rules of any stock exchange on which Parent lists securities,
provided that, to the extent required by applicable Law, the party intending to
make such release shall use its reasonable best efforts consistent with such
applicable Law to consult with the other party with respect to the text thereof.
(b) Each of Parent and the Company agrees that the terms of this
Agreement shall not be disclosed or otherwise made available to the public and
that copies of this Agreement shall not be publicly filed or otherwise made
available to the public, except where such disclosure, availability or filing is
required by applicable Law or by the applicable rules of any stock exchange on
which Parent lists its securities.
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7.11 Additional Financial Information.
(a) Upon completion of the Audited Year-End Statements, Parent and
its advisors shall have the right to (subject to entering into an access
agreement containing customary terms and conditions) (i) review the work papers
of the Company's auditors relating to the business of the Company and its
Subsidiaries, and (ii) meet and to confer with such auditors regarding the
Audited Year-End Statements.
(b) The Company shall use its commercially reasonable efforts to
deliver to Parent, as promptly as is reasonably practicable, but no later than
May 15, 2004, a copy of the Company's and its Subsidiaries' audited consolidated
balance sheet as of December 31, 2003 and the related audited consolidated
statements of income and of cash flows for the twelve (12) month period ended
December 31, 2003, all prepared in accordance with GAAP, together with an
unqualified audit letter of Ernst & Young (the "Audited Year-End Statements").
7.12 Transaction Expenses. The Company shall use its commercially
reasonable efforts to deliver to Parent, no later than three (3) Business Days
prior to the Closing Date, pay-off letters in respect of the Transaction
Expenses from any and all third-party service providers to whom payments are
required to be made by the Company or its Subsidiaries in connection with the
transactions contemplated by this Agreement. The pay-off letters shall provide
that the amounts set forth therein represent payment in full for all fees and
expenses payable by the Company or its Subsidiaries in connection with the
transactions contemplated by this Agreement.
7.13 Assistance with Financing. The Company shall, to the extent
requested by Parent, allow reasonable access to the Company's books and records
and employees to assist Parent in obtaining the financing necessary to
consummate this transaction.
Article VIII
CONDITIONS TO CLOSING
8.1 Conditions Precedent to Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the transactions contemplated
by this Agreement are subject to the satisfaction, on or prior to the Closing
Date, of each of the following conditions (any or all of which may be waived by
Parent and Merger Sub in whole or in part to the extent permitted by applicable
Law):
(a) the representations and warranties of the Company qualified as to
materiality shall be true and correct and those not so qualified shall be true
and correct in all material respects, as of the date of this Agreement and as of
the Closing as though made at and as of the Closing, except to the extent such
representations and warranties expressly relate to an earlier date (in which
case such representations and warranties qualified as to materiality shall be
true and correct, and those not so qualified shall be true and correct in all
material respects, on and as of such earlier date); provided, however, that for
purposes of this Section 8.1(a), materiality shall be determined by its
relationship to the Company and its Subsidiaries, taken as a whole;
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(b) the Company shall have performed and complied in all material
respects with all obligations and agreements required in this Agreement to be
performed or complied with by it prior to the Closing Date, and Parent shall
have received copies of such corporate resolutions and other documents
evidencing the performance thereof as Parent may reasonably request;
(c) there shall not have been any Material Adverse Effect since the
Balance Sheet Date;
(d) (i) no Legal Proceedings by TDI, CMS or any other Governmental
Body shall have been instituted or threatened or claim or demand made by TDI,
CMS or any other Governmental Body against the Company, any of its Subsidiaries,
Parent or any of its subsidiaries seeking to (A) restrain or prohibit with
respect to the consummation of the transactions contemplated hereby, (B) impose
any adverse condition or requirement on the conduct of business by Parent, its
subsidiaries, the Company or any of its Subsidiaries, (C) require any capital
contribution or infusion to the Company or its Subsidiaries, (D) impose any
restrictions on the ability of Parent, its subsidiaries, the Company or any of
its Subsidiaries to pay dividends, or (E) limit Parent's or any of its
subsidiaries' freedom of action with respect to any material portion of the
assets of Parent, its subsidiaries, the Company or its Subsidiaries, and (ii)
there shall not be in effect any Order by a Governmental Body of competent
jurisdiction restraining, enjoining or otherwise prohibiting the consummation of
the transactions contemplated hereby;
(e) Parent shall have received a certificate signed by each of the
Chief Executive Officer and Chief Financial Officer of the Company, each in form
and substance reasonably satisfactory to Parent, dated the Closing Date, to the
effect that each of the conditions specified above in Sections 8.1(a)-(c) have
been satisfied in all respects;
(f) (1) the waiting period under the HSR Act shall have expired or
early termination shall have been granted, (2) the TDI shall have granted all
required approvals, including its approval of the Form A filed by Parent, and
(3) the Company shall have obtained all consents, waivers and approvals referred
to in Section 5.3(b), each such consent, waiver and approval referred to in
clauses (1)-(3) being in each case in form and substance reasonably satisfactory
to Parent (including with respect to the continuance of the operations of the
Company and its Subsidiaries in the same manner following the Closing, including
with respect to the flow of funds in the operation of the business of the
Company and its Subsidiaries) and not requiring as a term thereof or condition
thereto any adverse condition or requirement on the conduct of business by the
Company, any of its Subsidiaries, Parent or any of its subsidiaries (including
any restriction on the payment of dividends or other flow of funds), any capital
contribution or infusion to the Company or any of its Subsidiaries, or any limit
on Parent's or any of its subsidiaries' freedom of action with respect to any
material portion of the assets of Parent, its subsidiaries or the Company and
its Subsidiaries;
(g) shares held by Dissenting Holders shall aggregate no more than 5%
of the then outstanding shares of Company Securities;
52
(h) Parent shall have received written resignations of each of the
directors of the Company;
(i) each of the Principal Stockholders and each holder of Series B
Preferred Stock and Series C Preferred Stock shall have duly entered into,
executed and delivered to Parent the release agreement, substantially in the
form attached hereto as Exhibit D.
(j) any Tax Sharing Agreements (written or unwritten) shall terminate
as of the Effective Time and thereafter no payments shall be made by the Company
or any of its Subsidiaries in respect of any such Tax Sharing Agreement.
(k) each of the employment agreements referenced on Schedule 8.1(k)
shall be in full force and effect and all of the employees parties thereto shall
be willing and able to perform in accordance with such employment agreements;
(l) Parent shall have received proof or assurances acceptable to
Parent in its sole discretion that all supervisory Orders or other special
oversight actions imposed by, or agreed upon with, the TDI on SelectCare have
been fulfilled, removed and rescinded and SelectCare is free to take all
necessary actions, financial or otherwise, without prior approval from or
special supervision by the TDI;
(m) Parent, the Escrow Agent and the Stockholder Representative shall
have duly entered into, executed and delivered to the other party thereto the
Escrow Agreement, substantially in the form of Exhibit B (with such changes as
may be required by the Escrow Agent);
(n) the Company shall have delivered the Audited Year-End Statements
to Parent and the related audit letter of Ernst & Young which shall contain no
qualifications, and such financial statements shall conform in all material
respects to, and shall reflect, in the aggregate, no material adverse
adjustments from, the Financial Statements referenced in Section 5.7(b)(i) and
included in Schedule 5.7(b); provided, however, aggregate adjustments (other
than any adjustments to IBNR) that reduce net income for the year ended December
31, 2003, by an amount less than $750,000 shall be deemed immaterial, and
adjustments of $750,000 or more shall be deemed to be material, for the purposes
of this condition.
(o) the Company Plans shall have been duly terminated by the Company
and each holder of a Company Stock Option to purchase shares of capital stock of
the Company shall have either exercised such option and purchased such shares of
capital stock or delivered to the Company an instrument canceling such option in
form and substance reasonably satisfactory to Parent or such option shall have
expired prior to the Closing under its terms or the terms of the plan pursuant
to which it was granted. Each outstanding warrant issued by the Company shall
have been exercised or the holder thereof shall have delivered to the Company an
instrument canceling such warrant in form and substance satisfactory to Parent
or such warrant shall have expired by its own terms;
(p) each of the agreements set forth on Schedule 8.1(p) shall have
been terminated and the Company shall have been released from all liabilities
and obligations thereunder, in each case, effective as of the Closing Date;
53
(q) each of the Persons set forth on Schedule 8.1(q) shall have duly
executed and delivered to Parent a non-solicitation and confidentiality
agreement substantially in the form attached hereto as Exhibit E;
(r) the capital and surplus for SelectCare shall not be less than
150% of the authorized control level as defined in NAIC Risk Based Capital
Guidelines;
(s) the Company shall have delivered, or caused to be delivered, to
Parent certificates of good standing as of a recent date with respect to the
Company issued by the Secretary of State of the State of Delaware and for each
state in which the Company is qualified to do business as a foreign corporation;
and
(t) the Company shall have delivered, or caused to be delivered, to
Parent such other documents as Parent shall reasonably request.
8.2 Conditions Precedent to Obligations of the Company. The
obligations of the Company to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, prior to or on the Closing Date, of
each of the following conditions (any or all of which may be waived by the
Company in whole or in part to the extent permitted by applicable Law):
(a) the representations and warranties of Parent set forth in this
Agreement qualified as to materially shall be true and correct, and those not so
qualified shall be true and correct in all material respects, as of the date of
this Agreement and as of the Closing as though made at and as of the Closing,
except to the extent such representations and warranties expressly relate to an
earlier date (in which case such representations and warranties qualified as to
materially shall be true and correct, and those not so qualified shall be true
and correct in all material respects, on and as of such earlier date);
(b) Parent shall have performed and complied in all respects with all
obligations and agreements required by this Agreement to be performed or
complied with by Parent on or prior to the Closing Date;
(c) the waiting period under the HSR Act shall have expired or early
termination shall have been granted and any and all consents, waivers and
approvals shall have obtained from the TDI; and
(d) the Surviving Corporation shall have obtained the D&O Insurance
in accordance with Section 7.7(b).
Article IX
INDEMNIFICATION
9.1 Survival of Representations and Warranties. (a) The
representations and warranties of the Company contained in this Agreement shall
survive the Closing until April 30, 2005 (the "Expiration Date"). Any claim for
a Loss asserted on or prior to the Expiration Date which sets forth in a written
notice in reasonable detail (based on the facts then available) the nature and
54
estimated scope of such claim will be timely made for purposes hereof. Any claim
for indemnification with respect to any of such matters that is not asserted by
notice to the other party on or prior to the Expiration Date may not be pursued
and is hereby irrevocably waived after such time. For the purposes of this
Agreement, "Losses" shall mean any and all damages, losses, liabilities, Taxes
and Tax Losses (including any Taxes incurred or resulting from receipt of a
payment in respect of an indemnifiable Loss, or the circumstances giving rise to
such payment) obligations, costs and expenses, and any and all claims, demands
or suits (by any Person, including without limitation any Governmental Body),
including the costs and expenses of any and all actions, suits, proceedings,
demands, assessments, judgments, settlements and compromises relating thereto
and including reasonable attorneys' and other advisors' fees, costs and expenses
in connection therewith. In addition, the amount to be paid the Indemnified
Party shall be reduced to take into account any net Tax benefit actually
realized by the Indemnified Party arising from the event giving rise to the
indemnity payment.
(b) All covenants and agreements made by the parties to this
Agreement which contemplate performance following the Closing Date shall survive
the Closing Date in accordance with their terms. All covenants and agreements
that contemplate performance prior to the Closing Date shall not survive the
Closing Date; provided, however, that if any such covenant or agreement is
breached on or prior to the Closing Date, the non-breaching party shall retain
all rights and remedies with respect to such breach following the Closing Date.
9.2 Indemnification. Until the Expiration Date (except as provided in
Section 9.3(b)) and subject to the provisions of this Article IX, the Escrow
Fund shall be available to indemnify, defend and hold harmless Parent, the
Surviving Corporation, and their respective subsidiaries, directors, officers,
employees, consultants, independent contractors, agents and representatives (the
"Parent Indemnified Parties") from and against any and all Losses (irrespective
of whether or not such Losses arise out of or in connection with a third party
claim) to the extent, but only to the extent, relating to, resulting from or
arising out of:
(a) any failure of the representations and warranties made by the
Company or the Stockholder Representative set forth in this Agreement or in any
Company Document or Stockholder Representative Document to be true and correct;
(b) any breach of any covenant or other agreement on the part of the
Company or the Stockholder Representative under this Agreement or any Company
Document or Stockholder Representative Document;
(c) any Tax Losses;
(d) any claims pursuant to the termination of the PacifiCare Contract
or the CIGNA Contract;
(e) any claim made by a Dissenting Holder pursuant to Section 3.2(h),
including any amounts in excess of the consideration receivable by such holder
in the Merger ("Dissenting Share Payments"); or
(f) any Transaction Expenses that have not been deducted from the
Initial Cash Consideration pursuant to Section 3.1(c)(i);
55
such foregoing Losses being referred to herein as "Parent Indemnifiable Losses;"
provided, however, that, (x) the Parent Indemnified Parties may not recover any
amount for Parent Indemnifiable Losses arising from the inaccuracies of, or
breaches of, the representations or warranties contained herein or any claims
pursuant to the termination of the Pacificare Contract unless and until the
aggregate amount of all Parent Indemnifiable Losses exceeds $900,000 (the
"Deductible"), and only with respect to such amounts in excess of the
Deductible, provided that the Deductible shall not apply to breaches of any
representations or warranties contained in Sections 5.1, 5.2, 5.4, 5.6, 5.10 or
5.28, and (y) the aggregate amount of Parent Indemnifiable Losses for which the
Parent Indemnified Parties shall be entitled to indemnification shall be limited
to an amount equal to the Escrow Fund. For purposes of calculating Losses
hereunder, any materiality or Material Adverse Effect qualifications in the
representations, warranties, covenants and agreements shall be ignored.
9.3 Escrow Arrangements.
(a) Escrow Fund. The Escrow Fund shall be available to compensate the
Parent Indemnified Parties for any claims by such parties for any Losses
incurred or sustained by them and for which they are entitled to recovery under
this Article IX. The Escrow Fund will be increased by the amount of any income
and gains of the Escrow Fund.
(b) Escrow Period; Distribution upon Termination of Escrow Period.
Subject to the following requirements, the Escrow Fund shall be in existence as
of the Closing and shall terminate at 5:00 p.m., local time, on the Expiration
Date (the "Escrow Period"); provided, however, that the Escrow Period shall not
terminate with respect to any amount which, in the reasonable judgment of Parent
is necessary to satisfy any unsatisfied claims specified in any Officer's
Certificate delivered to the Escrow Agent prior to the Expiration Date with
respect to facts and circumstances existing prior to the Expiration Date (each,
an "Unresolved Claim"). As soon as all such claims have been resolved the Escrow
Agent shall deliver to the Paying Agent, on behalf of the applicable Company
Stockholders and holders of Company Stock Options, the remaining portion of the
Escrow Fund, if any, not required to satisfy such Unresolved Claims. For the
purposes hereof, "Officer's Certificate" shall mean a certificate signed by any
officer of Parent and delivered to the Escrow Agent and the Stockholder
Representative: (1) stating that Parent has paid, incurred, sustained or
accrued, or reasonably anticipates that it will have to pay, incur, sustain or
accrue Losses, (2) specifying in reasonable detail the individual items of
Losses included in the amount so stated, the date each such item was paid,
incurred, sustained or accrued, or the basis for such anticipated liability, and
the nature of the misrepresentation, breach of warranty or covenant to which
such item is related, and (3) the amount of cash to be delivered to Parent in
compensation for such Losses.
(c) Claims for Indemnification.
(i) Upon receipt by the Escrow Agent at any time on or before the
Expiration Date of an Officer's Certificate, the Escrow Agent shall, subject to
the provisions of Section 9.3(d), deliver to Parent, as promptly as practicable,
an amount of cash from the Escrow Fund equal to the amount of Losses set forth
in such Officer's Certificate; provided, however, that to the extent an
Officer's Certificate alleges only the basis for anticipated Losses, no amount
shall be distributed until such Losses are actually paid, incurred or sustained.
56
(ii) If the Stockholder Representative does not object in writing
within the 30-day period set forth in Section 9.3(d) after delivery by Parent of
the Officer's Certificate to the Stockholder Representative, such failure to so
object shall constitute an irrevocable acknowledgment by the Stockholder
Representative on behalf of the Company Stockholders that the Indemnified Party
is entitled to the full amount of the claim for Losses set forth in such
Officer's Certificate.
(d) Objections to Claims against the Escrow Fund. At the time of
delivery of any Officer's Certificate to the Escrow Agent, a duplicate copy of
such certificate shall be delivered to the Stockholder Representative, and for a
period of thirty (30) days after such delivery, the Escrow Agent shall make no
delivery to Parent of any portion of the Escrow Fund pursuant to Section 9.3(c)
unless the Escrow Agent shall have received written authorization from the
Stockholder Representative to make such delivery. After the expiration of such
thirty (30)-day period, the Escrow Agent shall make payment pursuant to Section
9.3(c)(i), provided that no such payment may be made if the Stockholder
Representative shall object in a written statement to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30)-day period.
(e) Resolution of Conflicts; Arbitration.
(i) If the Stockholder Representative shall object in writing to any
claim or claims made in any Officer's Certificate to recover Losses from the
Escrow Fund within thirty (30) days after delivery of such Officer's
Certificate, the Stockholder Representative and Parent shall attempt in good
faith to agree upon the rights of the respective parties with respect to each of
such claims. If the Stockholder Representative and Parent should so agree, a
memorandum setting forth such agreement shall be prepared and signed by both
parties and, in the case of a claim against the Escrow Fund, shall be furnished
to the Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and make distributions from the Escrow Fund in accordance with the
terms thereof.
(ii) If no such agreement can be reached after good faith negotiation
and prior to sixty (60) days after delivery of an Officer's Certificate, either
Parent or the Stockholder Representative may demand arbitration of the matter
unless the amount of the Loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration, and in either such event the
matter shall be settled by arbitration conducted by one arbitrator mutually
agreeable to Parent and the Stockholder Representative. In the event that,
within thirty (30) days after submission of any dispute to arbitration, Parent
and the Stockholder Representative cannot mutually agree on one arbitrator,
then, within fifteen (15) days after the end of such thirty (30)-day period,
Parent and the Stockholder Representative shall each select one arbitrator. The
two arbitrators so selected shall select a third arbitrator. If one party but
not the other fails to select an arbitrator during this fifteen (15)-day period,
then the parties agree that the arbitration will be conducted by the one
arbitrator selected by the party which has made such a selection.
(iii) Any such arbitration shall be held in Atlanta, Georgia, under
the rules and procedures then in effect of the American Arbitration Association.
The arbitrator(s) shall determine how all expenses relating to the arbitration
shall be paid, including the respective expenses of each party, the fees of each
57
arbitrator and the administrative fee of the American Arbitration Association.
The arbitrator or arbitrators, as the case may be, shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator or majority of the three arbitrators, as the case may
be, to discover relevant information from the opposing parties about the subject
matter of the dispute. The arbitrator, or a majority of the three arbitrators,
as the case may be, shall rule upon motions to compel or limit discovery and
shall have the authority to impose sanctions, including attorneys' fees and
costs, to the same extent as a competent court of law or equity, should the
arbitrators or a majority of the three arbitrators, as the case may be,
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator or a majority of the three arbitrators, as the case
may be, as to the validity and amount of any claim in such Officer's Certificate
shall be final, binding, and conclusive upon the parties to this Agreement. Such
decision shall be written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree or order awarded
by the arbitrator(s), and the Escrow Agent shall be entitled to rely on, and
make distributions from the Escrow Fund in accordance with, the terms of such
award, judgment, decree or order as applicable. Within ten (10) days of a
decision of the arbitrator(s) requiring payment by one party to another, such
party shall make the payment to such other party.
(iv) Judgment upon any award rendered by the arbitrator(s) may be
entered in any court having jurisdiction. The foregoing arbitration provision
shall apply to any dispute between the Stockholder Representative and the Parent
Indemnified Party under this Article IX, whether relating to claims upon the
Escrow Fund or to the other indemnification obligations set forth in this
Article IX.
(f) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent reasonably believes may result in a demand
against the Escrow Fund or for other indemnification pursuant to this Article
IX, Parent shall notify the Stockholder Representative in writing of such claim,
and the Stockholder Representative shall be entitled on behalf of the Company
Stockholders and holders of Company Stock Options, at its expense, to
participate in, but not to determine or conduct, the defense of such claim. If
there is a third party claim against a Parent Indemnified Party that, if
adversely determined would give rise to a right of recovery for Losses
hereunder, then any costs or expenses reasonably paid, incurred, sustained or
accrued in defense of such third-party claim, regardless of the outcome of such
claim, shall be deemed Losses hereunder. Parent shall have the right in its sole
discretion to conduct the defense of, and to settle, any such claim; provided,
however, that (i) Parent shall first consult with the Stockholder Representative
regarding such settlement and (ii) except with the consent in writing of the
Stockholder Representative, no settlement of any such claim with third-party
claimants shall be determinative of whether Parent or any other party is
entitled to indemnification pursuant to this Article IX or the amount of such
indemnification, if any. In the event that the Stockholder Representative has
consented in writing to any such settlement, the Company Stockholders and
holders of Company Stock Options shall have no power or authority to object
under any provision of this Article IX to any claim for an amount less than or
equal to the amount of such settlement by Parent against the Escrow Fund with
respect to such settlement.
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(g) The failure of the indemnified party to give reasonably prompt
notice of any indemnification claim shall not release, waive or otherwise affect
the indemnifying party's obligations with respect thereto except to the extent
that the indemnifying party can demonstrate actual loss and prejudice as a
result of such failure.
9.4 Exclusive Remedy. Except as provided in this Section 9.4, from
and after the Effective Time resort to indemnification pursuant to this Article
IX and the Escrow Fund shall be the exclusive right and remedy of Parent
Indemnified Parties for any Loss arising out of or related to any breach of this
Agreement or to the transactions contemplated by this Agreement. Except for
claims for equitable relief and claims with respect to fraud solely against the
Person or Persons committing or alleged to have committed such fraud, recovery
from the Escrow Fund pursuant to this Article IX shall be the sole and exclusive
remedy of the Parent Indemnified Parties for any matter that is otherwise
indemnifiable hereunder if the Merger contemplated hereby is consummated.
Nothing herein shall limit the liability of any party hereto for any breach or
inaccuracy of any representation, warranty or covenant contained in this
Agreement if the Merger does not close.
9.5 Tax Losses. (a) For purposes of Section 9.2(c), "Tax Losses"
means any and all Losses in respect of a Pre-Closing Tax Period, including (i)
all Taxes of the Company and/or its Subsidiaries (or any predecessor thereof)
(A) for any taxable year or period ending on or prior to the Closing Date, and
(B) for the portion of any Straddle Period attributable to the Pre-Closing Tax
Period (determined as provided in Section 9.5(b)); and (ii) any and all Taxes
imposed on any member of a consolidated, combined or unitary group of which the
Company or any Subsidiary (or any predecessor thereof) is or was a member for a
Pre-Closing Tax Period, by reason of the liability of the Company or any
Subsidiary (or any predecessor thereof), pursuant to Treasury Regulation Section
1.1502-6(a) or any analogous or similar provision under state, local or foreign
Law; provided, however, Tax Losses shall not include any amounts clearly
reflected as an accrual for current Taxes described in clauses (i) or (ii) of
this Section 9.5 (excluding any reserve for deferred Taxes established to
reflect timing differences between book and Tax income) on the Balance Sheet or
the Closing Date Tax Balance Sheet. For purposes of this Agreement, the term
"Closing Date Tax Balance Sheet" shall mean an accrual for current Taxes
described in (i) or (ii) of this Section 9.5 (excluding any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
related to the taxable period (or portion thereof) between January 1, 2004 and
the Closing Date, prepared in accordance with GAAP.
(b) Pre-Closing Taxes. For purposes of determining the amount of
Taxes attributable to a Pre-Closing Tax Period under Section 9.5(a)(i)(A) and
Section 9.5(a)(i)(B),
(i) the Parent shall, unless prohibited by applicable law, cause the
taxable year of the Company and its Subsidiaries to close as of the close of
business at the Effective Time;
(ii) For purposes of allocating income, gain, deductions and losses
attributable to the period up to and including the Effective Time for a Straddle
Period, (A) real, personal and intangible property Taxes shall be allocated on a
per diem basis, (B) exemptions, allowances or deductions that are calculated on
an annual basis, such as the deduction for depreciation, will be apportioned
ratably between such periods on a per diem basis and (C) other Taxes (including
59
income taxes and taxes in lieu of income taxes to the extent not governed by
clause (B)), shall be allocated based on a closing of the books as of the close
of business at the Effective Time (including, without limitation, a closing of
the books at the Effective Time for purposes of allocating income, gain,
deductions and losses attributable to SelectCare between the Company and
Parent's federal consolidated income Tax Return consistent with the principles
of Treasury Regulation Sections 1.1502-76(b)(1)(ii)(A) and 1.1502-76(b)(2)(vi)).
(iii) For purposes of determining the Tax Losses attributable to
Pre-Closing Tax Periods, Parent shall cause Tax Returns with respect to the
Pre-Closing Tax Periods to be prepared in accordance with applicable Law and
with past custom and practice.
9.6 Tax Treatment of Indemnity Payments. The Company and Parent agree
to treat any indemnity payment made pursuant to this Article IX as an adjustment
to the Merger Consideration for federal, state, local and foreign income tax
purposes unless a contrary treatment is required under applicable Law.
Article X
MISCELLANEOUS
10.1 Stockholder Representative.
(a) Upon the adoption of this Agreement and the approval of the
Merger and the transactions contemplated hereby by the Company Stockholders and
without further act of any Company Stockholder or any holder of Company Stock
Options, Carlyle Venture Partners, L.P. (the "Stockholder Representative") shall
be appointed as the Stockholder Representative hereunder to give and receive
notices and communications, to authorize payment to any Parent Indemnified Party
from the Escrow Fund in satisfaction of claims and Losses by a Parent
Indemnified Party, to object to such payments, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims or
Losses, to receive payments on behalf of the Company Stockholders and holders of
Company Stock Options due and owing pursuant to this Agreement and acknowledge
receipt thereof, to waive any breach or default of Parent or Merger Sub under
this Agreement following the Effective Time to calculate the Aggregate
Consideration Spreadsheet, to receive service of process on behalf of the
Company Stockholders and the holders of Company Stock Options in connection with
any claims under this Agreement or any related document or instrument, and to
take all other actions that are either (i) necessary or appropriate in the
judgment of the Stockholder Representative for the accomplishment of the
foregoing or (ii) specifically mandated by the terms of this Agreement. Such
agency may be changed by the Company Stockholders from time to time upon not
less than thirty (30) days prior written notice to Parent; provided, however,
that the Stockholder Representative may not be removed unless holders of a
two-thirds interest of the Escrow Fund agree to such removal and to the identity
of the substituted agent. A vacancy in the position of Stockholder
Representative may be filled by the holders of a majority in interest of the
Escrow Fund. No bond shall be required of the Stockholder Representative, and
the Stockholder Representative shall not receive any compensation for its
services. Notices or communications to or from the Stockholder Representative
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shall constitute notice to or from the Company Stockholders and holders of
Company Stock Options.
(b) The Stockholder Representative shall not be liable for any act
done or omitted without gross negligence and or bad faith hereunder as
Stockholder Representative. Pursuant to the following sentence, and to the
fullest extent permitted by applicable Law, the Company Stockholders and the
holders of Company Stock Options shall be, severally based on such Company
Stockholder's or holder's of Company Stock Options pro rata share of the
Aggregate Consideration and not jointly, obligated to indemnify the Stockholder
Representative and hold the Stockholder Representative harmless against any
loss, liability or expense incurred without gross negligence or bad faith on the
part of the Stockholder Representative and arising out of or in connection with
the acceptance or administration of the Stockholder Representative's duties
hereunder, including the reasonable fees and expenses of any legal counsel
retained by the Stockholder Representative. At the time of distribution pursuant
to Section 9.3(c) to the Company Stockholders and the holders of Company Stock
Options of any proceeds remaining in the Escrow Fund, the Stockholder
Representative shall be entitled to deduct and withhold from such income and
gains included in such distribution to pay and reimburse fees and expenses of
third parties incurred or expected to be incurred in connection with its role as
Stockholder Representative pursuant to this Agreement to the extent that the
Stockholder Representative Reserve would be insufficient to pay and reimburse
fees and expenses of third parties.
(c) The grant of authority provided for in this Section 10.1: (i) is
coupled with an interest and is being granted, in part, as an inducement to
Parent and Merger Sub to enter into this Agreement and the Escrow Agreement, and
shall be irrevocable and survive the death, incompetency, bankruptcy or
liquidation of the Company or any Company Stockholder or holder of a Company
Stock Option and shall be binding on any successor thereto and (ii) shall
survive the delivery of an assignment by any Company Stockholder or holder of a
Company Stock Option of the whole or any fraction of his, her or its interest in
the Escrow Fund.
(d) In connection with the performance of its obligations hereunder
and under the Escrow Agreement, the Stockholder Representative shall have the
right at any time and from time to time to select and engage, at the cost and
expense of the Company Stockholders and holders of Company Stock Options (as
contemplated by Section 10.1(b), attorneys, accountants, investment bankers,
advisors, consultants and clerical personnel and obtain such other professional
and expert assistance, and maintain such records, as the Stockholder
Representative may deem necessary or desirable and incur other out-of-pocket
expenses related to performing its services hereunder.
(e) In dealing with this Agreement, the Escrow Agreement and any
instruments, agreements or documents relating thereto, and in exercising or
failing to exercise all or any of the powers conferred upon the Stockholder
Representative hereunder or thereunder, (i) the Stockholder Representative and
its agents, counsel, accountants and other representatives shall not assume any,
and shall incur no, responsibility whatsoever (in each case, to the extent
permitted by applicable Law) to the Company Stockholders and holders of Company
Stock Options, Parent or the Surviving Corporation by reason of any error in
judgment or other act or omission performed or omitted hereunder or in
connection with this Agreement, the Escrow Agreement or any such other
agreement, instrument or document other than with respect to willful misconduct
61
or gross negligence on the part of the Stockholder Representative, and (ii) the
Stockholder Representative shall be entitled to rely in good faith on the advice
of counsel, public accountants or other independent experts experienced in the
matter at issue, and any error in judgment or other act or omission of the
Stockholder Representative pursuant to such advice shall in no event subject the
Stockholder Representative to liability to the Company Stockholders and holders
of Company Stock Options, Parent or the Surviving Corporation.
(f) All of the immunities and powers granted to the Stockholder
Representative under this Agreement shall survive the Closing and/or any
termination of this Agreement and the Escrow Agreement.
(g) A decision, act, consent or instruction of the Stockholder
Representative, including an extension or waiver of this Agreement pursuant to
Article IV or Section 10.6, as applicable, shall constitute a decision of the
Company Stockholders and holders of Company Stock Options and shall be final,
binding and conclusive upon the Company Stockholders and holders of Company
Stock Options; and the Escrow Agent, Parent and the Surviving Corporation may
rely upon any such decision, act, consent or instruction of the Stockholder
Representative as being the decision, act, consent or instruction of the Company
Stockholders. The Escrow Agent, Parent and the Surviving Corporation are hereby
relieved from any Liability to any Person for any acts done by them in
accordance with such decision, act, consent or instruction of the Stockholder
Representative.
(h) The Stockholder Representative has all requisite power, authority
and legal capacity to execute and deliver this Agreement and each other
agreement, document, or instrument or certificate contemplated by this Agreement
or to be executed by the Stockholder Representative in connection with the
consummation of the transactions contemplated by this Agreement (together with
this Agreement, the "Stockholder Representative Documents"), and to consummate
the transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and each of the Stockholder Representative Documents, the
performance of its respective obligations hereunder and thereunder and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all required action on the part of the Stockholder Representative.
This Agreement has been, and each of the Stockholder Representative Documents
will be at or prior to the Closing, duly and validly executed and delivered by
the Stockholder Representative and (assuming the due authorization, execution
and delivery by the other parties hereto and thereto) this Agreement
constitutes, and each of the Stockholder Representative Documents when so
executed and delivered will constitute, legal, valid and binding obligations of
the Stockholder Representative enforceable against it in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally,
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity).
10.2 Specific Performance. The Company acknowledges and agrees that
the breach of this Agreement would cause irreparable damage to Parent and that
Parent will not have an adequate remedy at law. Therefore, the obligations of
the Company under this Agreement shall be enforceable by a decree of specific
performance issued by any court of competent jurisdiction, and appropriate
62
injunctive relief may be applied for and granted in connection therewith. Such
remedies shall, however, be cumulative and not exclusive and shall be in
addition to any other remedies which any party may have under this Agreement or
otherwise.
10.3 Submission to Jurisdiction; Consent to Service of Process.
(a) Except for matters governed by Section 9.3(e), the parties hereto
hereby irrevocably submit to the non-exclusive jurisdiction of any federal or
state court located within the State of Delaware over any dispute arising out of
or relating to this Agreement or any of the transactions contemplated hereby and
each party hereby irrevocably agrees that all claims in respect of such dispute
or any suit, action proceeding related thereto may be heard and determined in
such courts. The parties hereby irrevocably waive, to the fullest extent
permitted by applicable law, any objection which they may now or hereafter have
to the laying of venue of any such dispute brought in such court or any defense
of inconvenient forum for the maintenance of such dispute. Each of the parties
hereto agrees that a judgment in any such dispute may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
(b) Each of the parties hereto hereby consents to process being
served by any party to this Agreement in any suit, action or proceeding by
delivery of a copy thereof in accordance with the provisions of Section 10.7.
10.4 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York applicable to contracts
made and performed in such state; provided, however, that the Merger shall be
governed by the DGCL.
10.5 Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the Confidentiality Agreement (a) constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement and the
Confidentiality Agreement and (b) except for the provisions of Section 7.7, are
not intended to confer upon any Person other than the parties any rights or
remedies.
10.6 Amendment and Waivers. This Agreement may be amended,
supplemented or changed by the parties hereto; provided, however, that there
shall be made no amendment that by Law requires further approval by the Company
Stockholders without such approval having been obtained. This Agreement may not
be amended except by an instrument in writing signed on behalf of each of the
parties hereto. No action taken pursuant to this Agreement, including any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representation,
warranty, covenant or agreement contained herein. The waiver by any party hereto
of a breach of any provision of this Agreement shall not operate or be construed
as a further or continuing waiver of such breach or as a waiver of any other or
subsequent breach. No failure on the part of any party to exercise, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by such party preclude any other or further exercise thereof or the exercise of
any other right, power or remedy. Any agreement on the part of a party to any
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. A termination of this Agreement pursuant to
63
Section 4.1 or an amendment or waiver of this Agreement shall, in order to be
effective, require, in the case of Parent or the Company, action by its Board of
Directors. All remedies hereunder are cumulative and are not exclusive of any
other remedies provided by law.
10.7 Notices. All notices and other communications under this
Agreement shall be in writing and shall be deemed given (i) when delivered
personally by hand (with written confirmation of receipt), (ii) when sent by
facsimile (with written confirmation of transmission) or (iii) one business day
following the day sent by overnight courier (with written confirmation of
receipt), in each case at the following addresses and facsimile numbers (or to
such other address or facsimile number as a party may have specified by notice
given to the other party pursuant to this provision):
If to the Company, to :
Heritage Health Systems, Inc.
0000 Xxxxxxxx Xxx, Xxx 000
Xxxxxxxxx, XX 00000
Facsimile:(000) 000-0000
Attention:Rock X. Xxxxxxx
With a copy to:
Xxxxxx & Bird LLP
One Atlantic Center
0000 Xxxx Xxxxxxxxx Xxxxxx
Xxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention:J. Xxxxxxx Xxxxxx, Esq.
If to the Stockholder Representative, to:
Carlyle Venture Partners, L.P.
0000 Xxxxxxxxxxxx Xxxxxx, XX
Xxxxx 000 Xxxxx Xxxxxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attention:Xxxx Xxxxxxx
If to Parent or Merger Sub, to:
Universal American Financial Corp.
Xxx Xxxxxxxxxxxxx Xxxxx, Xxxxx 000
Xxx Xxxxx, X.X. 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxxxx
00
With a copy to:
Weil, Gotshal & Xxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
10.8 Severability. If any term or other provision of this Agreement
is invalid, illegal, or incapable of being enforced by any law or public policy,
all other terms or provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal, or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible.
10.9 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned, in whole or in part, by
operation of Law or otherwise by any of the parties without the prior written
consent of the other parties, except that Merger Sub may assign, in its sole
discretion, any of or all its rights, interests and obligations under this
Agreement to any direct, wholly owned Subsidiary of Parent, but no such
assignment shall relieve Merger Sub of any of its obligations hereunder. Subject
to the preceding sentence, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the parties and their respective successors
and assigns.
10.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
**REMAINDER OF PAGE INTENTIONALLY LEFT BLANK**
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, all as of
the date first written above.
UNIVERSAL AMERICAN FINANCIAL CORP.
By:
------------------------------------------------
Name:
Title:
HHS ACQUISITION CORP.
By:
------------------------------------------------
Name:
Title:
HERITAGE HEALTH SYSTEMS, INC.
By:
------------------------------------------------
Name:
Title:
CARLYLE VENTURE PARTNERS, L.P.
By:
------------------------------------------------
Name:
Title:
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